Professional Documents
Culture Documents
By:
Erika (0706291243)
UNIVERSITY OF INDONESIA
2009
1
CHAPTER I
INTRODUCTION
1.1. Background
Regional dynamic of East Asia is influenced by the trade factor among countries in
the region. China, Japan, and South Korea have played significant roles in trade activity.
China itself has become the most influential player in shaping world’s economy. The massive
economy growth in China does not only rely on its domestic economy growth, but also on its
trade activity with other nations. One of the regions which have been an extremely important
in shaping China’s economy growth is Southeast Asia region.
Looking from ASEAN’s point of view, China has also emerged as an important
trading partner for the Association of Southeast Asian Nations (ASEAN) since the
mid-1990s.1 Since then, China remains important in influencing the economic growth in
Southeast Asian countries. Most export products of ASEAN countries are being sold in China;
due to its massive size and population, China is seen as a promising market to sell goods for
every country in the world, including ASEAN countries. For China itself, Southeast Asia is
also seen as a big market to distribute its products. Therefore, the cooperation between China
and ASEAN should be the mutual benefit one, since China and ASEAN countries need each
other as well. This look-a-like mutual benefit cooperation between China and ASEAN
happened on 2005, when both parties agree to ratify the ASEAN-China Free Trade Area
(ACFTA) agreement.
While the main idea of creating the ACFTA comes from China, but later on ASEAN
could also gets much benefits from this economic cooperation agreement. China, in one side,
experiences an increasing amount of total import; whilst ASEAN countries, in the other side,
gain benefit in the increasing number of total export.
1
Evelyn Devadason, China’s Future: Pitfalls, Prospects and the Implications for ASEAN and the World.
http://ics.um.edu.my/umweb/ics/may2009/evelyn.pdf, accessed on November 22, 2009, 03.25 PM.
2
This paper will try to answer this specific question: How ASEAN-China Free Trade
Area (ACFTA) as an international regime could benefit ASEAN’s countries?
2
Robert O. Keohane, “The Demand for International Regime”, in Theory and Structure in International
Political Economy, Charles Lipson and Benjamin J. Cohen (eds.). (Massachusetts: the MIT Press, 1999), p.
161.
3
Stephen Haggard and Beth A. Simmons, “Theories of International Regimes”, in Theory and Structure in
International Political Economy, Charles Lipson and Benjamin J. Cohen (eds.), Massachusetts: the MIT Press,
1999), p. 198.
3
and epistemic context and cannot be explicate outside that context. Thus the essence of
cooperation cannot be elucidate without refering to the ideology and value of the actors, their
views upon interdepence issue, and the provided information of how they could carry out a
certain specific goal. The cooperation is influenced by the perception and misperception,
capacity to process information, and learning ability.4 The cognitive approach believes that
in analyzing international phenomena in this term is the international regime, social
institutions and the inseparable actors with the social-political context of the environment.
Interest and power are not the only important and influencial points; Environment and
perception are also as important as the previous points. In this particular case, the regime
theory is essential in identifying the ideology, value, norms, rules, and procedures that
influence the establishment of regime especially regional regime.
INTERNATIONAL REGIME
To prevent a “war of all against all” in a
structural anarchy; facilitated through
an agreement or treaty
intra-government
10
Ibid.
11
Ibid.
7
sensitive list. However, as political leaders were determined to begin the process of tariff
reduction and elimination on 1 January 2005, a compromise was struck, and Ministers were
able to sign an agreement at the ASEAN Summit in Vientiane in November 2004. This does
suggest the importance of setting target dates. The Agreement on Trade in Goods of the
Framework Agreement on CEC, or for short, the ASEAN-China FTA (ACFTA), is only the
first portion of a series of agreements to implement the Framework Agreement. At the
Vientiane Summit, Ministers also signed an Agreement on Dispute Settlement Mechanism of
the Framework Agreement on CEC. They will be followed by an agreement on services, an
agreement of investment, and other agreements. It is indeed rather surprising that ASEAN
and China were able to produce those two agreements within a short time. Framework
Agreement ACFTA goals are (a) strengthen and enhance trade cooperation on both sides; (b)
liberalize trade in goods and services through reduction or elimination of tariffs; (c) seek and
develop new areas of economic cooperation are mutually beneficial to both parties; (d)
facilitating economic integration more effectively with the new member countries of ASEAN
and bridge the existing gap on both sides. 12 There are other factors that support the
immediate implementation of ACFTA.13 Trade volume between China and ASEAN increased
from US$105.9 billion in 2004 to US$202.5 billion in 2007, attaining the target of US$200
billion set by leaders of the two sides three years ahead of schedule. In the first 10 months of
2008, trade volume between China and ASEAN reached US$199.1 billion, up 21.6 percent.14
It is fact that the main drivers of ACFTA implementation in East Asia and Southeast Asia.
