Trade cooperation to boost East Asian economy
The geopolitical and geo-economic landscapes will likely undergo profound changes after Donald Trump is sworn in as the United States president in January. Despite that, East Asia (China, Japan and the Republic of Korea) will consolidate its position as the center of the Asian production network, promote globalization and integrate the region's economies. In such circumstances, if China, Japan and the Republic of Korea were to seize the new opportunities to achieve breakthroughs in economic and trade cooperation, they will not only drive their own development but also help shape a new global economic order.Need to make new breakthroughs
Trade and economic cooperation among China, Japan and the ROK has reached a critical juncture, from where they can "fall behind if not advancing". Since the China-Japan-ROK cooperation mechanism was launched in 1999, economic and trade cooperation between the three countries has yielded good results — with value of China-Japan-ROK trade increasing from $130 billion in 1999 to more than $700 billion in 2023.
But due to the lack of institutional arrangement and various other factors, China-Japan-ROK economic and trade cooperation remains unstable. As of 2023, the trilateral trade dependency ratio in intra-regional trade was less than 20 percent, far lower than that of the European Union (65.7 percent) and the United States-Mexico-Canada Agreement (40.2 percent).
Therefore, China, Japan and the ROK need to deepen their economic and trade cooperation to jointly respond to the external challenges. In particular, the three countries should expedite their negotiations for a trilateral free trade agreement (FTA). Studies show that the establishment of a China-Japan-ROK FTA could potentially increase the GDP of the three countries by 0.5-3 percent.
The idea of establishing a China-Japan-ROK free trade area was first proposed at the trilateral leaders' meeting in 2002, with formal negotiations on the issue starting in November 2012. But a China-Japan-ROK FTA is yet to be finalized even after 16 rounds of negotiations. Since the new US administration is expected to push forward Trump's "America first" strategy, the three countries should finalize and ink a trilateral FTA for their mutual benefit. And they could start the process by "speeding up negotiations for a trilateral FTA" as mentioned in the Joint Declaration of the 9th ROK-Japan-China Trilateral Summit on May 27, 2024.
Leverage RCEP to finalize FTA
The three countries could use the Regional Comprehensive Economic Partnership as a foundation to finalize and sign a high-level trilateral FTA. By doing so, they can gain from the "early harvests" in various fields.
A trilateral FTA will further liberalize goods trade, and help the three sides to make significant gains from "zero-tariff" coverage for up to 95 percent of the traded goods, with transitional periods, exceptions or phased tariff reduction arrangements for each country's sensitive products. A trilateral FTA will bring added gains for the three sides, as they can issue priority lists for key sectors such as healthcare, eldercare, environmental protection, and automobile and electronics manufacturing.
The three sides can also gain by aligning their rules, and using the Comprehensive and Progressive Agreement for Trans-Pacific Partnership as reference to set economic and trade rules to better protect intellectual property rights, increase government procurement and safeguard the environment. And they can achieve win-win results by seizing the extensive opportunities for cooperation in fields such as information and communications technology and the digital economy, as well as building on the RCEP's e-commerce rules to boost cross-border data flows, ensure non-discriminatory treatment for digital products, and establish high-standard digital trade rules.
To be sure, deeper China-Japan-ROK cooperation on trade will have a positive impact on the RCEP. In 2023, the GDP and manufacturing value-added of China, Japan and the ROK accounted for more than 80 percent of the RCEP region, while the value of their exports and imports accounted for over 70 percent of the region's total.
Also, the three countries together contributed to about 70 percent of Asia's growth and 36 percent to global growth. Since the next three to five years will be crucial for the full implementation of RCEP rules, China, Japan and the ROK must take the lead in using the RCEP framework to achieve breakthroughs on key issues such as free trade, market access and the free flow of factors of production. This will unlock the dividends for the three countries, while strengthening the region's industry chains.
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