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Wednesday, 7 November, 2001, 14:12 GMT
East Asian pact trades up
By BBC News Online's Mary Hennock

The free trade zone agreed between China and the Association of South East Asian Nations (Asean) will bring together more potential consumers than any other.

To be created over 10 years, the zone's 11 members will have a combined population of nearly two billion people and total gross domestic product (GDP) of $2,000bn a year.

The foundation of a free trade zone with China marks a huge shift in the region since Asean was founded in 1967 with American backing as a counterweight to communism amid the upheavals of the Vietnam War and China's Cultural Revolution.

Now the Asian tigers are limping along in a global slowdown and their over-reliance on high-technology exports to the United States has hurt them badly.

Asean members

Opening up trade with each other presents one solution, and China is seen as an important trade ally. With 7% growth forecast this year, it still enjoys the levels of economic expansion the South East Asian nations used to be famed for.

Alliances in demand

But free trade zones are more than useful. They are fashionable too.

Those that exist are getting bigger - most obviously the European Union - and new ones are pencilled into political schedules.

For instance, the United States wants to extend its 1993 deal with neighbours Mexico and Canada (NAFTA, the North American Free Trade Agreement) to embrace the whole of Latin America by mid-decade.

Joining a free trade zone is seen as a smart development strategy for countries as diverse as the ex-Soviet bloc and South East Asia's still-communist countries such as Laos and Vietnam.

However, trade experts say that regional trade blocs are also developing as the momentum for further world trade liberalisation has slowed down.

The WTO's meeting in Doha in Qatar will be crucial in determining whether there is the will to launch a new trade round.

Trade explosion

For the last 15 years, world trade has been expanding at a faster rate than the world economy.

Small wonder that developing countries want a slice of this dynamism.

Chinese Prime Minister Zhu Rongji
Will China dominate the new zone?
Trade growth is the result of eight rounds of global trade talks since 1947, which have lifted tariff and other barriers.

Furthermore, restrictions on foreign investment been eroded and telecoms, IT and internet technology are making transactions that were once impossible commonplace.

Trade is the best aid?

Free trade is the best form of aid, according to many Western politicians and pundits.

"No amount of aid is really going to make up for what (developing countries) could do if they were able to sell their products and labour on the open market," says Mr Edward Bannerman of the Centre for European Reform.

He cites South Korea which, he says, had the same GDP per head as Nigeria in the 1960s but has since become "a modern, developed economy" on a par with EU members.

What's more, trade is now widely held to be a vehicle for political reform by Western politicians. Many of them mention China in the same breath.


But for shifting coalition of anti-globalisation protestors, developing countries and aid agencies has formed to dispute the notion that trade is more effective than aid. The poorest are often excluded by trade-driven growth, they say.

"They (trade zones) stimulate growth but the question is how equitable that growth is," says Annie Heaton, policy advisor to aid group Save the Children.

Such critics intend to put agriculture policy in the spotlight at the World Trade Organisation's ministerial summit in Doha, Qatar which begins at the weekend.

Agricultural liberalisation can harm "poor agricultural families" such as those who "make up the majority of the population in Vietnam and China, she says.

The EU's subsidies to farmers are "squeezing out of the market the poorest farmers" in the world, says Mr Bannerman.

Playing catch-up

China's south east Asian neighbours have their own fears of exclusion and hope the new trade bloc will quell some of them.

First and foremost, the new trade pact aims to protect East Asian countries from the collapse of their key markets in the US and Japan.

The link with China "will inject confidence into East Asia during this current global economic slowdown, help to boost trade and investments and boost Asean's economic competitiveness," says S Pushpanathan, who is Asean's assistant director of external relations.

But Asean nations also worry that they will lose out in the race for foreign investment once China enters the World Trade Organisation.

In addition, they are concerned that their economies could be flooded with cheap Chinese exports.

China's economy is growing fast, and trade with South East Asia is worth $40bn a year and rising.

But will China dominate the new zone in the same way the US overshadows Mexico and Canada within the North American Free Trade Agreement?

It will have 1.3 billion of the embryo trade zone's 1.7 billion people.

Still bigger and better?

Malaysian prime minister and Asean elder statesman Mahathir Mohamad greeted the deal with China as a stepping stone to a yet bigger group, closer in conception to the EU.

"We go back (now) to the original proposal for an East Asian Economic Group" to bring on board Japan and South Korea, he said.

Unlike the EU, the new trade grouping is not planning a single currency. "It will take a long, long time," he said.

But analysts remain sceptical about whether the 11 countries already included are too diverse to agree on the details.

And the giant zone has a long way to go before its GDP overtakes that of US-dominated NAFTA or the EU, a club of 15 developed countries.






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