Interview: Upgrading ASEAN-China FTA crucial to boost trade, investment exchanges: Cambodia experts

As ASEAN-China leaders are due to meet next week in Laos, analysts in Cambodia say the upgrade of the ASEAN-China Free Trade Area (ACFTA) will boost trade and investment ties between the two sides.

ASEAN and China signed a framework agreement to establish the mega-free trade area during a summit in Phnom Penh, the capital of Cambodia, in 2002, and the pact came into effect on Jan. 1, 2010.

China in 2013 called for an "upgraded version" of the ACFTA, pledging economic and trade cooperation of "a greater scope and higher quality." In August 2014, ASEAN and China decided to upgrade the ACFTA.

The negotiations towards the upgrade of ACFTA are expected to be concluded by the end of 2016.

"It will scale up bilateral trade exchanges and investment flows between China and ASEAN. However, it needs to increase trade and investment among smaller participants," Chheang Vannarith, chairman of the Cambodian Institute for Strategic Studies, told Xinhua.

He said China should provide technical support and assistance to small and medium enterprises (SMEs) in ASEAN in order to enable them to be part of the regional production network.

The expert added that with the upgraded ACFTA, Cambodia's export market and capacity will be strengthened, as there will be more opportunities for SMEs in Cambodia to join regional supply chains, particularly in the fields of agriculture and the agro-industry.

Sharing his observation about the progress in negotiations towards the upgraded version of the ACFTA, Vannarith said the negotiations have gone smoothly so far.

"The main challenge is the lack of political trust between China and some ASEAN member countries, which perceive China as a threat if they rely too much on China for economic development," he added.

Mey Kalyan, senior adviser of Cambodia's Supreme National Economic Council, said the ACFTA was very important since ASEAN and China economies are complementing each other, so the two economies need each other in order to prosper further.

He said ACFTA would also provide a lot of advantages to Cambodia, however, the country needs to work harder to improve its competitiveness, quality of products, logistics infrastructure, and upgrade its trade system and institutions.

"Cambodia will need the Chinese market, its foreign direct investment, and Chinese tourists, and China will also need the Cambodian market and its resources," he told Xinhua.

Joseph Matthews, director of ASEAN Education Center in Phnom Penh, said the ACFTA has played a very important and positive role in promoting economic and trade relations between China and ASEAN so far.

"The upgrade of the ACFTA will bring about the greater prosperity for the peoples of the region and development of economies," he said.

Matthews said that he observed that both sides seem to be positive and committed to implementing the ACFTA in letter and in spirit.

He said the upgrade of ACFTA would help all signatories move closer towards realizing the twin goals of two-way trade and investment of 1 trillion U.S. dollars and 150 billion U.S. dollars, respectively by 2020.

ACFTA is the largest free trade area in the world in terms of combined population, and third largest in terms of nominal GDP, trailing the European Economic Area and North American Free Trade Area.

Under the free trade agreement, tariffs will be reduced to zero on 7,881 product categories, or 90 percent of imported goods.

According to the agreement, the average tariff rate on Chinese goods sold in ASEAN countries would be decreased from 12.8 percent to 0.6 percent, meanwhile, the average tariff rate on ASEAN goods sold in China would be decreased from 9.8 percent to 0.1 percent.

"This is undoubtedly a win-win agreement, which benefits all kinds of businesses from manufacturing goods to services sector across the board," Matthews said. "In my view, the upgrade of the ACFTA will help the countries restructure their economies upward, and further consolidate the China-ASEAN strategic relationship," he added.

According to the expert, China has continued its support for ASEAN integration as well as ASEAN efforts in realizing its ASEAN Community Vision 2025, through narrowing the development gap and enhancing ASEAN Connectivity through the Maritime Silk Road initiative and the Asian Infrastructure Investment Bank (AIIB). Endit