Realistic obstacles and prospects in China–Japan–Korea Free Trade Area

Introduction

Regional economic integration has become the trend of world economic development, but the process of East Asian regional economic integration is very slow. Compared with other regions, regional economic integration cooperation is apparently lagging behind, the level of which remains at a lower level. Does the signing of RCEP have any impact on the China–Japan–Korea FTA? Will Biden, the Democratic candidate in the U.S. election, continue to promote the TPP policy, if he is elected? China also expressed its intention to join the Comprehensive and Progressive Trans-Pacific Partnership Agreement (CPTPP). Under the influence of so many factors, will the China–Japan–Korea FTA be influenced? Actually, if China, Japan, and South Korea can form an agreement on a free trade zone at an early date to seek a higher level of trade cooperation with the world, it will not only promote the economic development of the three countries, but also the process of regional economic integration in Northeast Asia. This article mainly examines the progress and discusses the development prospects of China–Japan–Korea FTA.

Latest developments of China–Japan–Korea FTA

China, Japan and South Korea have long recognized the importance of regional economic cooperation platforms. In the mid-1990s, Korean and Japanese scholars took the lead in proposing the China–Japan–Korea Economic Community. The idea of China–Japan–Korea Free Trade Area (CJKFTA)was put forward at the summit by the leaders of three countries in 2002 [1] (Yang Mi, 2012). Since then, the three parties conducted academic research and the government-industry-university joint research respectively in 2003, in 2009, and from 2010 to 2012. In November 2012, during the East Asian Leaders’ Conference in Phnom Penh, Cambodia, the economic and trade ministers of the three countries met and announced the launch of China–Japan–Korea Free Trade Area negotiations. In March 2013, the three parties held the first round of negotiations in Seoul. By the end of 2020, sixteen rounds of FTA negotiations have been held by China, Japan and Korea. Although the feasibility study authorized by the respective governments has been conducted for eight years, the process of initiating the economic integration negotiations between China, Japan and South Korea is still very tortuous, due to complicated political factors, and the three parties still fail to reduce their differences.

At present, the total GDP of China, Japan and South Korea exceeds US$16 trillion, accounting for more than 20% of the world’s total. The economic aggregate accounts for 21.9% of the world’s total, 70% of Asia’s, 47% of the world’s foreign exchange reserves, and 20% of the world’s total foreign trade and foreign investment. If these three countries can form a free trade zone, a large market with a population of more than 1.5 billion and an economy of more than 15 trillion U.S. dollars will emerge. On this basis, it will not only promote the formation of a free trade zone in the entire East Asian region, but also affect the pattern of global trade liberalization. As the three core economies in East Asia, China, Japan and South Korea are one of the three major economies in Asia. In 2019, China, Japan and South Korea ranked first, second, and fourth in total GDP in Asia, with a total GDP of US$14.5 trillion, US$5.1 trillion and US$1.64 trillion respectively. Throughout the world, in terms of total GDP, China ranks second, Japan third, and South Korea 12th. The China–Japan–Korea Free Trade Zone will become a huge economic circle with 1.52 billion consumers, a total GDP of 12.3443 trillion U.S. dollars, and 19.6% of the world’s total GDP. Globally, the scale of China–Japan–Korea Free Trade Area is second only to the European Union and the United States.

Reasons for the slow progress of China–Japan–Korea FTA

It has been 10 years since the China–Japan–Korea FTA was proposed. However, due to the influence of various internal and external factors, especially the “different mentalities” of China, Japan and Korea, the proposal has always been hindered, and is considered to be put off for a long time. Issues left over from the history of China, Japan and South Korea have seriously affected the signing of the China, Japan and South Korea FTA. With the continuous changes in international politics and economy, new challenges and opportunities have also changed. First of all, the signing of RCEP (Regional Comprehensive Economic Partnership Agreement) is considered by some people not conducive to the signing of the China–Japan–Korea FTA. Secondly, if Biden, a member of the Democratic Party, wins in the US presidential election, will he restart the TPP Agreement (Trans-Pacific Partnership Agreement). Meanwhile, the deterioration of Japan-South Korea relations and other reasons will also have an impact on the negotiations.

