Tuesday March 8, 2005 - Asia Pulse
China Moves On Free Trade Negotiations
BEIJING, March 8 Asia Pulse - China will continue to actively pursue the establishment of free trade areas (FTA) after starting talks on this issue with 23 countries across the world.
Strategic progress is expected this year and next, paving the way for China to expand its regional co-operation.
Beginning this year, China and the Association of Southeast Asian Nations (ASEAN) have kicked off the implementation of an agreement on the trade of goods under their FTA pacts.
The practical implementation of China’s first FTA will be critically important, as it will provide an example to other counties, said Jin Ming, an expert from the Chinese Academy of International Trade and Economic Co-operation.
"China’s FTA negotiations with the Gulf Co-operation Council (GCC), Chile and Pakistan will also enter a substantive stage this year," he said.
China and the GCC will start FTA negotiations in a matter of weeks, he said.
To China, the possible FTA means easier access to GCC members’ rich oil reserves and strong capital muscle.
The GCC possesses 45 per cent of global oil reserves and accounts for 20 per cent of world oil production.
These rich Arab countries also have large overseas investment, totalling US$1.5 trillion by the end of 2003.
A tariff-cutting FTA would make Chinese manufacturers more competitive in GCC countries, home to 20 million consumers.
Sino-GCC trade surged tenfold from US$1.5 billion in 1991 to US$16.9 billion in 2003, according to Chinese statistics.
"But there is still great room for growth," Jin pointed out.
More importantly, the GCC countries, involving Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates, will become bases for Chinese goods entering other Arab countries, Jin added.
While talking with Central Asian nations China also has its eyes on Latin America, with Chile being the bridge.
The two countries started FTA talks in January this year.
Chile is the first Latin American country to have entered into FTA talks with China. The Chinese Government expects it will become a successful model for China’s relationship with Latin America, said Lu Guozheng, an expert on Sino-Latin American trade.
Yi Xiaozhun, China’s assistant minister of commerce, said he believed the development of Sino-Chilean relations would enhance the country’s co-operation with the rest of Latin America.
After launching free trade negotiations with Chile, China is considering the feasibility of signing more free trade agreements with other Latin American countries and organizations such as Mercado Commun del Sur (the Common Market of the South), Lu said.
China and Chile are very likely to reach a free trade deal within one year.
Australia and New Zealand were the first developed countries to launch free trade talks with China.
A joint feasibility study into whether such a deal should proceed between China and Australia will be completed soon.
Australian Trade Minister Mark Vaile will meet China’s Commerce Minister Bo Xilai and other Chinese trade officials in Beijing from today to Friday to ensure that the study on the feasibility of an FTA is finalized before Prime Minister John Howard’s visit to China next month.
A timetable for negotiations is expected to be set by Vaile while he is in Beijing.
China is Australia’s third-largest and fastest-growing trading partner and the nation’s fourth-largest export market. Trade between the two countries has quadrupled over the past decade.
Regarding the FTA with New Zealand, the talks will be special for China as it will be the first such agreement with a developed country.
China and New Zealand started the talks in December, which are expected to deal with detailed issues this year.
Apart from the trade implications, FTAs with Australia and New Zealand also mean market economy status for China.
The World Trade Organization will not sanction any possible deal between two countries unless they are equal trading partners.
It means any economies should firstly recognize China as a market economy before its launches FTA talks with China.
New Zealand recognized China’s market economy before it launched talks with China, and Australia will decide on China’s market economy status at the launch of the negotiations.
Granting of this status will serve as an example to other developed countries, as few of them recognize China’s market economy status, Jin said.
In South Asia, China will begin a FTA feasibility study with Pakistan, while China is active in promoting economic co-operation with the entire region.
The joint feasibility study on the proposed FTA between Pakistan and China is likely to be completed during the upcoming visit of Premier Wen Jiabao to Pakistan in April .
Along with the completion of the joint feasibility study, formal FTA negotiations are expected to commence during Wen’s visit.
Reports said Pakistan and China have agreed on a summary regarding the FTA, which comprises items that would get duty facilitation ahead of the FTA and would be signed in April during Wen’s visit.
But what is most encouraging is that China will begin a feasibility study for an East Asian FTA this year, said Jin.
An East Asian FTA, bringing together China, Japan, South Korea and ASEAN member states, should be an exciting goal for China and the entire region, although achieving this will not be a simple task, Jin said.
Both China and ASEAN members see the benefits offered by an FTA.
Figures from the Ministry of Commerce show that trade in goods covered by an "early harvest programme" - the prelude to an FTA - between China and ASEAN members, reached US$1.7 billion, up 41 per cent year-on-year.
The "early harvest programme" exempts some products from tariffs before the FTA is completed.
Trade in 188 types of fruit and vegetables between China and Thailand increased 120 per cent since the launch of the programme in October 2003.
This has helped Thailand achieve a trade surplus of US$175 million with China.
The result is contrary to local concerns and reports that the FTA with China would place Thai exporters at a disadvantage as they are not fully prepared for competition with China.
China’s keen interest in FTAs will be a long-term strategic consideration, according to officials and experts.
"FTAs will offer more preferential treatment for members than the World Trade Organization," said an official from the International Department of the Ministry of Commerce.
"Within FTAs, members enjoy lower tariffs, less non-tariffs barriers and improved market access to goods, services and capital. The cost of trade would therefore be lowered."
The official said FTAs will help Chinese firms obtain raw materials and equipment at a lower cost and also improve services. Chinese customers will also gain better access to cheaper and high-quality goods and services.
It is important for China to pursue regional integration rather than develop in isolation, following its entry to the World Trade Organization, Jin said.
Regional economic integration is a global trend. There were a total of 305 regional economic arrangements, and internal trade within these areas accounts for 50 per cent of global trade.
China should actively participate in the process of regional economic integration to meet the challenges of globalization and sustain trade and economic growth, Jin said.