[Opinion] Korea-China-Japan FTA, Is It Now Becoming a Reality?

[Asia Economy Reporter Hwang Yoon-joo] Amid discomfort between Korea-Japan and Korea-China relations, the 8th Korea-China-Japan Summit held recently in Chengdu, Sichuan, China, was a relatively meaningful event. The core of the 8th summit can be summarized into two main points.

First, to further strengthen close communication and cooperation among the three countries for the denuclearization of the Korean Peninsula and lasting peace, and to jointly work towards the prompt resumption of the stalled North Korea-US talks.

Second, to rekindle the dormant economic cooperation among the three countries and build a closer economic partnership. In particular, they agreed to solidify cooperation in the fields of science and technology, transportation logistics, culture, and human exchange in response to the 4th Industrial Revolution, and to accelerate trilateral negotiations for a comprehensive and higher-level Korea-China-Japan Free Trade Agreement (FTA) based on the Regional Comprehensive Economic Partnership (RCEP), which is expected to be finalized early this year.

The author paid attention to the discussion about accelerating negotiations for the Korea-China-Japan FTA. In fact, the Korea-China-Japan FTA has long been a major agenda item at the Korea-China-Japan summits but had seen little progress. However, this discussion appears to carry more weight. Judging from various circumstances, future progress seems likely to accelerate.

So, will the Korea-China-Japan FTA become a reality now? First, let's look at the progress of the Korea-China-Japan FTA negotiations so far. Since the Korea-China-Japan summit began in 1999, the need for a Korea-China-Japan FTA was first raised, and from 2003, a trilateral private joint study was conducted to analyze the economic effects and industry-specific impacts of the FTA among the three countries.

After seven years of private joint research ended in 2009, a three-year industry-government-academia joint study began, and until 2011, a total of seven sessions of the Korea-China-Japan FTA industry-government-academia joint research were conducted. Based on the results of this joint research, in 2012, the Korea-China-Japan FTA investment agreement, three rounds of preliminary working-level consultations, the Korea-China-Japan trade ministers' meeting, and public hearings on the FTA were held, progressing relatively quickly.

Finally, in March 2013, the first official Korea-China-Japan FTA negotiation took place, and as of January 2020, 17 rounds of negotiations have been held. Although 20 years have passed since the Korea-China-Japan FTA discussions began, there has been little achievement, and many trade experts have not viewed the possibility of concluding the Korea-China-Japan FTA highly.

Compared to the Korea-China FTA taking 11 years, the Korea-EU FTA 9 years, and the Korea-US FTA 8 years to conclude, the Korea-China-Japan FTA has progressed very slowly. Of course, unlike bilateral negotiations, it is not easy to find a solution satisfactory to all three countries, but the negotiation process has been marked by very sharp confrontations.

This indicates that the sensitive issues among the three countries lead to significant differences in positions. This is understandable since the economic growth models of Korea, China, and Japan share the commonality of being export-driven manufacturing economies, and in this growth process, the three countries have developed more within a competitive framework rather than industrial cooperation. Especially in the parts and materials industry, the division of labor among the three countries is competitive and unbalanced, such as Korea's trade deficit with Japan and trade surpluses with China, making each country's calculations complex.

Over the past decade, rapid technological innovation in China, Korea's catch-up strategy, and Japan's determination to maintain its position have clashed, leading the three countries to pursue closed technological growth. Additionally, through partial but strategic collaboration and division of labor in the semi-open parts and materials industry, all three countries have achieved rapid economic growth.

The three countries account for one-fifth of the world's population, and their trade volume has increased more than fivefold from $130 billion in 1999, when the Korea-China-Japan summit began, to over $720 billion in 2018. Also, their share of the world's gross domestic product (GDP) has risen from 17% to 24%, accounting for one-quarter.

However, recently, competition in future technologies and political-diplomatic issues among the three countries have intertwined, making the value chain structure of the advanced parts and materials industry among Korea, China, and Japan even more complex. Now is the time to establish a new Korea-China-Japan cooperation mechanism different from the past.

Moreover, protectionism based on America First policies is intensifying, and in a global management environment characterized by rapid technological innovation and narrowing technology gaps, Northeast Asian economic cooperation centered on Korea, China, and Japan is becoming increasingly important. Especially, the Korea-China-Japan FTA, which had been stagnant, is likely to gain more momentum following the RCEP agreement declaration in November last year.

If RCEP is finalized early this year, Korea, China, and Japan will be included in a single FTA for the first time, establishing a new global value chain and potentially providing an opportunity to improve the relatively low openness level of the concluded Korea-China FTA.

As President Moon Jae-in mentioned at the 8th Korea-China-Japan Summit, there is a proverb that says, "A close neighbor is better than a distant relative." Although the three countries have political, diplomatic, and historical conflicts, no other countries in the world share as long a history and culture as Korea, China, and Japan.

The synergy and diffusion effects of future industrial cooperation based on the geographical proximity and cultural similarities of Korea, China, and Japan will be very significant. The accelerated Korea-China-Japan FTA could become an opportunity for the three countries to grow into a core economic bloc in the global economy.

Park Seung-chan, Professor of Chinese Studies at Yongin University / Director of the China Business Research Institute

This content was produced with the assistance of AI translation services.