Signing of RCEP

On November 15, 2020, the Regional Comprehensive Economic Partnership Agreement (RCEP) was officially signed. The members include 10 ASEAN countries, as well as China, Japan, South Korea, Australia and New Zealand. The signing of RCEP means the establishment of the world’s largest free trade zone [2]. As of 2018, the free trade zone covers 29.7% of the world’s population, 28.9% of global GDP, 26.1% of global goods and service trade, and 38.3% of net inflows of FDI (International Direct Investment). More than 90% of the goods trade between participating countries will achieve zero tariffs. The RCEP negotiations that lasted for 8 years have yielded positive results. It is worth noting that with the help of RCEP, China has reached a free trade agreement (FTA) with Japan for the first time, and Japan and South Korea have also reached an FTA for the first time. Yuan Bo, deputy director and researcher of the Institute of Asian Studies of the Ministry of Commerce, explained, “Although it is in the form of a regional trade agreement, however, in the past in the China, Japan and South Korea region, only China and South Korea have reached a free trade agreement and there is no free trade agreement between South Korea and China or between China and Japan. In a sense, this is the first time for China–Japan and Japan–South Korea to fulfill the promise of building a mutual open market, with lower tariffs and non-tariff barriers. This will help us to further promote our relationship with Japan in economic and trade cooperation.”

The signing of the RCEP provides a broader cooperation platform for China, Japan and South Korea, and lays a better foundation for business negotiations between China, Japan and South Korea FTA in the future. In 2019, it was stated in the China–Japan–Korea leaders’ meeting that it is necessary to accelerate the free trade agreement negotiations between China, Japan and South Korea. The target set by the three parties is to surpass RCEP in the three major market access areas of goods, services and investment, which is an RCEP+ agreement. In other words, the China–Japan–Korea FTA is a high-standard trading platform that exceeds RCEP and will not duplicate RCEP. Under the RCEP framework, China, Japan and South Korea, as the main member states, have actually possessed high-level trade design.

The factor of US: Whether to restart TPP negotiations or not

The factor of US will always affect the negotiation process of the China–Japan–Korea Free Trade Area. Since the war, the United States, as an extraterritorial country, has intervened in Northeast Asian affairs by virtue of its alliances with Japan and South Korea, and has taken the lead in Northeast Asia [3] (Zhou Yongsheng, 2019). Throughout the decades-long cold war, Northeast Asia remained the focus of the Asia-Pacific strategy of the USA. The United States can always maintain its military superiority in the region and form a strategic “containment” posture, relying on its alliance with Japan, South Korea and other countries as well as its military in allied countries. The factor that makes Japan and South Korea choose to be more reserve also lies in the attitude of the United States. In many discussions about the China–Japan–Korea FTA negotiations, the factor of US remains an unavoidable part, and many people point out that the US attitude has brought “more complex variables” to the economic integration of East Asia. Although the United States is not an Asian country, as the world’s only superpower, it has always intervened in Asian affairs in order to maintain its status as global hegemony and protect its economic interests, because it is unwilling to see East Asia rise and develop into a force against America. The U.S. uses its Asia Rebalancing strategy to restrain the development of China and East Asia, which will inevitably affect the promotion of China, Japan and South Korea FTA [4] (Jin Xiangdan, Lian Xiaomei, 2019).

After Trump took office, Abe desperately got on well with Trump, and even gave Trump hundreds of billions of dollars to assist Trump’s infrastructure construction. However, due to the withdrawal of the United States, TPP was renamed CPTTP (Comprehensive Progressive Trans-Pacific Partnership), and the free trade agreement was signed on November 11, 2017. But without the participation of the United States, the influence of CPTTP has been greatly reduced.