15
ASEAN-China: Background, http://www.miti.gov.my/cms/content.jsp?id=com.tms.cms.section.
Section_b609671a-c0a81573-aba0aba0-c94c2e0c, accessed on November 23, 2009, 11.32 PM.
9
the Normal Track not later than 1 January 2010. In the other hand, Normal Track II permits
each member countries to formulate tariff lines under Normal Track, not exceeding tariff
lines, and shall eliminate all its tariffs for tariff lines place in the Normal Track II not later
than 1 January 2012.16
ASEAN 6 and China17
X: Applied MFN ACFTA Preferential Tariff Rate (Not later than 1 January)
X ≥ 20% 20 12 5 0
X ≤ 5% Standstill 0 0
In Sensitive Track model, ASEAN 6 and China are allowed to place 400 tariff lines at
the HS 6-digit level and 10% of the total import value based on 2001 trade statistics in the
Sensitive Track. Sensitive Track imposes parties to reduce their tariff rates for products
placed in the Sensitive Track list to 20% not later than 1 January 2012. These tariff rates shall
be subsequently reduced to 0-5% not later than 1 January 2018. While in the other hand,
Tariff lines placed by ASEAN 6 and China in the Highly Sensitive List should be not more
than 40% of the total number of tariff lines in the Sensitive Track or 100 tariff lines at the HS
6-digit level, whichever is lower. The applied MFN tariff rates of tariff lines placed in the
respective Highly Sensitive Lists shall be reduced to not more than 50% not later than 1
January 2015 for ASEAN 6 and China, and 1 January 2018 for the newer ASEAN Member
States.18 Besides the formal regulation towards trade between parties, ACFTA basically also
regulates the investment, yet there has not been official and detail regulation that has been
agreed between.
16
ASEAN-China Free Trade Agreement (ACFTA). http://www.mtib.gov.my/repository/acfta.pdf, accessed on
November 23, 2009, 11.44 PM.
17
Ibid.
18
Ibid.
10
2.3.2. ASEAN-China Trade Flows for 2003 until 2007
To analyze the economic benefit of ASEAN-China Free Trade Area (ACFTA), the
paper will focus on trade flows between two parties for the period of 2003-2007, considering
ACFTA was ratified in 2005, also with consideration to not include trade flows in 2008 since
there is a global financial crisis happened at that time. Based on the 2006 data, China ranked
as the fifth export market destination and third import market origin for ASEAN. Though the
export intensities of ASEAN to China are increasing, they said to differ considerably amongst
member countries.19 The trade flows data will be illustrated into two different sections, for
the trade flows of newer ASEAN members (which consists of Brunei Darussalam, Cambodia,
Lao, Myanmar, and Vietnam) is much fewer than the trade flows of ASEAN-5 (Singapore,
Malaysia, Thailand, Philippine, Indonesia).
20000
18000
16000 MY-China
14000
12000 Indo-China
10000 SG-China
8000 Phil-China
6000
4000 Tha-China
2000
0
2003 2004 2005 2006 2007
19
W.Y. Lau and C.W. Hoow. “An Analysis on Trade Flows of ASEAN with China”, paper presented at the
China in the World, the World in China International Conference –Implications of a Transforming China:
Domestic, Regional and Global Impacts, University of Malaya: Kuala Lumpur, 5-6 August 2007.
