ASEAN-China Free Trade Area vs ASEAN-Korea Free Trade Area: How far will it boost the ASEAN’s economic growth?

Written by: Muhammad Alwi Addzikri, Staff of Event and Program UGM ASEAN Society

Seeing how international trade is becoming increasingly rapid at the turn of the twenty-first century, the Free Trade Areas (FTAs) are crucial because they facilitate the trade process in the regional/international domain. In the case of Asia, especially after being faced with the financial crisis in 1997, Regional Trade Agreements (RTAs) became an essential aspect in improving and restoring regional economic stability (Yin, 2004). ASEAN as a form of regional economic cooperation has several forms of RTA, even with parties from outside the Southeast Asia region, as this article will focus on — ASEAN-China Free Trade Area (ACFTA) and ASEAN-Korea Free Trade Area (AKFTA). Seeing how China has emerged as an international political economy actor that is starting to show its fangs, it is vital to assess how significant the existence of ACFTA is. In some public opinion, ACFTA is considered an “effective” effort to catalyse the economic capacity of both parties, which in fact, may not be accurate. The fact that AKFTA also emerges as a comprehensive trade agreement in the Southeast Asian region pushes the possibility for a particular shift in bias. Therefore, this article aims to compare the effectiveness of ACFTA and AKFTA since these two have shown great significance to the region’s economic trade growth while using one perspective in international political economy, namely liberalism.

According to the perspective of liberalism, international economic cooperation is encouraged not only to meet domestic needs but also because it can provide relatively more significant benefits than conflict (Dunne, 2014). The more economic collaboration increases, the higher the level of interdependence between actors. This is also in line with the opinion of a liberal named Thomas Friedman, who argues that trade and free markets can lead to a more innovative, rich, and tolerant world. Thus, in their efforts to meet their respective economic needs, it is not surprising that ASEAN, China, and Korea, chose to collaborate through ACFTA and AKFTA. Through this perspective, this author assumes that two indicators can be used to measure how effective ACFTA and AKFTA are, namely the achievement of the economic interests of each party and the level of interdependence created.

Highlighting the achievement of ASEAN and China’s economic interests through ACFTA, this cooperation framework seems to have a reasonably strong impact. It has promising implications for the economic growth of China and the Southeast Asia region. It is visible from the increase in the number of goods circulating between the two through export and import activities. Based on data released by ASEAN Statistics, export-import and trade conditions that occurred between ASEAN and China in the 2004–2016 period experienced significant developments, especially after the implementation of the initial ACFTA framework in 2002, which then grew after the ACFTA was established in 2010 (see Figure 1).

Figure 1. ASEAN-China Export and Import Growth in 2004–2016

Source: Kusuma based on ASEAN Statistics, 2017.

However, if we look closely, there are some anomalies worth noting for this analysis. Firstly, there was a decline in the export-import rate in 2014–2015. This might have occurred due to one of the political agendas carried out by China in 2014, namely unilateral claims to the Paracel and Spratly Islands in the waters of the South China Sea. In consequence, the ASEAN-China relations had experienced severe tension. It disrupted the territorial sovereignty of ASEAN countries such as Singapore, Brunei Darussalam, the Philippines, Vietnam, and Malaysia (Shi, 2015). This issue has not yet come to light even to this date due to the lack of cooperation and the struggle to reach compromise, so it is feared that it could potentially deepen sentiment between ASEAN countries and China and hinder the overall ACFTA implementation process. Another problem worth underlining is the difference between the import and export of ASEAN towards China. The graph shows that the number of exports to China is still far below the number of imports. In this case, the overwhelming number of imports demonstrated from the figure above implies an unhealthy dependency for ASEAN towards Chinese goods. This dependency will continue to pose a threat to the actual growth of the region, where the level of innovation and invention of ASEAN’s goods will face probable decline or even stagnation.

Despite these problems, the focus of China and ASEAN is now divided by the Covid-19 pandemic, which finally urges both sides to enhance each other’s comprehensive diplomatic relations. The commitment of the two to continue and improve good relations, which has been disrupted by the South China Sea conflict and the Covid-19 pandemic, was at least reflected in several other economic cooperation efforts, such as RCEP (Regional Comprehensive Economic Partnership) (Desierto, 2018).

