In South Asia,unease ahead of free trade zone

When the clock strikes midnight on New Years Eve,China and 10 Southeast Asian nations will usher in the worlds third-largest free trade area.

When the clock strikes midnight on New Years Eve,China and 10 Southeast Asian nations will usher in the worlds third-largest free trade area. While many industries are eager for tariffs to fall on everything from textiles and rubber to vegetable oils and steel,a few are nervously waiting to see whether the agreement will mean boom or bust for their businesses.

Trade between China and the 10 states that make up the Association of Southeast Asian Nations has soared in recent years,to $192.5 billion in 2008,from $59.6 billion in 2003. The new free trade zone,which will remove tariffs on 90 per cent of traded goods,is expected to increase that commerce still more. The zone will rank behind only the European Economic Area and the North American Free Trade Area in trade volume. It will encompass 1.9 billion people. The free trade area is expected to help Asean countries increase exports,particularly those with commodities that resource-hungry China desperately wants.

The China-Asean free trade area has faced less vocal opposition than the European and North American zones,perhaps because existing tariffs were already low and because it is unlikely to alter commerce patterns radically,analysts say.

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However,some manufacturers in Southeast Asia are concerned that cheap Chinese goods may flood their markets,once import taxes are removed,making it more difficult for them to retain or increase their local market shares. Indonesia is so worried that it plans to ask for a delay in removing tariffs from some items like steel products,textiles,petrochemicals and electronics.

Not everyone in Asean sees this FTA as a plus, said Sothirak Pou,a visiting senior research fellow at the Institute of Southeast Asian Studies in Singapore.

Asean and China have gradually reduced many tariffs in recent years. However,under the free trade agreement which was signed in 2002 China,Indonesia,Thailand,the Philippines,Malaysia,Singapore and Brunei will have to remove almost all tariffs in 2010. Aseans newest members Cambodia,Laos,Vietnam and Myanmar will gradually reduce tariffs in coming years and must eliminate them entirely by 2015.

Most of the goods that will become tariff-free in January including manufactured items are currently subject to import taxes of about 5 per cent. Some agricultural products and parts for motor vehicles and heavy machinery will still face tariffs in 2010,but those will gradually be phased out.