East Asia Trade Bloc to Emerge within 20 Years

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Last updated at: (Beijing Time) Sunday, December 01, 2002

East Asia Trade Bloc to Emerge within 20 Years

On the heels of the announced free trade zone with ASEAN member economies, China is setting its sights on Japan and S. Korea. Local analysts believe the eastern Asia trade bloc will emerge within 20 years despite some current obstacles.

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On the heels of the announced free trade zone with ASEAN member economies, China is setting its sights on Japan and South Korea.

Local analysts believe the eastern Asia trade bloc will emerge within 20 years despite some current obstacles.

"It is in line with economic integration, both globally and regionally," said Zhao Jinping, a researcher with the Development Research Centre of the State Council, in an interview with Business Weekly.

"Both Japan and South Korea are China's close neighbours, and important trade partners," said Zhao, who is director of the Chinese research group for the proposed China-Japan-South Korea free trade zone.

China signed a free trade agreement with ASEAN (the Association of Southeast Asian Nations) early this month. The Sino-ASEAN trade bloc is scheduled to be set up by 2010.

Chinese Premier Zhu Rongji proposed earlier this month a free trade zone with Japan and South Korea when he met his counterparts on the sidelines of ASEAN's meeting in Cambodia.

China, Japan and South Korea attended the meetings, known as ASEAN+3.

"It is inevitable China will take another step towards closer economic relations with Japan and South Korea," said Xu Changwen, a researcher with the China Academy of International Trade and Economic Co-operation under the Ministry of Foreign Trade and Economic Co-operation.

Xu recently finished researching the feasibility of a China-Japan-South Korea free trade zone.

"If all its important trade partners are included in free trade zones while China is isolated, China's foreign trade and foreign direct investment (FDI) will suffer from tariff and non-tariff barriers," Xu explained.

"And China will not be able to make full use of its comparative advantage in the globalized market arena."

However, Xu said, "Rome was not built in a day."

Establishment of a free trade zone will require more than anticipation, experts said.

Japan's protection of its agricultural products is the main obstacle, Zhao said.

Japan is adjusting its industrial structure in a bid to revive its sluggish economy. Since its narrow domestic market leaves little room for adjustment, Japan must use the international market through economic co-operation with neighbouring countries.

But the Japanese Government fears further opening of its market will hurt its fragile, high-cost agriculture sector, Zhao said.

As a result, Japan has made little progress in its free trade negotiations with Thailand, Mexico and South Korea in recent years.

The Japan-Singapore free trade pact in 2001 excluded agricultural products from Singapore's transit trade.

That issue is expected to be raised during free trade talks between Japan and China, Zhao said.

South Korea is willing, unlike Japan, to accept China into the planned Japan-South Korea free trade zone.

South Korea needs China's participation to remedy its disadvantages in Japanese-South Korean trade of machinery, electronic products and chemical industrial products, Xu said.

"But that does not mean China and South Korea do not compete with each other economically," Xu added.

Many industrial products the two countries export are technologically similar. That could result in trade disputes.

"Trade disputes between the two countries take place from time to time, and such disputes will increase because of China's opening market resulting from its WTO (World Trade Organization) accession," Xu said.

South Korea is also cautious about opening its agricultural products to competition.

Compared with the world's two major free trade zones - the European Union (EU) and the North American Free Trade Agreement (NAFTA) - establishment of a free trade zone in Asia will be more complicated, Zhao said.

EU members have similar political systems, levels of economic development and cultural backgrounds, while NAFTA is basically led by the United States.

Asian countries, meanwhile, differ significantly from each other in terms of their social conditions, Zhao explained.

Historical and political factors could also delay the process, Xu added.

The Japanese Government has an ambiguous attitude regarding its invasion of China and the Korean Peninsula during World War II.

Moreover, Japan devalued the yen during the 1997 Asian financial crisis, which pushed down the currencies of other Asian countries.

But things may not be that serious.

"People should take a dynamic view," Xu said.

"ASEAN members used to worry that China's WTO entry would divert more FDI from Southeast Asia to China," Xu said.

"Now, ASEAN is convinced China's WTO entry brings more benefits than losses to its regional economy."

Regarding historical problems, Zhao insists close economic co-operation can promote understanding between people and, in turn, better economic co-operation.

"It is natural each country is concerned about its own interests, but each country should also bear in mind the win-win strategy and take a comprehensive perspective on this issue," Xu said.

Sino-Japanese and Sino-South Korean trade were worth US$87.7 billion and US$35 billion respectively in 2001.

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