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Conclude an East Asia FTA

by Shinji Fukukawa

Japan faces difficult diplomatic problems with China and South Korea over territorial disputes and historical perspectives of wartime events that took place in the 1930s and ’40s. At the April 24 Japan-U.S. summit in Tokyo, U.S. President Barack Obama called on Prime Minister Shinzo Abe to improve Japan’s relations with China and South Korea while stressing the importance of Japan-U.S. ties.

Despite the diplomatic problems, economic exchanges among Japan, China and South Korea are steadily progressing and their business circles are ready to step up efforts to further improve and strengthen the exchanges.

Against this backdrop, the Third Japan-China-Korea Economic and Trade Forum took place in Tokyo on April 12. This forum was set up at the suggestion of the China Center for International Economy and Exchange (CCIEE). Participating from Japan was the Japan-China Organization for Business, Academic and Government Partnership, in which I have been involved. From South Korea, it was the Korea International Trade Association.

Partly because the forum had already held two sessions in Seoul and Beijing, the discussions at the conference were mostly forward-looking:

(1) Participants fostered a common awareness that the proposed tripartite free trade agreement (FTA) should be concluded among Japan, China and South Korea at an early date.

The majority view was that because four rounds of intergovernmental consultations have already taken place, with the first round held in March 2013, and because many FTA talks including the Trans Pacific Partnership (TPP) negotiations are being held, the tripartite FTA should be concluded as early as possible covering Japan, China and South Korea.

There also was the opinion that the three-way FTA is indispensable in promoting discussions on East Asia’s regional comprehensive economic partnership, whose framework is scheduled to be agreed on by 2015, because the three nations jointly represent about 70 percent of East Asia’s economy and about 60 percent of trade in the region.

Trade relations among the three countries continued at high levels in 2012, with Japan-China trade registering $366.2 billion, Japan-South Korea trade $104.9 billion, and China-South Korea trade $247.4 billion. So it was strongly pointed out that to further expand these trade volumes, those in the business circles consider it necessary to make existing trade systems much freer through additional measures to lower both tariff and nontariff barriers.

It was impressive to note that many delegates from the three countries stressed the need to liberalize trade in services as part of the process for trade liberalization. There were many opinions that trade service liberalization will contribute to the acceleration of activities in finance, transportation, information, communications, distribution and education as well as to the upgrading of economic structures and the expansion of the three countries’ mutual reliance.

(2) Many delegates asserted that the supply chains of the three countries can be expanded through an FTA.

Among the three countries, vertical and horizontal supply chain systems are already being enhanced. So it was pointed out that if the proposed FTA is concluded, their cooperation in the division of labor will be accelerated through investment expansion, thus contributing to their economic growth and employment expansion.

(3) There were strong views calling for stepping up cooperation in promoting innovations.

The three nations are respectively making efforts for innovations. But the point is that they need to promote cooperation beyond their national borders in order to continue sustained growth and overcome the constraints in the fields of resources and energies and the problem of global warming.

They will have to jointly tackle many issues, such as technologies for electronic information and communication, life science, brain science, nano processing, efficient energy use, new energy sources and environmental protection.

(4) It was reaffirmed that the three countries should cooperate in efforts to protect the global environment.

Participants from Japan and South Korea expressed strong concerns about the serious air pollution problem attributed to the contamination by PM2.5 particles originating in China. Chinese participants explained that their country is dealing with the problem as a top priority issue. Then it was agreed that the three countries should cooperate in working out concrete steps aimed at solving the problem.

Regarding the problem of global warming, participants from Japan and South Korea showed a strong interest in how China responds to the problem, because China is the world’s largest greenhouse gas emitter.

Chinese delegates expressed a strong resolve to deal with the problem in a positive manner, and it was agreed that the three countries should further expand their cooperation in the fields of policymaking and technology development to combat global warming in years to come.

That is an outline of the discussions held at the Tokyo forum. Some Korean participants favored going ahead with creating a China-South Korea FTA. But the majority view was that Japan, China and South Korea should conclude their trilateral FTA at an early date. It was agreed that with this in mind, the delegates from the three nations should work on their respective governments.

It was also agreed that the three participating organizations should strengthen and continue their cooperation systems to accelerate FTA talks.

My firm view is that if the three countries formulate a framework for the trilateral FTA, it will help to end the present unstable diplomatic situation and restore relations built on trust.

Shinji Fukukawa, formerly vice minister of the Ministry of International Trade and Industry (now the Ministry of Economy, Trade and Industry) and president of Dentsu Research Institute, is currently senior adviser to the Global Industrial and Social Progress Research Institute.