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New ASEAN Free Trade Pact Viewed Positively

The recently signed free-trade pact between the 10 members Association of South East Asian Nations with Australia and New Zealand is seen as a positive, as the region grapples with the global recession. Asia business executives also see the pact with Australia and New Zealand strengthening Southeast Asia's position in the face of China's growing regional economic influence.

The trade pact signed at the recent summit of ASEAN leaders and officials from Australia and New Zealand added a rare optimistic light into the region's economic gloom.

Two years in the negotiation, after a decade of diplomatic maneuvering, the ASEAN Australia-New Zealand Free Trade Pact is to be fully operational by 2020.

Pact offers greater access to regional market

By tying in Australia and New Zealand's economies, the pact adds more than than $640 billion to the region's $2 trillion output. For Australia and New Zealand, the agreement means greater access to a 10-nation market of 600 million people.

Australian Trade Minister Simon Crean was buoyant about the outlook for trade from the agreement.

"The principles are very simple. Market access will be improved and, by the conclusions of the agreements, some 96 percent of tariff lines will have been eliminated," Crean said.

Senior Australian Trade Commissioner Rod Morehouse calls the agreement "monumental", given its degree of comprehensiveness and complexity.

"If ever there was time for people not to want to open up borders, probably it is during this global financial crisis we're going through at the moment," Morehouse said. "So, again, it's seriously positive."

Recession has impacted exports

The pact comes as regional export growth has plummeted, because of the global recession.

In Thailand, where exports make up 65 percent of overall national output, overseas sales fell almost 30 percent in January, with steeper falls predicted in the near term. A similar outlook is also predicted for other ASEAN members, with economists forecasting a regional contraction in growth through 2009.

Across the region, jobs are being cut, hours reduced and wages reduced, as key export and manufacturing industries try to ride out the economic storm. The downturn has raised calls for protection, a move resisted by the ASEAN leaders.

John Presatio chairs the international department of the Indonesia Chamber of Commerce and Industry. He says the echoes of economic nationalism are being heard.

"In facing the crisis, like or not, you are seeing some nationalistic sentiment on the rise," Presatio said. "But, at the same time, our technocrats have been able to persuade, saying that 'Look the rhetoric for economic nationalism is up to you, but the long-term wealth creation requires that we do more international trade'."

Everyone benefits

Zain Yusuf, chair of the Malaysian Australian Business Council says the timing of the pact has been "crucial".

"The timing is very crucial, against the current bleak global financial and economic scenario. People now have to look at what is for the good of the region. There's no point putting barriers which does not help free trade. In this way, everybody benefits," he said.

For Malaysia's Zain Yusuf, the opening of financial services will benefit both Malaysia and Australia, along with mining, telecommunications and construction.

One important outcome for ASEAN is that it will have greater access to Australian and New Zealand technology and development of institutions, as well as professional support and services.

Indonesia Chamber of Commerce and Industry's Presatio says such access will be important in acting as a counterweight to strengthen the region in negotiating with China.

"We in Indonesia are kind of hoping that will be able to modernize our economy with the help of the more sophisticated new ally from Australia," Presatio explained. "The more we act to improve our economy, the better off when we are sitting at the negotiating table with our friends from northern Asia, in terms of getting a fair deal."

Malaysia's Zain Yusuf sees the situation as enhancing the region's equity and a more-expanded market.

"The idea is not so much to create a countervailing power but to create a bigger market, which would enable countries to be more equitable in dealing with each other," Yusuf said. "The idea of this is for mutual benefit - mutual gain - not just for one country to benefit and the other country to lose out."

Australian Trade Commissioner Morehouse says other positive elements for ASEAN lie in access to Australian-based technology, together with resources and a secure source for food. For Australia, the agreement is a positive option to have greater access to the ASEAN market, if the Doha Round of International Trade talks continues to stall.

"It's almost like someone's turned on a green light in a period of time when everyone's working under a yellow card," Morehouse said.

In addition to a lowering of tariffs, senior representatives of the 10 ASEAN countries, together with Australia and New Zealand officials, will each year meet to negotiate issues of non-tariff barriers, also seen as obstacles to expanded trade.