A free trade agreement (FTA) between China and the bloc of ten Southeast Asian countries, the first of its kind, will serve as a stepping stone for the diverse Asian community to further integrate and might give birth to a broader multilateralized trading pact across the region, said a senior economist of the Philippines-based Asian Development Bank.

"There is a lot of expectation of this FTA," Jayant Menon, principal economist of ADB's Office of Regional Economic Integration, told Xinhua in an interview on the eve of the establishment of the China-ASEAN (the Association of Southeast Asian Nations) free trade area on Jan. 1, 2010.

"Big bang" effects can't be expected because China and the ASEAN have come a long way in the past eight years and they are quite open economies already, Menon said.

"But this FTA can be seen as a stepping-stone towards a broader agreement, and eventually, hopefully, a multilateralized trading arrangement whereby the achievements are offered to non-members in a non-discriminate manner," he added.

Menon said other regional economic powers such as Japan, South Korea and the United States are expected to join once this FTA expands.

The China-ASEAN free trade area covered a population of 1.9 billion and a combined gross domestic product close to US$6 trillion. It is the world's largest trading bloc in terms of population covered and the third largest in terms of trading volume.

Trade between China and ASEAN countries have picked up rapidly in the past decade. Official statistics indicated that trade between China and the ASEAN bloc expanded to a total worth of US$231.1 billion in 2008, from US$19.5 billion in 1995. Trade has especially doubled in the past four years.

Agreements on the trade of goods and services and a pact to encourage inter-regional investment have been separately signed. The slash of duties has begun since 2005 and more than 7,000 trading items covered by the agreements will be tariff-free products by January 1, 2010.

But Menon said more substantial changes would come from investment liberalization.

"The real benefits would come from investment more so than trade," he said. "If negotiators can complete the investment agreement rather quickly and make it clean, open agreements, there could be quite significant benefits. We could improve the investment inflow from outside as well as within the region."

Menon said China now is already a big investor in the region and there is a lot of room for allocation of investments in the region to facilitate the type of product fragmentation network trade that has already taken place.

Pains, gains

Menon said people can't expect profits coming from this FTA too soon and actually in the short run, there might a little bit of pain of adjustment costs for some countries joining the FTA and there will also be some resistance.

The economist cited the recent example of Indonesian industries proposing the government to delay the implementation of the FTA, a move to protect the country's fragile textile, farming, steel sectors.

The Jakarta Post reported that Indonesian Textile Association has proposed a postponement for 94 textile and garment products being included in the zero-tariff products covered by the China-ASEAN FTA.

But Menon said gains will come in the long run and for instance a lot of farming communities could benefit by specializing in different commodities and doing two-way trade of commodities within agriculture. He said such gains have shown in the mutually beneficial farm trade between China and Thailand covered by the free trade agreement.