The Way Forward: Maximizing Growth for SMEs in the China-

ASEAN Economies

Anthony Amunategui Abad

ASEAN China FTA

• Considered a landmark agreement:– The first external FTA pursued by the ASEAN

and the first of China, outside its WTO membership.

– Set in place the largest free trade area to date.

• On November 2004, ASEAN and China agreed and signed the Framework Agreement on Trade in Goods, put in force in July 2005.

ASEAN China FTA

• In July 2007, ASEAN and China signed an agreement for the liberalization of the trade in services.

• Agreement on Investments is still under negotiations.

• Areas of cooperation in ACFTA include the SMEs, i.e., increasing the competitiveness of SMEs.

ASEAN China FTA – Trade in Goods

• ASEAN 6 (Brunei, Indonesia, Malaysia, Philippines, Singapore, Thailand) and China eliminated tariffs on 90% of their products as of 2010, while the less developed ASEAN countries (Cambodia, Lao PDR, Myanmar, Vietnam) are given until 2015.

• Schedules for tariff reduction/elimination:1. Early Harvest Programme (EHP)2. Normal Track3. Sensitive Track

a. Sensitive Listb. Highly Sensitive List

ASEAN China FTA – Trade in Services

• Paves the way for a more liberalized services sector for both the ASEAN and China through provisions such as market access and national treatment.

• Special and differential treatment given to Cambodia, Lao PDR, Myanmar and Vietnam, allowing them to open fewer sectors and liberalize fewer transactions.

ASEAN China FTA – Trade in Services

• Expected expansion and growth of the 4 modes of trade in services:– Cross-border supply– Consumption abroad– Commercial presence– Movement of natural persons

• Expected to spur higher levels of investments in the regions.

ASEAN China FTA – Trade in Services

• China committed to open up new markets for the ASEAN countries in 26 branches of 5 service areas based on original WTO commitments:– Construction– Environmental Protection– Transportation– Sports– Commerce

ASEAN China FTA – Trade in Services

• China also made commitments in:– Computer and Related Services– Real Estate Services– Other Business Services– Construction and Related Engineering Services– Environmental Services– Recreational, Cultural and Sporting Services– Transport Services

ASEAN China FTA – Trade in Services

• ASEAN committed to open their markets to China in the following areas, among others:– Finance– Telecommunication– Education– Tourism– Construction– Medical Treatment

ASEAN China FTA – Impact on SMEs

• Competitive impact of Chinese exports (e.g., machinery and equipment)– Expected to affect SMEs in more advanced

countries such as Singapore, Malaysia and Thailand.

• The impact is more significant on emerging countries like Indonesia and the Philippines, that are still dominated by labor-intensive industries.

How ASEAN SMEs can benefit from ACFTA

• SMEs in ASEAN should be strengthened to take full advantage of the growing Chinese markets.

• SMEs in ASEAN should focus on developing their own Research and Development capabilities to complement the growing demand in China.

How ASEAN SMEs can benefit from ACFTA

• Take advantage of financing

– i.e., ADB’s ASEAN China Investment Fund II, which seeks to raise $250 million in total capital, and plans to invest in companies that will benefit from increasing trade between ASEAN bloc and China.

How ASEAN SMEs can benefit from ACFTA

• Create strategic alliances– SMEs are in a better position to capitalize on

FTAs to enhance profit, advantage and growth– SMEs leverage on their combined knowledge,

capabilities, and other assets

• Study market structures and demand in China– Customers in China are fragmented due to the

country's vast population

How ASEAN SMEs can benefit from ACFTA

• Identify target customers in China – Tailor-fit products according to specific profile

of target market in China

• Products entering Chinese market also need to have local language labeling

End

Thank you!