Vietnam has adopted Decree No. 07/2020/ND-CP on Special Preferential Import Duties for the Implementation of the ASEAN-Hong Kong China Free Trade Agreement (AHKFTA). The decree entered into force on 20 February. China`s trade strategy is described by Hu as a « semi-open model, » that is, « open or free trade on the export side and protectionism on the import side. » ASEAN: a net beneficiary? Despite the bold words of President Arroyo and other ASEAN leaders, it is much less clear how ASEAN will benefit from ASEAN-China relations. Certainly, the benefits will not come in labor-intensive manufacturing, where China enjoys an unbeatable advantage from the constant downward pressure on wages exerted by migrants from a seemingly inexhaustible rural workforce that earns an average of $285 a year. The massive smuggling of goods from China has disrupted virtually every ASEAN economy. For example, Vietnam`s shoe industry has suffered greatly, with about 70-80 percent of shoe stores in Vietnam selling smuggled Chinese shoes. In the case of the Philippines, a recent article by Joseph Francia and Errol Ramos of the Free Trade Alliance claims that the local footwear industry, in addition to the vegetable industry, has also been hit hard by the smuggling of Chinese goods. In fact, the range of negatively affected products is wide, including steel, paper, cement, petrochemicals, plastics and ceramic tiles.
Many Filipino companies, even those that are globally competitive, have had to close businesses or reduce production and employment due to smuggling, » they write. Due to the massive smuggling, few analysts take seriously the official trade figures with China released by the Chinese Embassy in Manila, which show that the Philippines has a positive trade balance with non-agricultural products. As for agriculture, they say that the $373 million deficit with China is actually much worse if you take into account smuggling. Now, there are fears that the DCFTA will simply legalize smuggling and exacerbate the already negative impact of Chinese imports on ASEAN industry and agriculture. Thailand`s `early harvest` debacle Many analysts point to the results of the CAFTA`s « Early Harvest Agreement » between China and ASEAN as an indication of what ASEAN producers can expect. Under the agreement, Thailand and China agreed that tariffs on more than 200 pieces of vegetables and fruits would be abolished immediately. Thailand would export tropical fruits to China, while winter fruit from China would be eligible for the tariff-free deal. Certainly not in the high-tech space, because even the United States and Japan are afraid of China`s remarkable ability to enter high-tech industries very quickly, even as it consolidates its lead in labor-intensive manufacturing. Will ASEAN agriculture be a net beneficiary? But as the first harvests with the Philippines and Thailand showed, China is clearly very competitive in a variety of agricultural products, from temperate crops to semi-tropical products, and in agricultural processing.
Vietnam and Thailand could hold on to rice production, Indonesia and Vietnam in coffee, and the Philippines in coconut and coconut products, but there may not be many more products to add to the list. Even if ASEAN under THE CAFTA gains or maintains its competitiveness in some areas of manufacturing, agriculture and services, it is highly doubtful that China will deviate from what Hu calls its « semi-open » model of international trade. Thailand`s experience with early harvesting highlights the effectiveness of administrative barriers that can constitute non-tariff barriers to trade in China. What about raw materials? Yes, of course, Indonesia and Malaysia have oil, which is rare in China, and Malaysia has rubber and tin, and the Philippines has palm oil and metals. But a second look raises the question of whether the relationship with China does not reproduce the old colonial division of labor, in which low-value-added natural resources and agricultural products were shipped to the center, while Southeast Asian economies absorbed high-value-added products from Europe and the United States. In particular, the double blow of Cafta-Afta in the Philippines will contribute to the erosion of CAFTA`s manufacturing and agriculture, triggered by its hasty inclusion in the ASEAN Free Trade Area Common Effective Preferential Tariff Arrangement (AFTA-CEPT). However, expectations of mutual benefit evaporated after a few months, with most Thai comments admitting that Thailand had struck a bad deal. An assessment states: « Despite the limited scope of the Thailand-China early harvest agreement, it has had a significant impact on the sectors covered. The « tangible impact » has been to wipe out garlic and red onion producers in northern Thailand and cripple the sale of tempered fruits and vegetables from royal projects. Thai newspapers pointed the finger at officials in southern China who refused to reduce tariffs as outlined in the deal, while the Thai government dismantled barriers to Chinese goods. Dissatisfaction with the outcome of the Sino-Thai « early harvest » agreement between Thai fruit and vegetable producers was indeed one of the factors that contributed to widespread disappointment with the Thaksin government`s broader free trade agenda; and opposition to free trade was an important feature of popular mobilizations that culminated in the fall of that regime in a military coup in September 2006. The Thai early reading experience, in fact, caused consternation not only in Thailand, but throughout Southeast Asia.
This has fueled fears that ASEAN will become a dumping ground for China`s highly competitive industrial and agricultural sectors, which could drive down prices due to cheap urban labor constantly replenished by the country`s cheap labor. .
