China, Japan and South Korea are in closer cooperation but obstacles remain in the way of trilateral free trade agreement

In the just-concluded fourth trilateral meeting of the leaders of China, Japan and South Korea, all three countries agreed to speed up the process toward finalizing a free-trade agreement (FTA).

Promoting a trilateral FTA at this time is significant, mainly because major changes occurred in the world economy after the global economic crisis, and Japan and South Korea strongly hoped to "take a free ride" on the rise of China's economy.

In 2010, the overall size of China's economy surpassed Japan's to be the world's second largest. China's sustained rapid economic development has not only created a strong demand for Japanese and South Korean exports, it has also revived some Chinese enterprises due to the continuous expansion of domestic production. Also enterprises that have invested in China have received high returns and China has become the main source of profit for many of these companies.

The vast market in China has long been regarded as a means of economic regeneration and advancement by Japan and South Korea.

Moreover, the economic woes resulting from the earthquake, tsunami and nuclear accident have forced Japan to re-examine the importance of the FTA. The gross domestic product (GDP) of Japan fell 0.9 percent during the first quarter of 2011 and Japan urgently needs the support of its neighbor in its recovery and reconstruction efforts. The realization of the FTA with China and South Korea would enable Japan to establish closer economic and trade relations with them and build a solid foundation for this support.

In recent years, the trade structure of the three countries has been undergoing changes and there has been a rapid development of intra-industry trade and trade in intermediate goods, a reflection of the three countries' willingness to deepen economic ties.

In 2010, the total trade between the three countries exceeded the level before the financial crisis, and China has become Japan and South Korea's largest trading partner. In addition, Japan and South Korea have also become a major source of foreign direct investment, the cumulative amount of investment was more than $120 billion. Moreover, after 12 rounds of negotiations since 2005, China, Japan and South Korea are speeding up talks on a tripartite investment agreement, which will provide a protection system for further investment cooperation.

After the financial crisis, East Asia, one of the world's most dynamic economic regions, has become one of the main engines for the global economic recovery. As giants in East Asia, the three countries' economic scale not only accounts for 70 percent of the total economy in Asia, but also 20 percent of the global economy. If the FTA can be concluded, relations among China, Japan and South Korea will be optimized and the competitive ability of the three countries will be enhanced.

But although the idea of the trilateral FTA has been mentioned for years, the process of implementing it has been slow.

There are three reasons for this:

First, there is a big difference among the three countries' economic development level. In terms of GDP, China ranks first, followed by Japan and then South Korea; but in terms of GDP per capita, Japan ranks first, South Korea second and China third. If the gap between the different countries' economic development is too large it will make a free-trade agreement difficult to achieve.

Second, compared with China, Japan and South Korea have less farmland. Their agriculture depends on government subsidies and supportive policies in order to survive. They may therefore be worried about the competition from China if the FTA is concluded. However, if China cannot get any benefit from its agricultural advantage, a positive attitude toward implementing the FTA from the Chinese side cannot be assured.

Third, there are still non-economic factors delaying the launch of the FTA, such as territorial disputes and the Korean Peninsula denuclearization process. In addition, some Japanese politicians try to deny the historical truths of Japanese colonialism, which hurts the feelings of people from China and South Korea and makes it difficult to finalize the FTA.

However, it is important to accelerate the pace of launching the trilateral FTA. Although the three countries have differences in their economic development and political systems, and there are conflicts between the three countries' economic and political interests, as long as they have full understanding and adopt a positive cooperative attitude, a bright future for the FTA can be expected.

The author is a professor at the China Foreign Affairs University.