Rather than as an implication of strengthening the interdependence of ASEAN and China, some perceptions of the ASEAN public community feel increasingly sceptical of the prospects presented by this diplomatic relationship. This is because many of them are worried about the development of China’s hegemony in Southeast Asia pushed by the idea of Chinese expansionism, which could one day endanger the sovereignty of ASEAN countries (Cindyara, 2020). Chinese expansionism takes the concept of “international centrality,” which accounts for China’s military capabilities, politics, ideology, and economy (Kandhari, 2020). Reflecting on the previous dispute in the South China Sea, it is not surprising why some ASEAN communities consider this an excuse for China to expand its hegemony. However, some ASEAN communities are still optimistic about this cooperation, especially to rebuild economic and political stability between ASEAN and China (Cindyara, 2020).

It would not be substantial for this debate if this author did not mention the competitor to ACFTA, namely AKFTA (ASEAN-Korea Free Trade Area). South Korea is one of the many cooperation partners close with ASEAN. Starting with the planning of collaboration between South Korea and ASEAN in 1989, then establishing as an ASEAN cooperation partner in 1991. The relations between ASEAN and South Korea have been further strengthened by the existence of AKFTA — which also has implications for its increasing trade (Association of Southeast Asian Nations, 2020). Based on data published in the writings of D. Park, I. Park and G. Estrada (2012), the change in increasing trade between ASEAN and South Korea underwent a drastic transformation — mainly focusing on conditions before and after AKFTA implementation (see Figure 2).

Figure 2. Trade Growth with South Korea (in millions of US dollars)

Source: D. Park, I. Park, G. Estrada, 2012.

Trade between South Korea and ASEAN as a whole has undergone drastic and positive changes compared to most of the country units in ASEAN. Although several ASEAN countries such as the Philippines, Singapore and Vietnam experience a condition known as a trade deficit, this condition is predicted to gradually decrease due to the rising confluence of imports and exports activities and the lifting of trade tariffs exponentially–thus creating a promising future for ASEAN (Park et al., 2012). The transition of ASEAN’s status to a trade surplus shows how AKFTA positively impacts the ASEAN regional economy. However, compared to China’s condition through data released by ASEAN Statistics, ASEAN’s trade status with South Korea is lower (see Figure 3).

Figure 3. Top 10 ASEAN Trade Partner Countries/Regions per. 2016

Source: ASEAN Statistics, 2016.

When discussing the interdependence created through AKFTA, this author assumes that the relationship between ASEAN and South Korea is positive and progressive. Compared to China, South Korea has consistently deepened its efforts to become a strong cooperation partner in front of ASEAN countries and is more central to the use of soft power rather than hard power. This is visible from South Korea’s efforts to develop a foreign policy that focuses on enhancing cooperative relations with ASEAN, namely through the New Southern Policy (Yeo, 2020). The foreign policy intensified by President Moon Jae-In in 2017 provided a more incredible opportunity for South Korea to focus more on cooperative relations with new emerging global economic forces of the Global South, one of which is the ASEAN region. This will also be beneficial for ASEAN in some aspects, namely in strengthening the already existing economic relations, market diversification, and rebalancing diplomatic relations between the two parties (Wongi, 2021).

To summarise, the effectiveness of ACFTA when compared with AKFTA is challenging to be categorised into black and white. The author argues that ACFTA cooperation is superior to AKFTA because it shows a higher number with significant differences from the quantitative data presented. However, if viewed from qualitative data related to South Korea’s soft power, the relationship between ASEAN and South Korea offers a more positive relationship than China, thus placing AKFTA in a more advanced position than ACFTA. This indicates that ACFTA, which is considered adequate, actually has drawbacks compared to AKFTA and vice versa. Lastly, it is important that to conclude which one is more effective and impactful between the two requires more intense observations, more specific data, and longer duration, especially by looking at the sustainability of the dynamics of the international political economy in the future.

References

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