In the new US presidential election, Biden defeated Trump and ascended to the presidency. Compared with Trump’s “unilateralism”, Biden prefers multilateral cooperation. With the beginning of Biden’s administration, there will be large-scale adjustments in American diplomatic policy- abandoning “America First” and returning to the multilateral path that has been advocated for decades. Whether the United States will restart the US-led TPP is still unknown, but due to the signing of the RCEP, major US media believe that the United States has missed a great opportunity and the possibility of restarting the TPP is still very high [5] (Qing Tiehui, Feng iangyun, 2021). For Japan, since Biden came to power, America has returned to the Obama era. Like before, Japan is very likely to regard involving the United States into the TPP as the primary task of foreign trade and economic cooperation and to adopt a perfunctory attitude towards the China–Japan–Korea Free Trade Area negotiations. For South Korea, if Biden restarts the TPP, it will obviously allow South Korea to focus a lot of attention on the TPP. And if Biden adopts a tough policy toward China, there is bound to be more doubts about the China–Japan–Korea FTA negotiations in South Korea.

Deteriorating Japan-South Korea relations

Japan-South Korea relations have been discordant since 2000. Undoubtedly, the biggest problem is historical and territorial issues, but they are generally within a controllable range and have not shaken the foundation of Japan–South Korea relations. However, this time, with the labor issue of World War II as the fuse, Japan–South Korea relations have been completely worsened, which has spread from the political field to economy, security assurance and even cultural exchanges [6] (Liu Rongrong, Wang Shan, 2019).

In the political field. Since the establishment of the Moon Jae-in government in May 2017, the conflict between Japan and South Korea has escalated subsequent to the South Korean investigation and actual abolition of the “comfort women” agreement reached between the two countries at the end of 2015. In the new version of Japan’s diplomatic blue book published in April, regarding its relations with South Korea, the expressions of promoting the relationship between the two countries to “a new era facing the future” written in the 2017 and 2018 versions have been deleted, and a series of contradictions such as “comfort women” have been listed, noting that Japan–South Korea relations “face a very severe situation” [1].

In the economic field. As Japan imposed sanctions on the export of three types of semiconductor manufacturing materials to South Korea, the economic relationship between Japan and South Korea is getting colder. As South Korea begins to seek independent research and development and alternative supplies, the economic dependence between Japan and South Korea will be further reduced in the future. The deterioration of Japan–South Korea relations has also had a negative impact on economic exchanges. The impact of the boycott of Japanese goods launched in South Korea in July 2020 has continued for more than a year. Coupled with the impact of COVID-19 epidemic, Nissan Motor Co. announced its withdrawal from the Korean market, and the casual wear brand “GU” has also decided to close all three stores opened in South Korea. According to statistics from the Korean Customs Department, the import value of consumer goods such as beer, automobiles and tobacco produced in Japan has continued to be sluggish, decreasing by nearly 40% in April this year compared with the same period last year, which was about 250 million US dollars. In terms of categories, beer decreased by nearly 90%, and automobiles decreased by nearly 60%. Tobacco, cosmetics and toys also fell by 40% to 50%.

In the field of security assurance. When South Korea held a maritime military parade in October 2018, the Japanese Self-Defense Force warships insisted on participating with “the Rising Sun Flag” hung up, which provoked the dissatisfaction of South Korea and in the end Japan abandoned sending Self-Defense Force warships to participate the parade. In December 2018, South Korean naval destroyers used fire control radar in the waters near the Noto Peninsula to irradiate the Japanese Maritime Self-Defense Force patrol aircraft that was undergoing a security surveillance mission, causing mutual accusations from both of the South Korean and Japanese defense authorities. Next, if South Korea terminates the Japan-South Korea Military Intelligence Protection Agreement, Japan-South Korea security cooperation will encounter a hard hit.

