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FTA Becomes New Buzzword

When India and Pakistan decided to seek a peaceful resolution to their problems last month, the next thing they did was to announce that they were pushing for the establishment of a free trade area (FTA) in South Asia.

Indeed, in 2003, FTA seemed to be one of the most frequently used buzzwords in international relations, maybe next only to terrorism.

In the western hemisphere, the North America Free Trade Area (NAFTA) will expand. In the eastern hemisphere, new bilateral plans for FTAs are appearing in many areas. Every nation seems to be eager to jump on the regional trade arrangement invented by Europeans, especially after a ministerial meeting of the World Trade Organization (WTO) in Cancun, Mexico, failed to produce a breakthrough on the new round of global talks.

East Asia, where some of the world's most vibrant economies are seen, has also joined the trend.

Various trade talks are underway. The latest development was the start of free trade negotiations between Japan and South Korea last month.

Government officials and experts in the region said a common market in East Asia is very desirable and has a good chance of becoming a reality.

An important indicator for the emergence of the East Asia FTA is a trade arrangement between Japan, China and South Korea, the three biggest economies in the region.

"Without co-operation between the three, especially Sino-Japanese cooperation, the East Asia FTA will not be one in real sense," said Xu Changwen, head of Asia research at the China Academy of International Trade and Economic Cooperation (CAITEC). The academy is under the Ministry of Commerce.

Think tanks set up by the three governments have been conducting research on closer economic partnership between the three nations for several years. Leaders of the three nations also declared the three would move in that direction.

"In the long run, we will certainly see an FTA between China, Japan and South Korea, sooner or later," Xu said.

But there are still no signs that such an FTA could emerge in the near future.

On the bilateral front, the prospects for a China-South Korea and China-Japan FTA remain unclear. The prospect of an FTA between the three is even more unlikely.

"Japan's attitude is the key. Japan does not have any intent of holding talks with China soon," said Jiang Ruiping, a professor at the China Foreign Affairs University.

"They (Japan) put lot of emphasis on the fact that China is a new member of the WTO. They want to see how well China can do in making the adjustments required as a WTO member."

Japanese officials have also openly disclosed their plan for a free trade area with regional trading partners.

Last year, they finished their talks with Singapore, and are currently in talks with South Korea, separately with several Association of Southeast Asian Nations (ASEAN) members, and with ASEAN as a whole.

China seems to be at the very end of Japan's list, which makes the chance of establishing an East Asia FTA even more remote.

The benefits of an East Asia FTA or an FTA of China, Japan and South Korea are obvious. Tariffs will be further reduced. The flow of technology, capital and information will be sped up. All this would lead to increasing intra-region trade investment growth and spur economic growth.

With an expanding European Union and NATFA, the East Asia area is apparently lagging behind in terms of regional trade arrangements, which puts it at disadvantage in global trade relations.

In addition, Asian countries' experiences in negotiations in the World Trade Organization (WTO) also offers lessons about the difficulties in achieving a real global free trade system in the short term and lessons about the advantage to be in a bloc instead of going it alone in trade talks.

Chinese, Japanese and South Korean firms have realized this.

Government think tanks in the three countries conducted a survey of listed companies last year, 200 in China, 200 in South Korea and 300 in Japan, on the desirability of an FTA between the three countries.

The majority of those surveyed -- 85 percent on the Chinese side, 76 per cent in Japan and 71 percent in South Korea -- responded positively, according to Zhao Jinping, a senior foreign trade researcher at the State Council Development Research Center (DRC), which organized the Chinese part of the survey.

Most of those surveyed who supported the idea of the three-country FTA believed that the talks for it should be started in three years, according to Zhao.

The governments of China and South Korea have been active in pushing for the integration of regional economies at different levels.

China has been playing a positive role in the Greater Mekong Subregion economic co-operation program with Cambodia, Laos, Myanmar, Thailand and Viet Nam. China has initiated FTA talks with ASEAN.

It is also a strong advocate of close economic cooperation between China, South Korea and Japan.

There used to be worries that historical and political obstacles could make China and South Korea reluctant to build closer economic ties with Japan.

But experts said this is no longer a problem.

"China and South Korea have adopted the pragmatic approach of separating political and economic affairs," said China Foreign Affairs University's Jiang. But Japan was not moved. It still seems firm on putting any talks involving China at the bottom on its Asian free trade plan.

Apart from uncertainties in the formation of an FTA between China, Japan and South Korea, Asian nations have to face other difficulties in their free trade talks.

Agriculture could be a particularly thorny issue.

"That is because grain is regarded by nations as goods that is crucial for security and farmers have very loud voice in politics of many countries," said Jiang.

But none of the experts doubt a broad Asia FTA will eventually emerge.

"I believe a free trade zone (FTA) in East Asia will emerge in, at most, 20 years," said DRC's Zhao Jinping.

Zhao said the FTA could be even be bigger by linking itself to other economies, including Australia, New Zealand and South Asian countries to the South and Central Asia and Persian Gulf countries to the west.

For China, Zhao said although it should be active pushing for progress in FTA talks in Asia, it should also seek FTA opportunities outside of the region.

(China Daily January 20, 2004)

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