2010 marks launch of new free trade zone

The 1st of January 2010 marks an important day in global trade economics. China, and 10 South-East Asian countries formally join together from today to scrap import tariffs.

Duties will be scrapped on 90pc of goods traded across China, Indonesia, Malaysia, Singapore, Thailand, Brunei and the Philippines. Over the next five years, tariffs will also be removed. This BBC news report looks at the background. There is little doubt about the potential economic significance of this development. This new free trade area will embrace 1.9 billion people with trade worth around $200 billion. According to Reuters “China sees the agreement as a way of securing supplies of raw materials, while countries in ASEAN—an eclectic grouping ranging from highly advanced Singapore to Laos, a poor landlocked communist state—see opportunities in China’s huge market.”

China-ASEAN trade is targeted to hit $200 billion by 2010, up from $192.6 billion in 2008 and $113 billion in 2005. This will make it the third-largest free trade zone in trade volume after the European Economic Area and the North American Free Trade Area. The free trade area incorporates China and Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam

This will be a good example to use when discussing possible trade creation effects arising from the reduction in import tariffs. The tariffs on manufactured goods were already fairly low so the direct impact may not be huge - and not all countries are in favour as this article from the New York Times makes clear.