PHNOM PENH – The People's Republic of China represented by Premier Zhu Rongji stole the show from everybody else at the Eighth Summit of the Association of Southeast Asia Nations.
First, Premier Zhu forgave the debts of Vietnam, Laos, Myanmar and Cambodia.
Secondly, he announced duty-free privileges for the exports of the three of the newest and less developed member states of ASEAN, namely, Cambodia, Laos and Myanmar, and promised Most Favored Nation (MFN) treatment for Vietnam and the three other countries who are not yet members of the World Trade Organization (WTO).
Thirdly, China signed a declaration on the conduct of the parties to the territorial and jurisdictional disputes in the South China Sea. Under this declaration, no country claimant may encroach or occupy any of the uninhabited islets in the Spratly Archipelago. The islets, which may be sitting on rich oil and gas reserves, are claimed in part on in whole by China, Taiwan, the Philippines, Vietnam, Malaysia and Brunei.
And fourthly – and this is the biggest ticket item of all – China and ASEAN signed a framework agreement that commit them to establish a China-ASEAN Free Trade Area within ten years, beginning in 2010.
The China-ASEAN FTA represents a bold economic initiative which will have repercussions throughout the global economy, now dividing into powerful regional blocs such as the North America Free Trade Area, which may soon be extended to South America, and the European economic community which will soon be enlarged by ten more members from Central and Eastern Europe. The China-ASEAN Free Trade Area will be headed for the creation of an East Asian economic community which over time will create the world's biggest trading bloc with a combined market of nearly two billion: China's 1.3 billion and ASEAN's 500 million people.
The framework agreement did not come easy.
The ASEAN leaders, notably President Gloria Macapagal Arroyo, Prime Minister Goh Chok Tong of Singapore and Premier Mohamad Mahathir of Malaysia, raised serious reservations especially the need for greater flexibility to protect certain products and sectors that may not yet be competitive.
Mahathir explained that some important enterprises had already uprooted themselves from Malaysia and moved to China to take advantage of lower costs of production and in response to the allure of the gigantic China market.
Premier Goh Chok Tong raised a vital point, namely the viability of ASEAN itself which may be overwhelmed by the China-ASEAN Free Trade Area.
But Premier Zhu suavely dismissed all these doubts and fears. He said the purpose of the Free Trade Area was to open the markets of China to the struggling ASEAN countries. As early as 2005, the agricultural exports of the less developed ASEAN states could enter China duty free. As for the threatened "sensitive items" this will be open to an exclusion list and anyway, continuing adjustments can be made to satisfy each country's requests on a bilateral basis even beyond 2010.
Our Trade Minister Mar Roxas who was engaged in tough talks with his Chinese counterpart murmured to me that Malaysia and other countries had merely piggy-backed on the original Philippine reservations and that he was becoming "the bad boy" in the eyes of the Chinese. But finally the ASEAN resistance collapsed. The charm and logic of the Chinese Premier proved irresistible.
Goh Chok Tong argued that an ASEAN economic community must first be realized before the ASEAN-China FTA should be attempted. This is to ensure that ASEAN cohesion could be maintained and so that ASEAN, as its own economic bloc, could negotiate as an equal with China. But he appeared to recant later as his analysis led to a conclusion that the broader FTA would be more advantageous to ASEAN than for China.
Premier Goh's thesis is that in the end ASEAN can match China's competitiveness and even surpass it. He said the world's investors would be wary about putting their eggs in just one basket. ASEAN is an excellent alternative to China for direct foreign investment. He said that although China is sucking in most of the world's foreign investible funds, the foreign direct investment the Chinese receive from abroad is still modest, compared with their share of global per capita income and global trade. And ASEAN is not doing so poorly by these standards. The Free Trade Area, which will siphon off more Chinese investments, trade and technology to the ASEAN countries will unleash the dormant potentials of the ASEAN members, especially the poorest ones, leading to a spiral of mutual prosperity.
Premier Zhu elaborated on Premier Goh's line. He pointed out that the balance of trade even now is on the side of ASEAN, which will enjoy a trade surplus of $12 billion over China this year. Relative to South Korea, China has a trade deficit of some $10 billion. It is true of course that China enjoys huge surpluses with its major trading partners outside Asia, in North America and Europe.
"It is clear that we are not seeking a special status in the region, we do not seek to dominate in any way but are motivated solely by the desire to foster the prosperity of the East Asian region as a whole, especially Southeast Asia," he said, adding:
"There is a tendency to exaggerate China's competitiveness. We are still trying to improve ourselves and our products. No country can compete on cheap labor alone. "You need to develop high-caliber personnel, you need to keep improving your governance."
Premier Zhu said China attracts an average of $45 billion in foreign direct investments a year, but most of these investments come from the United States and Taiwan. He said that the US on "the other hand, pulls in $250 billion of foreign direct investments per annum," although he expects this rate to decline as the American market reacts negatively to the corporate scandals that have hit such big players as Enron. He said China will get a bigger slice of the $250 billion foreign investment in the US.
"But we are going to be sensitive to the points raised by President Arroyo and Prime Minister Mahathir," said the Chinese Premier.
That was the point when Secretary Mar Roxas whispered to me and Undersecretary Lauro Baja: "We are going to sign." And President Arroyo, who had just made a brilliant intervention on the floor, for the reduction of non-tariff barriers against Philippine products, told us the Philippines will indeed sign on.
The truth is that China is not alone in offering ASEAN a Free Trade Area.
The ASEAN has also signed with Japan a Comprehensive Economic Partnership Agreement that will likely evolve into a Free Trade Area. With a similar offer from South Korea, which has already achieved a developed nation status, all these offers will mesh into an East Asia Free Trade Area, which will be the biggest economic bloc with the biggest market in the world.
And as Goh Chok Tong emphasized, the United States is not about to be left behind. President George W. Bush at the 10th APEC Summit just concluded in Los Cabos, Mexico, launched America's own program called "Enterprise Initiative for ASEAN." Singapore will be the first ÄSEAN state to avail of this initiative; it is proposing to conclude a US partnership agreement before the end of the year.
Thus a drastic reordering of the world's economic map is unfolding. The Philippines' policy makers in both the executive and the legislature should grasp the meaning of these events and fashion a national strategy to position ourselves to benefit from these changes, and not watch helplessly as other nations with superior intellect and organization just pass us by as they have in all these years.
END 1295