Free trade zone

Tags: Free trade area, ASEAN–China Free Trade Area, Trade diversion

Journal of the Asia Pacific Economy
Vol. 12, No. 4, 485–503, November 2007

The Prospects of the ASEAN–China
Free Trade Area (ACFTA):
A Qualitative Overview
School of Humanities & Social Sciences, Nanyang Technological University, Singapore

ABSTRACT ASEAN and China are economic partners as well as economic competitors. A widely proposed means of strengthening the economic partnership is to form a free trade area between the two. Our primary objective is to use insights from customs union theory to examine whether an ASEAN–China Free Trade Area (ACTFA) would be potentially beneficial for both sides. Our analysis of relevant static factors such as the level of pre-integration trade and initial tariff structures provides some grounds for optimism about the ACFTA’s prospects. In addition, various dynamic factors and non-economic factors further reinforce such optimism. KEY WORDS: ASEAN, China, trade, free trade area, economic integration JEL-CLASSIFICATIONS: F10, F14, F15

The ASEAN countries of Southeast Asia have been an integral part of the East Asian miracle. Singapore is a newly industrialized economy along with Korea, Taiwan and Hong Kong, while Malaysia, Thailand and Indonesia have also transformed themselves from stagnant agricultural economies to dynamic manufacturing economies through sustained growth and industrialization. More recently, other ASEAN countries, in particular Vietnam, are also beginning to achieve consistently rapid growth. Owing to such impressive region-wide performance over a long period of time spanning more than three decades, developing countries in other parts of the world have looked up to Southeast Asia as models of economic development and nation-building. Since the Asian currency crisis of 1997–1998, however, there has been an unmistakable loss of momentum and self-confidence among the once high-flying economies of the region.

Compounding this growing uncertainty is the remarkable economic...
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