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China & ASEAN countries starts 2010 with FTA to increase competitiveness

A new area starts in 2010 with a new Free Trade Agreement (FTA) between China and the Association of Southeast Asian Nations (ASEAN). Huge free trade zone will include some 2 billion people with a “domestic” market volume of an estimated US$470 billion. After the European Union and the North America Free Trade Agreement zones, this will be the thirdlargest free trade zone in the world. With its start, China and the six first ASEAN countries — Indonesia, Brunei, Malaysia, the Philippines, Singapore and Thailand — will abolish 90 percent of their customs duties. The remaining countries — Laos, Vietnam, Cambodia and Myanmar — will follow suit in the next five years.

There are a lot of advantages for every country: China and the ASEAN states complement one another in many ways: On the one hand, China has easy access to the other countries. On the other hand, the existing ASEAN countries can import raw products from China at lower costs to be more competitive with other countries.

The subtle irony of the new agreement is that ASEAN was founded in 1967 as a weapon against China and communism. This aversion vanished in recent years — definitely after 1997, when the Asian financial crisis occurred and the Asian states became more open to China than to Western countries.

The new treaty also involves a monetary fund. A total of US$120 billion is at the disposal of ASEAN plus three states. This agreement was established together with the ASEAN states and China, Japan and South Korea; and will replace the current so-called Chiang Mai initiative. This accord is up to now a network of bilateral agreements and is the foundation of the new monetary fund. China and Japan each will mobilize US$38.4 billion; South Korea, US$19.2 billion; and the ten ASEAN states, the remaining US$24 billion.

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