The impact of ASEAN-China free trade agreement on foreign-invested manufacturing locations in Asia: A case study of Husqvarna Construction Products AB

Abstract

Within the framework of the WTO, regional trade agreements have proliferated in recent years as a means to facilitate trade. While developed countries are struggling for growth, much attention has been directed towards the Asian emerging markets, and especially to China, in search for new business opportunities. Trade and investment policies have been reformed significantly across countries in the Asian region. Once fully implemented, the recent ASEAN-China free trade agreement (ACFTA) will form one of the largest and potentially most important free trade areas in the world. The ACFTA is likely to carry important implications for MNE locational decisions. This study explores the potential impacts of ACFTA on foreign MNEs' locational decisions in the light construction equipment sector based on the case study of the Swedish company Husqvarna Construction Products. Our contribution is threefold. First, China remains as the location of choice in the next five years. Second, neither trade nor the production network within this industry has developed extensively in the ACFTA region. Finally, tariff reductions under ACFTA and competitors’ movement might impel foreign MNEs to expand to ASEAN.