11
Figure 2: China-ASEAN Import, 2003-2007 (in
US$ Million)
20000
18000
16000 MY-China
14000
12000 Indo-China
10000 SG-China
8000
6000 Phil-China
4000 Thai-China
2000
0
2003 2004 2005 2006 2007
There are interesting observations that emerge from the ASEAN-China export interactions in
Figure 1. First, both export and import flows in ASEAN-China trade portray an upward trend
since the implementation of Early Harvest Program (EHP) in 2003, it shows the
implementation of EHP gives a positive impact to the volume of trade in both parties. Second,
trade interactions between the individual ASEAN-5 member economies with China
demonstrate three levels of integration. The first level is shown by Singapore-China
(SG-China) trade relations, for whom they take a distinct lead in terms of exports and
imports,21 whilst the other four countries are left behind. The second layer comprises trade
flows of Malaysia-China (MY-China) which parallel with Thailand-China (Thai-China). The
third layer is Indonesia-China (Indo-China) trade flows that follow closely with
Philippines-China (Phil-China). Third, most countries record consistent trade deficits with
China over the period of review, which means the volume of China’s import is bigger than
the volume of ASEAN’s export.
20
Evelyn Devadason, op.cit.
21
Y. Xiaohong, ASEAN-China Free Trade Area: A Key Step Toward Pan-Asia Europe Integration from the
Perspective of Comparison with NAFTA and EU, unpublished LL.M. Thesis, James E. Roger College of Law,
University of Arizona, 2005.
12
2.3.2.2. Trade Flows between China and Newer Members of ASEAN
350
300
Viet-China
250
Bru-China
200
Cam-China
150
Lao-China
100
50 Myan-China
0
2003 2004 2005 2006 2007
3500
3000
Viet-China
2500
Bru-China
2000
Cam-China
1500
Lao-China
1000
Myan-China
500
0
2003 2004 2005 2006 2007
From the Figure 3 and 4, we could see the bilateral trade flows between China and
Brunei and China with the four other new ASEAN member countries (Cambodia, Lao,
Myanmar and Vietnam, hereafter referred to as CLMV). Amongst the five ASEAN countries
in Figure 3 and 4, the volume of trade is highest for Vietnam-China (Viet-China), yet remains
much lower than that of the ASEAN-5 with China. Vietnam basically exports marine
products, oil and gas to China and imports machinery, fertilizers and consumer durables from
China.23 From the import figure of Myanmar, we could say that China has also gained
22
Evelyn Devadason, loc.cit.
23
D. Shambaugh, “China Engages Asia: Reshaping the Regional Order”, International Security, 29(3), 2005, p.
13
importance in the Myanmar market. Myanmar is having a high demand of China’s product,
while the export from Myanmar to China remains low.
Unlike the Vietnam-China trade trends, the other four remaining countries do not
depict a clear upward trend in exports to China. Sharp declines are noted in both exports from
Myanmar to China (Myan-China) and Cambodia to China (Cam-China), while exports from
Brunei to China (Bru-China) and Lao to China (Lao-China) are almost not worth mentioning.
As such, huge deficits in trade are frequent between the newer ASEAN members
with China. These deficits in trade are indeed a cause of concern for the CLMV with the
initiation of the ACFTA. Given their weak industrial structures, the CLMV countries are
frightened that the ACFTA will render their domestic markets swamped by cheaper and
better quality Chinese goods.24
64-99
24
A.D. Ba, “China and ASEAN: Renavigating Relations for a 21st Century Asia”, Asian Survey, 43(4), 2003,
page 622-647.
14
understanding of dispute settlement mechanism. Article 1 parses the definitions to explain the
basic concepts pertinent to dispute settlement. This article definitively names all the parties
involved as “parties to the dispute”, or “parties concerned” and dividing them into party that
request for dispute settlement (“complaining party”) and party to which the request for
dispute settlement is made or (“party complained against”). Article 2 further parses the scope
and coverage of the dispute settlement mechanism under the agreement. According to this
article, the dispute settlement mechanism shall apply to disputes arising under the Framework
Agreement. However, emphasizing the third verse, it is also important to note that Article 2
also fully respects the consent of each complaining party and party complained against
whether they want to settle the disputes under the rules of this agreement or not, as explained
by the third verse of the article. Subsequently, Article 3 then requires the parties concerned to
designate “liaison office” responsible for all liaison affairs and that the parties concerned
must also be fully responsible for all expenses spent to designate the liaison office and settle
the disputes.
