Nonetheless, the three countries proceeded with the free trade talks, reflecting a sense of urgency and prioritized economic considerations. Both Japan and South Korea suffered from lackluster economic performance and the global financial downturn in 2012. The Chinese economy also slowed down, registering GDP growth rate of 7.4% in the third quarter of 2012 (a record low in recent years). As China is the largest trading partner for both Japan and South Korea, they hope that a free trade pact with China would further open up the vast Chinese market and boost their respective economies. On the other hand, as an emerging power, China needs the China-Japan-Korea FTA to counterbalance the US-led Trans-Pacific Partnership and secure its economic clout and geopolitical influence.
China, Japan, and South Korea all have high hopes for the prospective FTA. According to one study, the China-Japan-Korea FTA would increase China’s GDP by 1.1%-2.9%, Japan’s GDP by 0.1%-0.5%, and South Korea’s GDP by 2.5%-3.1%. The FTA would include the world’s second and third largest economies, and account for about 20% of the world’s aggregate GDP. Once established, the China-Japan-Korea FTA would be on par with other major trading blocs/FTAs like the North American Free Trade Agreement (NAFTA) and the European Union (EU).
However, there is a long way to go before the China-Japan-Korea FTA can be established. First, deep-rooted mistrust and political divergence between the three countries impede progress on the economic front. Traditionally, China has reacted strongly to any Japanese action that it deems intolerable. With the election of the nationalistic Shinzo Abe as Japan’s new Japanese prime minister, it remains to be seen if the three powers—long-entangled in historical grievances—can forge meaningful and constructive economic ties. Second, it is unclear to what degree the new leaderships in China, Japan, and South Korea will continue, or discontinue, the process of regional integration. China, Japan, and South Korea have all benefited from their trilateral trade, but further integration beyond economic exchange depends on policies of their new leaders. Third, all three countries have pressing domestic considerations. Japan and South Korea need to accommodate domestic farmers who fear, quite reasonably, for an invasion of cheap Chinese agricultural products once the FTA is in place. China, however, worries that its burgeoning industrial and technological base will face fierce competition from its neighbors in a more open market environment. Last, America is unlikely to tolerate a tripartite FTA without an American presence. As America pivots its focus to East Asia and attempts to confront China’s rise in the region, the United States will spare no effort in interfering with any potential regional integration.
Looking forward, complications and suspicions will no doubt remain. The transformation from an interdependent relationship into an integrated economic union will definitely be more difficult in practice than in theory.
Sandy Jin is a freshman in Morse College, Yale University, and enrolled in Directed Studies, the intensive humanities program for freshmen. He is a member of The Independent Party of Yale Political Union. Contact him at firstname.lastname@example.org.
This article appears in the March 2013 issue of China Hands.