An FTA is an arrangement among countries whereby tariffs and non-tariff barriers. for instance. quotas. Licensing requirements. and product-safety regulations. are abolished among members. Completed to customs unions and common markets. a free trade area is the least institutionalized form of economic integration. where each member of the FTA retains its own external tariffs and other regulations for trade with non-member countries. From the standpoint of economic theory. an FTA offers advantages to all member countries. Theoretically. an FTA increases intra-regional trade and enhances competitiveness, productivity. and efficiency. ln the case of ASEAN and China. the markets combined would permit the exploitation of economies of scale brought about by an expansion of market size. Firms producing below optimum capacity before integration would be able to reap efficiency gains from lower unit costs as they would now produce for a bigger mass market. The formation of the FTA is also expected to improve productivity of firms. As the abolition of intra-regional barriers would force firms from Southeast Asia and China into closer competition with one an- other and possibly induce them to be more competitive and innovative. Theoretically. the reduction of tariffs and removal of non-tariff barriers would likely facilitate trade and investment flows among member countries by allowing for improved market access to goods and services sectors. Other measures such as streamlining of customs procedures. liberalization of trading rights. or the mutual acceptance and adoption of common standards and practices, would further facilitate trade and investment flows by encouraging more tourist traffic and industrial cooperation. There by lowering trade friction among the countries concerned. An integrated market brought about by an FTA is also likely to attract foreign investment. creating employment and increasing economic welfare of the member states. However. it should be noted that the establishment of an FTA will not in itself lead to a massive inflow of foreign investment. because foreign capital seems to be attracted to growing markets. not just large ones. lf economic integration can stimulate growth. one can expect foreign capital to flow in. An FTA that shows no sign of growth. but perpetuates stagnation. cannot hope to attract private capital from abroad.