The prospective trilateral free trade agreement between China, Korea and Japan would open a new chapter of cooperation and prosperity in Northeast Asia, anchoring the three economies at the center of the world’s wealth value chain, a top economist argued.

The ambitious trade and investment accord, endorsed during the sixth trilateral summit on Nov. 1 in Seoul ― involving Chinese Premier Li Keqiang, Korean President Park Geun-hye and Japanese Prime Minister Abe Shinzo ― aimed for a “comprehensive, high-level and mutually beneficial” agreement.

At the ninth negotiation in Japan’s Hakone in December last year, the three countries’ representatives conferred on issues of products and services, investment, rules of origin, customs clearance, electronic commerce, sanitation, technical barriers to trade, intellectual property rights and environment.

Running in parallel with the forthcoming Trans-Pacific Partnership and Regional Comprehensive Economic Partnership, the tripartite compact would closely integrate the powerhouses of East Asia by harnessing their complementarity, noted Professor Ahn Duk-geun of Seoul National University’s Graduate School of International Studies. 

“The anticipated FTA is significant in that the economies of China, Korea and Japan are deeply embedded in the global supply chain,” he told The Korea Herald in early January. “The easiest format of the agreement would be to base it on the China-Korea FTA reached in June last year, with Japan coming on top.”

As the economies of China and Korea are in different stages of development, the scope of market liberalization and tariff elimination in the China-Korea FTA is relatively narrow, covering some 90 percent of goods over the next 20 years.

Should Japan press for an extensive market opening, as it did in the TPP ― an accord among 12 Pacific Rim countries (the U.S., Japan, Canada, Australia, Mexico, New Zealand, Malaysia, Vietnam, Singapore, Brunei, Chile and Peru) ― settlement will become complicated, Ahn claimed.

Japan, whose economy is the world’s third largest and one of the most advanced, has vigorously pushed the TPP along with the U.S., in an effort to compensate for its lack of progress in free trade deals, as well as to “contain” China’s economic, political and military ascendance in the region, analysts say.

Ahn projected that the trilateral consultation will be active this year, adding that the deal’s fruition would breathe life into the proposed RCEP ― a proposed FTA between the 10 member states of the Association of Southeast Asian Nations (Brunei, Myanmar, Cambodia, Indonesia, Laos, Malaysia, the Philippines, Singapore, Thailand and Vietnam) and the six states with which it has existing FTAs (Australia, China, India, Japan, South Korea and New Zealand).

Regarding the trilateral FTA, Korea’s agriculture and manufacturing sectors are likely to be jammed between China and Japan, according to Ahn: the barrage of Chinese farm produce is intimidating, yet the country also exports a great deal to Japan; Korea sells its manufactured goods in large quantities to China, but has a hefty deficit in trade with Japan.

On the services and investment front, opening the markets far and wide would bolster the companies’ long-term survivability, the professor advised.

The three economies have a combined gross domestic product of over $16 trillion ― one-fifth of the world GDP. They comprise one of the globe’s three largest economic blocs, following the European Union and North American Free Trade Agreement.

According to Ahn, the typical structure of trade and specialization among the three economies has been Japan producing the most advanced parts, Korea making the next lower tier of high-tech units and China manufacturing finished products out of these imported components.

However, with the growing sophistication of Chinese technologies, enabled by massive investment and aggressive management, China is moving up the innovation ladder to produce high-value-added goods, he explained.

“The trilateral economic relation is quickly changing from one of cooperation to competition,” Ahn stressed. “Korea is sandwiched in between, with its technology not yet at the level of Japan and production capacity increasingly squeezed by China.”

Noting the burgeoning clout of Chinese telecommunications giants Xiaomi and Huawei, the professor highlighted that in information technology, catch-up happens not incrementally, but by “leapfrogging.”

As an example, in trying to outcompete Korean telecommunications companies, currently dominating the fourth generation Long-Term Evolution market, Chinese competitors have moved ahead in the fifth generation mobile network, Ahn said.

He added: “Free trade entails significant restructuring of the economy. We never thought Samsung would surpass Sony before, but it did. Now Xiaomi and Huawei are trying to outperform Samsung. Restructuring is painful and difficult, but there is no other alternative.”

Ahn contended that Korean firms have always adapted well against changing tides, turning threats into opportunities and continuously entering uncharted territories.

The key to the success of the China-Korea-Japan FTA lies in its strategy, he pointed out, hinting that the three nations could establish a regional cooperative network in high-tech innovation and start-ups, similar to Silicon Valley, or collaborate on sustainable development and international governance, which are unfettered by domestic political obstacles.

Pundits have claimed that the trilateral FTA has been deeply mired in historical, political and security calculations, a situation denoted as the “Asian paradox.” The high-level trilateral meeting was suspended in 2012, when relations between Beijing and Tokyo as well as Seoul and Tokyo plunged over historical and territorial disputes.

“Despite the three countries sharing close cultural similarities and interconnected histories, their politics has hindered progress,” Ahn asserted. “This contrasts with the experiences of the European Union and ASEAN, who put their bloody pasts behind to achieve political, security and economic integration.”

Acknowledging that the EU and ASEAN still have ongoing challenges, particularly over political unity and fiscal integrity, the scholar underlined a major benefit of integration and cooperation:

“If you look at the histories of ancient Rome and America, their pinnacles ― known as Pax Romana and Pax Americana ― occurred when their societies were the most susceptible to outside influences,” he said.

“Only in an open society do people, ideas, capital and technology converge to spawn harmony and synergy. A closed, conservative environment undermines potentials and breeds ethnocentrism, jingoism and nationalism.”

If China, Korea and Japan continued to wallow in conflict and discord, the professor reasoned, the biggest beneficiaries would be America and Europe.

Much like Singapore and Hong Kong, whose modernity and affluence Koreans espouse, the Korean society should make greater efforts to embrace cultural diversity and tolerance, he added. Greater interaction between the three countries’ citizens would promote understanding and remove the climate of prejudice, mistrust and hatred, according to Ahn.

By Joel Lee (joel@heraldcorp.com)