By Zhao Jinping, Enterprise Research Institute, DRC

2018-8-21

The China-U.S. trade friction and global trade war ignited by U.S. President Trump have exerted both negative and positive influences on the liberalization of trade and investment. As a result, multilateral systems have been shaken and the foundation of global rules has been severely undermined, while the U.S. unilateral protection has forced the world market to become more open. New breakthroughs have also been made in terms of bilateral or sub-regional economic integration such as the proposed US-EU zero-tariff negotiation, the formal signature of Japan-EU Economic Partnership Agreement (EPA) and the plan of Japan-U.S. zero-tariff arrangement. Therefore, it is significant for China to reformulate its strategic plans for the development of free trade zones (FTZ) in face of the severe challenges posed by China-U.S. economic and trade tension that may last in a long term.

The global and regional economic integration are displaying new features. The enormous changes of the global and regional economic landscape have presented features as follows: First, reaching free trade agreements has become a common global consensus. Second, the liberalization of trade and investment has prominently expanded to more fields. Third, the withdrawal of the United States from TPP has made CPTPP and Japan-EU EPA major drivers of high-level liberalization of regional trades. Fourth, the United States has shifted its focus to bilateral agreements. Fifth, new economies are prominently strengthening the efforts on building free trade zones. Sixth, the East Asian regional integration has seen breakthroughs.

China is facing both opportunities and challenges. Opportunities are increasingly prominent since bilateral free trade zones have been gradually expanded, providing important opportunities for the all-around upgrading of China’s FTZ strategies and proving beneficial for China to bypass the trade transfer effects caused by the integration of other regions and for solidifying the achievements of East Asian cooperation. However, the Chinese FTZ strategies will also face severe challenges. The standards of trade liberalization will become higher than those in the past agreements and China will face prominently increasing pressure to open its market and make harder negotiations. Trade transfer effects will have great impact on trade and investment activities. Major advanced economies are attempting to restrict newly emerged economies of rising influences. The external distractions have also complicated the relations between East Asian countries.

It is important to propel the development of high-level free trade zones. China’s FTZ strategies have seen achievements since the 21st century, while the gap between China and major economies in the world as well as its neighboring countries in terms of actual progress is yet to be narrowed. Propelling the development of high-level free trade zones is a strategic must for China to deal with the severe challenges rising from the changes of international landscape, seize strategic opportunities, deepen economic structure reform and improve the open-oriented economy across the board.

The goals and priorities of the Chinese FTZ strategies are as follows. It is suggested that the upgrading and follow-up negotiations of China-ROK, China-Australia and China-ASEAN free trade agreements should be taken as a current focus of the Chinese FTZ strategies. China should make propelling the FTZ negotiations with Japan and South Korea a leverage to the progress of regional multilateral cooperation. It is also suggested that more efforts should be made to realize high-level inter-governmental negotiations, consider and initiate China-Japan, China-Europe and China-U.S. bilateral negotiations. China should actively create conditions to develop closer economic relations between its mainland, Hong Kong, Macao and Taiwan and establish free trade zones with BRICS countries. The country should also seize key strategic opportunities, build a FTZ network with wide coverage and clarify the long-term goal of initiating Asia-Pacific FTZ negotiations.

China should move faster to build free trade zones through the following major measures. In a bid to achieve China’s FTZ strategic goals, the following efforts should be made for now and in the future: China should deepen the reform of foreign-related economic systems, improve steadily the liberalization standards of FTZ negotiations and refer to international experiences through systematic research and learning. We should focus more on the new agendas of FTZ negotiations, accelerate relevant research and formulate scientific and feasible rules of origin according to the different conditions of the countries involved in negotiations. The authorities should keep close attention on sensitive and advantageous products and adopt flexible measures accordingly. China should lower the costs of market opening and structural adjustment to the maximum. Integration of decisions and internal coordination should be improved in FTZ negotiations. China also needs to enhance foreign economic cooperation and exchanges, and improve the fundamental work including building supporting systems for free trade zones and fostering talents to propel the implementation of FTZ strategies.