(MENAFN- Live Mint) The Association of Southeast Asian Nations (ASEAN) and China on Tuesday signed an upgraded version of their Free Trade Agreement (FTA) during the summit in Kuala Lumpur, Malaysia. The deal, which expands cooperation into new sectors, comes as countries seek to mitigate the effects of global trade tensions, particularly with the United States.

The so-called 3.0 version of the FTA was formalised at a summit of ASEAN leaders, which was also attended by US President Donald Trump on Sunday, Reuters reported.

What does the FTA upgrade entail?

The newly signed ASEAN-China FTA modernises the existing framework, which originally came into force in 2010. Negotiations for the upgrade began in November 2022 and concluded in May this year, shortly after Donald Trump imposed sweeping tariffs on major US trading partners.

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The upgraded pact features new sections covering the digital economy, green economy and other emerging industries. China had previously indicated that the agreement would improve the market in sectors such as agriculture, the digital economy and pharmaceuticals between China and ASEAN.

Economic significance of the agreement

China views this enhanced engagement as a crucial development in response to the current global economic environment.

The 11-member bloc - ASEAN - is China's largest trading partner, with bilateral trade reaching as much as $771 billion last year, according to ASEAN statistics, quoted by Reuters.

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China is aiming to intensify its engagement with ASEAN, a region with a collective Gross Domestic Product (GDP) of $3.8 trillion, as a strategic counterbalance to hefty import tariffs imposed by the Trump administration on multiple countries around the world.

By formalising the deal, Beijing is attempting to position itself as a more open economy, despite facing intense criticism from other major powers over its own export restrictions on rare earths, as well as critical minerals, Reuters reported.

Regional trade landscape

China and ASEAN are members of the Regional Comprehensive Economic Partnership (RCEP), currently the world's largest trading bloc. It covers nearly one-third of the global population and about 30% of global GDP.

Malaysia hosted an RCEP Summit in Kuala Lumpur on Monday, the first in five years, just before signing the new China-ASEAN deal.

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Some analysts suggest that participation in blocs such as RCEP could serve as a potential buffer against US tariffs, although its provisions are considered weaker than some other regional trade deals due to competing interests among its members, reported Reuters.

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