Sunday, July 21, 2024

Free trade pact

China, Japan, and South Korea stand to gain significantly from a three-way free trade agreement (FTA), though they must first navigate considerable geopolitical and other challenges, according to experts.

Negotiations for this FTA have been stalled since 2019, but the topic resurfaced last Monday during a trilateral summit attended by Chinese Premier Li Qiang, Japanese Prime Minister Fumio Kishida, and South Korean President Yoon Suk Yeol. At this summit, the first in four years, the leaders pledged to resume talks on the FTA.

Premier Li urged South Korea and Japan to “deepen economic and trade connectivity, maintain the stability and smoothness of the industrial chain and supply chain, and resume and complete the negotiations of the China-Japan-South Korea FTA as soon as possible.”

Subsequently, on May 30, China’s Ministry of Commerce expressed readiness to expedite negotiations. Ministry spokesperson He Yadong emphasized the importance of the FTA talks, citing their potential to support the recovery of both the regional and global economies, as reported by state news agency Xinhua. President Yoon echoed this sentiment, highlighting the countries’ commitment to creating a transparent and predictable trade and investment environment and establishing a secure supply chain.

During a trilateral business meeting following the summit, business leaders agreed to form a working group to research economic cooperation in the private sector.

The economic influence of China, Japan, and South Korea is significant, comprising about 25% of global GDP and an annual trading volume exceeding US$800 billion. China is the largest trading partner for both Japan and South Korea, while Japan and South Korea rank as China’s fourth and fifth largest trading partners, respectively.

Restarting FTA discussions will build on existing trade agreements, aiming to enhance economic ties further. China and South Korea have an FTA signed in 2015, and all three nations are part of the Regional Comprehensive Economic Partnership (RCEP), effective since 2022. The RCEP is a trade agreement among ASEAN member states, Australia, China, Japan, South Korea, and New Zealand.

A China-Japan-South Korea FTA would be an extension of the RCEP, aiming for higher levels of liberalization. For example, the three countries plan to eliminate tariffs on automobiles and auto components, a step not covered by the RCEP, according to Nikkei Asia. Japan will also push for reductions in industrial subsidies and less favorable treatment for state-owned enterprises, which were not addressed in the RCEP.

Dr. Deborah Elms, head of trade policy at the Hinrich Foundation in Singapore, noted that the commitments under RCEP are relatively minimal. A focused three-way FTA would allow for more ambitious agreements. “If there are only three of you in the partnership, you can tailor an agreement in ways that are more ambitious in some areas than if you’re trying to do it with 15 parties,” she said.

Despite China’s assertion that the three economies are highly complementary and their industrial chains interconnected, Dr. Elms pointed out that they are also competitors in sectors such as agriculture, electronics, and chemicals. Identifying products for tariff removal will be challenging, she said, suggesting areas like furniture, raw materials, and services as potential candidates for liberalization.

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