The Effect Of ASEAN-China Free Trade Area On Thailand-China Merchandise Trade

Today’s world is a competitive and cooperative driven world.Ruthless competition on the basis of strong cooperation,exists among every region.This is apparent from the noteworthy trend in recent decades which has been the accelerated pace of globalization,especially in the form of regional economic integration and preferential trade agreements,which have brought about a new combination of both competition and cooperation.Thailand and China have always maintained strong diplomatic relations and economic partnership.Bilateral relations reached an all new height with the signing of the ASEAN-China Comprehensive Economic Cooperation Framework Agreement in 2002,a legal framework that sets the stage for the creation of the ASEAN-China Free Trade Area(henceforth ACFTA),which is the very first and by far the single most important multilateral free trade agreement that both Thailand and China have yet formed,and presently the largest free trade area in terms of population and market size to date.This initiation has the potential to not only accelerate,but also deepen the economic engagement between the two countries.The path to the creation of ACFTA can be traced back just over a decade,and is worthy of examination if we are to fully understand the complexities,challenges,opportunities and ultimately the future of this significant cooperation.This paper seeks to study the effects that ACFTA exert on bilateral trade leading up to,during and after its completion in 2010.The structure of this paper is comprised of eight chapters,the first three serve as background for the subsequent chapters,which explore the underlying issues that have affected,and will continue to affect the efficacy of ACFTA on bilateral trade development,structure,composition and competitiveness.Applying the comparative analysis combined with qualitative,quantitative analysis and through the use of economic indices,the following chapters attempt to discern the multifarious effects and the channels to which the establishment of such a free trade area has on the promotion,facilitation and liberalization of merchandise trade between the two countries over time.ACFTA and its tariff reduction scheme have eliminated tariffs and other barriers on some90 percent of all traded goods,successfully eased market access and freed the flow of capital,resources and goods.Over the past 10 years,since the initiation of ACFTA in 2005,bilateral trade has grown to almost sevenfold,outperforming China’s trade with the rest of ASEAN and other nations.In 2014,China surpassed Japan to become Thailand’s largest trade partner,with bilateral trade amounting to 63.6 billion USD,an expansion of 39 percent compared with 2010 and projected to reach 100 billion USD by 2020.This is in large attributed to the elimination of tariff barriers that have helped to liberalize and ease the free flow of goods and capital.ACFTA has also led to the restructuring of trade structure and a transition towards intra-industry trade,with relative competition in manufacturing products and relative complementary in agricultural products.The opening up of new market no doubt comes with intensified competition,especially in labor-intensive products.Additionally,the Framework Agreement which entails among others,Agreements in Trade,Services,Investment,Settlement Disputes and Economic cooperation have collectively and independently,directly and indirectly stimulated increased trade.Results from our study reveals a substantial influx of inbound investment and the proliferation of services in the banking,financial,tourism and education sectors,especially from the Chinese side,which are all trade inducing factors and can help to bridge a closer economic cooperation between the two sides.The development of logistics and transportation infrastructure as endorsed by the framework agreement with future projects such as the Sino-Thai Railway and the ASEAN Master Plan for Connectivity have already begun to exert constructive effect in the forms of better trade facilitation and reduction of transportation costs.This paper further applies the quantitative analysis on the basis of the Free Trade Area theory and gravity model to discern the static trade effects of ACFTA on merchandise trade.Empirical results point to the presence of both trade creation and diversion effects,with trade creation effect outweighing the trade diversion effects,indicative of a net welfare gains for both countries from ACFTA.At the same time,dynamic effects of economics of scale,increased competition,and technological advancement are also at work.On consumer’s side,ACFTA has brought about a reduction in price,and increased diversity in heterogeneous products.The establishment of ACFTA,hence is not only an important milestone for the development of bilateral merchandise trade,but will also serve as a stepping stone to the evolution of future regional multilateral free trade agreements,with implications to AEC,RECEP and FTAAP.The analysis of ACFTA’s effect,thus is beneficial to the advancement of political relations;for the fulfillment of the “cooperation and win-win” objective;and to regional stability and continuous growth in Southeast Asia.