Pacific Money

China-Japan-South Korea Hold FTA Talks Despite Political Tension

Recent Features

Pacific Money

China-Japan-South Korea Hold FTA Talks Despite Political Tension

The economic incentives of completing a FTA outweigh the political rifts between Tokyo, Beijing, and Seoul

China, Japan, and South Korea began the fourth round of negotiations over a trilateral free trade agreement (FTA) today. The talks, which are taking place in Seoul, will conclude on Friday. According to Xinhua, this round of talks will focus on “modalities of tariff reduction, the way of opening service trade, investment and certain range and fields of the agreement.”

Officials aren’t expecting major breakthroughs in this week’s negotiations. Yonhap News quoted South Korean Trade Minister Yoon Sang-jick as saying that sometimes such negotiations involve “a tug of war” between the participating countries. However, he cautioned against being too pessmisitic. “It does not mean negotiations are not moving forward just because there is no [obvious] progress,” Yoon said.

The fact that the talks are taking place at all could be considered progress. It’s no secret that the trilateral relationship between China, Japan, and South Korea is currently at a low point. Japanese Prime Minister Shinzo Abe’s visit to the Yasukuni Shrine last December sparked outrage in both China and South Korea, whose leaders saw the move as blatant disregard for those who suffered under Japanese imperialism. Things have not improved since then, as Abe has stepped up his efforts to revitalize Japan’s defense and security posture.

In addition, comments by NHK officials denying wartime atrocities such as the Nanjing massacre and downplaying the abuse of comfort women have only increased China and South Korea’s ire. The two countries recently banded together to express their displeasure at Tokyo, with China’s government collaborating with South Korea to open a memorial for Korean independence activist and assassin Ahn Jung-geun in Harbin.

In addition, moves to beef up military forces by both Japan and China have only increased suspicion and friction over the disputed Diaoyu/Senkaku Islands. Since the Yasukuni Shrine visit in particular, China has been quite vocal about refusing to hold meetings with Japanese officials, especially Abe himself. Against this backdrop, the continuation of FTA talks represents a diplomatic victory in and of itself, regardless of what progress is made.

It seems China, Japan, and South Korea are willing to put aside political differences for shared economic benefits. South Korea’s chief negotiator, Assistant Trade Minister Woo Tae-hee told Yonhap, “The three countries are well aware of the fact that the Korea-China-Japan FTA will stimulate the countries’ economic growth while also contributing to regional integration.” The planned FTA could have enormous impact, as the combined GDPs of China, Japan, and South Korea represent 20 percent of the world total. Similarly, their combined imports and exports account for 17.5 percent of global trade.

The countries are also important to each other. China is Japan’s leading trading partner, with bilateral trade between the two valued at over $332 billion in 2012, according to the World Trade Organization’s Trade Profiles 2013 report. Japan-South Korea trade was worth over $103 billion in the same time period, making South Korea Japan’s fourth largest trading partner (the U.S. and the EU are second and third, respectively). Meanwhile, Japan and South Korea are China’s third and fourth largest trading partners, with total trade in 2012 valued at $332 billion and $257 billion respectively. Finally, for South Korea, China is the leading trade partner with Japan in second.

The China-Japan-South Korea FTA has been under negotiation since 2012, and is part of a boom free trade agreement activity in the region. The more ambitious projects include the 12-country negotiations for the Trans-Pacific Partnership and the Regional Comprehensive Economic Partnership talks between ASEAN and Australia, China, India, Japan, Korea and New Zealand. However, there are also a wealth of bilateral FTAs being negotiated at the same time: China is in FTA talks with Australia, India, and South Korea; Japan is seeking “economic partnerships” with Australia, Mongolia, and South Korea; and South Korea is especially active, with negotiations underway with Australia, New Zealand, China, Japan, Indonesia, and Vietnam.

With the World Bank predicting that East Asia and the Pacific will remain drivers of global economic growth in the near future, every country in the region wants to make sure it reaps the economic benefits of increased regional trade. These concerns seem to have outweighed the political freeze between China, South Korea, and Japan. As a result, the FTA negotiations are proceeding on schedule at a time when very little else is normal in Beijing-Tokyo and Seoul-Tokyo relations.