China Plans Talks With Japan, Korea on Free-Trade Area

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By Bloomberg News - May 13, 2012 10:30 AM GMT+0800

The leaders of China, Japan and South Korea meet in Beijing today for a summit that will approve starting negotiations on a free-trade agreement between three of Asia's four biggest economies.

China's Premier Wen Jiabao, Japanese Prime Minister Yoshihiko Noda and South Korea President Lee Myung Bak will agree to open talks on an accord, trade ministers from the countries said yesterday in a statement.

The countries will sign the Trilateral Investment Agreement, said Yukio Edano, Japan's minister of economy, trade and industry. China's Ministry of Commerce said yesterday that negotiations will start this year.

A free-trade accord would bring together a market of more than 1.5 billion people. Closer economic and trade ties may also help defuse political mistrust in the region, a legacy of Japan's invasion of China and the Korean peninsula in the early 20th century.

The agreement would expand trilateral and bilateral trade and investment and provide "a comprehensive and institutional framework in which a wide range of trilateral cooperation would evolve," the trade ministers said in their statement.

Trade between the three countries rose to $690 billion in 2011 from $130 billion in 1999, according to a research report released by China's Foreign Ministry on May 9.

"Closer cooperation between the three nations will not only be conducive to the development of each country itself, it will also boost the East Asian integration process and add drivers to world economic growth," the report said.

Trade, Investment

China is the largest trading partner of Japan and South Korea, according to the report. Japan and South Korea are China's fourth- and sixth-largest trading partners respectively, the ministry said.

"It will boost regional economic integration, industrial cooperation and technology advancement," Wang Shenshen, an economist at Okasan Securities Co. in Tokyo, said before the announcement. "It won't be smooth sailing to reach a final deal as it will encounter domestic opposition in each country."

Chinese manufacturers may face challenges from imports of goods from South Korea and Japan, and South Korea's agriculture industry may put up a fight, Wang said. Political turmoil in Japan is another uncertainty, she said.

China and South Korea announced on May 2 that they are starting negotiations on a bilateral free-trade agreement, a deal that South Korea's finance ministry estimates would boost the nation's economic growth by as much as 3 percentage points and create as many as 330,000 jobs over a decade.

China has free-trade agreements with 10 economies including New Zealand and Singapore, according to the Commerce Ministry's website. The nation, the world's biggest exporter, is negotiating deals with countries including Iceland and Norway, the ministry said.

China and Colombia have started to research the feasibility of setting up a free-trade zone, the ministry said this month.

China Plans Talks With Japan, Korea on Free-Trade Area - Bloomberg

 

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May 12, 2012, 9:03 a.m. ET

Japan's Leader Turns Trade Focus to China, South Korea

By YUKA HAYASHI And TOKO SEKIGUCHI

TOKYO—Japan's prime minister pledged Saturday to accelerate efforts to form a free-trade agreement with China and South Korea, an ambitious pact that could create an integrated trade zone rivaling in size the North American Free Trade Agreement and the European Union.

As Japan increases its reliance on rapidly expanding demand in China and other Asian neighbors to fuel its own sluggish economy, Tokyo is trying to avoid getting left behind the waves of trade liberalization sweeping the region. Japan wants to start formal negotiations on the trilateral pact, known as an FTA,"as soon as possible," and will urge the other two nations to join in, Prime Minister Yoshihiko Noda said in an interview with The Wall Street Journal.

"We are pursuing high-level economic cooperation as part of our national strategy," Mr. Noda said. "The Japan-China-Korea FTA is an extremely important piece of it."

The Japanese prime minister stressed in the interview the obvious economic benefits for Japan of entering a new trade pact with China, which replaced the U.S. as Japan's largest export market in 2009. "China is simply a huge market," Mr. Noda said. "That's all there is to it."

Mr. Noda spoke to The Journal just before boarding a flight for Beijing to attend a summit meeting between the three leading economic powers of Northeast Asia. The leaders—Chinese Premier Wen Jiabao, South Korean President Lee Myung-bak and Mr. Noda--are expected to declare their commitment to the trilateral free trade pact, and announce plans to start formal negotiations before the end of the year.

