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Full establishment of China-Asean Free Trade Area

January 2, 2010

MANILA, Philippines – As today’s global economy offers unparalleled opportunities for all countries across the world, continuing to expand trade by lowering barriers of goods and services is in the common interest of China and Association of Southeast Asian Nations (ASEAN) countries. Our concerted and unremitting efforts during the past decade will soon reap fruits: the full establishment of the China-ASEAN Free Trade Area (CAFTA) on Jan. 1, 2010.

More than 7,000 zero-tariff commodities could be traded among China and ASEAN countries. The removal of trade impediments will lower the costs of transactions, further increase China-ASEAN trade volume and enhance economic efficiency. With market risk and uncertainties lowered, more investments would be generated from both Chinese and ASEAN companies into an integrated and rewarding market. Today would be the first day we are to enjoy substantial gains from freer trade, while we shall never forget that we have come a long way for “today.”

The comprehensive China-ASEAN cooperation dates back to the early 1990s. Since then, economic relations and trade among us have been increasing with each passing year. When the financial crisis struck in 1997, China held out by not depreciating the RMB yuan, which served as a strong force for the recovery of the regional economy. Together with similar cultural tradition and history, complementarities and inter-dependence define the China-ASEAN bond, which enables us to reach consensus towards common prosperity. Therefore, it is fair to say that we have secured a solid foundation for CAFTA.

In September 2000, at the 4th China-ASEAN Summit in Singapore, the then Chinese Premier Zhu Rongji first came up with the proposal of CAFTA, which was well received and applauded by ASEAN countries. In November 2001, the leaders from China and ASEAN countries declared the goal of full establishment of CAFTA in 10 years at the Brunei Summit. On Nov. 4, 2002, the China-ASEAN Framework Agreement on Comprehensive Economic Cooperation was signed to kick off the endeavor towards CAFTA. There were doubts among ASEAN countries that opening domestic markets to Chinese goods may bring in tough competition. The Early Harvest Program was therefore put in place in 2004 to offer preferential arrangements in advance to ASEAN countries by unilaterally opening the Chinese market to ASEAN agricultural produce. Words were put into actions and benefits materialized. 2004 witnessed China-ASEAN trade volume topping $100 billion.

Agreement on Trade in Goods and Agreement on Trade in Services between China and ASEAN countries were signed respectively in November 2004 and January 2007. On Aug. 15, 2009, the Investment Agreement was signed, marking the successful completion of main CAFTA negotiations. With a population of 1.9 billion and a combined GDP of $6 trillion, CAFTA would be the biggest FTA not only for developing countries, but also in terms of population and market size. We have every reason to believe that the full inception of CAFTA will not only bring benefits to the Chinese and ASEAN peoples, but also contribute to economic growth in Asia and the world at large.

CAFTA and the Philippines

CAFTA will bring greater opportunities to the Philippines. With strong export potential in electronics, agricultural produce, fruits, fishery products and minerals, the Philippines will enjoy considerable comparative advantages and expand market share of its competitive goods. Furthermore, with the agreements on trade of services and investment coming into force, the Philippines would be well poised to boost service trade and attract investments. Tourism, English teaching, eco-medical and retirement care services are those areas where the Philippine government can really turn potential into profits. More incoming investments from both China and other ASEAN countries will give driving impetus to infrastructure development in the Philippines.

CAFTA will open broader vista for China-Philippine trade and economic cooperation. China-Philippine trade has registered relatively rapid growth in recent years, with the record high of more than $30 billion in 2007. With CAFTA fully functioning, both China and the Philippines should do more to press ahead with exchanges among prominent enterprises and to facilitate more effective bilateral cooperation in trade. China and the Philippines should work to strengthen our cooperation mechanism among authorities in charge of respective areas.

CAFTA will spur two-way investment flow between China and the Philippines. Chinese companies are willing to bring their infrastructure investment up to higher level in various fields such as transportation, power generation, water supply and telecommunication. At the same time, China will do its utmost to get its policies well understood by Philippine companies in terms of foreign investment in China. We remain ready to invite Philippine enterprises to tap investment potential in China.

China-Asean investment fund

CAFTA will serve as catalyst for China-Philippine economic cooperation. As part of the package plan to boost China-ASEAN cooperation, China has set up in 2009 the China-ASEAN Investment Cooperation Fund totaling $10 billion. The first $1 billion will soon be made available for project orientation. The Philippine government stands in a good position to make full use of this fund and determine candidate projects according to its strategy of economic development. The Chinese side is looking forward to seeing the related application be filed at an earliest date.

There have been, is and will always be some concerns over the Philippines’ future after CAFTA is up and running. Some voiced challenges in fiercer competition in manufacturing industries, some stressed the vulnerability of domestic agriculture under price impact, and some even went as far as saying that free trade is not fair at all. However, the idea that free trade is fair only if countries share identical labor costs and economic regulations or if domestic producers are compensated for market losses to more competitive foreign producers does not hold water. The economic benefits of free trade derive from the fact that trading partners are different, allowing any country embracing world markets a chance to be competitive. Free trade is fair when countries with different advantages are allowed to trade with a minimum of restriction and to capitalize on those differences.

The Philippines is a case in point. The Philippines is endowed with comparative advantages in terms of natural resources, wage costs, language skills, education levels and others. Furthermore, the country has a very dynamic private sector which keeps growing even in times of crisis. China held similar worries when standing at the threshold of entry into the World Trade Organization (WTO). When something new comes, it always takes time to learn, try and finally excel. Therefore, CAFTA for the Philippines is more than just the cloud’s silver lining, but a blessing in disguise.

Free trade allows China, the Philippines and other ASEAN countries to compete in CAFTA on the basis of our fundamental economic strengths and to reap the productivity and efficiency gains that promote long-term wealth and prosperity for all the peoples in the region. In reality, there is no distinction between free trade and truly fair trade. On the road to recovery, China and ASEAN share a common fate and shoulder a common responsibility. To advance regional economic cooperation in unprecedented breadth and depth is particularly significant at the moment. Putting CAFTA into place is surely something in the right direction. Let’s work to turn this blessing in disguise into benefits in reality.   –Liu Jianchao / Ambassador of China to the Philippines (The Philippine Star)

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