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FTA the key for regional integration

2014-12-01 08:29 China Daily Web Editor: Qin Dexing

Economic interests have outweighed, if not eliminated, old grudges in East Asia. China, Japan and South Korea negotiated again in Tokyo last week for a trilateral free trade agreement. There were no concrete results this round, but Sun Yuanjiang, chief negotiator from China's Ministry of Commerce, said the negotiations are almost at the final stage.

The three countries are aiming high, with the hope that the negotiations, launched in 2012, will produce a comprehensive and high-standard deal.

The FTA could have huge impact on their own economies and the region beyond themselves, and the countries should be lauded for keeping the talks on track given the complex politics and myriad disagreements among them.

China is the biggest trade partner of both Japan and South Korea. The three nations account for 22 percent of the world's population and contribute 20 percent of the global GDP and trade volume.

The FTA negotiations China and South Korea completed in November may have given the trilateral talks a boost. The China-South Korea deal could take effect next year, and South Korean enterprises might gain the upper hand in the Chinese market, leaving their Japanese counterparts behind.

Most of Japan's business people are hoping for a fast and positive outcome to the trilateral FTA, particularly as economic recovery is pressing for their country and still a top priority.

An FTA will also help the three countries deal with some common issues. They have similar industrial structures. Also, their populations are rapidly aging.

Japan's National Institute of Population and Social Security Research has forecast that by 2060 Japan's population will fall by nearly a third, and nearly 40 percent will be 65 or older. South Korea expects its aging population to be slightly more, with just over 40 percent in this age bracket. The United Nations puts the corresponding figure for China at 28 percent.

A China-Japan-South Korea FTA will also promote further economic integration in East Asia. The region has grown into "Factory Asia" over the past decades. China, Japan and South Korea have exported sophisticated parts and components to less developed countries in the rest of Asia, where final consumption goods are produced and shipped to rich-nation markets, especially the United States and Europe.

But since the global financial crisis and subsequent economic crisis hit the US and Europe, exports of consumption goods by East Asian countries towards these markets have slowed down.

The distance their consumption goods travel abroad highlights the change. Over the last decade, East Asia's consumption goods traveled, on average, over 8,000 kilometers before reaching their final overseas markets. In the aftermath of the global economic crisis, the distance traveled by East Asia's consumption goods abroad has declined by 4.4 percent.

So the China-Japan-South Korea FTA talks will facilitate the trade winds that are blowing across the rest of Asia. The Association of Southeast Asian Nations and its six trading partners - namely, China, Japan, South Korea, Australia, India and New Zealand - have set 2015 as a "soft timetable" for a regional free trade pact. The proposed mega-regional deal, called the Regional Comprehensive Economic Partnership, is expected to further open up new and bigger markets for local businesses. The sixth round of negotiations for the RCEP will be held in India this week.

The RCEP matters globally because it includes three of the world's largest economies - China, Japan and India - and would create the world's largest trading bloc, covering 3 billion people and 30 percent of the world's GDP (about $21 trillion).

Though a latecomer, the economically important Asia has emerged at the forefront of global and bilateral FTA activity.

Chinese officials and scholars believe that too many FTAs in the region would set up different standards and create a "bowl of spaghetti" problem, a disorganized tangle of bilateral trade deals. This would make regional businesses complex. Excluded from the US-led Trans-Pacific Partnership Agreement, China has proposed a single comprehensive Asia-Pacific FTA. At the Asia-Pacific Economic Cooperation meeting in Beijing, regional leaders agreed to study China's proposal.

The World Bank expects East Asia and the Pacific will remain the drivers of global economic growth in the near future. And every country in the region wants to make sure it reaps the economic benefits of increased regional trade, so the push for beneficial FTAs will continue.

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