With the KORUS FTA finally signed after some meandering, many people are turning their attention to FTAs between Korea, Japan and China. The nations’ leaders have already shown their strong desire to make it happen on various occasions, including the ASEAN+3 and East Asian Summits held in Bali between November 18 and 19. Furthermore, a trilateral joint research project regarding the proposal has completed all of its seven conferences and will release its final report soon.
As is well known, an FTA is concerned with lowering or removing trade barriers between countries, and this could seem easy among Korea, Japan and China due to their close positions geographically. However, economic experts are warning the government to take heed, forecasting an aggressive pursuit of individual interests and battle for leadership in the regime likely to function as the integrated economic community of Northeast Asia. Under such circumstances, the Korean government is well advised to keep a close watch on environmental changes in China and Japan.
FTAs between Korea, China and Japan, a Matter of Time in the End
On December 1, the Ministry of Strategy and Finance and the Korea Development Institute co-hosted the first Global Industrial and Economic Policy Forum. “These days, Korea, Japan and China are exerting an increasing influence on the global economy and it has made such three-way cooperation more important than ever,” said a Korean government official at the conference. He added, “Times demand the three of us work together for some tangible accomplishments, such as R&D investment and free trade agreements.”
Korea signed its first free trade treaty with Chile back in 2004. Up to now, it has seen five such pacts take effect with 16 nations, while entering into agreements with three nations. Negotiations are also underway for seven agreements along with nine joint research projects with 16 nations. As such, a deal with China and Japan, which account for more than 30% of Korea’s total exports, feels somewhat belated.
However, the willingness of economic leaders is very high. “We need to resume FTA talks as soon as possible because that is the way to shore up our bilateral relations more strategically,” said Prime Minister Noda Yoshihiko during his October visit to Korea. Strategy and Finance Minister Park Jae-wan and Furukawa Motohisa, Vice Minister of Cabinet Office for Economic and Fiscal Policy, met with each other more recently and agreed with him.
China, which is keeping the United States in check in various aspects nowadays, is even more zealous about the matter. Both President Hu Jintao and Prime Minister Wen Jiabao have given much pressure to the Ministry of Foreign Affairs to that end.
The story is not that different for Korea, either. Though taking a prudent stance as its impact is expected to surpass that of the KORUS FTA, the Lee Myung-bak Administration is regarding FTA talks with China and Japan as a fait accompli. “The negotiations will continue one way or another," the Foreign Affairs, Trade and Unification Committee of the National Assembly commented recently.
Tangible Benefits Put Ahead of Formalities
In not a few FTA cases, side effects often arise due to some difference in industrial competitiveness and labor market structure between signing parties. In fact, a Korea-China-Japan FTA is likely to be especially vulnerable to such effects due to their specific conditions and concerns. This is one of the reasons the three nations, taking up over 20% of the global GDP, have postponed any conclusion of a deal so far. It is almost certain that each nation will put its practical interests ahead of anything else and strive to gain an advantage. Then, what stances do the three have in regards to preparing for such a deal?
China to Hold Back G2 Partner via East Asian Economic Consolidation
On the surface of it at least, China is the country most enthusiastic about a Korea-China-Japan FTA. Experts ascribe this to a change in United States' policy regarding China. The former is trying to curb the latter in more concrete ways, for example, growing the Trans-Pacific Partnership (TPP) into an influential means for Asia-pacific economic integration, and strengthening its security alliances with Korea, Japan and Australia.
With its FTA with ASEAN nearly three years old, Korea and Japan have every reason to sign the deal. In particular, Koreais showing high export dependency on China, meaning it is allowed to urge its partner to ink an agreement.
Japan to Bring Back Past Glory through Economic Coalition
Prime Minister Noda Yoshihiko, in the meantime, said last month that his country was willing to join the TPP. The remark is significant as it clearly shows the island nation is ready and willing to seek closer ties with the outside.
Unlike nations acceptive of bilateral or multilateral trade pacts, Japan has focused heavily on itself during its economic development. The attitude is rooted in it having been the only Asian market commensurate with its American and European counterparts and capable of manufacturing products superior in quality.
However, the bubble has burst and pride reduced over time. A low birthrate and aging population are driving the country into the traps of low growth. Compounding the situation, the Sendai Earthquake in early 2011 dealt a staggering blow to Japan, making it more desperate for some sure-fire ways to revive its economy.
Different Approach at Slower Pace Required for Korea
What should Korea’s posture be then? Domestic experts recommend a different approach. “China is standing on the firm ground of socialism and sharing. Given that, we can assume its government’s mindset about free trade is totally different from those of our previous partners,” the LG Economic Research Institute commented, adding, “Allowing for our export lopsidedness with China, there should be multiple safeguard measures.”
When it comes to a pact with Japan, Korea seems to have a little more leeway. The historic KORUS FTA recently took effect, yet Japan is still fumbling for a way out. The Korean government is well aware of who is feeling more pressed. “A Korea-Japan FTA can wait and we will be in no hurry, though the conversation will keep going,” said the government recently said. Taking time also allows more methods to be devised to cushion any impact in the overlapping of key industrial sectors.
Free trade and economic integration among Korea, China and Japan suggests that the cause is also probable for the entire Asian continent. What the three are now doing is laying the cornerstone for a first step. That is why not Asians but also those around the world are paying such attention to the situation.