Acknowledging this basic understanding upon the concept above, this writing will
move further to analyze the core substance of articles regarding the implementation of
dispute settlement mechanism between ASEAN and China. There are indeed two
mechanisms of dispute settlement recommended by the framework agreement. All parties
concerned can opt to solve the disputes by implementing consultation or through the arbitral
tribunal. Despite some technical and practical differences, these two mechanisms of dispute
settlement indeed indicate the level of difficulty or impediment in solving the dispute. While
consultation is strongly recommended for light dispute that seems possible to be conciliated
through mutual talks or dialogue, arbitral tribunal becomes the least possible option if all
parties concerned can hardly reach conciliation.
The more profound explanation about the process of consultation as trade dispute
mechanism is parsed by Article 4 as cited below:25
1. A party complained against shall accord due consideration and adequate opportunity for
25
Agreement on Dispute Settlement Mechanism of the Framework Agreement on Comprehensive Economic
Co-Operation Between the Association of Southeast Asian Nations and the People’s Republic of China, cited
from the official ASEAN web: http://www.aseansec.org/16635.htm
15
consultations regarding a request for consultations made by a complaining party with respect
to any matter affecting the implementation or application of the Framework Agreement
whereby:
(a) any benefit accruing to the complaining party directly or indirectly under the
Framework Agreement is being nullified or impaired; or
(b) the attainment of any objective of the Framework Agreement is being impeded, as
a result of the failure of the party complained against to carry out its obligations under
the Framework Agreement.
2. Any request for consultations shall be submitted in writing, which shall include the
specific measures at issue, and the factual and legal basis (including the provisions of the
Framework Agreement alleged to have been breached and any other relevant provisions) of
the complaint. The complaining party shall send the request to the party complained against
and the rest of the Parties. Upon receipt, the party complained against shall acknowledge
receipt of such request to the complaining party and the rest of the Parties simultaneously.
3. If a request for consultations is made, the party complained against shall reply to the
request within 7 days after the date of its receipt and shall enter into consultations in good
faith within a period of not more than 30 days after the date of receipt of the request, with a
view to reaching a mutually satisfactory solution. If the party complained against does not
respond within the aforesaid 7 days, or does not enter into consultations within the aforesaid
30 days, then the complaining party may proceed directly to request for the appointment of an
arbitral tribunal under Article 6.
4. The parties to a dispute shall make every effort to reach a mutually satisfactory resolution
of any matter through consultations. To this end, the parties concerned shall:
(a) provide sufficient information to enable a full examination of how the measure
might affect the operation of the Framework Agreement; and
(b) treat as confidential any information exchanged in the consultations which the
other party concerned has designated as confidential.
5. Consultations shall be confidential, and are without prejudice to the rights of any Party in
any further or other proceedings.
6. Whenever a Party (other than the parties to a dispute) considers that it has a substantial
16
interest in consultations being held pursuant to this Article, such Party may notify the parties
to a dispute in writing of its desire to be joined in the consultations within 10 days after the
date of receipt of the request for consultations by the party complained against. Such Party
shall be joined in the consultations provided that the party complained against agrees that the
claim of substantial interest is well founded. The party complained against shall inform the
complaining party and the rest of the Parties of its decision prior to the commencement of the
consultations. If the request to be joined in the consultations is not accepted, the requesting
Party shall be free to request for separate consultations under this Article.
7. In cases of urgency, including those which concern perishable goods, the parties concerned
shall enter into consultations within a period of no more than 10 days after the date of receipt
of the request by the party complained against. If the consultations have failed to settle the
dispute within a period of 20 days after the date of receipt of the request by the party
complained against, the complaining party may proceed directly to request for the
appointment of an arbitral tribunal under Article 6.
8. In cases of urgency, including those which concern perishable goods, the parties to a
dispute and arbitral tribunals shall make every effort to accelerate the proceedings to the
greatest extent possible.
