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The Analysis of the Free Trade Agreement Issues

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A free trade agreement between China, Japan and Korea would improve efficiency and productivity for various organizations. Product specialization and efficient utilization of resources in suitable sectors would happen. Minimizing transaction costs would also allow cheaper prices for consumers. It would also raise the productivity level. Organizations can also learn from each other through cooperation. The intensity of competition would increase and reduce internal inefficiencies. The productivity level would also increase due to the establishment of a free trade agreement. China’ s ample supply of low-cost labor would be able to erode the market share of other countries (Weston, 61, 1995). It is estimated that trade liberalization measures would allow China and ASEAN to increase market access and trade opportunities (Bergsten, 91, 1996).

This could be achieved through trade flows with income and welfare increase on both sides. China’ s demand for imports from ASEAN is expected to rise 11 percent a year. Imports are expected to reach US$35.5 billion in 2007. The export value of ASEAN countries will increase to 49 percent. The combined GDP of the ASEAN countries is expected to rise by US$5.4 billion and China’ s by US$2.2 billion because of the free trade agreement. With regard to the composition of trade flows, the ASEAN-4 may directly gain some additional market share in China in the field of resource-based goods.

Notably, these include oil, gas, and hydro-energy; several other mineral commodities; many forestry and agriculture items (such as food grains, sugar, edible oils, timber, and furniture, etc. ); and fishery and aquaculture products in fresh, processed, and frozen forms. In addition, through rising income and affluence, there will be higher demand from China and the ASEAN-6 for a variety of high-value, income-elastic agro products, including high-quality rice, fish and seafood, cut flowers, tropical vegetables and fruit, nuts and spices, and so on.

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