Asean FTAs: An overview

JULY 12, 2018 - 2:15 PM

Back in 1992, the six original member nations of the Association of Southeast Asian Nations (Asean) agreed to form the Asean Free Trade Area. Since then, Asean itself has grown, as has its economic linkages to various economies, particularly those cemented by free trade agreements. Here's an overview of the six FTAs that are currently in force or signed.

  1. Asean-Australia-New Zealand Free Trade Area
  2. Asean-China Free Trade Agreements
  3. Asean-Hong Kong Free Trade Agreement (signed)
  4. Asean-India Free Trade Area
  5. Asean-Japan Comprehensive Economic Partnership
  6. Asean-Republic of Korea Free Trade Area

Asean-Australia-New Zealand Free Trade Area (AANZFTA)

Asean, Australia and New Zealand started consultations and negotiations on a free trade agreement in 2005. These led to the signing of the AAZNFTA in February 2009, an agreement that entered into force in January 2010.

As at 2016, Asean, Australia and New Zealand together form a market that has 663 million people and US$4 trillion in gross domestic product (GDP).

This FTA is a wide-ranging one that has removed barriers and reduced transaction costs for companies wanting to do business in any of its 12 member countries. Here are a few key points:

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  • Tariffs will be progressively reduced, and eliminated for at least 90 per cent of all tariff lines, within specified timelines

  • More modern and flexible rules of origin, simplified customs procedures, and more transparent mechanisms will facilitate the movement of goods

  • Progressive liberalisation of barriers to trade in services will give service suppliers greater market access

  • Easier movement of people - those engaged in business, trade, and investment activities

  • Covered investments will get more protection, including the possibility of an investor-state dispute settlement mechanism for dealing with disputes.

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Asean-China Free Trade Area

Trade between China and Asean been growing, with trade volumes hitting a record high in 2017. Bilateral trade came up to US$514.8 billion last year, a 13.8 per cent increase from the year before. This was also the fastest pace of growth between China and any of its major trading partners. China also continued to be a key source of foreign direct investment flows into Asean: FDI from China rose by 44 per cent to US$9.2 billion in 2016.

Growth in trade and investment flows between Asean and China can be traced back to 2002, when the framework agreement on Comprehensive Economic Cooperation was first signed, providing a legal basis for the creation of the Asean-China Free Trade Area and its three key agreements on trade in goods, trade in services, and investment.

Asean and China have committed to a joint target of US$1 trillion in trade and US$150 billion in investment through the ACFTA, by 2020.


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Asean-Hong Kong Free Trade Agreement

In November 2017, Asean and Hong Kong signed a trade agreement and an investment agreement, concluding three years of trade negotiations over such a pact. The agreements, which are expected to come into force on Jan 1, 2019, marked Asean’s sixth and latest FTA.

The two agreements cover trade in goods, services, investment, economic and technical co-operation, dispute settlement mechanisms and other related matters. They are expected to create new business opportunities by offering companies legal certainty and better market access.

Benefits for businesses include reduced tariffs and restrictions, fairer investment protection and longer stays for business travellers.

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Asean-India Free Trade Area

Asean and India first signed a trade in goods agreement in 2009, after six years of negotiations. This came into force on January 1, 2010. This was followed by two other deals over trade in services and investment, signed in 2014. However, these have yet to be fully ratified and implemented.

Although the FTA creates one of the world’s largest free trade areas, and promised to boost market access and trade, Asean-India trade has stagnated. In 2012, trade between Asean and India stood at US$75 billion, with both sides expressing hope that this would hit US$200 billion by 2020. Trade has fallen to US$70 billion instead.

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Asean-Japan Comprehensive Economic Partnership

Asean and Japan signed the Asean-Japan Comprehensive Economic Partnership (AJCEP) in 2008, and it came into force in December that year.

Covering trade in goods, services, investment and economic cooperation, the trade deal provided for the elimination of duties on 87 per cent of all tariff lines. It also allowed for back-to-back shipment of goods between member countries and third party invoicing, among other provisions.

In the decade since then, economic ties between Asean and Japan have grown in significance.

Trade between Asean and Japan was worth US$209 billion in 2016. This made Asean Japan’s second-largest trading partner, after China. And Japan is Asean’s fourth largest trading partner, after China, the European Union and the United States.

Japan is now also the third-largest source of foreign direct investment (FDI) flows into Asean. Japanese investment in Asean has more than tripled in the past 10 years, and Japan’s FDI position in Asean stands at US$167.3 billion, 12 per cent of its FDI globally. In 2016, Japan invested US$11.5 billion into Asean, making it the third largest external source of FDI flowing into Asean.

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Asean-Republic of Korea Free Trade Area

Asean and South Korea first signed a trade in goods agreement in 2006, which entered into force in 2007, reducing and eliminating tariffs on 90 per cent of goods traded between Asean and South Korea. This was then followed by the trade in services agreement in 2007 and the investment agreement in 2009.

The benefits have been evident, even though a 2014 target of US$200 billion in bilateral trade by 2020 remains some way off.

Trade between Asean and Korea hit US$118.8 billion in 2016. Asean is Korea’s second largest trading partner, while South Korea is Asean’s fifth largest trading partner. South Korea also invested US$5.1 billion in Asean in 2016.

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In the works...

Asean-EU FTA

The European Union and Asean have been discussing a free trade deal for years. Talks were first launched in 2007, but then abandoned two years later. The EU opted instead to conduct bilateral trade negotiations with individual Asean member states.

However, discussions to lay out a framework for a potential Asean-EU FTA began again in 2017, raising hopes for an eventual resumption of FTA negotiations.


Asean-Canada FTA

Exploratory talks for a trade deal between Asean and Canada were launched in September 2017.


Regional Comprehensive Economic Partnership

The RCEP is a proposed free trade agreement among the 10 Asean countries as well as six partners with whom Asean already has FTAs: China, Japan, India, South Korea, Australia and New Zealand. These 16 countries account for 30 per cent of global trade, and aim to reach a regional trade deal that will benefit economies at varying levels of development.

Negotiations are ongoing and authorities say that the ambitious deal is on track for a substantial agreement by this year - possibly at the Asean summit in November. However, there remain hurdles to cross. These include differences over e-commerce, intellectual property and market access to sectors such as agriculture.

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For more information on Asean and its FTAs: