China, S. Korea keen on FTA / Japan's entry in TPP talks spurs moves toward trilateral pact

SEOUL--China and South Korea have recently begun shifting their reluctant stance on a trilateral free trade agreement with Japan, apparently in response to the government's decision to join Trans-Pacific Partnership free trade talks.

The Japanese government plans to further strengthen its position in the trilateral free trade agreement by advancing other large-scale free trade talks at the same time, such as one with members of the Association of Southeast Asian Nations.

The inaugural round of negotiations on the Japan-China-South Korea free trade agreement began at a Seoul hotel Tuesday with vice minister-level negotiators sorting out issues to be discussed, such as lowering tariffs as well as liberalizing the service trade and investment.

After the meeting, Japanese chief negotiator and Deputy Foreign Minister Koji Tsuruoka told reporters, "I felt a strong desire from China and South Korea for concrete, substantial results."

Last year, with anti-Japan sentiment running high in both nations due to tensions over the Senkaku Islands and the Takeshima islands, analysts were unsure the three-way FTA would progress.

However, the situation changed when Prime Minister Shinzo Abe, after a summit meeting with U.S. President Barack Obama in February, announced on March 15 that Japan would join the Trans-Pacific Partnership multilateral trade agreement talks.

Apparently alarmed that Japan and the United States could take the initiative in the formation of trade rules in the Asia-Pacific region, officials from China and South Korea began speaking favorably about a trilateral FTA.

On March 19, Chinese Commerce Ministry spokesperson Shen Danyang said, "Concluding an FTA between Japan, China and South Korea as quickly as possible would benefit all three nations."

South Korean President Park Geun Hye said at a March 11 Cabinet meeting, "We urge you to make meticulous preparations for negotiations on the Japan-China-South Korea FTA, which could affect the future of the South Korean economy."

China and South Korea are also expected to try and take the lead at the talks on the Regional Comprehensive Economic Partnership, which involves 16 Asian countries.

"The decision to announce our entry into the TPP talks gave us some good tailwinds," said Economy, Trade and Industry Minister Toshimitsu Motegi.

===

Beneficial for all 3 nations

The three-nation FTA would create a massive economic zone populated by about 1.5 billion people that encompasses about 20 percent, or $14 trillion, of the global economy measured by gross national product--smaller only than the North American Free Trade Agreement and the European Union.

If three-way elimination of tariffs progresses, it is expected to boost the Japanese automotive, steel and other export sectors. It is also hoped an FTA would reduce damage from the fake products that are rampant in China and South Korea, and stop demands for technology transfers when Japanese companies set up shop in China.

The economic effect of the FTA is estimated to add 0.74 percentage point to Japan's GDP, 2.27 points to that of export-dependent China and 4.53 points to South Korea's. Thus China and South Korea could also benefit significantly from a trade pact.

===

The way forward

Two more rounds of negotiations are planned this year, and the three countries are aiming for an agreement in two or three years, though realizing such a high-level economic partnership is not expected to be easy.

For instance, there is strong resistance in China to lowering automobile tariffs, and this is an issue China and South Korea could team up on. On the other hand, Japan and South Korea could work together to pressure China to clarify investment rules and implement better protective measures for intellectual property.

The fact that Japan is simultaneously going forward with the TPP talks and pursuing an economic partnership agreement with the European Union is expected to keep China and South Korea on their toes.

Amid the three nations' complex and intertwined desires, the Japanese government hopes it can maintain tariffs on agricultural products. However, as each country will have its own priorities, the talks will focus on how many advantages each nation can secure.

Toyoura is a correspondent in Seoul.

March 28, 2013

Source: Yomiuri