Asean China Free Trade Agreement

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Introduction
The Association of South East Asian Nations (ASEAN) was formed by Indonesia, Malaysia, Philippines, Thailand and Singapore in 1967. In 1980s, Brunei decided to join the organization, making it become well known as the ASEAN-6. Following Brunei, in 1990s, Cambodia, Laos, Myanmar and Vietnam (CMLV) also joined the bloc (Chia, 2004).

In 1992, a free trade agreement, namely ASEAN Free Trade Area (AFTA) was introduced. According to the agreement, tariffs are reduced to zero percent by 2010 for ASEAN-6 and by 2015 for CMLV (Chia, 2004).

China is one of the largest emerging economies in the world today. Its entry to the World Trade Organization (WTO) in 2001 contributed to the cooperation between the ASEAN countries later in 2010. Entering the WTO proves that China’s economy has become an open economy which involves trading with other countries across the globe. Therefore, ASEAN realized that it is a good opportunity for the bloc to start trading with China. As a result, in January 2010, a free trade agreement between China and ASEAN (ACFTA) was established.

China and ASEAN created this Free Trade Agreement because of several reasons that lead to economic enhancement. By combining the two areas, China and ASEAN will form the biggest FTA in the world in term of population. ACFTA is considered as the world’s third largest free trade area, which consists of a total population of 1.9 billion and a combined domestic product (GDP) close to 6 trillion US dollar (Han, 2009). In other words, this trading bloc will substantially increase market size of both parties. By having bigger market, it also means bigger business opportunities for the people, and eventually can lead to the increase of people’s welfare. Besides that, tariffs removal within this FTA will boost up the export and import activity for the members. The countries themselves and their people will gain benefit from this. The citizen can get cheaper and more variety of products available within the market, while the government will earn more income from the taxes and procedures fee in export and import.

However, the removal of tariffs brought about disadvantages for the countries involved as well. For example, China is well known for its cheap labour resources. Therefore, it would be a great challenge for China’s trading partners to compete against

This fact makes the researcher interested in finding the benefits and negative impacts of the agreement towards the countries involved, especially Vietnam.

Research Questions
This research will look the impact of ACFTA towards Vietnam’s economy and its future prospect. 1. What are the positive impacts of ACFTA of Vietnam’s economy? 2. How is ACFTA positively affecting Vietnam’s economy? 3. What are the negative impacts of ACFTA of Vietnam’s economy? 4. How ACFTA contributes negatively on the Vietnam’s economy? 5. What are the future implications to Vietnamese economy?

Literature review
The establishment of ACFTA is anticipated to contribute a lot of benefits to Vietnam’s economy. By joining this FTA, Vietnam will open its market to one of the biggest developing economy in the world, China. As a result, Vietnam can enjoy bigger market size that this FTA offers, in fact, ACFTA is the biggest FTA in term of population. In theory, this FTA is absolutely going to contribute on Vietnam trading opportunities. Furthermore, the tariff removal agreement will inevitably boost up import and export activities for the country. In this case, Vietnamese people will benefit from more business opportunities, cheaper products in the market and also more product variety available in the market (Central institute for economic management, 2010).

However, there are also some disadvantages that could endanger Vietnam’s economy. The implementation of this FTA meaning that the country’s domestic products need to be strong enough to compete with the flood of Chinese products. If the domestic...
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