Zhang Xiaoji

In order to implement the consensus reached by the heads of state of China, Japan and Republic of Korea (ROK) at the Manila "10+3" conference held in November 1999, the Development Research Center, authorized by the State Council, conducted joint research on the economic cooperation among the three countries along with the National Institute for Research Advancement (NIRA) of Japan and Korean Institute for International Economic Policy (KIEP). At the Brunei "10+3" conference held in November 2001, the three institutions presented the first "Joint Policy Recommendations" (see appendix) to the leaders of the three countries. In particular, the proposal concerning the promotion of trade facilitation was adopted and is being implemented. This research work received the strong support from the Ministry of Foreign Affairs, the Ministry of Foreign Trade and Economic Cooperation, the General Administration of Customs and the State Bureau of Quality and Technical Supervision. The following is a preliminary report on the analysis of the economic cooperation among the three countries.

I. China, Japan and Korea are Faced with the Challenges of Worldwide Regional Economic Grouping.

Since the beginning of the 1990s, a new wave of regional economic integration swept across the globe. The number of regional trade agreements (RTA) increased visibly. Most of the members of the World Trade Organization joined at least one bilateral or multilateral free trade agreement. The internal trade within the framework of regional trade agreements has accounted for more than 50 percent of the world’s total trade. Some new regional trade agreements have gone beyond the limits of traditional goods trade. They cover wider areas, including service trade and investment, and even contain more contents than those covered by the WTO multilateral negotiations.

The economic community is drastically divided over the pros and cons of regional economic grouping. Some scholars believe that regional trade blocs are the "stumbling blocks" to global trade liberalization, while others regard them as the "foundation stones" for building a global framework of non-discriminatory trade liberalization. Despite the above arguments, the fact that regionalism is spreading across the globe indicates that countries, proceeding from their own practical interests or political interests, are still seeking to establish bilateral or multilateral regional trade agreements so as to acquire larger markets and higher efficiency. Even when they are still unsure about the gains that might arise from regional trade agreements, these countries do not want to miss any chances to participate in neighboring regional trade agreements for fear of being "marginalized" or being harmed by the effect of trade diversion.

The European Union (EU) and the North American Free Trade Agreement (NAFTA) are by far the two major regional trade blocs that have the greatest impact on the world economy. And with the promotion of the eastward expansion of the European Union and the plan to establish the Free Trade Area of America (FTAA), it is highly possible that in the next 10 years, world trade will be dominated by the two trade blocs.

In the face of the challenges from external regionalism, the countries in East Asia are also seeking various forms of regional economic cooperation. The Association of South East Asian Nations (ASEAN) plans to establish a free trade area comprising 10 member countries, and Singapore has reached agreement with Japan on a bilateral economic partnership in the new era (JSEPA). However, whether the East Asian region can truly form a regional trade bloc that can compete with Europe and America depends very much on how economic cooperation will develop among China, Japan and Korea. This is because the three countries are by far among the very few countries in the world that have not joined any regional trade bloc. The combined gross domestic product and trade volume of the three countries respectively account for 19.8 percent and 11.8 percent of the world’s totals. Within the "10+3" framework, the three countries’ GDP and trade respectively account for 91.2 percent and 67.9 percent. At the Brunei "10+3" conference in 2001, China reached consensus with the ASEAN on the establishment of a free trade area, a move that has attracted extensive attention in the world. In particular, the move has put an enormous pressure on Japan and Korea, and may well force the two countries to reconsider their strategies on the regional economic cooperation in East Asia. At stake is not only whether they will respectively establish free trade areas with the ASEAN but also whether they will strengthen regional economic cooperation with China.

II. The Trend of Regional Trade Development among China, Japan and Korea

In the past 10 years, the trade among the three countries has by and large maintained the momentum of growth except during the Asian financial crisis. In 2000, the intra-regional trade among them totaled about 160 billion U.S. dollars, with the proportion in their total trade rising from 11.3 percent in 1990 to 19.8 percent. But compared with the EU, the NAFTA, the Southern Common Market, the ASEAN and other regional trade blocs, both the proportion and the concentration coefficient of intra-regional trade among the three countries are still relatively low. The reason is that under the influence of market forces, the three countries’ trade structure, comparative advantages, division of production and other important factors affecting the intra-regional trade are undergoing changes and the governments of the three countries have yet to make sufficient reaction.

1. The structure of Sino-Korean trade tends to be similar with that of the Sino-Japanese trade.

In 2000, of the top six major commodities in China’s export to Korea, four were also ranked among the top six major commodities in China’s export to Japan. Of the top six major commodities in China’s import from Korea, five were also ranked among the top six major commodities in its import from Japan. Korean products are beginning to replace Japan’s exports to China because of the lower prices and the improvement in product quality. Since 1995, the growth of Sino-Korean trade was clearly faster than that of Sino-Japanese trade. As a result, Sino-Korean trade is gradually assuming greater importance in China’s foreign trade, while the importance of Sino-Japanese trade is declining in a relative term. A similar situation has also appeared in Korean foreign trade. In the past 10 years, the proportion of trade with China in Korea total trade rose almost from zero to 9.0 percent, while the proportion of trade with Japan declined from 23.1 percent to 16.4 percent. The latest statistics published by Korea indicate that Korean export to China in 2001 surpassed that to Japan for the first time in history. ...

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May 2002