China - Asean Free Trade Area Of The Old Trade Scale Effect In The Study

China and ASEAN signed a Framework Agreement on Comprehensive Economic Co-operation on November2002and the implementation of the Trade in Goods Agreement on July2005, this brought the export and import commodities tariff reduction. This was intent for establishing the China ASEAN Free Trade Area (CAFTA) and it has become the third largest free trade area in terms of nominal GDP in the world, so CAFTA made an important impact on China and Laos’s economic development.The bilateral trade between Laos and China rapidly increased after the establishment of CAFTA and has become the second trade partner of Laos; moreover, China is the fastest growing trade partner of Laos. Before setup CAFTA, Laos exports to China was increased slightly but after establishment of CAFTA Laos exports to China was increased rapidly and China eclipsed Vietnam as the second export destination of Laos. On the other hand, Laos import from China is the second country before set up CAFTA, and has accelerated rapidly after the establishment CAFTA. However, there is still big difference when compared with Thailand which is the top import of Laos.Afterward the impact of CAFTA on Laos and China’s trade scale was examined by using gravity model to analyze observation from1990to2009. To investigate the impact of CAFTA to Laos and China trade scale, build Laos-China export model and Laos-China import model, and use Eviews6.0for analyzing these two models. The results indicate that CAFTA only significantly affects the exports of Laos to China, but the imports of Laos from China is not significant.