Slow progress toward FTA

China, Japan and South Korea are in closer cooperation but obstacles remain in the way of trilateral free trade agreement

In the just-concluded fourth trilateral meeting of the leaders of China, Japan and South Korea, all three countries agreed to speed up the process toward finalizing a free-trade agreement (FTA).

Promoting a trilateral FTA at this time is significant, mainly because major changes occurred in the world economy after the global economic crisis, and Japan and South Korea strongly hoped to "take a free ride" on the rise of China's economy.

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In 2010, the overall size of China's economy surpassed Japan's to be the world's second largest. China's sustained rapid economic development has not only created a strong demand for Japanese and South Korean exports, it has also revived some Chinese enterprises due to the continuous expansion of domestic production. Also enterprises that have invested in China have received high returns and China has become the main source of profit for many of these companies.

The vast market in China has long been regarded as a means of economic regeneration and advancement by Japan and South Korea.

Moreover, the economic woes resulting from the earthquake, tsunami and nuclear accident have forced Japan to re-examine the importance of the FTA. The gross domestic product (GDP) of Japan fell 0.9 percent during the first quarter of 2011 and Japan urgently needs the support of its neighbor in its recovery and reconstruction efforts. The realization of the FTA with China and South Korea would enable Japan to establish closer economic and trade relations with them and build a solid foundation for this support.

In recent years, the trade structure of the three countries has been undergoing changes and there has been a rapid development of intra-industry trade and trade in intermediate goods, a reflection of the three countries' willingness to deepen economic ties.

In 2010, the total trade between the three countries exceeded the level before the financial crisis, and China has become Japan and South Korea's largest trading partner. In addition, Japan and South Korea have also become a major source of foreign direct investment, the cumulative amount of investment was more than $120 billion. Moreover, after 12 rounds of negotiations since 2005, China, Japan and South Korea are speeding up talks on a tripartite investment agreement, which will provide a protection system for further investment cooperation.