The Upgraded CAFTA to Signal More Benefits for Cooperation

Ever since the establishment of China-ASEAN Free Trade Area (CAFTA) in 2010, enterprises from China and ASEAN have enjoyed the development achievements of this platform. 10 years ago, the Biti’s footwear was unknown to the Chinese people. Nowadays, it has become very popular among the Chinese consumers. According to the person in charge of the China Office of the Biti’s, their product could not have entered the Chinese market so fast without the CAFTA.

“Previously, our company focused on China’s domestic market. With the establishment of the CAFTA, we have now made a lot of achievements in the ASEAN market in recent years”, said Zhao Hua, deputy general manager of Guangxi Guihua Machinery Import & Export Co., Ltd., who also stated that tariffs of products have been reduced in the CAFTA, thus reducing the prices of products in the ASEAN markets.

Direction for the “Diamond Decade”

As China-ASEAN cooperation enters the “Diamond Decade”, tariffs will be further reduced and non-tariff measures will be cut down in the CAFTA, so as to continuously promote the growth of bilateral trade. Undoubtedly, there are still colossal potentials for China-ASEAN cooperation. The upgraded CAFTA comes down to upgraded and enlarged contents and scope of CAFTA agreements as well as increased quality in economic and trade cooperation.

At the scheduled time, China and ASEAN will actively carry out a new array of negotiations on trade in goods and services, and promote the opening up in investment from aspects of market access and personnel exchanges. For instance, Malaysia is the largest rubber gloves supplier, which produces over 60% of world’s rubber gloves, among which the medical gloves are the most famous. The medical gloves have stood up to the market standards of the U.S. and Europe, but failed to have access to the Chinese market due to different inspection standards. It is believed that these non-tariff barriers will be removed in the near future as the CAFTA continues to open up, which indicates that the CAFTA is going to evoke a new “gold rush” in the Diamond Decade.

On the other hand, under the framework of the CAFTA in the future, both China and ASEAN will aim at speeding up cooperation in quality inspection and customs, realizing mutual recognition on commodity inspection standards, improving the automation and efficiency of custom clearance process, and accelerating trade facilitation in goods. Iman Pambagyo, Director-General for International Trade Cooperation, Indonesian Ministry of Trade, claimed that China and Indonesia have already signed mutual recognition agreements. Indonesia will directly export its bird’s nest to China, while in the past it was quite difficult to do so.

Two Key Areas for Upgrading

The upgraded CAFTA will shift the China-ASEAN trade relation from small growth to quantum leap and inject new impetus into the region for its sustainable economic growth. By taking advantage of the connectivity between China and ASEAN, the two sides can build up the infrastructure for the upgraded version of the CAFTA and then connect Chinese and ASEAN markets together.

The construction of Kyaukpyu-Kunming Railway will be ended in 2015. It is a part of plan for Kyaukpyu-Ruili corridor, which is jointly conducted by China and Myanmar. The railway will become a major sea route of commodities for China. It is estimated that a plenty of container bases and warehouses will be set up in Mandalay and Kyaukpyu in Myanmar at that time. Meanwhile, Chinese-funded development area will be established in Kyaukpyu port as well.

In addition, China and ASEAN financial cooperation also serves as one of the important elements for upgrading the CAFTA. Among them, the currency swap and currency settlement business in the CAFTA will supply a lot of convenience to enterprises and merchants and benefit China’s “going out” enterprises as well as ASESN enterprises investing in China.

As a Singaporean businessman, Lu Mang is mainly engaged in commercial exchanges between China and ASEAN. He purchased products such as costumes and shoes in China and then sent them to Singapore via exporters. “In the past, most of the cross border deals between China and Singapore were settled in dollars, which resulted in unnecessary exchange loss. If there is any policy change on dollars, the loss would be greater,” Lu said. Hence, Lu and many ASEAN businessmen hope that their trade with China can be settled in renminbi. Previously, they were hindered by several factors: it was hard to exchange adequate renminbi in banks of ASEAN countries; Also, few banks in ASEAN offer cross-border renminbi settlement services.

Today, businessmen who are active in the CAFTA will fulfill their desires step by step. In September 2013, China's Central Bank signed the bilateral currency swap agreements totaling 1.4 trillion yuan with several ASEAN countries. In November 2013, Bank of China Phnom Penh Branch was approved by the National Bank of Cambodia to be the clearing bank for local and cross-border renminbi business. In December of the same year, the Bank of China Medan Branch was officially opened for business in the city of Medan, North Sumatera, Indonesia.

The upgraded CAFTA will promote the regional economic integration and facilitate bilateral economic and trade cooperation to a higher level. Meanwhile, it is expected that all countries in the world will involve in and share this great business opportunity.