The Integration of ASEAN and Taking Advantage of the

ASEAN Free Trade in Tackling Climate Change

Written By:

Muchdlir Zauhary
Pradita Astarina
Putera Satria Sambijantoro

Faculty of Economics
University of Indonesia
2010
 TABLE OF CONTENTS

ABSTRACT
………………………………………………………………………………………...…………………2

I. INTRODUCTION
THE CONFERENCES AND TREATIES THAT FAIL

1.1 Environmentalists vs. Industrialists: the failure of reaching the consensus

……………………………………………………………………………................................3
1.2 When great power is not always followed by great responsibility
……………………………………………………………………………………...………….4

II. STUDY AND ANALYSIS

ASIAN FREE TRADE AND CLIMATE CHANGE: HOW UNITING ASEAN CAN BE THE KEY
TO MITIGATE THE CLIMATE CHANGE

2.1. The might from southeast: a high-potential economy underpinned by a huge domestic
market
…………………………………………………………………..……...………………………..6
2.2. Climate change and its impact to ASEAN countries
………………………………………………………………………….…..…………………..7
2.3. ASEAN: At the Front Row of Climate Change Issue
…………………………………………………………………………………………………..8
2.4. Revisiting and reevaluating ASEAN free trade area treaty
…………………………………………………………………………………………………..10
2.5. Adding carbon emission limitation in AFTA treaty: a chance for the environmentalists to
strike back
……………………………………………………………………………………………………13

III. CONCLUSION AND POSSIBLE SOLUTION

…………………………………………………………………………………………………………18

1
 ABSTRACT

This paper will evaluate the failure of coordination efforts in tackling climate change
problem which, because of the lacking commitment from several emission-producer countries,
has seen the problem becomes more neglected from time to time. Still, despite the fact that
these days the climate change issue becomes worse-than-ever, up to present there is no
predetermined agreement among countries yet. We can see from many efforts in solving the
hazardous problem of climate change, such as the Kyoto Protocol or the Copenhagen Summit,
can only end up in a disappointment as there was no tangible resolution established from those
meetings.
The problem of climate change is trapped in a difficult deadlock and therefore we might
well ask whether there is a key or not to break this lingering standstill. Looking at how the world
progresses at the moment, it is clear that so far we simply have not done anything. The major
difficulties in overcoming this unsolved issue is that many countries, especially developing
countries with massive growth like China, fear that the limitation of gas emission will decrease
industries’ efficiency and eventually engender a slower economic growth
On the other subject, ASEAN free trade issue started to stand underneath the limelight,
as countries with massive export numbers like China, South Korea, and India emerge as the
major players who are being put in the vantage point because of the treaty. It is our idea that
ASEAN should apply a rule that requires specific countries, which enjoy the right of having their
exported goods to be sold to ASEAN countries with zero-tariff policy, to limit their carbon
emission first before they can enjoy such privilege. We decided to come out with an idea of
taking advantage of the ASEAN free trade as we consider it as a possible key in solving the
problem of climate change.

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 I. INTRODUCTION
THE TREATIES AND CONFERENCES THAT FAIL

1.1. Environmentalists vs. Industrialists: The Failure of Reaching the Consensus

“Why can’t we even mention our targets?” – Angela Merkel, German chancellor

During the Copenhagen Summit, China’s representative insisted that industrialized

country targets, previously agreed as an 80% cut by 2050, be taken out of the deal. In her
words of despair above, the German chancellor expressed her disappointment very clear of
China’s approach in solving the issue. Also, with backings from India, China took out almost
every specific targets from the agreement –a conduct which cost China to be blamed as the
perpetrator and major destructive force of the whole Copenhagen Summit. During the summit,
most countries almost agreed to restrain global temperatures to 2C in 2020, yet the agreement
fell through and was eventually replaced by normative goal of “as soon as possible”. Moreover,
the 50% cut of global emission, which was initially planned to be achieved by the end of 2050,
was vetoed by China as well.
No common ground was established and the end result of the conference was a
shocking loss for all environmentalists. As The Guardian columnist Mark Lynas wrote, “Had the
Chinese not been in the room, we would have left Copenhagen with a deal that had
environmentalists popping champagne corks popping in every corner of the world.”
The expectations from the summit is to see whether if countries leaders who set their
foot at Copenhagen can assemble specific numbers of carbon emission cut or anything
necessary to solve the climate change problem. In such predictable end, the output from the
conference turned into zilch, which left many people wonder: if there was no tangible outcome
generated from the summit itself, then why wasting time being at Copenhagen anyway?
Few were surprised when those conferences in Copenhagen –as well as at Kyoto or
Bali– failed to deliver a solid way out from the climate change issue. Thanks to mankind deeds
now the earth is getting sicker. The doomsday’s sign is becoming clearer as global temperature
is becoming hotter, yet human beings –who are considered as the most responsible party for
the whole problem–stand still and do almost nothing to evade the looming catastrophe.
Also, efforts from countries all over the world were always considered courteousness
and there was actually no such thing as tangible actions from them to cure mother earth. World

