China-ASEAN free trade agreement has taken its full effect since 1 January 2010 and in terms of trade volume, creates the world’s third-largest free trade zone after European Economic Area and the North American Free Trade Area. This trade agreement between China and the 10 ASEAN countries, namely Laos, Vietnam, Philippines, Brunei, Malaysia, Indonesia, Singapore, Cambodia, Thailand and Myanmar, is anticipated to increase the commerce as it removes tariffs on 90% of traded goods, which includes from textiles and rubber to vegetable oils and steel.

The China-ASEAN free trade agreement raises concerns to some countries, which worry about anticipated competition with Chinese imports. These cheap Chinese imported goods that may flood their markets pose potential problem to some ASEAN countries’ manufacturers, like Indonesian textile and steel manufacturers and Vietnamese companies that manufacture cheap consumer goods. However, this agreement may be beneficial to Malaysia, which is an exporter of palm oil, rubber and natural gas to China.

While developing nations that highly focus on the production of cheap consumer goods are concerned about the upcoming competition, developed countries may also have potential problems that may result from poor Intellectual Property enforcement systems of neighboring countries. Once this free trade starts kicking in seriously, infringement of IP protection may become a common and beneficial trend for some countries with poor Intellectual Property enforcement system. People and companies of underdeveloped countries can easily access and copy IP protected technology, and thus, may have a negative impact on Intellectual Property protection system.

Lack of national Intellectual Property system can also be barrier to the free trade. One example is the patent protection system in Brunei. At present, Brunei does not have a national patent system. Patent protection is obtained by re-registration of a granted British, European Patent Office (designating UK), Malaysian or Singapore patent. It therefore follows that China patented technology, if not registered in the above-mentioned countries, will not enjoy the patent privileges in Brunei. This lack of Intellectual Property protection may discourage Chinese manufacturers from sharing their China patented technology to the Brunei public.

Therefore, one of the challenges that China and ASEAN countries are facing as a consequence of this free trade agreement lies in creating a policy that would provide a balance between economic efficiency and effective Intellectual Property protection. Intellectual property covers a broad scope of rights that aims to motivate innovation and creation, including exclusive rights that allow owners of intellectual property to reap monopoly profits. In other words, Intellectual Property favors incentives for innovation and creative effort over economic efficiency and distribution of income. On the other hand, free trade favors the latter over the former.

Each country must therefore create an enlightened policy to balance the interest of the public and the innovators. It is important to establish real free trade with a reasonable Intellectual Property system.