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Print Edition> Business
UPDATED: September 19, 2011 NO. 38 SEPTEMBER 22, 2011
FTA a Long Way Away
Northeast Asia's major stakeholders forge closer ties without a formal mechanism

OPPORTUNITY FAIR: Visitors to the Taiwan Pavilion at the seventh China Jilin-Northeast Asia Investment and Trade Expo in Changchun, capital of Jilin Province, on September 6-11. Manufacturers from more than 10 countries attended the expo in search of business opportunities (WANG HAOFEI)

"Boasting the world's second and third biggest economies, China and Japan, northeast Asia has been the most dynamic region in the world in recent decades," said Chae Wook, Director of the South Korea Institute for International Economic Policy, at the Seventh China Jilin-Northeast Asia Investment and Trade Expo held on September 6-11 in Changchun, capital of northeast China's Jilin Province.

Though the precise area of northeast Asia varies, it always includes China, Japan, South Korea, North Korea and part of Russia. In terms of economic strength, China, Japan and South Korea comprise the core of the region.

"Sadly, for a number of reasons no economic cooperation mechanism has been established in northeast Asia," said Zhang Yunling, Director of Institute of Asia-Pacific Studies of Chinese Academy of Social Sciences (CASS), at the expo.

This issue has long been a topic at various meetings attended by China, Japan and South Korea. It was again heatedly discussed by experts and officials participating in this year's northeast Asia expo.

"The turbulent international economic situation has made promoting northeast Asian regional cooperation far more important than before," said Jiang Zengwei, China's Vice Minister of Commerce, at the expo.

"A China-Japan-South Korea free trade area (FTA) is the most realistic way of establishing a northeast Asian economic community," said Chae.

As early as 1999, China, Japan and South Korea agreed to form an FTA by 2020 at an ASEAN summit in Manila. On October 7, 2003, leaders of China, Japan and South Korea signed a joint declaration on promoting tripartite cooperation when they met during the ASEAN Plus 3 summit held in Bali, Indonesia.

But so far, little progress has been made in the establishment of an economic cooperation mechanism in this region. Even though, northeast Asian countries haven't slackened their pace of cooperation.

Intra-regional boom

In 2010, aggregate GDP of China, Japan and South Korea accounted for nearly 20 percent of the world's total, their trade volume accounted for 17.5 percent of the world's total and foreign direct investment, 9 percent.

Meanwhile, an export-driven growth model has helped the three countries accumulate more than half of the world's foreign exchange reserves.

"The current labor division structure between China, Japan and South Korea has boosted intra-regional trade," said Chae.

Japan and South Korea develop sophisticated technology while China is the world's factory thanks to its low labor and production costs.

Typically, China produces and processes final products with parts and pieces provided by Japan and South Korea. These final products are then exported mostly to the United States and the EU.

Last year, China scored an overall trade surplus of $183.1 billion, while its trade deficit with Japan in parts and materials stood at $88.6 billion. Moreover, China imported parts and materials from South Korea worth of $59 billion, accounting for more than half of its total imports from South Korea.

"This fully demonstrated the labor division among the three countries," said Chae.

In 2010, South Korea became the third biggest trade partner of China and Japan was still China's second largest trade partner.

In addition to booming intra-regional trade, investment by Japan and South Korea in China also contributed to regional economic cooperation.

At present China is the second largest recipient of Japanese investment and the biggest recipient of investment from South Korea.

"Last year South Korea's investments in China accounted for 13.6 percent of its total overseas investment," said Chae.

This booming intra-regional trade and investment has made the establishment of a northeast Asian economic community a necessity.

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