Little noticed at the beginning of the year was the introduction of several more strands into the "noodle bowl" of Asia-Pacific trade agreements. On Jan. 1, several new free trade agreements went into effect. These trade deals are by no means perfect. In fact, they represent distinctly second- or even third-best options given their limits and their trade diversion effects. Nevertheless, they also could have profound political consequences.
The biggest deal was the inauguration Jan. 1 of the China-ASEAN Free Trade Area (CAFTA). When ranked by size, this is, with 1.9 billion people, the world's largest free trade area. Its $6 trillion in combined GDP makes it the world's third largest, trailing NAFTA and the European Union. Negotiated and agreed in 2003, the members have had seven years to prepare. During that time, China has become ASEAN's third-largest trade partner, surpassing the United States and trailing Japan and the EU. Trade between China and ASEAN reached $193 billion last year, a fourfold increase since the deal was agreed. During that time China's share of ASEAN's total commerce has increased as well, expanding from 4 percent to 11.3 percent. Trade among its members swelled to $4.5 trillion, 13.3 percent of global trade and half the total trade of Asia in 2008.
The FTA sharply reduces tariffs on 90 percent of traded goods in two phases: The six original ASEAN members (Brunei, Indonesia, Malaysia, the Philippines, Singapore and Thailand) have cut their average tariff on Chinese goods from 12.8 percent to 0.6 percent. By 2015, four newer ASEAN members (Cambodia, Laos, Myanmar and Vietnam) will do the same. As always, there are provisions that protect some industries from competition. The tariffs on items identified as "highly sensitive" (such as rice, cars and petrochemical products) will be cut more gradually: The original ASEAN six have until 2015 to cut those tariffs below 50 percent and the new members have until 2018.