Global Policy Forum

Asean Signs Historic Deal with China

November 29, 2004

The Asean group of south-east Asian states sealed a historic trade pact with China today in the latest move towards a pan-Asian trade bloc that could rival the EU and the US. The agreement, signed at the Asean (Association of Southeast Asian Nations) summit in Laos, is aimed at setting up the world's biggest free trade zone. The signatories will also adopt a wide-ranging "plan of action" aimed at strengthening ties in security, politics, technology, medicine and transportation. China wants to protect vital sea lanes and secure a steady supply of oil and raw materials from south-east Asia to feed its booming economy.

Linking up with Asean's 10 nations - including Singapore, Indonesia and Malaysia - will create a combined market of two billion people. It would also help Beijing further isolate Taiwan, the self-ruled island that China claims as part of its own territory. "This plan of action is formulated to serve as the master plan to deepen and broaden Asean-China relations and cooperation," according to a copy of the agreement's final draft obtained by The Associated Press. A three-person panel of independent experts would resolve trade disputes between Asean and China.

The action plan also calls for cooperation in military training, agreements on internet security, tourism promotion and the creation of early-warning systems for illnesses like Sars, Aids and bird flu. The document says that a highway between Bangkok, Thailand, and the south-western Chinese city of Kunming should be completed by 2007. It also foresees a new rail link between Kunming and the Burmese capital, Rangoon. It also includes a preliminary study on building rail links that would connect Singapore with Kunming. The line would run through parts of Malaysia, Thailand and Burma.

Chao Chien-min, a political science professor at Taiwan's National Chengchi University, said that south-east Asia is extremely important for the so-called "big country" diplomacy China has been promoting since the 1990s. Beijing is forging strong trade ties before increasing political and military ties. "China is using its huge market as a bait to lure Asean countries away from the US and Japan and build closer relations. "[It] has put both the US and Japan on the defensive. Japan is in a terrible dilemma now. China's call for a [free trade association] has forced Japan to do something in order to remain as a major player in the region."

Nizam Idris, an economist at the IDEAglobal research house in Singapore, warned that the ambitious trade deal could be affected by reluctance among some Asean states to open their markets further to more efficient Chinese companies. "We have to be realistic in terms of expectations. Some of the [Asean] countries are not too comfortable with the opening-up of the manufacturing sector in particular. Countries like Indonesia, for example," he said.

Chinese Premier Wen Jiabao witnessed the signing of the Asean-China accord along with south-east Asian leaders at a conference centre built on a palm-fringed swamp in Vientiane. A line of Laotian women in ornate silk skirts stood behind ministers as they signed the documents. The accord aims to remove all tariffs by 2010. Ong Keng Yong, Asean secretary-general, said that trade with China would speed up with the free trade agreement (FTA). "So by the time this whole FTA is done, as we want to by 2010, it should become quite substantial: US$130 or US$140 billion, perhaps," he told reporters. The annual Asean-US trade is US$120bn and Asean-EU trade is US$110bn per year.

Hosting its first such international event, the isolated communist nation of Laos spruced up its tiny capital of only 133,000 people, which had no five-star hotel until one was built for the summit by a Malaysian company. Chickens still peck along brick-red dirt roads in parts of Vientiane. Asean also plans free trade areas with Japan and South Korea - and was to sign a blueprint for economic cooperation with India during the two-day summit. A free trade agreement with India is still many years away.

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