3
leaders who attended such conferences (which were deemed by them as integrated efforts to fix
the climate change problem) walked away from the conferences with huge expectations on their
shoulders yet did almost nothing at home. We must accept a bitter fact that so-called integrated
endeavor from countries all over the world to fix the situation, in fact, is still yet to be defined.
Indeed, there is still clash of interests among both parties involved. On one hand,
environmentalists argue that finding a way out from the hotter-than-ever earth is necessary
before the situation becoming any worse in the long run. The ending of the story of our earth
and all human beings, of course, will be scary if that happens. But the policymakers, especially
those who currently run countries with booming industries like China, still observes things in the
short-run as they think that strict regulations, as carbon emission limitation, will disrupt their
industries and eventually hamper the massive surge of their economic growth.
This is the decade which will be best remembered by the story of how developing
countries are dominating the world’s economy. Economy in China and India are growing at
unprecedented rate, and if the condition remains unchanged, it is only a matter of time before
they take over the lead from developed countries like United States and United Kingdom. The
rise of China –and other developing countries as well– comes with a predictable repercussion:
as the economy surges, so does the carbon emission which it generates from their booming
industries. It is, indeed, an absolutely distressing fact for the environmentalists.

1.2. When great power is not always followed by great responsibility

When the economy of United States grew rapid in the mid-90s (thanks to the
scrumptious blend of economic policies from Bill Clinton and Alan Greenspan), the country drew
many criticisms from all over the world for the massive pollution it generated as well as its
ignorance in the environmental issues. By the end of 2000, United States generated 24% of the
world emission, making them the world’s largest polluter at that time.
Most of the questions pointed to United States’ government simply were why it can be so
unaware of the environmental problem amid the fact that it has more than enough power to help
reducing the emission which it produced. Many can understand if developing countries, who
have insufficient funds to apply environmental-friendly technologies to reduce carbon emission,
was lagging behind on the effort of tackling the environmental issue. But people wondered why
it can occur in United States, a well-developed country which was deemed as one of the
economic superpowers during that period.

4
 The abhorrence of the United States’ unawareness was enormous, and Vexen Crabtree
once put out in the introduction of one of his essays on climate change issue: “I have created
this essay just to concentrate on the USA and President Bush’s effect on the Kyoto Protocol
because I receive so many emails from people expressing a hatred of the USA because of
these issues” (The USA Versus the Environment: Oil, Pollution and Kyoto. 2002)
What happens today is China, not United States, who is actually making headlines on
newspapers like Wall Street Journal or Financial Times. Today’s generation are the beholders
of how China is pushing very hard to overtake United States as the new economic superpower:
its economy is growing with a seemingly unstoppable rate, and it seems only economic
overheating can stop its economy from growing as even the financial woes of 2008 could not
curb it.
But as China’s economy grows, so does its carbon emission –or to put it in a better way:
its ignorance to the environmental issue. According to Netherlands Environmental Assessment
Agency, in 2007 the soaring economy of the Chinese saw their carbon dioxide pollution to swell
to the level of 24%, while United States is trailing behind at the second place with the level of
22%, two percent adrift behind the new champion.

