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Special> 40th Anniversary of the Normalization of Sino-Japanese Relations> Featured Stories
UPDATED: May 21, 2012 NO. 21 MAY 24, 2012
Three's Company
China, South Korea and Japan consider free trade agreement
By Yu Lintao

SUMMIT ASCENT: Officials from China, South Korea and Japan hold the Fifth Trilateral Summit Meeting in Beijing on May 13 (HUANG JINGWEN)

China, South Korea and Japan agreed to launch formal negotiations on a trilateral free trade area (FTA) later this year. The decision was announced at the Fifth Trilateral Summit Meeting among the three major East Asian economies on May 13 in Beijing. Chinese Premier Wen Jiabao, Japanese Prime Minister Yoshihiko Noda and South Korean President Lee Myung Bak attended the meeting.

At a press conference following the meeting, Premier Wen hailed the agreement as "an important strategic decision," and appealed to the three nations to make concerted efforts for the early establishment of the FTA.

Analysts say the move will possibly accelerate East Asian integration and promote regional and global economic development. Since the three countries account for one fifth of global GDP, the trilateral FTA will also have significant regional and international influence.

"The China-South Korea-Japan FTA can promote the economic integration of East Asia and elevate the global status of the region. The trilateral FTA is a crucial step for East Asian economic integration," said Zhang Jianping, a senior economist with the Academy of Macroeconomic Research (AMR) of China's National Development and Reform Commission.

Inevitable trend

JAPANESE TECHNOLOGY: A Nissan Leaf electric car on display at an exhibition marking the 40th anniversary of the normalization of Sino-Japanese relations in Beijing on February 16 (LIU JINHAI)

From a strategic perspective, the proposed China-South Korea-Japan FTA accords with the trend of international industrial transfer and the structural adjustment of the world economy, said Zhang.

Since the outbreak of the global financial crisis, protectionism and trade frictions have grown more severe. As a result, FTAs have become increasingly important in normalizing international economic relations. While the global free trade regime is still in the air, regional economic integration has sped up.

"Due to the decline of the U.S. economy and the instability of the status of the dollar, the global economic system is undergoing a far-reaching change. It is impossible to achieve global economic integration on the basis of the old international order, and it is an inevitable trend that the world will embrace a multi-polar economic system," said Ren Weidong, a research fellow with the China Institutes of Contemporary International Relations (CICIR).

The China-South Korea-Japan FTA is in line with this trend, he said. Currently, Japan is focusing on industry shifting. South Korea is hindered by its small domestic market. As it pursues industrial upgrading, China needs advanced technologies from foreign countries and is eager to make full use of external resources and markets.

"All the three countries share the common desire for larger space for economic development," Ren said. "The FTA will give a new impetus to the economic development of the three countries and help enhance their overall strength."

A white paper titled China-Japan-ROK Cooperation (1999-2012) released by the Chinese Foreign Ministry shows China, Japan and South Korea together represent 74 percent of the East Asian population and 22 percent of world population. They also represent 90 percent of the East Asian economy and 20 percent of the world economy, and 70 percent of East Asian trade and 20 percent of world trade. In addition, trilateral trade expanded from $130 billion in 1999 to $690 billion in 2011. China has topped the lists of trade partners of Japan and South Korea for many years, while Japan and South Korea rank fourth and sixth among China's trade partners.

However, trade among the three countries accounts for less than 20 percent of their overall foreign trade, far below the ratio for the EU, which stands at 63.2 percent. Mutual investment among the three countries is also low, accounting for just 6 percent of their total investment in foreign countries.

"This does not match their positions as big economies and important neighbors. There are FTAs in North America, in Europe and in Southeast Asia. Trade arrangements are necessary in Northeast Asia to promote the regional economy," said Liu Jiangyong, Vice Dean of the Institute of Modern International Relations at Tsinghua University.

Moreover, with the United States shifting its economy to an export-driven pattern, the three Asian countries will face much more pressure in the shrinking export market. They all need to rely more on the Asian market.

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