CAFTA 3.0 hailed as advocate of multilateralism

The move by China and member states of the Association of Southeast Asian Nations to upgrade a 15-year-old free trade agreement showcases their commitment to multilateralism, and has dealt a significant blow to rising protectionism, experts said.

On May 20, the Ministry of Commerce announced that China and ASEAN member states have completed negotiations on Version 3.0 China-ASEAN Free Trade Area, or CAFTA 3.0.

Dino Patti Djalal, former vice-minister of foreign affairs of Indonesia, called it "a huge development in terms of global economic cooperation".

As the global tariff war threatens to escalate amid rising protectionism and anti-trade movements, Djalal said the world needs a strong counterforce to these trends and the progress made on CAFTA 3.0 shows that ASEAN and China can work together to achieve that goal.

"The economic impact is significant because China is already our No 1 trading partner," said Djalal, who is also founder and chairman of the think tank Foreign Policy Community of Indonesia.

"The political impact is quite significant as well in terms of showing to the world that at a time when protectionism is high, ASEAN and China have actually made a trade agreement that is next level," he said, adding that this long-term arrangement for mutual benefit could set an example for the world.

China has been the largest trading partner of ASEAN for 16 consecutive years, while the 10-nation group has been China's biggest trading partner over the past five years.

The China-ASEAN Free Trade Area officially took effect in 2010, while CAFTA 2.0 was fully implemented in 2019 after both sides reached an agreement on the upgrade in 2015.

The resolve of China and ASEAN to modernize CAFTA signals a strategic rejection of unilateralism, said Mohamed Iqbal Rawther, chairman of the Economic Club of Kuala Lumpur in Malaysia and deputy chairman of the China-ASEAN Business Association.

Since the announcement was made just before the ASEAN-Gulf Cooperation Council-China Summit in Kuala Lumpur on May 27, during which leaders and representatives also welcomed the conclusion of CAFTA 3.0 negotiations, Iqbal said the progress underscored a broader alignment of the Global South.

"Developing economies are increasingly rejecting the United States-led 'de-risking' agenda, as evidenced by ASEAN's neutrality in the US-China rivalry," he said.

Iqbal said he believes the digital economy, which is one of the nine new chapters to be added to CAFTA 3.0, will be the most promising sector.

Considering Southeast Asia's booming internet industry, initiatives such as harmonizing e-commerce regulations and artificial intelligence collaboration could unlock huge growth potential in the sector, he added.

Chheang Vannarith, director of the China-ASEAN Studies Center at Cambodia University of Technology and Science in Phnom Penh, said the negotiations concluded in the spirit of mutual interest.

"Both sides showed their commitment and determination to further deepen integration and connectivity," he said, noting that the enhanced connectivity and integration will result in better resilience.

To further promote free trade, the two sides need to facilitate the harmonization of standards and other nontariff trade barriers, he said.

More efforts should be made for enhancing governance in areas such as customs clearance, export control and rules of origin, as well as for strengthening the institutional capacity and leadership of custom agencies, including digital translation, he added.

Iqbal, from the Economic Club of Kuala Lumpur and China-ASEAN Business Association, said his organizations will focus on arranging workshops for small and mediumsized enterprises to increase their awareness of CAFTA 3.0.

There are also plans to develop digital tools to provide guidance to companies, foster public-private partnership for smooth customs and policy alignment, showcase success stories for knowledge sharing, and push for financial support in areas such as green tech investment.

"CAFTA 3.0 is not just a trade pact, it is a blueprint for Asia's economic future," Iqbal said.