5
 II. STUDY AND ANALYSIS
ASEAN FREE TRADE AND CLIMATE CHANGE: HOW UNITING ASEAN CAN BE THE KEY
TO MITIGATE THE CLIMATE CHANGE

2.1 The might from southeast: a high-potential economy underpinned by a huge

domestic market

Other peers on the other parts of the world were not as lucky as ASEAN countries when
a financial crisis struck in 2008. While most of the world’s economies were infected by negative
economic growth disease because of the crisis, what happened in ASEAN can be considered
as unlikely. Except Malaysia and Singapore, whose economies experienced recession because
of their dependence on exports, other economies within the ASEAN region were impressively
stable. Just take a look at countries like Indonesia and Vietnam as they strode forward to be the
fastest growing economies in the world, recording an impressive economic growth of 6.1% and
6.2%, respectively.
ASEAN’s total population reached the mark of 590 million in 2009, making the region to
hold about 8% of the world’s total population. Without a shred of doubt, ASEAN has one strong
point which has long been perceived as their competitive advantage: a huge domestic market.
Last year the world’s economy can only see slump in their various economic indicators because
of the global financial crisis, but ASEAN region –thanks to their gigantic number of population–
was able to stand firm amid the fray.
For industrialized countries like China, Japan, South Korea, or even Australia, ASEAN is
their closest trade companion in the region –and with the huge domestic market which they
possess, ASEAN is indeed an indispensable partner that is too important to be overlooked.
Countries like United States and Brazil have great number of population as well, but they just
simply too far away and therefore trading with those countries will be deemed more costly rather
than with ASEAN countries.
Therefore, this also becomes ASEAN’s bargaining power in international trade: with high
import demand from high-growing economies like Indonesia and Vietnam, indeed the region has
played a significant role in fueling the economy of its neighbors, especially the rocketing
economic growth of China and India.

6
2.2. Climate change and its impact on ASEAN countries

“Climate change clearly poses a major threat to the livelihoods and environments of the ASEAN
region.” - Hans Verolme, WWF director

Gradually, the climate change issue is starting to take its tolls across almost all parts of
the earth’s archipelago. ASEAN, an integration established in 1967 which comprises of ten
countries, is also a vulnerable region to the climate change effects –if not among the most
vulnerable. Dr. Surin Pitsuwan, the Secretary General of ASEAN, was quoted saying that
ASEAN countries in recent years have been enduring unusual storms, floods, earthquake, and
other natural calamities, while he also pointed out that ASEAN countries should not turn the
situation from bad to worse.
Let alone the country of thousand islands like Philippines or Indonesia; they will
absolutely absorb the biggest impact of the rising of sea level which is caused by the climate
change. Besides, the ASEAN’s capricious weather and climate condition these days deserves
more attention. In 2008, the Irrawady Delta of Myanmar was terribly hit by a devastating force of
Cyclone Nargis. In 2009, the people of Vietnam, Cambodia, Laos, and Thailand had to suffer
prolonged ordeal because of Typhoon Ketsana. In Indonesia the situation is quite the same
these days as its people are getting more familiar with Putting Beliung typhoon which,
suprisingly, rarely happened couple years ago.
Those heavy precipitations, unpredictable storms outfitted with strong winds, caused
nothing but humanitarian distress, social unrest, flood, landslide, wrecked infrastructure, even
human tolls. Besides the storms and the typhoons, the hotter-than-ever earth’s temprature also
caused forests, especially those in tropical countries, to burn easier. If those examples are still
not enough, there is also a report of increasing number of dengue fever cases during the erratic
rainy season. Also, previous research confirmed that warmer temprature today has led to a
mutation of dengue virus, which is very likely to cause an increase in fatalities in the not-so-
distant future. Such case happened in Indonesia, particulary in Java. In Jakarta, February 16
2007, the Jakarta Health Agency reported 498 people were treated at city hospitals for dengue,
14 of which were reported dead. As of mid-January 2007, there were 1,889 dengue fever
patients and 42 people have died in 13 of the 26 regencies or cities in West Java province only.
Meanwhile, Central Java has 2,767 dengue fever patients and 73 fatal casualties per 16
February 2007.

