Japan, South Korea and China are slowly working towards a free trade agreement. Will old disagreements kill a possible deal?
Amid a storm of bluster and posturing in East Asia, there has been scarce analysis on recent attempts at regional integration. Despite this, the rising tensions on the Korean Peninsula have actually served to temporarily move the microscope away from maritime security issues and territorial disputes in favor of punditry over Pyongyang’s nuclear wish list. This has subsequently provided diplomats in region, especially those in Beijing and Tokyo, with the necessary breathing room to soften the tone of their vitriolic exchanges of the past year.
Last month, senior trade officials from China, Japan and Korea met in Seoul for the first round of talks aimed at concluding a massive trilateral free trade agreement (FTA). The trade pact would combine the region’s two biggest economies along with a booming South Korea market that has cracked the top fifteen globally (as measured by GDP). The initial round of discussion in Korea was more perfunctory than anything but this development should not be dismissed as a fool’s errand. After talks with his counterparts in Seoul, South Korean Deputy Trade Minister Choi Kyong-Lim stressed that this meeting was crucial for “establishing trust between negotiators from the three countries, which may play the most important role as negotiations move forward."
Critics will point to the fact that the China-Japan-S.Korea FTA has been an elusive dream for decades as a result of a multitude of factors, including disagreements over market access, exorbitant tariffs and political issues. Granted, much of this still holds true – especially the latter. China’s relationship with Japan has suffered incrementally over the past few years due to renewed clashes over the Senkaku/Diaoyu islands in the East China Sea. Moreover, Japan and Korea have been unable to fully repair frayed ties over history and their own territorial dispute, despite the near simultaneous election of two new leaders.
But while some parts of the story remained more or less the same, others have changed. On the trade side, there is urgency for all three countries – to varying degrees – to get ahead of the curve amid a proliferation of free trade pacts and talks in the Asia-Pacific. The fast-moving Trans Pacific Partnership (TPP), a U.S.-led free trade agreement in Asia, has set off alarm bells in Beijing which is thus far excluded from the pact. Indeed, China may have the most to gain from a trilateral pact because it would allow Beijing to combat pressure and dependence on the Western market, while simultaneously undercutting the emerging TPP.
The dividends, however, would not be limited to China. A trilateral agreement would be a lift to the Japanese economy due to the fact that it would secure a privileged status with its two most prominent trading partners in the region. South Korea benefits too as it would be able to erode competition from the Association of South East Asian Nations (ASEAN) and – ironically – Japan for access to the Chinese market.
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Amarike
Northeast Asia is a spent force and a region of uncertainty. The world should look to South Asia, the next beacon of global development. Be open minded and you will discern the opportunities there.
RisingSun
This type of articles should be written by an economist. Who can expect to have a trade agreement with China where every industries are controlled by the state?
Japan is not really interested in FTA with China and South Korea. There will be nothing much to pursue to get trading incentive, since Chinese produces need to be regulated by Japanese safety standards (which most of Japanese produce companies are doing it already), and all the Korean companies make are knock-offs of Japanese electronics and industrial parts. So far, Japan is carefully selecting trade partners whose products are not the direct competitions of Japanese companies. FTA is something in the line of "you sell your produces, and I sell you our industrial products, without taxing". It means that the partners will have no chance of leveling up the weaker products in the near future. For example, Peru will never be able to produce auto and electronics as good as Japan does, but they get better incentive to sell their minerals in the Japanese market.
The driving force on China-Japan-Korea FTA is South Korea. I believe their plan is to be the hub of the larger economic powers, but that's not working at all. South Korea already has trade agreements with the US and EU, but so far Korea is losing money on imports/exports simply because there are too many products in common. Hyundai makes most profit in their own country, but now, the government has to give unfair advantages to GM and Ford. The countries with the larger economical foundation tend to gain more in FTA, and Korea will be eaten alive against USA and EU sooner or later. I don’t know what their government is thinking of doing this, but if they include China and Japan, their manufacturing and agriculture will be exterminated.
But….
Thank you for a well-done analysis of the article.
Bower
If you want a free trade agreement, there should be at least an open market (e.g. US' or EU's) for the other's exports. A closed market plus two partly open ones & all still being export-oriented, are surely hard enough for any FTA's success!
TDog
If a trilateral agreement never materializes, I don't think anyone except Japan will care too much. The rush to engage in free trade is like the rush back in the 90's to invest in tech stock – everyone says it's the hot new thing and if you don't get into the action you'll lose out.
Well, like the tech bubble, free trade is a scheme backed up by a lot of hype and promises but woefully short on delivery. NAFTA has proven that free trade isn't all it's cracked up to be. Jobs wind up getting lost and wages wind up getting depressed. Goods do become cheaper, but it matters little since being un- or underemployed means one can't afford them at even half the price.
Free trade agreements are ultimately a lose-lose situation that benefits an extreme minority at the cost of everyone else and if China, South Korea, and Japan fail to conclude a trilateral agreement, they will all probably be much happier for it in the long run. That Japan is concluding free trade deals left and right will probably wind up boomeranging on them like their real estate investments in the 80's did.
The article mentions China feeling the pressure due to the TPP's aggressive timeline, the implication being that China needs to act soon. With that in mind, I'm reminded of an old business saying: the sooner they want you to sign, the longer you should look at the deal.
Tom F
@TDog – "Free trade agreements are ultimately a lose-lose situation that benefits an extreme minority at the cost of everyone else and if China, South Korea, and Japan fail to conclude a trilateral agreement, they will all probably be much happier for it in the long run. That Japan is concluding free trade deals left and right will probably wind up boomeranging on them like their real estate investments in the 80's did."
Although history has defended your assertion, from my corner of the world, free trade has been the key to 'equal' market access (and long term propserity), and less tensions, both domestically and internationally. IMHO, Japan is taking a leadership role here, if nothing economically is to be gained, the TPP and FTA that Japan commits to will at least lessen the chance of war in the region.
For Japan, the agri sector has been the primary roadblock to 'more liberalised trade, and Mr Abe is making the most of the domestic political support whilst it is there. Likewise, I think Japan and the world realize that in terms of 'progress' with regard to the model of 'government' western democracy is at a stand still, whilst China has progressed a long way and still have much to go, and with it, opening up of more market (which will require the framework of an FTA to bring about orderly market access and operation).
I think I agree with you, that the more 'agreements' exists, the more chance of disputes opening up, but that is akin to saying don't have comprehensive contracts because that would just cause more disputes. They key though is to have an elegant contract with all areas of potential disputes and how to resolve them addressed by the contract, which IMO a good FTA would and should provide for.
So, generally, I'm of the view FTAs will bring benefits in terms of easing or avoiding regional tensions, defined and standardisation of trade disputes (and remedy), helps bring about closer economic ties, and if nothing else, FTA between assymetric countries has always facilitated purchasing power parity and the benefits that brings to the weaker country. Another way of looking at it is what happens if a country looses its free trade status, New Zealand's economy went into a tail sping for decades after it lost free access to the UK market.
But….
I usually gloss over articles such as this, however there is some news about dates [or non-dates] of meetings. but without specific instances of true economic data, the articles are just fillers. For example: Japan and Australia. Australia will sell x amount of rice and Japan will sell x amount of car parts. The economic benefit is ]x]. Now we have some basis of understanding of what a FTA accomplishes. FTA for its own sake has little to offer economically, however politically there might be rationale to have one in place. Now explain the reasons politcally why an FTA means something. Otherwise the article is just something to fill the back pages next to the obituaries.