In the field of humanities exchanges. A poll conducted by Japan and South Korea earlier this year showed that 77.2% of Japanese believe that “South Korea is a country that cannot be trusted”, and 69.4% of South Koreans “do not have a good impression of Japan”, which is evidenced by the deterioration of the relationship between the two countries. Recently, with the escalation of frictions between Japan and South Korea, anti-Japanese demonstrations and boycotts of Japanese goods have been launched in South Korea, and Japan’s domestic views on South Korea have become more severe. August 15 is the South Korean Liberation Day, and it is expected that there will be a huge anti-Japanese rally in South Korea on this day.

Despite all kinds of difficulties and obstacles, we should realize that the establishment of a China–Japan–Korea Free Trade Area is a strategic move with a view to the future, and it is also the common expectation of the governments and business communities of China, Japan and South Korea. We must take a more positive attitude to promote the negotiation and construction of the free trade zone, seek common ground while reserving differences to tackle political differences and strive to reach an early consensus on the China–Japan–Korea FTA negotiation. The rapidly escalated conflict between Japan and South Korea, on the surface, was due to the labor problems during World War II and Japan’s export control measures against South Korea, but it was actually the result of the long-term accumulation of contradictions between the two countries. Due to the superposition of multiple contradictions, the relationship between Japan and South Korea has come to a deadlock and it may take a long time for the relationship between the two sides to turn around.

The alternation of Japanese Prime Minister

In September 2020, Japanese Prime Minister Shinzo Abe resigned from prime minister for physical reasons. The election for the president of the Liberal Democratic Party of Japan came to an end with the result that the current Chief Cabinet Secretary Yoshihide Suga was elected as the new president of the Liberal Democratic Party with an absolute edge. He will become the Prime Minister of Japan on 16th. Considering Japan’s sudden change of prime minister and little knowledge about the new prime minister; it has attracted much attention where Japan will head under the leadership of Yoshihide Suga. In his first policy speech, Japanese Prime Minister Yoshihide Suga delivered such aspects as response to the COVID-19 epidemic, economic recovery, industrial development and diplomatic policy. He emphasized in his policy speech that he will continue to inherit “Abenomics”. With regard to diplomatic and security policies, he has shown a firm attitude towards inheriting the line of the Abe regime, and proposed that the policy of continuing to regard the Japan–US alliance as the base axis and uniting Australia and ASEAN countries “has no room for change”. Yoshihide Suga also mentioned the relationship between Japan and its neighboring countries in his policy speech: as to Japan-Russia relations, Japan will communicate with Russian top leadership and “will not pass the Northern Territory issue to future generations”. In Japan-Korea relations, “It is necessary to restore a sound Japan-South Korea relationship,” he said; and he strongly requests the South Korean side to properly respond to labor issues. In Japan–North Korea relations, Japan will continue to see addressing the kidnapping issue as the most important issue, and strive for meeting North Korea’s top leaders directly and “unconditionally” so as to achieve the normalization of diplomatic relations with the DPRK; in the relationship between Japan and China, he notes that a stable Japan–China relation is extremely important for the two countries, for the region and the international community. On the hand, Japan will stick firmly to what they should do and seek cooperation on common subjects. Yoshihide Suga actively inherited the diplomatic philosophy pursued by the Abe cabinet in terms of security and diplomacy, and was very “stable” in diplomatic response. For example, with regard to Japan–China relations, Yoshihide Suga will, on the one hand, continue to build regional alliances with Indo-Pacific as a carrier to curb China’s influence. And on the other hand, he showed the consideration of avoiding excessive stimulation of China, and also showed the willingness to continue the high-level cooperation between China, Japan and South Korea.

