Korea, China, Japan set to conclude study on three-way FTA

Korea, Japan and China are scheduled to wrap up their joint study on a three-way free trade agreement Friday, portending the beginning of negotiations early next year.

A free trade deal binding the three nations that account for a fifth of the world’s economic output and a sixth of the global trade volume could help resolve geopolitical uncertainties in the region and advance reunification of the Korean Peninsula.

A trade pact removing the tariffs among the three economies, with a combined population of 1.7 billion and production of 10 trillion won, would create the third largest economic bloc after the European Union and North America.

A slew of economic and political factors such as the pressure for industrial restructuring, bilateral territorial disputes and concerns over an expansion of the Chinese economy, however, may hold back the signing of a three-way FTA.

About 100 government officials, industrial and research experts from the three countries will gather at a resort in PyeongChang, Gangwon Province, for a three-day final meeting starting Wednesday.

They will sew up discussions on investment and issue a final report on Friday on the results of the study as well as action plans for the FTA talks.

“Japan and China, which have disagreed over China’s investor protection measures, are shifting toward agreement in a broad sense ahead of the meeting,” a Korean trade ministry official said.

Japan is demanding that China take measures to better protect foreign investors and deregulate as the two nations discuss the upgrade of a 30-year-old bilateral investment treaty.

China has been the most aggressive in pushing for the three-way FTA, whereas Japan is more interested in an FTA with Korea, rather than with China.

Japan recently decided to join the U.S.-led Trans-Pacific Partnership Agreement in an apparent bid to keep China in check as well as to recover from recession.

The three economic rivals’ interdependence in trade has continued to rise, and trade expansion among them is a must for economic growth as their exports are bound to rely less on the U.S. and the EU after the global financial crisis.

China and Japan accounted for 30.5 percent of Korea’s trade volume in 2009, up from 21.9 percent in 1990.

The combined share of Korea and China in Japan’s trade grew from 9.1 percent to 26.6 percent in the same period. Korea and Japan took up 17.4 percent of China’s trade volume in 2009, up from 15 percent in 1990.

The Korea Development Institute said in a recent report that once the trilateral FTA is sealed, Korea’s economic output will surge by up to 3.38 percent and exports by up to 6.77 percent.

The Korea Institute for International Economic Policy forecast GDP growth of 5.14 percent for Korea, 1.54 percent for China and 1.21 percent for Japan.

By Kim So-hyun (sophie@heraldcorp.com)