ASEAN - China Free Trade Agreement

The 'Framework Agreement on ASEAN-China Comprehensive Economic Cooperation' was signed by ASEAN and China on November 4, 2002 to serve as the structure and mechanism for negotiations to establish a free trade area covering trade in goods, services, and investment, as well as to effect various measures for economic cooperation between China and ASAEN. (see Details of the agreement)Subsequently, an 'Agreement on Trade in Goods of the Framework Agreement on Comprehensive Economic Co-operation between the ASEAN and China' was successfully negotiated and was signed on November 29, 2004, during the ASEAN - China Summit meeting in Vientiane, Lao PRD.

Liberalization of Trade in Goods
Liberalization of trade in goods is divided into two categories : those under the Early Harvest Program (providing for immediate reduction or elimination of tariffs for certain goods), and goods that will come under the comprehensive reduction or elimination of tariffs.

- Tariff reduction under the Early Harvest Program covers agricultural goods in the customs tariff schedule codes 01 through 08 (live animals, meat and other edible animal parts, fish products, dairy products, fowl eggs, live trees, vegetables and fruit, and edible nuts), as well as specific products agreed upon by two countries (for example, Thailand and China have agreed to accelerate tariff reduction on two addition products, anthracite and coal residue). China and six founding member countries of ASEAN (namely Brunei, Indonesia, Malaysia, Philippines, Singapore and Thailand) implemented tariff reductions on January 1, 2004, with tariffs to be eliminated completely by January 1, 2006. The timeframe and schedule for elimination of tariffs by the four newer member countries of ASEAN (Laos, Vietnam, Myanmar, and Cambodia) is extended to 2010. (see details of items and tariff reduction schedule under the Early Harvest Program) Tariff rates of those items under quotas, such as onions and garlic, are to be reduced only within the quota quantities.

Because Thailand and China perceived the potential for trade in goods under the customs tariff schedule codes 07 and 08, embracing fruits and vegetables lines of products, (See details of Fruits and vegetables) the two countries, on June 18, 2003, signed an 'Agreement between the Government of the People's Republic of China and the Government of the Kingdom of Thailand on Accelerated Tariff Elimination under the Early Harvest Programme of the Framework Agreement on Comprehensive Economic Cooperation between ASEAN and China, which eliminated tariffs on all items under these categories as of October 1, 2003. (See details of the agreement on tariff elimination of fruit and vegetables). Singapore subsequently signed this agreement as well.

- Reduction of Tariff on General Goods ( See details of the agreement on trade in goods between ASEAN and China). Two tracks have been established for trade in goods, a 'normal track' under which tariffs will finally be completely eliminated, and a 'sensitive track', which sets a more detailed and long-term schedule of tariff reduction and elimination for goods to be safeguarded.

* The Normal Track: The TIG Agreement specifies that duties greater than 20% on goods be reduced to 20% by January 1, 2005, and duties less than 20% on goods be progressively reduced, with duties on all goods under this track to be eliminated completely to 0% within 5 years (by January 1, 2010), with the exception of 150 items for which the timeframe for complete elimination of tariffs is extended to 2012. (See details of items from Thailand under this track ||details of items receiving extension). In addition, the percentage of goods bearing duties of 0%-5% shall be increased from 40% in 2005 to 60% by 2007.

* The Sensitive Track: No more than 400 items comprising not more than 10% of the value of all goods imported from China by respective ASEAN countries are to be included in the sensitive list, with a reduction of duties on these goods to 20 % by 2012, and final rates of 0%-5% by 2018. It was also agreed that goods in the highly sensitive list should comprise no more than 100 items or 40% of goods in the sensitive list, whichever is less, with the reduction of tariffs on these items to 50% by 2015. (See the Thai schedule for tariff reduction of sensitive items)