Since Biden administration came to power, Japan and the United States have repeatedly discussed the Diaoyu Islands issue in their talks. On January 28, 2021, US President Biden and Japanese Prime Minister Yoshihide Suga talked on the phone about the situation of the Korean Peninsula, the Diaoyu Islands and other issues. According to the report, during this telephone meeting, the leaders of the United States and Japan reached an agreement on the principles applicable to the Diaoyu Islands under “U.S.–Japan Security Treaty”. The White House statement claimed that the two sides discussed the United States’ commitment to protect Japan under Article 5 of the “U.S.–Japan Security Treaty,” and declared that the commitment applies to the Diaoyu Islands. In just one week, the United States and Japan held four talks to discuss the Diaoyu Islands issue, which undoubtedly increased regional tensions. Why is Japan so eager to obtain a clear military commitment from the Biden administration? The Diaoyu Islands and its affiliated islands have been China’s territory since ancient times. No matter what measures the United States and Japan will take on the Diaoyu Islands issue, this fact cannot be changed. Regarding the United States and Japan coveting the Diaoyu Islands, the spokesperson of the Ministry of Foreign Affairs Zhao Lijian made it clear again at a regular press conference on January 28 that the Diaoyu Islands and its affiliated islands are China’s inherent territory, and the U.S.–Japan security treaty is a product of the Cold War, which should not harm the interests of third parties, not to mention endangering regional peace and stability.

Prospects of China–Japan–Korea Free Trade Area

In the Asian region, China, Japan and South Korea are of decisive importance. For this reason, the trend of the three-nation free trade area will largely affect the development of economic and trade relations in Asia, especially East Asia. Affected by Japanese factors, the three-nation free trade zone has not yet been established in the short term. On November 1, 2015, the leaders of China, Japan and South Korea held the first summit in three years. The historical issue of the China, Japan and South Korea summit, which has been a common practice since 2012, was once stranded. The resumption of this meeting marked the restoration of the trilateral cooperation mechanism. The leaders of China, Japan and South Korea issued the “Joint Declaration on Peace and Cooperation in Northeast Asia” after the summit, marking the full restoration of trilateral exchanges among China, Japan and South Korea. It has been a long time since the negotiations on the China–Japan–Korea Free Trade Area started. Japanese businessmen hope that the China–Japan–Korea Free Trade Area can be established, but the Japanese government gives priority to CPTPP. Now CPTPP has made some progress, and China and South Korea have also reached an agreement on free trade. Driven by these two factors, if China, Japan and South Korea can negotiate seriously, the China, Japan and South Korea Free Trade Area can still be put on the agenda. But the beginning is the beginning after all, and the prospect of subsequent negotiations mainly depends on Japan.

Politically, lack of mutual trust is the biggest obstacle. Moriya Ichiro said that recently, political and historical issues of China, Japan and South Korea still affect the progress of the three-country free trade zone. “Since China’s new leadership took office, there have been a lot of exchanges between the top leaders of China and Japan, but now the top leaders of Japan and China have not met. If the top leaders do not often exchange opinions and visit each other face-to-face, the FTA agreement will be difficult to reach. I think the main factor hindering China–Japan–Korea free trade negotiations is the political mutual trust between China, Japan and South Korea, the most important thing of which is that Japan no longer hurts the political feelings of China and South Korea or undermines China-Japan and Japan-South Korea bilateral relations. We cannot ignore the influence of politics on economy and trade.”

Conclusion

The China–Japan–Korea FTA has conducted nine rounds of negotiations and still has not made significant progress. However, considering the current issues, the China–Japan–Korea Free Trade Area negotiations may have “bright prospects with twists and turns”. China, Japan and South Korea are the pillars of the Asian economy and the world’s important economies, and the economic and trade ties between the three countries are becoming increasingly close, and they are each other’s important economic and trade cooperation partners and target markets. Once the free trade zone is completed, a large market with a population of more than 1.5 billion will emerge and become a free trade zone united by the world’s most populous developing and developed countries. Despite all the difficulties and obstacles, we should realize that the establishment of a China–Japan–Korea Free Trade Area is a strategic move with a view to the future, and it is also the common expectation of the governments and business communities of China, Japan and South Korea. We must take a more active attitude to promote the negotiation and construction of the free trade zone, and seek common ground while reserving differences to resolve political differences with an aim to reach consensus on the China–Japan–Korea FTA negotiation soon.

[1] The leaders of Japan and South Korea failed to accomplish the talks at the G20 summit in Osaka at the end of June.