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ASEAN Seeks to Boost Exports with Free Trade Agreements

The Association of Southeast Asian Nations has gone from its origins as a small grouping of relatively impoverished nations to one of the world's major trading blocs. At its annual summit on November 29th and 30, ASEAN will sign a deal with China that ultimately will create the world's largest free trade area.

Within five years, a new free trade agreement between the Association of Southeast Asian Nations, ASEAN, and China will cover more than 1.7 billion people. Already trade between the two is worth $100 billion annually.

The deal makes it easier for all 10 ASEAN nations to export goods to China, and to import Chinese products. Some ASEAN businesses are concerned they will be overpowered by China's giant, low-cost manufacturers. But many economists see the deal as good for Southeast Asia, and a harbinger of things to come.

Ifzal Ali, the chief economist for the Asian Development Bank, a non-profit lending institution in Manila, says that as China's economy grows and its wages increase, some of its manufacturing will shift to ASEAN's poorer members.

"So what you will see is that as China rushes ahead, some of the things that it is doing now will be transferred to countries like Vietnam, other countries in the Mekong area," he said. "I look at it more as a win-win rather than a zero-sum game."

The deal with China will not be the last. ASEAN already is in talks with South Korea, Japan and India on creating trading alliances. And several ASEAN nations have signed bilateral trade agreements with other countries, Singapore and Thailand both have deals with the United States.

Trade is the lifeblood of Asia. Starting with Japan and South Korea, which built economic dynamos from the ashes of war in the last century, every country in the region has sought to build wealth by exporting everything from lumber to computer chips.

ASEAN, which includes some of the world's poorest countries - Cambodia, Burma, Laos and Vietnam - already is a major trading entity. It exports more than $400 billion worth of goods a year, and its imports top $360 billion.

With the World Trade Organization making slow progress on global trade liberalization, ASEAN leaders have made it clear they will look to free trade agreements to ensure growth.

However, analysts warn these deals, known as FTAs, have risks. One problem for small nations is that leaders, eager to sign a deal with large, wealthy countries, may grant too many concessions, harming their own interests.

Mark Thirlwell, a trade analyst with the Lowy independent Institute on International Policy in Australia, warns the biggest risk may be that FTAs could undermine the global benefits of the World Trade Organization's structure. He says dozens of overlapping FTAs may put conflicting and overly complex trade rules in force.

"And there's a risk there that it sort of gums up world trade. I mean, the whole point of the multilateral system is that if you do it at one central global level, you can sort of try to overcome these distortions that you get by doing it regionally or bilaterally," explained Mr. Thirlwell.

Even when trade agreements are balanced and do not impede WTO efforts, they can leave many businesses struggling to compete.

Teofilo Aquila, who studies Southeast Asian economic development at the National University of Singapore and says many small ASEAN companies may lose the struggle when the FTA with China starts phasing in next year, says ASEAN governments and businesses can reduce the disruption, if they work together.

"By pulling together, the industries in ASEAN, including both physical and human resources, so that ASEAN can come up with much bigger, companies, that would enable smaller and medium enterprises to minimize the risks," he said.

ASEAN governments, and many economists, think free trade agreements offer far more benefits than disadvantages. Mr. Ali at the Asian Development Bank notes that the deals can push governments to improve their banking and legal systems to facilitate trade, and to develop fiscally sound budgets.

"Markets will punish countries that do not follow appropriate macro-economic policies both on the fiscal and the monetary side, do not follow appropriate microeconomic polices in terms of ensuring an even playing field," he said.

Ultimately, Mr. Ali says, if it signs an FTA with India in the next few years, on top of this year's deal with China, ASEAN is likely to have a pivotal role in an unprecedented economic expansion in Asia.

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