East Asian FTA has great potential, but faces serious mutual obstacles

By Chen Youjun Source:Global Times Published: 2013-4-8 21:08:01

The three-day first round of negotiations on the China-Japan-South Korea Free Trade Area (FTA) ended on March 28.

During the talks, the three countries discussed a wide range of issues such as institutional arrangements of the FTA, future topics in the negotiations and methods of the negotiations. Obviously, the start-up of the establishment of an FTA is great news to all the three countries and the whole regional economy. 

The FTA can be seen as a collection of China, Japan and South Korea's fruits of economic development, as well as an important springboard for all the three countries to recreate economies of scale.

In fact, the huge combined market is a key highlight. China, Japan and South Korea are all global trading powers. Their huge trade volume and population create immeasurable prospects for the FTA's development.

If the trilateral FTA can be established, it will be similar to, or even more influential and valuable than the North American Free Trade Area or the Eurozone.

What's more important is that all the three countries have quite good economic foundation and powerful basic manufacturing.

Their economies are highly complementary. As long as they make joint efforts, a cross-sector industrial chain can be established.

Therefore, compared with others, this FTA can have stronger plasticity and expansibility.

Besides the huge economic interests, development of this FTA is also of political significance.

It is a miracle drug for the three countries to promote political reconciliation and ease sharp contradictions.

Traditional economics textbooks draw the conclusion that models of economic cooperation, such as FTA and custom union, can create economic interests and benefit consumers in relevant countries and regions. However, such models are based on an ideal situation and rule out all interfering factors.

In fact, currently, the principal obstacles that stand in the way of the establishment of the FTA among China, Japan and South Korea are political problems.

The current political contradictions caused by territorial disputes have already threatened the future development of bilateral and multilateral relations.

The start of the trilateral FTA talks is not easy. It reflects that these three countries all have great expectations for this economic cooperation mechanism.

In future, development of the FTA and its integration trend can accumulate positive energy to promote establishing wider range of cooperation mechanisms in East Asia, and even in the Asia-Pacific region.

Currently, the development and improvement of global economic cooperation mechanisms has come to a halt. The long overdue Doha Round of world trade negotiation is one of the most typical examples. Against such background, establishing and developing regional economic cooperation mechanisms has become a major trend for countries to seek cooperation.

As well as traditional reciprocal methods, such as tariff reductions and priority in passing customs, the three countries can also expand cooperation in fields such as trade in technology and services.

Specifically, they can make technical cooperation a breakthrough that drives in-depth cooperation in other fields.

China, Japan and South Korea all face the economic challenges of aging populations, insufficient domestic demand and the transformation of their industrial structures. So they can use the platform of the FTA to learn from each other and share experiences.

Based on this, globally competitive industries and products which are supported by the three countries' manufacturing can be created.

For example, given aging societies, the three countries can join together to create a "silver-hair industry" which can provide a series of professional services and elderly supplies.

In short, the FTA among China, Japan and South Korea is of great value. Potential economic interests and political effects brought by this may be even more than we can imagine.

However, there's still a long way to go before the final establishment of the FTA.

The author is an associate research fellow at the Institute for World Economy Studies of the Shanghai Institutes for International Studies. opinion@globaltimes.com.cn

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