A Study On Establishment Of Economic Effects Of Cafta

After the disruption of Doha Round negotiations of World Trade Organization (WTO), the major economies are accelerating the negotiation of bilateral or regional free trade agreement. Conforming to the trend of world economic development, China has accelerated the pace of regional economic cooperation and signed the "China-ASEAN Framework Agreement on Comprehensive Economic Cooperation" with 10 ASEAN countries in Phnom Penh, Cambodia on November 4,2002 in order to achieve liberalization of trade in goods and services and create transparent, free and convenient cooperation environment. China-ASEAN free trade area (CAFTA) was planed to basically establish in 2010."Protocol for Trade in Goods" and "Dispute Settlement Mechanism Agreement", signed between China and 10 ASEAN countries on November 29,2004, determined the way of tariff reduction in goods trade, the rules of origin, trade remedies and so on, which means CAFTA has entered into a comprehensive and substantial construction phase. CAFTA will be not only the world's most populous FTA, but also the largest free trade area of developing countries after its completion in 2010. It would greatly facilitate the economic development in China and ASEAN, change import-export and net benefits of trading partners, and thus change the world's well-being and trade. In this paper, the economic impact of the establishment of CAFTA is analyzed, using the UNCOMTRADE and GTAP data. The main contents and basic findings of this paper are as follows:First of all, the change of trade volume between China and ASEAN is analyzed. In recent years, bilateral trade between China and ASEAN grows sustainably and rapidly at an average annual rate of 22.50 percent from 1997 to 2007-such a high growth rate is rare in today's world. And Philippines, Malaysia and Brunei in 10 ASEAN members are the fastest-growing trade partners of China. Nevertheless, the deficit between China and ASEAN is expanding year by year and China is at a relatively inferior position in bilateral trade. And Indonesia, Malaysia and Thailand are the main deficit countries to China, while Vietnam, Cambodia, Myanmar and Laos are China's trade surplus states.Secondly, this paper analyses the change of proportion of bilateral trade value to foreign trade value of China and ASEAN. It shows that the proportions are all rising from 1997 to 2007. The China-ASEAN trade relationship is becoming increasingly close and playing an increasingly important role in the field of foreign trade each other. However, compared to ASEAN's demand for Chinese goods, the need for ASEAN's commodities from China's consume market is more exuberant.Third, the change of trade structure between China and ASEAN is showed in this paper. Bilateral trade structure is changing from primary products, labor-intensive products to the capital and technology-intensive products. Just as showed in this analysis, in spite of the trade value of primary products, labor-intensive products, capital and technology-intensive products between China and ASEAN are increasing year by year, the share of primary products, labor-intensive products in the import and export is declining, while the share of capital and technology-intensive products continues to grow and is at dominant position.Fourth, The trade competition and complementary between China and ASEAN is researched by UNCOMTRADE data divided according to SITC. Although China and ASEAN are at similar level of development, they have different endowments of natural resources, industrial advantages and international competition of products. Analysis of RCA shows that:primary products in ASEAN have more comparative advantage and international competitiveness, while these in China are disadvantageous and experience a worsening trend. Manufactures in China have a comparative advantage, particularly for labor-intensive products; while the comparative disadvantage of capital and technology-intensive products in China is shrinking and international competitiveness is growing, which is a good reflection of industrial upgrading in China. Technology-intensive products in ASEAN, especially Singapore and Malaysia have significantly comparative advantage. Overall, there are 4 competitive categories of products and 6 complementary ones in 10 classifications of SITC between China and ASEAN-Proportion of complementary types is more than that of competitive ones. However, the similarity index of export products shows that there are a lot of similarities in goods that China and ASEAN export to world market, which means more competitive between two regions in the world market. Overall, the main trade relation between China and ASEAN is complementary.Fifth, this paper discusses economic effects of the establishment of CAFTA by GTAP.China and ASEAN compete in process of regional trade integration and share enormous trade creation brought by tariff reductions of CAFTA, which will inevitably lead to the loss of trade diversion of surrounding countries and the negative impact of production, consumption, trade and other economic areas in these countries. In other words, CAFTA will bring significantly economic impacts to the members of CAFTA, trade partners, as well as the whole world. GTAP simulation results show that:compared with the benchmark program, by 2010, CAFTA will obviously increase GDP, household income and social welfare in the members, change the structure of import and export and adjust their commodity production structure. While the import and export, social welfare in the countries and regions outside CAFTA will decline, especially those in Japan, South Korea and NAFTA is seriously damaged. Overall, CAFTA is playing an active pole in global economy-enhancing import and export and social welfare.Sixth, according to the above contents and conclusions, some suggestions are given:China should produce the goods with international comparative advantages or relatively smaller disadvantage compared with ASEAN, in accordance with the principle of comparative advantage, to adjust the industrial structure, enhance the competitiveness of products and promote faster development of foreign trade. China should continue its cooperation with ASEAN in complementary fields, such as agriculture, energy, services and so on. And China also should actively participate in and promote regional economic integration with other countries and regions, particularly with developed countries.