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AFTA/ACFTA

(1) 21st Century: Is the China threat still in existence among ASEAN Member Countries?

SG: While it is easy and tempting to see China’s rise as an economic threat, it would also be a mistake to do so. A rapidly growing China is the engine which powers regional economies and the global economic train. ASEAN member countries will benefit greatly, provided they adapt fast enough to ride on the train. Indeed, increased trade with China was one reason why many of the crisis-hit economies in ASEAN recovered as quickly as they did.

There has been a steady rise in the relative share of ASEAN in China’s global merchandise trade: from 5.8% in 1991 to 8.8% in 2003. ASEAN has now become the fifth largest trade partner of China (after Japan, the United States, the European Union, and the Special Administrative Region (SAR) of Hong Kong). On the other hand, China has also become an important trade partner of ASEAN, occupying the fifth position in 2003. The share of China in ASEAN’s trade with the world expanded from 2.3 % in 1991 to 7% in 2003. Last year, ASEAN-China trade amounted to nearly US$79 billion.

(2) 21st Century: Please provide an update of the AFTA?

SG: SEAN is reviewing the local content formula of the AFTA, and hope that the revised calculation formula would give manufacturers with regional production networks in ASEAN greater access to lower tariff rates for the relevant products. ASEAN does not follow the European Union (EU) way of imposing an across-the-membership common tariff policy. ASEAN remains open to trade with all those wishing to do business with member countries. However, having said that, our aim is to achieve a zero tariff rates for most products, which would increase the ASEAN competitiveness. For example, some of the automotive manufacturers who have plants in Indonesia and Thailand, could have the flexibility to source for their parts and components (supply-chain management), and not to worry too much on tariffs.

(3) 21st Century: Is the ACFTA Negotiation moving towards this direction as well? What is the major challenge?

SG: If the local content calculation is indeed successful, it would also be a major boost to the ACFTA negotiation. As a matter of fact, this is a major discussion in the ACFTA.

(4) 21st Century: With the new administration in placed in Indonesia, would the commitment by the previous government be binding? Likewise, would the change in leadership in some of the ASEAN Member Countries be a hinder to the negotiation?

SG: This is the crunch of the issue. I have always believed that the negotiating parties should (attempt to) sign an early stage agreement, in the event of minimal differences. At least, this would be binding even if there is a new government among the negotiating parties. However, if the negotiation is still in-process, the new government could always claimed that they do not agree with the previous administration! Such situation would then require a re-start of negotiation and additional time is consumed for the new administration to get familiar with the already-discussed issues.

Currency

(5) 21st Century: There is always frequent comparison between ASEAN and EU. Recognising that the differences in culture, religion, economic development and political structure are smaller in EU, would this increase the difficulties of cooperation in the (ASEAN) region?

SG: ASEAN has an advantage over EU. At least, English is the official language during ASEAN meetings, and the subsequent ASEAN plus China, plus Japan, and plus Korea meetings. English is used during the actual meeting as well as for meeting documents. This is unlike the EU, where there is a need to translate the meeting proceedings and documents to French, German and Spanish etc. This is extremely exhaustive. Since a trade negotiation is generally a complicated process, a slight wrong translation/interpretation of word would have a substantial consequence.

(6) 21st Century: In the long term, does ASEAN need a common currency?

SG: During the process of economic integration, it is unlikely for ASEAN to have a common currency. Member Countries would only review the need (of a common currency) in 10 years time. On the whole, Member Countries are satisfied with their present monetary structure, so this is not an urgent issue yet.

(7) 21st Century: What is the ASEAN’s view on the Chinese RMB in view of US’s constant critics that the devaluing of Chinese RMB has caused goods from US to lose its competitiveness?

SG: Generally, ASEAN Member Countries enjoy the current value of RMB since the import of Chinese goods to ASEAN is relatively economical. However, in the same time, ASEAN opined that the re-evaluation of the RMB is not a bad move after all. The key is to prepare the stakeholders before undergoing such evaluation, and not on a sudden/abrupt basis, bearing in mind that the vast trade between ASEAN and China is built on a stable currency exchange rate. Any drastic fluctuation would have a major impact.

ASEAN would purchase more Chinese goods

(8) 21st Century: What is the next opportunity in the ASEAN-China economic relationship?

SG: This would be the November ASEAN-China Expo / Fair in Nanning. I would recommend that all the Chinese and ASEAN private sectors to participate in this event, to get to know fellow private sectors and to do business networking.

This (event) was in fact suggested by your premier, Wen Jiabao, in the ASEAN-China Summit in Bali in 2003. I am extremely impressed by Premier Wen’s knowledge on economic matters and his sincerity to enhance the ASEAN-China relations, not just in economic/trade, but the overall relationship, since ASEAN and China are friendly neighbours.

Premier Wen Jiabao had also proposed that trade volume between ASEAN and China be increased to US$100 billion by 2005. Well, we hit US$79 billion last year, and the projected figures this year is between US$85 to US$90 billion. I believe this target is within reach.

(9) 21st Century: Having said this, the main reason for the ASEAN-China trade volume to grow was due to the increase in China import from ASEAN, plus the high price of the oil and natural gas. Hence, there is now a China trade deficit with ASEAN.

SG: This is temporary. ASEAN would increase its import from China. Just think, when ASEAN export more agriculture products to China, of which many are tariff-free, the income of the (Chinese) farmers would increase. When that happen, what would they be thinking of buying? Well, definitely not the European fashion or the Japanese electronics products but China-made household electronics products (white goods), because of the low-price and the durable of these home-made products, something which they can afford. Indonesia may have profited from its sale of natural gas, though I believe she has also use the money to purchase Chinese products. This is a win-win relationship.

(10) 21st Century: Apparently, there are many ASEAN countries, particularly the weaker economies, are worried that the Chinese goods would hit on their local industries, and hence, refused to open up their marke

t.

SG: This situation does exist. During the ACFTA, we touched on the General Exclusion List (GEL) i.e. all countries could list down their desired industries and products to be protected. The current situation is that the GEL for some of the countries are getting longer, e.g. Thailand listed 200 items, Indonesia listed 500 items. While the total trade value of these items are still being calculated, I would expect China to accept an average of 200 items from each countries, and the trade value not exceeding 25% of the total value. This might be the most critical and bargaining-demanding stage of future negotiation.

However, we are optimistic that we could complete the negotiation. There is a vast potential in the ASEAN-China economic relations. We believe that, through mutual efforts, ASEAN and China would be able to establish a strong and lasting partnership, and to realize the benefits of mutual growth and prosperity.