7
2.3. ASEAN: at the front row of Climate Change Issue

Gradually, the climate change issue is starting to take its tolls across almost all parts of
the earth’s archipelago. ASEAN, an integration established in 1967 which comprises of ten
countries, is also a vulnerable region to the climate change effects –if not among the most
vulnerable. Dr. Surin Pitsuwan, the Secretary General of ASEAN, was quoted saying that
ASEAN countries in recent years have been enduring unusual storms, floods, earthquake, and
other natural calamities, while he also pointed out that ASEAN countries should not turn the
situation from bad to worse.
Let alone the country of thousand islands like Philippines or Indonesia; they will
absolutely absorb the biggest impact of the rising of sea level which is caused by the climate
change. Besides, the ASEAN’s capricious weather and climate condition these days deserves
more attention. In 2008, the Irrawady Delta of Myanmar was terribly hit by a devastating force of
Cyclone Nargis. In 2009, the people of Vietnam, Cambodia, Laos, and Thailand had to suffer
prolonged ordeal because of Typhoon Ketsana. In Indonesia the situation is quite the same
these days as its people are getting more familiar with Putting Beliung typhoon which,
suprisingly, rarely happened couple years ago.
Given the reality that climate change is vital issue, ASEAN has been making mutual
cooperation and agreement among its member countries to tackle that issue. Dr. Surin
Pitsuwan, as what was noted on the Stern Review on the Economics of Climate Change report,
said that that the cost of action now would only cost 1% of world’s income, while inaction would
cost more than 20% in the future. He also underlined that the loss of human life and suffering
cannot be economically compensated. The concern of climate change impacts was not only
stressed by the ASEAN Secretary General but also by the whole ASEAN leaders. The ASEAN
leaders recognize the scientific findings in the Fourth Assessment Report of the
Intergovernmental Panel on Climate Change (IPCC), which emphasize the adverse impacts of
climate change, particularly in developing countries. They also admit that high population growth
and urbanization trends in ASEAN region place increased pressure on resources and make
people in cities particularly those who are vulnerable to adverse impacts of climate change.
On the regional level, the ASEAN Leaders had issued several joint statements on the
response of climate change issue such as the ASEAN Declaration on Environmental
Sustainability in 2007, Declaration of ASEAN on the 13th session of the Conference of the
Parties to the UNFCCC and the 3rd session of the CMP to the Kyoto Protocol and ASEAN Joint
Statement on Climate Change to the 15th session of the Conference of the Parties to the United

8
Nations Framework Convention on Climate Change and the 5th session of the Conference of
Parties serving as the Meeting of Parties to the Kyoto Protocol. Based on ASEAN Joint
Statement on Climate Change to the 15th session of the Conference, the ASEAN leaders
further reaffirm that the UNFCCC and its Kyoto Protocol continue to be the basic framework and
legal instrument for the international community to combat global climate change. Well, in fact
the Kyoto Protocol is claimed by protesters as just “a statement of hopes” since there is no
proper willingness from countries, especially those big carbon emitter countries. ASEAN,
through ASEAN Inter-Parliamentary Assembly (AIPA), recognizes those issues of environment,
climate change, and sustainable development as interrelated and complex and represent a
challenge that must be addressed in a comprehensive manner through individual, regional and
concerted international action. AIPA points out the idea of international cooperation and real
action to combat the climate change problem. AIPA has been making dialogue with countries
including China, European Union, Russia, Japan, Australia, Canada, New Zealand, and the
Republic of Korea, to the regional efforts to address the climate change and environment. The
dialogue and the ongoing cooperation indicates that ASEAN as one of prominent regional
organization in the world has such great initiatives regarding to the climate change.
Based on the report of ASEAN-China Eminent Persons Group, it is stated that ASEAN
and China should focus on enhancing the economic linkages that will support the web of inter-
connected trading systems that they are weaving. Both ASEAN and China should also deal with
trans-boundary challenges such as environmental protection, sustainable development,
conservation of energy resources and human resource development. Furthermore, ASEAN and
China should involve more levels and sectors of society in the economic growth of the region
and the further development of the ASEAN-China relationship.
Those agreements, dialogues and cooperation above show us that ASEAN has rising
awareness toward the climate change problem. Thus, ASEAN as one of prominent regional
cooperation should take advantage of current economic issue such as free trade agreements to
make real breakthroughs for that global problem.

