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What’s next for the long-awaited China-Japan-South Korea FTA ?

The Diplomat | 28 January 2022

What’s next for the long-awaited China-Japan-South Korea FTA ?

By Xirui Li

China, Japan, and South Korea, the three largest economies in Asia, launched negotiations for a trilateral free trade agreement (FTA) in 2013. As of January 2022, a total of 16 rounds of negotiations between the three parties have been held, though without substantial progress.

Recently, with the first FTA covering all three countries – the Regional Comprehensive Economic Partnership (RCEP) – entering into force, the China-Japan-South Korea FTA (CJK FTA) has again gained attention. Is RCEP able to accelerate the negotiation process of the CJK FTA ? To answer that question, we first must examine the factors behind the nearly decade-long deadlock in negotiations.

Current Stumbling Blocks

The stagnant progress on the CJK FTA can be attributed to three factors. First, opposition from domestic economic sectors likely to suffer from the agreement, particularly agriculture, remains strong. According to a sectoral study done by researchers from South Korea, agriculture is regarded as the major stumbling block to the finalizing of the CJK FTA. Industry concerns include not only the loss of market share, but also intellectual property rights (IPR) on agriculture-related technology and breeds, food safety, and observing quarantines.

Second, China, Japan, and South Korea have each adopted a different FTA strategy. China is known for its selective and gradualist approach in formulating FTAs. More importantly, China does not want a high-level CJK FTA. Instead, it favors a moderate-level trilateral FTA, which is primarily focused on trade in goods. South Korea prefers a comprehensive FTA in terms of both scope and content, including services, investment, government procurement, IPR, and technical standards, in addition to trade in goods. Though Japan is keen to exclude agriculture and fishery production from the agreement, the country – being mobilized by the most influential business federations – refuses a low-standard CJK FTA. Instead, Japan advocates for an agreement that includes not only a substantial tariff reduction but also the liberalization of services, IPR, environmental protection, and labor policy.

Third, broad diplomatic tensions have also cast a shadow over the CJK FTA. China and Japan are said to be more politically, especially geopolitically, driven. The rivalry over regional hegemony between China and Japan looms large. In addition, some argue that China’s push for the CJK FTA aims at checking the United States’ influence in East Asia. Japan’s search for a balance of power between the United States and China means that the country’s attitude toward the trilateral FTA blow hot and cold.

Muhui Zhang of Pusan National University argues that South Korea, as the bridge between China and Japan, is vital for the trilateral economic integration, but unfortunately, South Korea would like to keep its distance from Japan even though both are allies of the United States. Japan’s colonial history on the Korean Peninsula continues to rankle. In addition, other disruptive factors such as nationalist sentiments and maritime disputes – between China and Japan as well as Japan and South Korea – also help explain the slow progress and few achievements of the negotiations so far.

RCEP : A Change in the Winds ?

The aforementioned hurdles still exist, despite the implementation of RCEP, which counts all three states as members. However, RCEP may demonstrate some positive changes or at least provide signals of a willingness to change.

First, RCEP represents a compromise among China, Japan, and South Korea with regard to FTA strategies. For instance, RCEP is not only the largest FTA that China has signed to date, but is also the one with the highest standards and largest scope. For instance, RCEP is the first time that China has promised to use a negative list approach when signing a regional trade pact. Similarly, it is also the first time that China has agreed to include articles on government procurement in an FTA. All these demonstrate that China is willing to sign on to a relatively higher-standard FTA compared to the past. That China was the first country to ratify RCEP further illustrates China’s firm commitment toward the world’s most comprehensive mega-trade agreement. Furthermore, China has also decided to pursue an “RCEP plus” version of the CJK FTA.

Meanwhile, although the level of standards and scope of contents found in RCEP cannot be compared to those in the Comprehensive and Progress Agreement for Trans-Pacific Partnership (CPTPP), which is mainly advocated by Japan, Tokyo’s signing on to RCEP and being the third member to ratify the agreement further indicate Japan’s relative satisfaction toward the current RCEP. As a result, an “RCEP Plus” model for the CJK FTA is likely to be also welcomed by Japan.

RCEP also presents a compromise on and thus an approach to deal with domestic sector sensitivities. Taking agriculture, the source of many major concerns, as an example, not only are some agricultural products exempted from the RCEP, but the tariffs on other products will be reduced gradually. This gradualist approach provides time for the agriculture sector to get used to and prepare itself for the full implementation as well as further development of the RCEP. The performance of this gradualist approach will be an important reference for the three countries in CJK FTA negotiation and implementation.

Obstacles resulting from geopolitical competition, maritime disputes, and history-related factors are almost impossible to fully remove. However, the existence of these obstacles does not mean that the attempt to formulate a CJK FTA is doomed to fail. RCEP may help create a friendly and favorable atmosphere between the three countries. Besides, past experiences also provide some clues on the question of under what conditions China, Japan, and South Korea are able to cooperate. For instance, the Asian Financial Crisis motivated the three countries to support the establishment of the Chiang Mai Initiative. Given the fact that COVID-19’s impacts on economic development are even worse than the Asian Financial Crisis and Global Financial Crisis, it is possible and likely that the lasting pandemic may provide stimulus for speeding up the long-stalled trilateral negotiations.

Last but not least, if an absence of leadership partially led to the stagnation of CJK FTA negotiations, the conclusion of RCEP may directly help solve that problem. It is said that China has prioritized RCEP over the CJK FTA. After the successful conclusion of the RCEP, China has reiterated its willingness to resume and accelerate the CJK FTA negotiations. How China will mobilize Japan and South Korea to conclude this “win-win-win” trade pact will be worth following in the coming years.

Xirui Li is a Ph.D. candidate at S. Rajaratnam School of International Studies, Nanyang Technological University, Singapore, as well as a part-time research fellow at Intellisia Institute, China

 source: The Diplomat