The maritime sovereignty dispute between China and Japan has derailed discussions about creating a free-trade zone involving the world’s second and third largest economies plus South Korea. Chen Yulu, a People’s Bank of China advisor, broke the news at a meeting of central bankers from the three countries. He said he hoped the suspension of the free trade discussions was temporary. “It will be a big loss for Asia if the process is terminated,” he told the Reuters news agency. Leaders of the three countries have been discussing creating a free-trade zone for some years, certainly through several cycles of ebbing and flowing relations between Tokyo and Beijing. This Bystander expects the free trade talks to survive this latest nadir.
Tag Archives: free trade
The South Korea-U.S. free trade agreement comes into force today–as this Bystander feels sure you have noted in your diaries. It is tangental to our brief but worth noting in passing for several reasons. Beijing, Seoul and Tokyo hope to start the sharp end of talks on their own free trade agreement later this year. China is both being dragged and dragging its trade partners before the World Trade Organisation with some regularity. And while the next round of the WTO’s global free trade talks, the Doha round, is proceeding even more glacially than reform in China, free trade agreements are popping up everywhere.
Nearly three score have come into force since January 2008. The total in effect is fast approaching 300 and many more are being talked about. (Trade trivia question: now Mongolia has struck a free trade agreement with Japan, which is the one WTO member left that is not party to any free trade agreement?)
The days when free trade agreements were seen as undermining the multilateral global trading system seem distant memory. Bi- or limited plurilateral regional free trade agreements will shape trade policies for the foreseeable future. They are also more suitable for developing existing cross-border trade flows being created by the needs of global logistics chains. Whether they undermine the big benefit of multilateral agreements, that they increase trade overall by lowering restrictions across the board, is moot. But then the Doha round isn’t doing anything to boost trade overall for as long as it remains stalled.
The most significant of the free trade agreements under discussion for the Asia-Pacific region is the Trans-Pacific Partnership (TTP) that the U.S. is taking over. China is on the outside of that at this point. Japan is the swing state. If it joins the TTP, China’s exclusion will be of more consequence than if it does not. Another free trade agreement in the pipeline that has implications for China is one between the EU and India. Meanwhile, Washington and Seoul are putting in place another piece of the new world trade order.
Footnote: The answer is Mauritania.
Free trade agreements (FTAs) are easier said than done. U.S. President Barack Obama acknowledged as much when announcing an outline agreement to expand the TransPacific Partnership from four to nine as a basis for a regional FTA. There is much detail to be negotiated. It will take years, not months. Many devils must be confronted.
For one, Obama’s domestic opponents are not going to hand him a political and economic victory with a general election barely a year away. Even in the highly unlikely event a final TTP agreement could be reached quickly, a Republican-dominated House of Representatives could block a vote for Congressional approval before the election. Nor are Republicans likely to allow an agreement containing what Obama called ‘high standards’, code for among others environmental and labor protections and local sustainability rights that are an anathema to many of Obama’s opponents.
All those are the quick and dirty domestic political battles. Japan’s decision to join promises a hundred years war. Japan’s new prime minister, Yoshihiko Noda, has risked splitting his party in doing so. He will now need to turn the country’s three most powerful and insular domestic political constituencies, farmers, doctors and the construction industry. Doing so would mean a deep structural change to Japan’s political system. That may be long overdue, but it will not be quick in coming. That alone should not imbue supporters of the expanded TTP FTA with great confidence. Nor should the rapid turnover of recent Japanese prime ministers. Noda is the sixth in five years.
It is already two years since the U.S. applied to join the four-member TTP and started to orchestrate its expansion to nine, including bringing in its two most important treaty partners in the region, South Korea and Japan, as well as regional allies such as Thailand. There have already been nine rounds of TTP expansion negotiations. These are painstaking processes.
The Obama administration’s move was part a a bigger game of FTA chess that it is playing with China for influence in the region. Washington is playing the APEC side of the board while Beijing is playing the ASEAN side. (The side story for those choices is that the Asia-Pacific Economic Community is a group of economies, so can include Taiwan, whereas the Association of South-East Asian Nations comprises countries, so does not. Taipei has expressed interest in joining the TTP FTA, and while Washington has been scrupulously silent on the point, the absence of any outright rejection is being taken in Beijing as unacceptable tacit support.)
