Trade & Investments

Though there is no ASEAN+3 regional agreement as such, at present there are a number of bilateral free trade agreements between ASEAN and China, Japan, and Korea respectively, as well as between China and Korea. China, Japan, and Korea are in the very early phases of negotiating a trilateral agreement which could then seek an agreement with ASEAN should the Regional Comprehensive Partnership fall short of the levels of liberalization possible between the ASEAN+3 partners.

An important feature of the three ASEAN+ bilateral agreements is the inclusion of formal dispute settlement mechanisms, the avoidance of which has long been a hallmark of Asian regionalism, and which has handicapped the intra-ASEAN agreements.

Though less legalistic than the WTO or U.S. led efforts such as the Trans Pacific Partnership, with substantial discretion left to the parties’ political bodies, their presence marks an increasing willingness for rules-based international governance and transparency across the region.20

ASEAN-China and ASEAN-Korea: The Framework Agreements

The ASEAN-China and ASEAN-Korea bilateral agreements are very similar and are, in turn, closely based on the respective intra-ASEAN agreements. Both consist of a goods package, a services package and an investment package, plugged into a “Framework Agreement on Comprehensive Economic Co-Operation”.21

The framework agreements also include articles committing members to cooperation across a range of trade facilitation and development goals, including customs procedures, tourism, capacity building, technological transfer, infrastructure projects (concentrated in the Indochinese countries and the Mekong Basin in particular), non-tariff barriers, and e-commerce.

The most substantive packages plugged into the framework agreements are the two trade-in-goods agreements.22 The China-ASEAN goods agreement is essentially a tariff reduction programme. Their Most Favoured Nation tariff rates are scheduled to be gradually reduced and largely eliminated. At least 40% of the F.O.B. value of goods is required to have originated in ASEAN or China in order for the preferential tariff rates to apply.

The majority of goods were placed on the “Normal Track”. China, Thailand, Indonesia, Malaysia, the Philippines, Singapore and Brunei (ASEAN6) reduced tariff rates on normal track goods to zero by 2010, while Vietnam, Laos, Myanmar and Cambodia had until the end of 2015.

As members had different schedules and were free to lower tariffs ahead of schedule, it was agreed that so long as a member was sticking to its own deadlines it would enjoy the concessions other parties had made on goods even if it had not yet made concessions on those goods.

China and the ASEAN6 nations were allowed to place 400 goods (10%) on a “Sensitive Track”, while Vietnam, Laos, Myanmar and Cambodia were allowed to place 500 goods on this list. Tariffs on sensitive track goods did not need to reach zero but are required to be at maximum 5% by 2018 for China and the ASEAN6 countries, and 2020 for the Indochinese ASEAN members. A member must reduce its own tariff on a sensitive good to 10% or lower before it can enjoy the reciprocal concession rates offered by other members.

However each was also allowed to place 40% of their sensitive goods on a “Highly Sensitive” list, tariffs on such goods need only be brought down to 50% by 2015 for China and ASEAN6, and 2018 for the Indochinese economies.

Lists of the goods and their applied tariff rates on the sensitive track for each country may be found here.23

Finally, members could list goods as General Exceptions if their protection was justified by protecting public morals, human, animal or plant life, gold or silver, prison labour, objects of artistic, historical or archaeological value, exhaustible natural resources, goods subject to domestic price controls or goods subject to short supply, provided their protection was consistent with the principle they be distributed equitably among members.

The trade-in-goods agreement with Korea is both structurally and substantively very similar to that with China. The notable differences are primarily the deadlines for tariff reduction and the number of goods members can place on their “Sensitive” and “Highly Sensitive” lists. For goods on the “Normal Track” the ASEAN6 countries and Korea had until 2010 for all applied tariff rates to reach zero, while Vietnam had until 2016, and Cambodia, Laos and Myanmar until 2018.

All members are limited to placing 10% of their tariff lines on the “Sensitive” list. ASEAN6 and Korea had until 2012 for the applied tariffs on these goods to reach 20%, and they need to be 5% or less by 2016.

Vietnam needs to reduce tariffs to 20% by 2017, and to 5% by 2021. Cambodia, Laos and Myanmar have until 2020 for their applied tariffs on sensitive goods to reach 20%, and 2024 for them to reach 5%.

Up to 200 of the “Sensitive List” goods can be placed on the “Highly Sensitive” list by each member. It was then decided which goods would be subject to a maximum tariff of 50% (Group A), 20% (Group B), goods that would have to have their tariffs reduced by 50% (Group C), which would have quotas applied (Group D) and which would be exempt altogether (Group E). ASEAN6 and Korea have until 2016 to comply for all groups, Vietnam until 2021, and Cambodia, Laos and Myanmar until 2024.

