From July 20, China and the Association of Southeast Asian Nations (ASEAN) are scheduled to lower tariffs on more than 7,000 industrial goods. 

The tangible step, in line with the Agreement on Trade in Goods signed between the two parties in November last year, is widely believed to be a milestone in forging the China-ASEAN free trade area (FTA), the first such alliance involving China.

But how will this affect Chinese companies? How many domestic firms understand and are ready for the windfall? How many entrepreneurs know how to respond?

According to a recent survey carried out by the China-ASEAN Business Council, 99 percent of Chinese entrepreneurs had not yet read the Agreement on Trade in Goods.

Worse still, concepts like FTA, ASEAN and ASEAN 10 plus one were new to some respondents. When filling in questionnaires from the council, some took FTA to be the abbreviation of the Federal Bureau of Investigation, some believed ASEAN, which in Chinese reads like "Eastern Union," was a grouping of cities in the east of the country, and some people said ASEAN 10 plus one referred to 10 experiences and one lesson in China's cooperation with ASEAN.

Such a situation is worrying, especially at a time when FTA has become the way forward in world trade and China is on the threshold of several major agreements.

Aside from the deal with ASEAN, China is busy with FTA negotiations with Australia, Chile, Pakistan and the Gulf Cooperation Council.

The Chinese Government has been active in making FTA proposals top leaders even suggested the establishment of an East Asia FTA covering ASEAN, China, Japan and South Korea. But enterprises have been slow to catch up.

Less domestic companies than expected are reaping the benefits of the early harvest program (EHP), under which China and ASEAN reduced tariffs on more than 500 agricultural products, such as vegetables and fruits, from the beginning of last year.

Insiders say many Chinese companies simply did not apply for the certificate of Chinese origin for their products, with which their exports could have enjoyed lower tariffs. In Fujian Province only 5.2 percent of export products listed under EHP were covered by certificates in the first half of last year.

Even in Yunnan Province, which borders Southeast Asian countries, few firms have applied for a certificate, while customs officials said a very limited number of companies had ever consulted them about the new tariff cuts to be initiated later this month.

Such a passive attitude has aroused concern among experts and officials who have been encouraging domestic companies to learn more about FTAs, and prepare to meet future opportunities and challenges.

The situation is similar to that in the 1990s when China was busy negotiating its entry into the World Trade Organization (WTO). Enterprises were urged to learn about relevant rules and hammer out new business strategies.

After years of joint work by government, enterprises and the media, we are happy to see the WTO has become a widely-known organization.

But now it is time for domestic firms to get used to the idea of the FTA as they did with the WTO. They should also seriously reconsider their strategies with the coming of the FTA era, and make timely business adjustments.

Overseas counterparts in Europe, North America and Southeast Asia are already very familiar with FTAs as they were initiated a decade, or even decades, ago in these areas.

Enterprises planning to invest in or conduct trade in areas with which China is in FTA talks must keep an eye on developments.

They should study thoroughly the contracts and related original manufacturing rules in order to produce, trade and store commodities according to tariff-cut schedules.

Meanwhile, new marketing strategies should also be worked out after investment and trade are mutually opened.

Of course, the government also has work to do.

One pressing task is to provide domestic enterprises with timely information related to FTAs. Details of agreements that have already been signed should also be made available to companies.

Insiders say an important reason why domestic exporters have not applied for certificates of Chinese origin is they have not yet got the Chinese version of the EHP agreements and do not know what kind of products are listed under the program.

The Agreement on Trade in Goods, which will soon be implemented, has been in the process of being translated since November last year when the two sides inked the deal.

Without copies of the agreements enterprises are blind to which markets are open to their products, when their products enjoy lower tariffs and for what kind of products they can apply for certificates of Chinese origin.

Another important task is to establish and improve information services. Databases in investment environments, projects soliciting foreign investment and intermediary information institutions should be established.

Intermediary institutions such as business consultancies, law firms, accountants and patent firms should be encouraged to set up and support enterprises doing business in countries with FTA pacts with China.

(China Daily July 12, 2005)