The China Asean AFTA: will there be turmoil?

January 2010 was a milestone of sorts. After years of negotiations, the China Asean free trade agreement (FTA) came into force. It was a grand plan of sorts. For a start, the whole market has a population of almost two billion people. For another, tariff barriers on 90% of the goods between the two regions were slashed down dramatically. The repercussion is that Chinese goods will have very little barrier in getting into Asean. And Asean goods will get easier entry into China. Well and good on the surface but when put into practice, the picture is full of discords.

When we look into the nature of goods from the two parties, we will be able to see what is going to happen. Take the example of consumer goods like rubber shoes (more appropriately called plastic shoes since the rubber parts have been mostly replaced by plastics), we have countries like Indonesia, Vietnam, Thailand and the Philippines producing quite a large amount mostly for domestic consumptions. Now, with reduced entry barrier of Chinese made shoes into Asean, these manufacturers in Asean will not be able to compete with the imports. The result; they would probably have to close shop, just like those in Malaysia.

What about the impact on China? Well, China says since they have the economies of scale, let them make the shoes and to make the equation look good, China says it will buy more of the raw products from Asean. So Asean has to restructure its economy to that of going back to selling raw materials like palm oil, timber and maybe some rubber (for making tires, not shoes). Like wise for other consumer products, there is no future for its manufacturing in Asean. For Asean, the future is going to be raw and semi-raw materials and maybe some high tech products that China might be willing to buy, not necessary to fill its needs (they do produce high tech products don’t they) but to make the FTA viable.

Out of all those important aspects of the FTA, one thing seems to be glaringly absent. That is intellectual property protections. Due to the low level of observance of intellectual property rights in both Asean and China and the lack of solid intellectual property laws and the diverse range of maturity among the group, no agreement has been reached on IPR and it might as well be. Perhaps there is no need for intellectual property protection here! China knows that it has the muscle to produce at the cheapest cost. If any member of Asean thinks that they can make cheap counterfeits of Chinese goods and sell it in Asean, then let them do it. Which obviously they can’t. On the other hand, China is not worried about buying counterfeit raw materials because the buying method is different from consumer products. They know that their money buys the real thing, so there is no need to observe intellectual property rights.

So what about the future? OK, it will probably take a decade to overhaul the marketplace. Asean industries that don’t have economies of scale will just have to wilt. In the meantime, China will have time to ride out the world economic recession. Never mind if the US buyers are not ordering; Asean will take up the slag. Ten years down the line, Asean would have revamped its economy to complement those of China. And there would be no reverse back. China in its part might dish out some investments in Asean on high tech products that have western intellectual contents. It would not be able to attract American investments on high technologies on its shore because it can’t guarantee western IPs in China.

As a result, some members of Asean will have high tech industries with American IPs and Chinese money and they would be termed politically correct. And America would be happy for staying out of the China circle with their IPs and still makes a sale to China via Asean. So will the Japanese, the Koreans and the Europeans stay happy following the example of the Americans? OK, it looks like the best of both worlds and trade war averted. What about India? Well, they of course will gain on receiving outsourcing jobs from the industrialized countries. What more do they want? As for Brazil, Russia and Mexico, probably small investments from the west to keep them in the picture and not allow them to rock the boat!

Is ACTA in contravention of basic human rights?

As far as Europeans are concerned, they have it enacted in the laws that says everyone have a right to be heard in a court of law before they can be deem to be convicted of any crime, and that they are entitled to a fair and public hearing. Not only that, they must be given a reasonable time to be heard by an impartial body dully sanctioned by the state.

According to news going around the blocks, the Anti-Counterfeiting Trade Agreement (ACTA) that is being championed by the US and gaining momentum with many nations agreeing on changing their copy right laws in support of copyright holders, specifically music and video producers, is being challenged by law groups who said it contravenes basic human rights if it were to be adopted.

With the adoption of ACTA, service providers will be given the onus to cut off the lines of customers who are suspected to have illegally downloaded copy righted files from the internet. This power if enacted will however clash with the basic human right law enacted by many states earlier. If the American First Amendment Law were to be taken at face value, then ACTA will surely be deemed as illegal and unenforceable in the US Courts.

Who is wining the music download game?

It used to be in the news everyday: the music recording industry searching every where to find file infringers and bringing them to court. That was 2008. Then, it was the illegal music down-loaders that were targeted. Most of them caught were students who found the university’s servers to be convenient places to do peer to peer down loads. The university servers did offered the students an anonymous internet protocol (IP) address to illegally download music and movie files. It was a laborious method to track down people. But still, a few thousand down loaders were identified, including innocent housewives who don’t do any internet activities! There was a big hue and cry then when the music owners dragged the illegal file sharers to court. Incidentally, most of them were college students and the affected university authorities were caught unprepared. For the plaintiffs, it was an embarrassment as parents were yelling at their greed for money.

Now fast forward to 2010. There is a change in policy. Instead of tracking down the file sharers, the Record Industry of America is quietly making arrangements with university boards to install a music service program where for a small fee, students can legally download as much of the music as they like. They called it the ‘Choruss’ program. It is being tested in some universities and when it is accepted and proved workable, it would then be introduced on a wider scale. And why not? Instead of being termed illegal file down loaders, the students can now get as much music as they want for a small price, and without the worry of being labeled infringers. Surely the parents would have approved of it. Well, if you can’t beat them, join them! That is the way to make money, not using the big stick to drag people to court. In a similar fashion, the same scheme should be extended to the man in the street as well. Thanks to Apple’s pioneering of less than a dollar piece of legal music, the rest of us will hear less of people being dragged to court.