Based closely on the WTO’s General Agreement on Trade in Services (GATS) the two agreements’ services packages contain both general and specific commitments. Both state explicitly that the agreement would not apply to services supplied in the exercise of governmental authority or the procurement of government agencies. Like the trade in goods agreements, members were also allowed to withhold any service from the agreement permanently as a General Exception if their protection was deemed necessary for a range of reasons from public morals, human, animal or plant life, to prison labour or national security.

In general ASEAN-China services package commits members to:

i) Ensure that all measures of general application affecting trade in services are administered in a reasonable, objective and impartial manner.

ii) Not to construct domestic regulation of services, including qualification requirements, technical standards and licensing procedures in such a way that they placed a more severe burden on foreign suppliers than on locals.

iii) Not to apply restrictions on international payments or transfers related to current services transactions in their territory.

iv) To steadily work towards progressively liberalizing services sectors and reaching mutual recognition agreements where possible on an ad hoc basis, including bilaterally.

More specifically, members agreed to grant each other Most Favoured Nation treatment (MFN) across all four modes of services supply defined in the GATS and to grant each other National Treatment (NT) in certain sectors.

The sectors that each member agreed to confer NT in, together with details on areas that they held unbound by the agreement were laid over two rounds of commitments, and they may be found here.24

In general members tend to withhold NT regarding foreign equity limits, the rights of commercial operation for foreign natural persons, and investment in land across all sectors, plus a range of sector-specific limitations.

As with the trade in goods agreements, the services packages of the ASEAN-China and ASEAN-Korea agreements are structurally and substantively similar.
One may find the list of specific commitments and reservations made by each country here.25

The two investment agreements aim high but are heavily qualified both in the legal text and through members’ reservation lists, rather like the ASEAN Comprehensive Investment Agreement on which they are based.26

Both aim to liberalize investment regimes through commitment to National Treatment, and Most Favoured Nation treatment where National Treatment is withheld.

ASEAN-Japan: The Comprehensive Economic Partnership

This agreement is much less closely based on intra-ASEAN agreements, and diverges structurally from the ASEAN-China and ASEAN-Korea agreements.

ASEAN-Japan’s is essentially a trade-in-goods agreement. Whilst it includes chapters on services and investment, these consist of little more than an affirmation that members will pursue further cooperation over time.

The substantive difference to the agreements with China and Korea is that rather than operating with the system of “Normal Track” and “Sensitive Track”, each country placed goods into categories A, B, C, R or X, and each country received a unique schedule of what was expected of them.

In practise X is the equivalent of a general exemption. R is a heterogeneous category where countries specify terms specific to the good. Goods in category C will retain their original tariffs, which may not be increased. Over 90% of goods were categorized as A, which required tariffs to be lifted immediately. Goods in category B are expected to have their tariffs lifted in equal instalments over periods ranging from 4 to eleven years, depending on the country.

Schedules of how goods are classified by each country as well as the timelines each country must follow for category B goods may be found here.27

China-Korea:

China and Korea only signed their bilateral agreement into force in June 2015, and it is still pending ratification. Full English copies of the legal text were not available at the time of writing.

The deal removes tariffs on 90% of goods, however, as The Diplomat points out, most of the goods actually traded between the two countries fall into the 10% not provisioned for tariff removal.28

The tariffs that are to be reduced to zero will be reduced gradually, over a twenty-year horizon, and so while significant for companies in certain industries, the agreement does not represent significant liberalization or integration between the two economies. Importantly, those industries which have been granted concessions are off-limits to foreign investors in both countries.

In reality, Chinese agricultural exports have been given some concessions from Korea, while Korean industrial intermediates have been given concessions by China.

The agreement has a significant political slant; firstly through China’s preference in trade with Korea over Japan or Taiwan, and secondly through specific preferential tariffs for several hundred goods manufactured in Korea’s Kaesong Industrial Complex.29 Companies in the Kaesong complex employ approximately 53,000 North Koreans, meaning these tariffs are an indirect means of providing some revenue for North Korea.

While the China-Korea bilateral agreement is heavily focused on only two industries, has an extremely lengthy implementation plan, and seems to be largely politically motivated, both countries have agreed to renew negotiations in two years’ time to introduce a services package, and it is possible that the goods agenda will be updated at that time.

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