Goods covered under the ASEAN-China FTA Agreement must adhere to the agreed-upon 'Rules of Origins' criteria, with some goods comprised of materials wholly obtained within the producing country, and other products consisting of local content at least 40% of their value. 'Local content' here includes the value of materials obtained from all ASEAN member countries. (See details of Country of Origin of Goods produced in ASEAN-China) Additionally, ASEAN and China have set Product Specific Rules (PSR) for some products to enjoy the advantages of tariff reduction under ASEAN - China FTA as well. (See list of Goods under Product Specific Rules)
At the same time, both parties have agreed to undertake measures to safeguard domestic industries in each country from negative impacts of trade liberalization between ASEAN and China, such as a flood of imports that injures domestic products and industry, through an increase in duties on those products to equal the WTO member (MFN) rate in effect at the time. This measure would remain in effect for 5 years following implementation of the reduction or exemption on duties under the Agreement. In addition, ASEAN and China have reached an agreement on dispute settlement mechanism acting as a provision of the Free Trade Agreement. (See details of the Agreement on Dispute Settlement Mechanism between the Association of Southeast Asian Nations and the People's Republic of China )

Liberalization of Trade in Services
On January 14, 2007, in Cebu City, Philippines, ASEAN and China signed an agreement relating to Trade in Services (See details) along with provisions for liberalizing trade in services of Group 1, covering private sector businesses in all areas with the exception of government services and government procurement. A table exhibiting liberalization phases of each country appears in the schedule of commitments and appended to the agreement. Thailand has offered provisions that are consistent with the current Foreign Business Act that governs the conducting of foreign owned businesses in Thailand; i.e., the permission for individuals from China and ASEAN member countries to hold more than 49% share in business ventures, along with conditions attached to specific professions as designated by the professional associations.

Provision for Liberalization of the Initial Group of Service Activities
- The members of ASEAN, including Thailand, have offered liberalization provisions beyond those stipulated under WTO trade liberalization conventions, but less than those granted among the ASEAN group itself. Provisions made by Thailand that offer greater advantages than those under WTO commitments incorporate service activities in the areas of professions, education, health, tourism, and maritime transportation. (See details of Thai Commitments)
- China has offered provisions beyond those obligated under WTO conventions in the areas of computers, realty, land transportation, and other service businesses. (See details of Chinese Commitments)
- ASEAN and China are now in the process of negotiating the second group of service activities, which is expected to be completed by the end of 2008.

Negotiations relating to Investment
are currently in progress; however, an accord has not yet been reached in a number of issues, and discussions are yet to be concluded.

Economic Cooperation
China and ASEAN, including Thailand, have agreed to undertake economic cooperation in five areas, namely agriculture, information technology, human resource development, and development of the Greater Mekong Sub-region (GMS), as well as cooperation in customs issues, intellectual property protection, establishment of a center for facilitation and promotion of trade and investment, Mutual Recognition Arrangements (MRA), implementation of plans with the framework of Greater Mekong Sub-region cooperation, and assistance to the newer members of ASEAN.

Summary of Links in this Document
  • The ASEAN-China Framework Agreement
  • Items and tariff reduction schedule under the Early Harvest Program
  • Agricultural goods under the Customs Code 07-08 (Fruits and Vegetables)
  • Agreement on Accelerated Tariff Reduction on Fruits and Vegetables
  • Agreement on Trade in Goods between ASEAN and Thailand
  • Items from Thailand under the 'Normal Track'
  • Thai Schedule for tariff Reduction of Sensitive Goods
  • Rules of Origin of Goods produced in ASEAN - China
  • Agreement on Dispute Settlement Mechanism between the Association of Southeast Asian Nations and the People's Republic of China
  • Schedule of Tariff Reduction between China and Brunei Darussalam, Indonesia, Malaysia, Myanmar, Philippines, Singapore, and Thailand

    Other information
  • Schedule of Tariff Reduction between China and Other Countries under the ASEAN-China Free Trade Agreement
  • Product Specific Rule for Goods
  • Format of Tariff Reduction and Elimination under the 'Normal Track' for Member Countries of ASEAN and China