Interpreting Article 2 above, it is interesting to emphasize how China and ASEAN opt
at first to conciliate the possible dispute by implementing consultation, yet they also regard
the efficiency through recommending arbitral tribunal, in case the consultation between the
parties concerned fails to achieve any conciliation. It can be obviously stated in other words,
that China and ASEAN have definitely recognized all uncertainties and unexpected
possibilities exist in interstate relations that may hamper the friendly climate in economic
cooperation and gains generated by trades. The point of this consideration upon efficiency is
clearly reflected in verse 3, 7 and 8 which mention about the recommended alternative to
appoint arbitral tribunal in some conditions highlighted.
At last, it is also essential to understand further how the arbitral tribunal is appointed and
functioned in binding the conflicting parties into conciliation. The mechanism of the
appointment and function of the arbitral tribunal are then described by article 7 and 8. In brief,
the arbitral tribunal consists of three respective members; one appointed by the complaining
17
party, one appointed by party complained against, and the last one acts as chair that shares no
interests to any party and has expertise or experiences in law and international trade.
Regarding how it functions, the arbitral tribunal will take its decision by consensus, or if not
possible, by the majority opinion. The decision taken then reflects the established functions
of the arbitral tribunal as cited from Article 8 verse 3: to consult regularly with the parties to
the dispute and provide adequate opportunities for the development of a mutually
satisfactory resolution; to make its decision in accordance with the Framework Agreement
and the rules of international law applicable between the parties to the dispute; and set out, in
its decision, its findings of law and fact, together with the reasons therefore. Beside these firm
functions, it must also be emphasized that the decision of the arbitral tribunal shall be final
and binding on the parties to the dispute.26
The explanation above of how the arbitral tribunal is appointed and functioned indeed
indicates the certainty created by ASEAN and China in securing their interests in ACFTA and
efficiently avoiding further disputes. The decision of arbitral tribunal is deemed efficient to
adjust any dispute into agreement among both conflicting parties, for it is regarded as legally
binding and final. The conflicting parties, at the end, must comply with the decision of the
arbitral tribunal to halt any dispute.
Theory of international regime stated that international regime could be seen in two
side argument, the argument of supply and the argument of demand. In ASEAN-China Free
Trade Area (ACFTA), China offers a creation of hegemonic stability to ASEAN
countries—in this case, China acts as the actor in Keohane’s argument of supply, by offering
an economic stability throughout Southeast Asian region. Whilst on the demand side,
ASEAN demands the facilitation of agreement to tackle upcoming trade barriers in the future.
The ACFTA agreement technically would definitely benefit both parties for several reasons.
26
Ibid.
18
First, the establishment will create an economic region with 1.7 billion consumers, regional
GDP of about US$2 trillion and total trade estimated at US$1.23 trillion.27 Regarding to this
number, the ACFTA would be the biggest and largest FTA among developing countries.
Second, the population of 1.2 billion shall release the market access opportunities through
preferential trade for ASEAN countries, while in the other hand, the production of ASEAN
countries will increase. Moreover, the removal of trade barriers between ASEAN and China
will lower costs, increase intra-regional trade and strengthen the attractiveness of ASEAN
countries, especially as a preferred investment destination. The procedure of ACFTA
agreement based on Keohane’s theory of international regime could meet ASEAN demand
which is to facilitate an agreement to tackle upcoming trade barriers in the future. This has
shown how both parties try to reduce and eliminate all of the trade barriers that has already
been there or will be emerged in the future.
ASEAN countries also demand the reduction of transaction cost, which, in this paper,
is defined by the reduction or the elimination of tariff trade barriers amongst the members. As
mentioned previously, the reduction or elimination of tariff trade barriers is already
implemented in 2004. However, the reduction of tariff trade barriers, in fact, does not go
along with the improvement of ASEAN countries’ balance of payment—which, in this paper,
is shown by the huge deficits of trade in all ASEAN countries. This huge deficit of trade
proves that ACFTA does not give much benefit in improving each ASEAN countries’
economic condition. To conclude, the transaction cost among members had been reduced, yet
this reducing transaction cost does not improve ASEAN countries’ economic condition.