9
2.4 Revisiting and reevaluating ASEAN free trade area treaty

1 January 2010 marked a new dawn for countries in Southeast Asia region; it is the day
when a zero-tariff policy finally took effect among ASEAN and China (ACFTA), India (AIFTA),
Korea (AKFTA), Australia and New Zealand (ANZCERTA). This could possibly be a difficult test
for ASEAN countries, as the treaty will force their industries to engage in a fierce competition
with countries like China and India who is ready to cram the region with high quality and
cheaper products.
The goal of the elimination of tariff barrier in ASEAN is mainly to enhance
competitiveness of domestic industries, thus increasing productivity and providing ASEAN
domestic consumers with a wider variety of high-quality products. However, because of the
treaty, so far ASEAN countries can only see a major setback in their industry. It is evident that
most of the ASEAN members are not ready yet to be put in such ferocious competition,
particularly with China’s extremely competitive industry.
We decide to narrow the case in-study more towards the CAFTA rather than other
treaties. Not only because China generates more carbon emission compared to others and thus
is perceived as the party most responsible for the climate change issue, but while the CAFTA is
currently in progress, there is concern that the decision to embark China at the same boat as
ASEAN countries may lead to a downturn for the ASEAN countries itself. The growing fear is
that China’s massive economic growth, which is predicted to reach a massive tally of 9.4% at
2010, will grow at the expense of the ASEAN’s economy itself. Thanks to the CAFTA, the region
will become more and more dependent towards made-in-China imported goods and thus taking
ASEAN countries’ own domestic industries as its tolls.
First, the Chinese has long been notorious for their hobby of smuggling and trading
goods in the black market, while the activation of CAFTA, unsurprisingly, can increase those
numbers. According to The Philippines Daily Inquirer, about 70-80 percent of shoe shops in
Vietnam are selling smuggled Chinese shoes, a situation which hit Vietnam’s shoe industry very
bad as it struggle to compete with those illegal Chinese products. In other case in Philippines,
many Philippines companies, even those that are competitive globally, had to close shop or
reduce production and employment due to smuggling (Joseph Francia & Errol Ramos of the
Free Trade Alliance). The battered industries include steel, paper, cement, petrochemicals,
plastics, and ceramic tiles.
The Philippines Daily Inquirer also presents a perfect case-in-study how Thailand
suffered from the “so-called CAFTA experiment” which went into effect in December 2005. Both

10
Thailand and China agreed to eliminate tariff on 200 vegetables and fruits traded between those
two countries, a treaty that was aimed to, hypothetically, benefit both two countries and their
industries. Yet for Thailand, what happened in practice was far from pleasing and in fact the
country was the eyewitness of how the supposedly two-way beneficially treaty evolved into a
one-sided deal.
The China-Thailand “so-called CAFTA experiment” did not run smoothly as China failed
to act upon the agreed prerequisites. During that time, various Thai newspapers revealed the
fact that many officials in Southern China refused to bring down tariffs while in Thailand, in
contrast, its government eliminated the tariff for those imported vegetables and fruits of the
Chinese’s. The failure of the so-called tariff elimination later contributed to the Thai’s refusal to
involve in broader free trade agreement.

11
 Figure 1: Trade numbers of China and ASEAN countries

There’s a peculiar fact which we can draw from the graphs in figure 1: although the
CAFTA was designed to benefit both parties involved, it is an irrefutable fact that all of ASEAN
countries experienced a trade deficit with China (their imports are more than their exports). If we
go down to the tariff elimination policy included in the CAFTA treaty, surely it will more benefit
China because of its massive exports number. Thanks to ASEAN’s huge domestic market,
ASEAN countries have became “dumping ground” for China’s extremely competitive goods.

It has been only three months after the ASEAN Free Trade finally took effect, yet
ferocious screams from ASEAN countries can be heard regarding how the ASEAN free-trade
agreement, especially the CAFTA, has made their economies to suffer. Analyzing the situation
at the moment, there is a possibility to review and revise the treaty, especially in the situation
when in fact not all ASEAN countries have joined the China-ASEAN Free Trade Area in
imposing a zero-tariff policy –countries like Vietnam, Cambodia, Laos, and Myanmar is yet to
join in 2015 and have not applied a zero-tariff policy on China’s goods.

12
2.5. Adding carbon emission limitation in AFTA treaty: a chance for the
environmentalists to strike back

If the original purpose of the installment of the Kyoto Protocol was to reduce the global
carbon emission, then we can say that it fails to fulfill the initial expectation. Based on the data
below we can see that –irrespective of the limitation from Kyoto Protocol– the world has seen a
rise in carbon emission numbers, which are not only driven by developed countries such as
United States and European Countries but also emerging economies like China and India, who
have seen a considerable increase in the global emission they produce.

