ASEAN-China FTA Amendments to Ease Market Access

The amendments to the ASEAN-China FTA came into force in August 2019, simplifying the rules for trade of goods, services, and investments in the ASEAN-China economic zone that is home to over 1.8 billion people.

The ASEAN-China Free Trade Area (ACFTA) was initiated with the signing of the Framework Agreement on Comprehensive Economic Cooperation in 2002 and comprises one of the world’s largest free trade areas with a market of over 1.9 billion.

Under the ACFTA, tariffs on more than 7,000 product categories were reduced to zero, resulting in China becoming ASEAN’s largest trading partner since 2009. However, during 2020, it was ASEAN that jumped to the number one trading bloc with China, recording US$731 billion in total trade volumes; a seven percent year-on-year growth.

ASEAN overtook the EU for the top position partly due to the UK’s exit from the union as well as extensive lockdowns throughout the bloc. Moreover, prior to the onset of the pandemic, China-based manufacturers have been forging closer ties with ASEAN neighbors to avoid import tariffs imposed by the US on Chinese-produced goods.

ASEAN-China now looks to strengthen this existing multilateral trading system to unlock new business opportunities for all countries involved. The two giant economic blocs recently ratified the Framework Agreement on Comprehensive Economic Cooperation and Certain Agreements thereunder between ASEAN And China (“ACFTA Upgrading Protocol”).

The upgraded protocol will make changes to the ASEAN-China Free Trade Agreement (ACFTA) by simplifying the rules of origin, customs procedures, trade facilitation measures, and investment regulations.

ACFTA amendments

The ACFTA Upgrading Protocol makes four key changes to the original ASEAN-China Free Trade Agreement signed in November 2002.

Simplifies rules for the trade of goods

This protocol upgrades and simplifies the rules of origin, which govern the origin of commodities and in turn establishes its eligibility for preferential tariff treatments available under the FTA.

Specifically, it now clarifies the multiple ways in which the origin of good is to be decided.

• Firstly, the origin of goods will be deemed according to the country in which the good was wholly produced or obtained.

• Alternatively, if the good was produced in multiple countries, the regional value content (RVC) must be at least 40 percent of the value of the goods and the final process of production must be performed within a country party to the FTA.

• Lastly, a series of Product Specific Rules have been included to clarify the origin of goods for products that had undergone sufficient transformation in the supply chain or experienced a change in tariff classification.

In addition to this, a new section has been added for customs procedures and trade facilitation, which clarifies the operational certification procedures for applying and obtaining preferential tariffs. ‘Form E‘, introduced by the protocol, verifies the eligibility of export products for preferential treatment.

Simplifies rules for the trade of services

The protocol details specific rules for market access for sectors, such as engineering, construction, sporting, healthcare, securities, and tourism services.

The rules are offered in table form in Annexure 2 of the Protocol – which specifies China’s positions towards each ASEAN member country in terms of the limitations on market access and limitations on national treatment. 

Strengthens investment provisions

The amendment adds provisions that explicitly call for member parties to: simplify procedures for investment applications, improve access to investment laws, rules, regulations, and procedures, and utilize existing investment promotion agencies where necessary.

Improves multilateral economic and technical cooperation

Under the amendments, the respective parties are encouraged to undertake deeper economic and technical cooperation on activities that will bring mutual benefit.

Area of focus mentioned within the Protocol include:

• Trade-related issues;
• Agriculture, fishery, forestry and forestry products;
• Information and communications technology;
• Human resource development;
• Investment;
• Trade in services;
• Tourism;
• Industrial cooperation;
• Transport;
• Intellectual property rights;
• Small and medium enterprises;
• Environment; and
• Other fields related to economic and technical cooperation as may be mutually agreed upon by the Parties.

Focus on strengthening multilateral trade linkages

While more countries are seemingly opting for growing protectionism, the Southeast Asian region and China are actively forging stronger regional and global trade and investment ties.

In the ‘China-ASEAN Strategic Partnership Vision 2030’ adopted last year, the two sides agreed to realize a goal of US$1 trillion in bilateral trade and US$150 billion in investment by 2020. Complimenting this, China and ASEAN joined the Regional Comprehensive Economic Partnership (RCEP) agreement, which was signed on November 15, 2020, is expected to boost trade and economic integration among ASEAN members and its five trading partners – China, Japan, South Korea, Australia, and New Zealand.

Since ACFTA came into force, China’s share of ASEAN’s total merchandise trade increased from eight percent in 2004 to 21 percent in 2018. With its large cumulative population and high growth potential, the ASEAN region continues to offer many opportunities for businesses.

With no end in sight for the US-China trade war, the updated Protocol to the ASEAN-China FTA also allows China to gain better access to the neighboring region as a whole and diversify its focus from European and US markets. 

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