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South Korea, China and Japan to start three-way FTA negotiations

The Hankyoreh, Seoul

South Korea, China and Japan to start three-way FTA negotiations

By Lee Jeong-hoon and Noh Hyun-woong, staff reporters

19 November 2012

Huge free trade zone could lead economic opportunity, but also presents risks in a testy region

South Korea, China and Japan are set to officially declare the launch of negotiations for a “the three-country free trade agreement” on Nov. 20. Choi Kyung-lim, the chief South Korean negotiator said on Nov. 18, “The final confirmation will be made after tomorrow’s report to the Foreign Affairs, Trade and Unification Committee of the National Assembly, but our plan for now is to officially declare the launch of negotiations on Nov. 20.”

The launch of negotiations is to coincide with the schedule of the ASEAN Plus Three Summit and the East Asia Summit (EAS), which are slated for Nov. 19. The declaration would be announced during the meeting of the three countries’ trade ministers rather than as a joint announcement by the three heads of state. Kim Young-jun, public relations officer of the Ministry of Foreign Affairs and Trade said, “I’ve been informed that the chances are low that the summit meeting between China and Japan will be held due to territorial conflicts. As such, it is forecast that trade ministers of the three countries might launch the negotiations in a meeting.”

A senior official with the Ministry of Strategy and Finance said, “I heard that a final agreement is being made to carry out negotiations at a meeting of trade ministers, not through a summit meeting.”

At the Trilateral Summit Meeting between South Korea, China, and Japan held in May in Beijing, the heads of state agreed to officially start FTA negotiations by the end of 2012. Several working-level meetings have been held since then. The South Korean government has been preparing for the negotiations by holding public hearings for the South Korea-China-Japan FTA in October among other measures.

Meanwhile, amid a rising possibility that trilateral FTA negotiations will get under way, there are varying assessments of what the economic impact of such an agreement would be.

The South Korean government has a positive outlook based on the expectation that a huge market encompassing the three countries will be created, thereby promoting investment and trade.

Chief negotiator Choi stated in a recent newspaper column, “When the three countries’ domestic markets are opened to each, a massive market will be born that would account for 20% of global GDP and 22% of the world’s population. If the regulations pertaining to the country of origin among three countries are uniform and customs rules are simplified, companies operating in the region would be able to carry out their business much more conveniently.”

In an October hearing, Kim Young-gui, researcher at the Korea Institute for International Economic Policy, stated that if major concessions are made in trade, South Korea would reap economic benefits valued at US$16.3 billion (17.7 billion won) over the next ten years. He also predicted that with moderate or minor concessions, real GDP would grow by 1.31% and 1.17%, respectively. Effects of welfare improvement are expected to reach $13.75 billion and $11.81 billion, respectively.

However, counterarguments are strong as well. First of all, as China’s strategic judgment is behind its participation in the trilateral FTA to confront the US-led Trans-Pacific Partnership (TPP), the FTA could lead to regional conflicts in East Asia. It is also possible that Japan could strengthen economic cooperation with the US rather than with China due to the territorial disputes between Tokyo and Beijing.

There are also concerns that the trilateral FTA is proceeding hastily without sufficient investigation into the effects of existing FTAs. In the case of KORUS and South Korea-EU FTAs, the rosy outlook promised by the South Korean government before the FTAs went into effect has been somewhat off the mark. In October when Lawyers for a Democratic Society requested the Ministry of Foreign Affairs and Trade send verification data for the outlook made before the FTAs went into effect, the Ministry responded, “Sufficient data to analyze growth effects of FTAs has yet to be gathered,” indicating the verification work is still incomplete. “It wouldn’t put us behind schedule if we sought another FTA after carrying out close investigation on the existing FTAs,” trade lawyer Song Gi-ho, explained.

There have also been objections to the current government, which is approaching the end of its term, starting such negotiations. The major presidential candidates are divided on the FTAs. Saenuri Party candidate Park Geun-hye argues for carrying ahead, calling FTAs “the expansion of economic territory” Democratic United Party candidate Moon Jae-in and independent Ahn Cheol-soo focused more on the negative effects, showing positions that lean more toward objection or proceeding cautiously.

Lee Hae-young, professor of international relations at Hanshin University said, “Even if FTAs bring benefits, the benefits decline if a country agrees to an FTA with many countries at the same time. If the president starts negotiations without national consensus while on his way out of office, it would be inappropriate from the perspective of the national interest.”