SME development in ASEAN has important contribution for ASEAN economic development. Nevertheless, the establishment of ASEAN and China Free Trade Area (ACFTA) may threaten this sector. On the other way, it may also strengthen cooperation in SME development in order to increase competitiveness. ACFTA, that would generate higher trade volume between ASEAN member countries and China, will provide many opportunities for ASEAN SMEs to expand their market. There are also several challenges that should be noticed. The most serious challenge is weak competitiveness of ASEAN SME products compared to China’s products. However, it is debatable whether ACFTA create more opportunities or threats.
Keywords: ASEAN, China, trade, free trade area, SMEs
The Association of Southeast Asian Nations (ASEAN) has been one of the fastest growing regional groupings in the world (Tongzon, 1998). Small and medium enterprises (SMEs) are recognized to have important contribution in maintaining economic development in this region. Nowadays, China has been rapidly growing and recognized as one of the most powerful economic power in the world. Unquestionably, the economic integration between ASEAN and China through Agreement on Comprehensive Economic Co-Operation between ASEAN and the People's Republic of China followed by establishment of ASEAN-China Free Trade Area would generate a large internal market and more powerful bargaining position in international forum. The emergence of China as economic power has spread fears among its competitors, include ASEAN member countries. Furthermore, the implementation of ACFTA seems worsen this situation. Through removal of tariffs and non-tariff barriers, China’s products can freely enter and dominate domestic market in ASEAN member countries. It is clear that ASEAN SMEs will be threatened if China’s products with lower price and large scale of production dominated their domestic markets. This condition may lead ASEAN SMEs into collapse and generate mass-layoffs of the workers that work in this sector. However, it is still questionable whether ACFTA would benefit or threaten SME development in ASEAN. With this background and problems, this paper aims to discuss the implication of ACFTA for ASEAN-China trade, and whether it generates opportunities and challenges in ASEAN SME development. This paper addresses four main issues, significant role of SMEs in ASEAN economy, implication of ACFTA for trade between China and ASEAN in general, opportunities and challenges that will be faced by ASEAN SMEs, and efforts to increase competitiveness ASEAN of SMEs. This paper will focus its analysis on recent situation in SME development in Indonesia.
2.1.Vital Role of SMEs in Economic Development
According to ASEAN Policy Blueprint for SME Development (APBSD) 2004-2014, small and medium enterprises (SMEs) including micro-enterprises form the backbone of the economy in ASEAN member countries. They are the largest source of domestic employment across all economic sectors, in both rural and urban areas. The SME sector also provides opportunities for women and the young to participate in the economic development of the country (ASEAN Secretariat, 2004). SMEs play a significant role in the economy of ASEAN and APEC. SMEs make up the overwhelming bulk of enterprises, employ around 60% of the private sector workforce, and contribute about 50% of value added. SMEs are widely regarded as being good at creating jobs, and as an important element in creating international competitive advantage (Hall, 2003). SMEs are of overwhelming importance in ASEAN countries, especially for employment or income generation (Tambunan, 2008). In the European Union, SMEs are economically important with 98% of an estimated 19.3 million enterprises defined as SMEs, providing around 65 million jobs (Lukács, 2005). Moreover, it was reported that if SMEs...