As a step leading to a full-fledged FTA, the three countries will sign an investment accord during the meeting, which is aimed at benefiting Japanese and Korean companies by ensuring better protection of intellectual property rights in China. Issues related to regional security and the global economy, such as North Korea's nuclear program, and the European fiscal crises, are also on their agenda.

Weighed down by paralysis in domestic politics, Japan has lagged behind rivals, particularly South Korea, in securing free trade partners in recent years. And Mr. Noda has—until now—focused his attention on the challenge of gaining admission to the Trans-Pacific Partnership, an American-oriented agreement currently negotiated among nine countries including the U.S., Australia and Singapore. China and South Korea aren't part of the TPP talks.

Mr. Noda's juggling of the U.S.-centric TPP and a Beijing-centric trade pact reflects the tensions and potential for Japan as it tries to chart its economic focus, and future. The two trade agreements aren't mutually exclusive, as Mr. Noda pointed out Saturday, adding that Japan's ultimate goal is to help bring eventually the two agreements, and others, into a broader economic integration arrangement that would encompass the whole Asian-Pacific region.

But Chinese officials appear worried that Japanese entry into TPP would give the U.S. greater influence in the region through a pact that doesn't include China. The U.S., meanwhile, has worried at times that Mr. Noda's ruling Democratic Party of Japan—which ousted Japan's long-ruling pro-U.S. party in 2009—might shift Japan's focus more toward Beijing and away from Washington.

While many hurdles remain before such a trade agreement emerges, the trilateral FTA could have a significant impact on the global flows of goods and services. The three countries represented 19.7% of the world's gross domestic product in 2010, compared with 25.8% for the European Union and 23.1% for the U.S., according to Japanese government data. While the three nations are all big exporters to the U.S. and Europe, the levels of intra-regional trade are far lower than in Europe and North America. This raises hopes for the potential benefits of the trilateral FTA.

"Though East Asia is an important major economic player in the world, substantial economic integration hasn't yet evolved in this region," the three countries said in a joint report issued last December, after a committee made up of corporate executives, government officials, and academics from the three nations studied the possibility of a trilateral FTA for a year and a half.

Experts say, however, a trilateral agreement won't come easily, due in large part to intense rivalries between the three nations. While the three have struggled to set the date for the formal launch of their FTA talks, China and South Korea decided last week to go ahead and start negotiating a bilateral FTA. The first round of talks will be held next week. This has alarmed officials in Tokyo, who have been criticized by the corporate sector for falling far behind Seoul in clinching trade agreements. South Korea has already signed bilateral pacts with the U.S. and the EU, in 2007 and 2010 respectively.

"This is the first step in a very long process of linking the Northeast Asian economies," said Jeffrey Schott, a senior fellow at Peterson Institute for International Economics in Washington. He said, though, that in the near future, the talks won't lead to deeper liberalization comparable to the FTA between the U.S. and Korea, or the TPP.

Japanese officials involved in the negotiations say South Korea was eager to move ahead with a bilateral pact with Beijing, as it wasn't keen on giving Japan a seat at the trilateral table, fearing competition. China is the largest trading partner for both Japan and South Korea, which have similar strengths and weaknesses in their economic structures.

According to a 2011 study by Japan External Trade Organization, the government trade promotion bureau, a free-trade pact between China and South Korea could increase the latter's exports to China by $27.7 billion—including $5.3 billion of goods, largely electronics, which otherwise would have come from Japan. "As a competitor, the demerits of having Japan as a free trade partner with China far outstrip the benefits," said Motoshige Itoh, a professor of international economics at Tokyo University.

Earlier in his administration, the pro-business Mr. Noda pushed for speedy entry into the U.S.-backed TPP talks, insisting that taking part in the early rule making stages would better help protect Japanese industries, even as he faced strong opposition from farmers and other sectors that are set to suffer from trade liberalization.

But as the debate within his party over his other major policy issue—his proposal to double the national sales tax—threatens to split the party, TPP has taken a back seat. With public opinion polls showing attitudes roughly equal in favor and against, lawmakers representing powerful lobbies of anti-liberalization farmers continue to butt heads with those voicing the free-trade demands of Tokyo's business concerns.

Japan's Leader Turns Trade Focus to China, South Korea - WSJ.com