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    China Business
     May 30, 2012

Beijing, Seoul, and Tokyo
look to an uncertain future

By Yong Kwon

On May 13, China, Japan, and South Korea took the formative steps towards establishing a trilateral free-trade agreement. The joint declaration issued by Premier Wen Jiabao, Prime Minister Yoshihiko Noda, and President Lee Myung-bak emphasized how closer cooperation between the three economies could not only enhance the prosperity of the region but also "[facilitate] economic recovery and growth in the world". [1]

The lofty rhetoric is not far from reality. Economic integration of northeast Asia would certainly boost the region's combined share of global gross domestic product (GDP) and trade, which stood at 19.6% and 17.5% in 2010. With the crisis in the eurozone and markets everywhere in desperate need of dynamism, increased commercial interaction between the three countries could have a positive effect on the global economy.

On paper, all three countries have much to gain. According to the


Japanese Ministry of Trade, a trilateral free-trade agreement would increase Japan's GDP by 0.3%, China's by 0.4% and South Korea's by 2.8%. Some private sector calculations have been even more optimistic. Tokyo-based financial services group Nomura Securities estimated Japan's potential GDP growth at 0.74%, exceeding even the 0.54% increase expected with Japan's entry into the Trans-Pacific Partnership (TPP), a trade grouping that includes many Pacific-rim countries but not China. [2]

Although the vast differences in the indices of development have been widely cited, the economic robustness of the region, having survived the global recession relatively unscathed, is not under severe scrutiny. The bigger issue is how far these states are willing to go to make this mutually beneficial integration work. Underlying political factors and overlapping interests both facilitate and hinder this process as each government advances its own foreign policy objectives alongside the free-trade negotiations.

The conflict of interest was reportedly very evident with South Korea during the initial stages of the negotiations. Compared to his counterparts, South Korea President Lee Myung-bak was apparently less enthusiastic about the potential free-trade agreement, in part because Seoul could maximize its economic influence by simply concluding a bilateral free-trade agreement with China (negotiations for which have already started) than collaborate on an arrangement that includes Japan.

A trilateral agreement would force South Korea to "[rely] more on Japanese core components and other technology" while also dividing the Chinese electronics market with Japanese firms, Professor Kim Young Han from Sungkyunkwan University explained. [3]

Nonetheless, President Lee ultimately came out in support of starting negotiations for a free-trade agreement at the trilateral summit in Beijing because Seoul has other interests and concerns. Although still refusing to set a definitive timetable, President Lee seemed more attune to the idea than he was in December last year.

Considering the events in the past five months, Seoul's change of heart may be a measure to facilitate a closer political partnership with regional powers to better contain and deter Pyongyang's provocative behaviors.

Bilateral accords on sharing military intelligence and logistics between Seoul and Tokyo, although currently on hold, were in their final stage before the trilateral negotiations began. Further revealing Seoul's intentions, the South Korean Ministry of Defense initiated talks to launch a similar military cooperation pact with China right after the summit. [4] There is definitely a political angle to the trilateral arrangement that Seoul wants to exploit.

It is difficult to see these specific interests manifest as of yet. Despite the joint efforts of President Lee and Prime Minister Noda, negotiations in Beijing did not produce a consensus on how to deal with North Korea. In fact, the joint statement excluded an explicit mention of Pyongyang's provocative behaviors.

President Lee, whose tenure will be remembered in part for the two deadly attacks by North Korean forces in 2010, is frustrated by China's reluctance to participate in a concerted diplomatic front against Pyongyang. However, with Beijing enthusiastic for the establishment of an exclusive trade bloc in Northeast Asia, South Korea may be seeking to leverage its crucial position to advance foreign policy objectives that hinge on China's cooperation.

Indeed, it would have been unlikely for South Korea to take steps towards a region-wide free-trade zone if it approached the matter from a purely economic standpoint.

Meanwhile, Prime Minister Noda is not in an enviable position. The ratification of the Korea-US Free-Trade Agreement in March and bilateral talks between South Korea and China have left Japan more economically and politically isolated in the region. Despite Prime Minister Noda's declared intentions to simultaneously pursue the TPP and the trilateral free-trade agreement, many believe that the endemic division in the Diet will stymie progress in both tracks.

It is not just the problem of having a weak government. Even under a strong premiership, like that of prime minister Junichiro Koizumi, the Japanese economy would have had a tough time opening its doors.

One should remember that Koizumi, impeded by lingering issues surrounding Japan's colonial legacy and domestic concerns over the health of the agricultural industry, was unable to rally the country behind a free-trade agreement with South Korea.

This time around, Japan is once again hampered by non-economic matters such as the dispute over the Senkaku/Daioyu Islands with China - according to some sources, President Hu Jintao rejected a bilateral meeting with Noda following the summit in Beijing because of the ongoing tensions over maritime territory in the South China Sea. [5]

This deadlock may force Japan to forego valuable opportunities in advancing its interests in other areas. Tokyo recognizes the imperative for it to take assertive steps towards regional integration. If it succeeds, then Japan can enjoy the benefits of expanding into China's vast market and gain diplomatic capital by restoring confidence in Tokyo's ability to execute political decisions. If it fails then it concedes a large share in the role that the region will play on the international stage in the near future.

China has the most to gain from the establishment of a new economic order in Northeast Asia. With consumption at a low in the United States and the European Union, China's export-driven economy needs new importers.

If negotiations on the free-trade agreement do proceed between the three countries, the issue of agriculture will undoubtedly dominate the talks. A quarter of China's agricultural exports go to Japan and South Korea, the value of which stood at $10.99 billion and $4.17 billion respectively in 2011. Both Tokyo and Seoul maintain massive subsidies for domestic agricultural producers and impose high tariffs on imports, thus it is in Beijing's best interest to advance negotiations to reduce these barriers.

While China promises to strike a balance in exports, domestic agriculture remains an extremely sensitive issue for both Japan and South Korea. In particular, having just ratified a free-trade agreement with the United States, President Lee will have a difficult time assuaging domestic agricultural producers of the benefits of another such agreement, this time with a competitive food exporter.

At the same time, China is under scrutiny from both South Korea and Japan for taking an aggressive posture in the South China Sea and an ambivalent one towards North Korea. In addition, both Seoul and Tokyo want Beijing to rein in on its flotilla of bellicose fishing trawlers, which have become a major source of conflict in the region.

Political and economic considerations are intermeshed in the negotiations for a trilateral free-trade agreement. While all three countries have much to gain, it is difficult to eliminate these competing interests that go to the core of each state's longstanding foreign policy objectives.

With power transition approaching for South Korea and China this year (and possibly for Japan next year), further negotiations and talks will have to wait until all three governments can reach an internal consensus on the direction of their respective countries.

And with an uncertain global economic environment and belligerent states in the region, it may be a long time until productive discussions on the matter actually take place.

1. For joint declaration by the three leaders, see here. 2. Trilateral FTA good for all, China Daily, May 14, 2012.
3. S Korea's reluctance clouds FTA; Domestic resistance throws prospects for trilateral trade pact into doubt, Yomiuri Shimbun, May 15, 2012.
4. S Korea working to forge military cooperation pact with China: defense ministry, Yonhap News, May 21, 2012.
5. Japan, China, South Korea issue joint declaration after summit meeting, The Jakarta Post, May 15, 2012.

(Copyright 2012 Asia Times Online (Holdings) Ltd. All rights reserved. Please contact us about sales, syndication and republishing.)

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