Figure 2: World Carbon Dioxide Emission by Country 1990-2030

Source: International Energy Outlook 2009, Energy Information Administration.

Today, environmentalists are like cats on the hot bricks –and what was shown by the
graphic above may make their blood runs even colder. The earth currently is in a terrible health
and the signs of doomsday caused by global warming are becoming more apparent. As if as An
Inconvenient Truth movie with its various signs of imminent armageddon are not enough, the
cumulative number of world emission continues to surge for years and, unfortunately, it shows
no sign of stopping for years to come.
In various matters like the olympics and the economy China has been breathing on
United States’ neck for years and ready to overtake it any time, but in terms of carbon emission
production currently China has become the new leader in the pack, successfully overtaking the
US in 2005. Massive growth of economy in China yields not only rising GDP but also an

13
increase in carbon emission production, which lately has been deemed as responsible for
environmentalists’ resentment towards the country. India, according to the Energy Information
Administration, is also predicted to have significant growth rate of carbon emission over the next
20 years. According to the Energy Information Administration's Emissions of Greenhouse Gases
in the United States 2004, carbon emissions are expected to surge in Asia over the next 20
years, and based on the same report, the emerging markets will have the largest growth rate of
carbon emission over the same period of time.

Figure 3: Countries with the Biggest Carbon Emission in 2006

Source: International Energy Outlook 2009, Energy Information Administration.

This 2007 data shown clearly that China, India, South Korea, and Australia (countries
that are involved in the ASEAN free trade treaty) can become vulnerable preys for
environmentalists’ condemnation as they go well within the environmentalists’ shooting range
because of their carbon emission numbers. In addition, the ASEAN free trade treaty will
intensify their trade activities as well as their industries further –and thanks to the ASEAN’s

14
zero-tariff policy as well, those countries will see their industries rising to an unforeseen level
and it is very likely they will be more ignorant towards the carbon emission which they generate.
Led by BRIC Countries: Brazil, Russia, India and China, the economies of emerging
markets will be growing significantly which is indicated by their rising GDP as what graphed on
the figure 3 above. So, there is question saying that whether the economies activities is the
major cause of carbon emission or not. The answer will mostly yes since economic activities
mean the use of fuel for production activitiesa nd the consumption of products which are
tremendously sources of carbon emission.
In addition to those facts, there is a high possibility that the activation of ASEAN-China
free trade agreement will create an environmental consternation. An insightful article in The
Jakarta Post argued that the CAFTA would provide huge opportunities to increase export
performance by many shipping agricultural products, including palm oil. In Indonesia, palm oil
plantation has long been deemed as the major cause for forest damage in Kalimantan and
Sumatera. The writer also noted that starting palm oil plantations, without doubt, will destroy
forest and farmland as well as other vegetation. The article also presents a fact that according
to environmental experts, the establishment of new palm oil plantations on peat land in
Sumatera and Kalimantan (which surely will see a significant increase in number because of the
surging palm oil demand from China) contributes highly to the increase of the greenhouse
gasses volume, CO2 in particular, in the air.
In fact, there has been debate about the relations between economic growth and the
quality of environment. One of the concepts regarding the issue at hand is the Environmental
Kuznets Curve (EKC) (Grossman and Krueger, 1991). The EKC is originally derived from the
Kuznets Curve, as demonstrated in Figure 4. This curve elaborates the relationship between
income and environmental quality along the development curve. It also predicts the destruction
of environment that will increase al lower income levels (known as environmental decay). The
environmental damage will increase before reaching a maximum level (known as turning point
income) and then decline thereafter (known as environmental improvement).

