With the landmark Closer Economic Partnership Arrangement (CEPA) binding Hong Kong closer to the mainland, a well-known Chinese trade expert is calling for the establishment of a massive free trade zone covering the Chinese mainland, Taiwan, Hong Kong and Macao.

The envisaged Chinese Free Trade Zone, as Zhang Hanlin calls it, would have a huge impact on all Asian economies and further promote economic integration in the whole of Asia.

Zhang, a professor with the University of International Business and Economics, and president of the university's China Institute for World Trade Organization (WTO) Studies, says such a free trade zone is important to China's regional economic integration strategy.

"Regional economic integration is crucial to ensuring a country's economic security," he says. "China must map out its own economic integration strategy."

A free trade zone helps diminish barriers to trade and economic co-operation and draws outside markets into the domestic market.

"At a time when trade disputes are mounting in the international arena, how can a country hope to meet the challenge without (the protection of) regional economic integration?" he asks.

"From this point of view, CEPA came too late, not too early," Zhang adds.

In sealing CEPA accords with Hong Kong and Macao, the mainland has made a crucial move in this direction.

"It is a strategic step for China after joining the World Trade Organization," he explains, pointing out that the next step should be holding talks with Taiwan.

The mainland and Hong Kong inked CEPA agreements at the end of June, under which the mainland will eliminate most tariffs on imports from Hong Kong's manufacturing sector and allow Hong Kong's service providers greater privileges on the mainland than their rivals from elsewhere around the world.

A similar agreement is likely to be signed between the mainland and Macao in October. Both agreements are expected to take effect on January 1, 2004.

Zhang says both sides need to become more active in seeking a new co-operative mechanism to facilitate cross-Straits economic and trade relations.

In fact, Zhang is just one of a growing number of businessmen and economic researchers calling for a mechanism similar to CEPA to be implemented in mainland-Taiwan trade relations.

The central government also realizes the necessity and possibility of forging closer economic ties with Taiwan.

A senior Taiwan affairs official even formally proposed establishing a cross-Straits economic co-operation mechanism soon after the mainland and Hong Kong signed their CEPA agreements.

At a seminar held in Lijiang, Yunnan Province last month, Wang Zaixi, deputy director of the Taiwan Affairs Office of the State Council, said such a mechanism would ensure the healthy and orderly development of bilateral economic co-operation.

This marks the first time Beijing has put forward an official proposal to strengthen cross-Straits economic exchanges through a regular mechanism.

But the Taiwan authority seems to be very reluctant, throwing up hurdles to cross-Straits economic co-operation in a bid to politicize economic affairs.

Beijing has reiterated that any political dispute that interferes with and affects bilateral economic and trade exchanges should be set aside and resolved step by step.

Zhang says it is high time the two sides entered into closer economic relations since Taiwan's economy is at a turning point, in transition from a manufacturing-dominated economy to a service-oriented one.

The service sector currently contributes about 65 per cent of Taiwan's GDP, while manufacturing industries account for 30 per cent and agriculture, less than 5 per cent.

If the mainland and Taiwan can reach a free trade-style agreement, both have much to gain, Zhang stresses.

For example, Taiwan has a well-developed agricultural industry, having made strides in high-tech and environmentally friendly farming methods. Such achievements, along with the mainland's cheap labour resources and vast land resources, could be combined to not only upgrade the development of agriculture on the mainland, but also ease the negative impact of a depressed agricultural sector on Taiwan's economy.

Taiwan's manufacturing industries, especially the electronics and chemical sectors, are also shifting gradually to the mainland. But they have not yet formed large-scale industrial advantages.

A free trade pact would provide Taiwan manufacturers with a far larger playing field and also enable Taiwan's relatively developed service industry to regard the mainland, where service has yet to evolve, as its biggest market.

He even asserts that closer economic co-operation would help create conditions in which the two sides could finally resolve their differences on political issues.

Zhang's timetable for a Chinese Free Trade Zone:

?Between 2004 and 2008, trade, transport and postal services across the Straits - dubbed the "three direct links" - will be realized.

During this period, Taiwan's economy will come to rely more and more heavily on the mainland market.

?From 2008 to 2012, about 35 to 40 per cent of the two-way trade, including both freight and services, will be freed. The mainland market will open wider to Taiwan's manufacturing and service industries. Free trade between the mainland and Hong Kong and Macao will also be realized during this period.

?Between 2012-2015, all cross-Straits trade will be freed.

He says he is confident that such a free trade zone can be established before 2015.

"Once such a project is initiated, it will be implemented very quickly," he believes.

He even proposes the creation of a new currency to be used in the free trade zone, which can be accepted by all four parties involved.

He suggests calling the currency "Chinese yuan".

"Just imagine how convenient it would be for the four parties to make investments and conduct trade if they used a single currency," he says excitedly.

"The capital utilization efficiency would be improved greatly," he adds. "More benefits will be seen in terms of creating jobs and sharpening the competitiveness of the four parties."

In Zhang's mind, the proposed Chinese Free Trade Zone would have the following characteristics:

?First, it must be an open zone. Membership would be open to other regional organizations, such as ASEAN (Association of Southeast Asian Nations), the Shanghai Co-operation Organization, the European Union, New Zealand, Australia and even the United States.

Zhang believes that after 2010, by which time China's GDP will have exceeded US$2.5 trillion, the United States will be clamouring for a free trade deal with China.

?Second, the free trade zone must be in accord with WTO principles and must come in line with the WTO's regulations governing regional economic integration.

?Third, such a free trade zone should be developed gradually. On principle, China should sign free trade pacts with both its closest geographical partners and the partners of its closest trade relations.

However, this will change after 2010 when Zhang believes China and the United States will become each other's most important trade partner.

?Fourth, the free trade zone must be developed from those aspects that are easiest to attain and work its way up to the more difficult items. It can start with trade arrangements for individual industries and gradually develop into full-scale co-operation.

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