The China-Asean Free Trade Area (CAFTA) went into broad effect on January 1 2010. Under CAFTA, a zero-tariff rate is applied to 91.5% of goods from 10 ASEAN member countries and the average tariff was reduced by China from 9.8% to 0.1%. The six original ASEAN members have also imposed a zero-tariff on 90% of Chinese products. The four new ASEAN members (Cambodia, Laos, Myanmar and Vietnam) will not have to cut tariffs on Chinese goods to the same levels until 2015 given their current stage of economic development, while still enjoying the benefits of a zero-tariff policy with China 5 years ahead of schedule. Bilateral trade in services will be further expanded based on WTO commitments. Investment policies will become more stable and transparent thanks to improved legislation by both China and ASEAN members. Free trade has almost been realized between China and the ASEAN nations, which will improve the efficiency of mobilizing production factors including capital, resources, technology and human resources. The completion of CAFTA marks an unprecedented level of bilateral economic integration, and establishes Asia’s biggest free trade block.

    In the six months since the implementation of CAFTA, faster growth in bilateral trade and investment, deeper economic integration, and mutual benefits to enterprises and individuals have been observed.

    The first noticed effect has been a substantial increase in bilateral trade between China and ASEAN countries. Driven by the free trade pact, trade grew at an annual rate of more than 30% from 2003 to 2007, and continued to grow at 3% from 2008 to 2009 despite the global financial crisis. In the first half of 2010, bilateral trade reached $136.5 billion, a year-on-year increase of 55%, 11 percentages higher than China’s total foreign trade growth rate over the same period. Chinese imports from ASEAN hit $71.9 billion, 64% up from the same period last year, while exports to ASEAN were at $64.6 billion, a 45% increase compared with last year. Import growth exceeded export growth substantially, with a Chinese deficit of $7.3 billion.

   The second result saw benefits to enterprises from both sides. The CAFTA helps to reduce companies’ tariff payments by lowering mutual tariff levels. China eliminated $900 million worth of tariffs on import goods from ASEAN in 2009, and cut $770 million further for the first half of this year, a year-on-year increase of tariff reductions of 98%. China has seen a sharp increase in imports of plastic goods, electronics, rubber products and fruits and vegetables from ASEAN.

    Third there has been a continuous expansion in bilateral investment. ASEAN investments in China rose from $2.93 billion in 2003 to $4.68 billion in 2009, meanwhile China’s investments in ASEAN expanded from $230 million to $3 billion, increased more than 13 times. In the first half of 2010, ASEAN’s direct investment in China reached $3.131 billion, 24.9% higher compared with the same period last year; China’s non-financial direct investment in ASEAN was $1.221 billion, growing by more than 125.7%. By the end of June 2010, accumulative mutual investment stood at $69.4 billion, with $59.8 billion invested from ASEAN and $9.6 billion invested from China.

   The fourth effect of the CAFTA is in alleviating the stress for companies hit by the financial crisis. In 2009, Malaysia’s exports to the US, Europe and Japan dropped by 27%, 19% and 23% respectively while exports to China rose by 6% . In the same year, Thailand’s exports to the US, Europe and Japan slid by 18%, 23% and 22% respectively while exports to China shrank by only 1%.

    Overall, the CAFTA has been successful in enhancing bilateral trade and economic relations. However, given the short period of time the CAFTA has been in effect and the lack of public promotion, many enterprises in the region are still unfamiliar with the preferential policies under the CAFTA and unable to make better use of it. Additionally, the benefits of the CAFTA are also limited by insufficient connectivity and inefficient transport and logistics systems between China and ASEAN nations. A concerted effort is needed for the governments and enterprises from both China and ASEAN countries to ensure the CAFTA plays a bigger role in strengthening bilateral trade and economic cooperation.

    The completion of CAFTA is by no means the end point of trade liberalization process among trading partners. On the contrary, it’s a new starting point and serves as a platform for realizing deeper economic integration. Apart from zero-tariffs in goods trade, China and ASEAN should, with the support of the free trade arrangement, move forward to achieve full liberalization in trade and investment, and promote economic cooperation in all directions by eliminating non-tariff barriers, enhancing investment cooperation, boosting two-way tourism and facilitating technology transfer.