East Asian Free Trade Key to Future

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Last updated at: (Beijing Time) Monday, November 25, 2002

East Asian Free Trade Key to Future

The hotly anticipated economic co-operation between China, Japan, and the Republic of Korea (ROK) should push forward the formation of a free-trade zone in East Asia.

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The hotly anticipated economic co-operation between China, Japan, and the Republic of Korea (ROK) should push forward the formation of a free-trade zone in East Asia.

Economic co-operation between these three important Asian economies started to attract heavy attention following the signing of an agreement between China and the Association of Southeast Asian Nations (ASEAN) on November 4 aimed at establishing a free-trade zone between the two economies by 2010.

Inter-regional economic co-operation has become an important feature of today's economic development.

Apart from multiple member inter-regional trade organizations like the European Union (EU) and the North American Free Trade Agreement (NAFTA), a large number of bilateral free-trade agreements and inter-regional or trans-regional deals have also cropped up in the world, such as the close economic and trade relationship between Australia and New Zealand and the EU-Mexican free-trade pact.

Over the past few years, inter-regional economic and trade relations have been rapidly developing. Estimates indicate that trade volume between countries in inter-regional trade pacts already amounts to more than half the global total.

As of January 2002, there were 162 inter-regional trade arrangements registered with the World Trade organization (WTO), nearly 80 per cent of which were established over the past 10 years.

However, China, Japan, and the ROK, as some of the world's most influential economies, had not participated in any regional and bilateral free-trade framework by the year 2001.

This absence has caused them to lose numerous opportunities in the increasingly competitive international commercial arena.

Mindful of the unfavourable circumstances facing them, the three countries have been actively pursuing economic and trade accords with other countries in recent years.

China and the ASEAN states are working to implement their just-concluded free-trade arrangement while Japan and the ROK are also negotiating free-trade pacts with other countries.

Undoubtedly, economic collaboration between China, Japan, and the ROK will contribute much to the establishment of an East Asian free-trade zone, mainly characterized by co-operation between ASEAN and China, Japan, and the ROK.

Co-operation between the three countries will also help advance Northeast Asian economic co-operation, which involves China, Japan, the ROK, Russia, the Democratic People's Republic of Korea, and the Republic of Mongolia.

Given the huge variances in natural resources, population, and the level of economic development, the three East Asian countries are economically complementary and will all benefit from economic co-operation.

Thus, the economic health of all three countries will significantly benefit if they begin to make the best of their complementary resources to expand and deepen co-operation.

But co-operation between the three countries is still far from satisfactory, despite appreciable progress.

In 2001, for example, the trade value among the three economies was only 19.8 per cent of their total foreign-trade volume, sharply contrasting with that of 65.5 per cent and 46.5 per cent for the EU and NAFTA respectively.

That also means there is still a lot of room for economic and trade co-operation to grow among them.

As neighbours, China, Japan, and the ROK share views on environmental protection, and are badly in need of a safe and stable environment so they can import the resources they need, thus requiring them to deepen co-operation and extend it to the whole Northeastern Asian region.

Following the September 11 attacks, the international community has become increasingly concerned with security as it considers economic co-operation. The proximity of China, Japan and the ROK undoubtedly reduces the risk of co-operation.

Despite the increasing calls for economic co-operation, it will be difficult to lift China-Japan-ROK co-operation to the free-trade-zone level in a short time, given their huge differences in the level of economic development.

Meanwhile, compared with the Sino-ROK relationship, Sino-Japanese political ties have faced more adversity, which may be the main reason for the slow progress of economic co-operation between the three countries.

For example, some Japanese conservatives regard China's efforts to establish a free-trade area with the ASEAN countries as a threat to Japan, and consider the move a Chinese attempt to scramble with Japan for economic dominance in Asia.

Political strife will seriously impede economic co-operation if not properly handled.

Similarly important, the slowdown in Japan's domestic reforms may also present insurmountable hurdles for China-Japan-ROK economic co-operation.

So far, Japan has not achieved an essential breakthrough in the reform of its economic system. While possessing extremely competitive industries, such as the automobile and electric appliance sectors, Japan's textile and food processing industries lack efficiency and need protection from the government. These low-efficiency sectors have been affecting Japan's free-trade negotiations with other countries for quite some time.

Without a basic resolution of these underlying structural contradictions, it is difficult for Japan to advance any kind of free-trade programme.

The narrow-minded emphasis of national interests while ignoring regional well-being is also detrimental to economic co-operation between the three countries.

For example, the typical non-conciliatory stances taken by Japan and the ROK in their negotiations lessen the chances for a free-trade accord between them. A similar problem exists between China and the ROK, stemming from the ROK's efforts to obstruct the market access of China's agricultural exports.

Therefore, the proper handling of the relationship between national interests and regional interests is key to the establishment of a regional co-operation framework.

The goal of a free-trade zone among China, Japan and the ROK cannot be reached in a short term, but the three countries' economic co-operation can still progress with ASEAN as a go-between.

Experience shows that technological co-operation, as well as trade and investment liberalization, are indispensable parts of a regional economic co-operative mechanism.

As a first move, China, Japan, and the ROK can instigate economic and technological co-operation for the benefit of trade and investment liberalization.

In addition, the three countries can set up close co-operation in such industries as steel, automobiles, and electric appliances, as well as between some of their cities, to push forward the three countries' overall economic co-operation.

The author is director of the Institute of Japanese Studies under the Chinese Academy of Social Sciences.

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