15
 Figure 4: the Environmental Kuznets Curve

Source: “Economic Development and Environmental Quality: An Econometric Analysis”, Oxford

Economic Papers, New Series, Vol. 46, Special Issue on Environmental Economics (Oct.,
1994), pp. 757–773.
If we refer to the logic idea of the EKC relationship above, then it can be explained
straightforward. At the early stage of industrialization and economic development, the economy
uses a lot of dirty technologies and natural resources for production processes –and it will then
cause environmental damage. People will have more concern on environment when the quality
of life and the standard of living improve. This social concern will also put pressure on
government policies to improve environmental quality. The people will prefer on the products
made by environmentally responsible companies that using environmentally-friendly
technologies for its production process.
Most of the empirical studies on the EKC address two big questions. The first question
is: is there an inverted-U relationship between income and environmental degradation? While
the second is: if there is any relationship, at what income per-capita level does environmental
degradation start declining? Grossman and Krueger (1995) examined this issue and found that
economic growth brought an initial phase of environmental descent followed by a phase of
enhancement. The turning points for different pollutants varied, but in most cases they came
before a country reached a per capita income of $8,000.9. This concept can also work on the
Issue of China or other countries which are perceived as major pollutants of the world. At the
early of their economic development, China for example, uses dirty technologies. The rapid
growth of its economy is followed by greater concern of environment coming not only from
China’s own society but also from the whole population of the world. This will push that country
to put green technology as priority in any single economic decision it takes.
We decided to come out with an idea of adding environmental prerequisite that countries
must comply in order to gain a zero-tariff policy in the ASEAN region. In the new revised version
of the ASEAN Free Trade treaty, countries engaged in the treaty with ASEAN will have to agree

16
with the proposed carbon emission limitation numbers. Each country’s carbon emission
limitation can differ (depends on each country’s ability to reduce its carbon emission). For
example, China’s total emission is said to be measured around 6300 million metrics tons of
CO2, while India in only 1300 million. Therefore, as reducing carbon emission production in
China will be more costly than India, the agreed carbon emission limitation number can be
different. Say that in 2013, China agrees to reduce its carbon emission by 150 million metrics
tons of CO2 (2.5%) to the level of 6150 million; while on the same treaty, India is only required
to reduce by 100 million metrics –although it is only 100 million, the carbon emission reduction
rate for India will be greater (7.9%).
During 2013 until 2015 when the new ASEAN Free Trade treaty will finally take effect,
countries like China, India, South Korea, Australia, and New Zealand, are expected to do all the
efforts necessary to reduce their carbon emission production to the agreed level. And in
December 2014, the data for their carbon emission will be generated which will determine
whether the country has bowed to the agreement or not. For instance if India has not
successfully reduce their total carbon emission to the level of 1200 million metrics tons level of
CO2, while China, in contrast, successfully curb its carbon emission production to the level of
6000 million. Then India will not have the privilege of having their goods sold with zero-tariff
policy in ASEAN countries, while China will see a complete elimination of tariff for its exported
goods.
Though, if India eventually succeeds to meet the carbon emission agreement, India can
have their goods sold in the ASEAN region with zero-tariff policy. Let’s say that India
successfully meets the target in 2016, then in 2016 India can enjoy a zero-tariff policy in the
ASEAN region. However, in 2017 the new carbon emission reduction target will be discussed to
be applied in 2019. Therefore, countries which have met the agreed number (such as China)
can have a zero-tariff privilege for four years (2015-2019 until the higher carbon emission
reduction target is set). In this case, India will only enjoy the privilege of zero tariff policy for
three years (2016-2019) because it fails to meet the carbon emission reduction number on time.

17
 III. CONCLUSION AND POSSIBLE SOLUTION:

Earth’s condition is as worse as ever these days, with countries around the world
continue to pile up carbon emissions because of their rising economies. Given the current
situation, there is an urgent need for “the new carbon limitation proposal” to lead the efforts in
tackling the climate change issue, and our proposed new system for the revised ASEAN Free
Trade treaty (Figure 4) could be one of the possible breakthrough solutions. In brief, this is how
the system works:

Figure 4: the new system for the revised ASEAN Free Trade treaty

Based on The Agreement on Comprehensive Economic Co-operation (which consists of

18 articles that put concerns upon the trade mechanism between ASEAN and China) there is
still a possibility that the treaty will be revised on condition that one of the parties complains
against the loss because of the treaty itself. It is also indirectly stated that the conflicting parties
must comply with the decision of the arbitral tribunal to halt any dispute. Because of the
concerns arising of the CAFTA unfairness, especially towards ASEAN countries, the possibility
of the revision of CAFTA is still likely to occur –and adding carbon emission limitation to the new
CAFTA, therefore, will not be impossible.

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