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Regional Integration and a Free Trade Agreement Among China, Japan, and Korea
Author: Hee-joon Kang
Published May 25, 2011
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Free trade agreements (FTAs) are rapidly proliferating among Asian countries. For instance, Japan has completed its free trade negotiations with Singapore and Thailand. At the end of March 2007, Korea and the United States successfully completed a historic FTA negotiation. For the United States, the U.S.-Korea Free Trade Agreement (KORUS FTA) is the largest trade agreement since the North American Free Trade Agreement (NAFTA); and for Korea, it is easily its most important one. In addition to these FTAs, China, Japan, and Korea are actively seeking FTAs with numerous other countries including the European Union (EU) and the members of the Association of Southeast Asian Nations (ASEAN).

Many have written about the rationale and feasibility of a tripartite FTA among China, Japan, and Korea. Lee et al. (2005) and Jin et al. (2006) show the rationale for a China-Japan-Korea FTA and discuss its impact on the world economy and particularly on the Korean economy by using a computable general equilibrium (CGE) model. They have predicted that its member countries in general and Korea in particular would have substantial economic growth if there were such an FTA. They have also computed the extent of trade creation and trade diversion and have provided a detailed prediction for the major economic segments such as agriculture and manufacturing sectors.

In Kang (2006), I also argue why such an FTA, termed a Far Eastern Asia FTA (FEAFTA), is a good arrangement for all three countries. I specifically suggest that a trilateral FTA is a more desirable arrangement for those countries than any bilateral FTAs among those three countries. When my earlier paper was written, the three countries were in serious discussions toward completing an FTA by the end of 2005. Not much happened until April 2007, however. One important development as far as FTAs are concerned is that, at the end of March 2007, Korea and the United States completed negotiations for a KORUS FTA. Although it still has to be ratified by lawmakers in both countries, the KORUS FTA negotiation is a monumental achievement. In this paper, I try to argue that for South Korea a FEAFTA is far more necessary and desirable than the KORUS FTA.

This paper differs from my earlier one in three areas: First, the recent KORUS FTA negotiation is reflected in the discussion of FEAFTA. Second, more recent data are used in evaluating the necessity of a FEAFTA. Third, trends in regionalism in economic activities will be elaborated to emphasize the inevitability of FEAFTA. This paper will thus go beyond the feasibility of FEAFTA by showing that such an arrangement is both necessary and even inevitable for China, Japan, and Korea. I use the term inevitability because the three countries are the only neighboring, major countries in the world still without a regional trade agreement.

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