The eventual point that also needs to be addressed on this analysis is the
establishment of dispute settlement mechanism under the Agreement of Comprehensive
Economic Cooperation between ASEAN and China. By recalling the previous explanation, it
can be fairly concluded that agreed dispute settlement mechanism has an essentially
determining role in reducing the uncertainty and crating more efficient and beneficial trades
with less possibility of conflicts between ASEAN and China. In achieving the objective of a
more certain and beneficial economic cooperation, ASEAN and China have consensually set
27
“ASEAN-China: Background”, loc.cit.
19
two mechanisms in solving any possible conflicts along ACFTA. Consultation as the first
mechanism is recommended for any dispute deemed possible to be conciliated through
mutual talks or dialogue. As for the second mechanism, ASEAN and China then agreed on
establishing the arbitral tribunal to solve further disputes that fail to meet conciliation through
consultation. Both mechanisms clearly indicate how ASEAN and China consent on solving
the possible dispute efficiently yet also regard the uncertainty or unexpected possibilities
exist in their relations that may hamper the friendly climate economic cooperation and
benefits generated by trades.
2.5 The Analysis of trade deficit between ASEAN and China in ACFTA
20
Thailand-China Trade Flows in 2003-2007 Vietnam-China Trade Flows in 2003-2007
21
exacerbated even more after the ACFTA in 2005. In countries such as Laos, Cambodia,
Brunei, Vietnam, and Thailand, the trade deficit even multiplies and increased in a significant
manner than it was before the year 2005. Only in Singapore and Philiphines on the year
2004-2006, the trade gap is relatively small but other than that it all shown a negative trend.
ASEAN countries are receiving more products than they employed each year and
this trend keeps on increasing with the establishment of ACFTA. Therefore we could say that
from economic point of view, the establishment of ACFTA would definitely damage the
ASEAN products, since China’s economy size is way too bigger than ASEAN’s and ASEAN
basically does not have the capability to compete with China. Thus ACFTA as international
regime could be categorized as a loss for ASEAN countries.
22
CHAPTER III
CONCLUSION
23
BIBLIOGRAPHY
Book:
Ba, A. D. 2003. “China and ASEAN: Renavigating Relations for a 21st Century Asia”, Asian
Survey, 43(4).
Haggard, Stephen and Simmons, Beth A. 1999. “Theories of International Regimes”, in
Theory and Structure in International Political Economy, Charles Lipson and Benjamin J.
Cohen (eds.), Massachusets: the MIT Press.
Keohane, Robert O. 1999. “The Demand for International Regime”, in Theory and Structure
in International Political Economy, Charles Lipson and Benjamin J. Cohen (eds.).
Massachusets: the MIT Press.
Lau, W.Y. and Hoow, C.W. 2007. “An Analysis on Trade Flows of ASEAN with China”,
paper presented at the China in the World, the World in China International Conference
–Implications of a Transforming China: Domestic, Regional and Global Impacts,
University of Malaya: Kuala Lumpur, 5-6 August.
Shambaugh, D. 2005. “China Engages Asia: Reshaping the Regional Order”, International
Security, 29(3).
Xiaohong, Y. 2005. ASEAN-China Free Trade Area: A Key Step Toward Pan-Asia Europe
Integration from the Perspective of Comparison with NAFTA and EU, unpublished LL.M.
Thesis, James E. Roger College of Law, University of Arizona.
Internet:
http://ics.um.edu.my/umweb/ics/may2009/evelyn.pdf
http://www.miti.gov.my/cms/content.jsp?id=com.tms.cms.section.Section_b609671a-c0a815
73-aba0aba0-c94c2e0c
http://www.mtib.gov.my/repository/acfta.pdf
http://www.csis.or.id/working_paper_file/51/wpe090.pdf.
http://www.export-import-indonesia.com/blog/baja-textile-tunda-FTA.html,
http://agribisnis.net/index.php?files=Berita_Detail&id=192
http://www.indonesia.go.id/id/index.php?option=com_content&task=view&id=10709&Itemi
24
d=825
http://www.chinadaily.com.cn/china/2009-01/16/content_7403667.htm
http://www.aseansec.org/16635.htm
25