Beijing, meanwhile, has been doing what it can to slow up the TTP expansion, and pushing a series of bilateral trade agreement with ASEAN nations and the concepts of regional trade pacts between ASEAN plus three (itself, South Korea and Japan) and ASEAN plus six (adding Australia, New Zealand and India). The U.S. is notable by its absence. Hence Washington’s attempts to involve all the same countries, with the one obvious exception, to much the same purpose but under the aegis of APEC.
This is not necessarily disliked by most Asian countries as it allows them to keep both regional superpowers from being too dominant as they jockey for supremacy. The most extreme example of this is that both China and the U.S. are trying to create trilateral free trade agreements with South Korea and Japan. Two tracks. Double the trouble. And any end game still a long way off.
Amidst all the discussion between Prime Minister Wen Jiabao, South Korean President Lee Myung Bak and Japanese Prime Minister Yukio Hatoyama at their tripartite summit this weekend about how to deal with North Korea, was some significant progress on creating a free trade agreement between the three countries. To the emerging generation of China’s leaders born after the Korean War — and particularly to the next generation of leaders of the Party’s International Department, which is a more important determinant of policy towards North Korea than the Foreign Ministry — that may be of more lasting significance than propping up the ally on whose side China fought against South Korea and the U.S. more than half a century ago.
Lee’s spokesman said the president had “stressed the need to enhance economic cooperation between the three countries and work toward integrating their economies.” The three countries agreed to set up a permanent liaison office in South Korea next year and to pursue a free-trade agreement. This is not a new idea, of course. A lot of work has been done on it at a semi-official level over the past several years and China, Japan and South Korea are already tied closely by trade and investment as well as geographical proximity. The same three leaders discussed a free trade agreement when they met for their summit last year. This year, the language being used to describe their latest discussions seems more purposeful.
There have been some grandiose thoughts about creating an Asian equivalent of the European Union. That is a long way off, perhaps impossibly far off, but the three countries are the region’s three largest economies, collectively accounting for 16% of world GDP, so would be a formidable bloc just by dint of their economic size. Japan and South Korea are already China’s largest trade partners after the U.S. and the E.U., and delivering economic growth is a policy priority for the Party for all the well-rehearsed reasons of self-preservation. That is one reason that Beijing is doing what it can to ease tensions on the peninsula, to preserve stability in the region. Changing the economics of East Asia, and thus the interests of the free-trade participants, could change the politics of the peninsula more rapidly than the diplomats can.
There have been previous attempts to unite the nations of north-east Asia, some more ill-starred than others, of course. Some Japanese officials, and let’s go back no further than the 1980s, envisioned Asia’s economies flying like a skein of geese with their own country the lead bird. Regional economic cooperation has always been easier than political cooperation, as ASEAN attests, though even economic cooperation has been a hard slog for a set of economies of such varying size and stages of political and economic development. But Japan, China and South Korea, already tied closely by trade and investment as well as geographical proximity are talking seriously about creating a free trade pact.
The issue was discussed again this weekend at a meeting of Prime Minister Wen Jiabao, new Japanese prime minister Yukio Hatoyama and South Korea’s President Lee Myung-bak. It is still a long way from an Asian equivalent of the European Union, as some envision, but as the three countries are the region’s three largest economies, collectively accounting for 16% of world GDP, they would anyway form the core. much as France, Germany and Benelux were the founding kernel of the EU. And in the interim, uniting China, Japan and South Korea under a free trade regime would be a considerable step towards expanding an alternative export market for Asian counties to the U.S. and an engine of global growth if U.S. consumers are going, as seems likely, to have a lengthy period of recovery from their recent excesses.
New Zealand has become the first developed nation to sign a free trade agreement with China.
From the NZ Foreign Ministry:
The free trade agreement aims to reduce barriers to and promote the further expansion of trade in goods, services and investment and will help New Zealand maintain competitiveness in the China market.
From the Xinhua report:
The New Zealand prime minister said the 2008 Olympics is an important opportunity for China to showcase its remarkable progress and new capabilities to the world. “New Zealand plans to send a large team to the Olympics and we hope the Games are a great success.”
No dot joining necessary.