East Asia FTA: Korea, China and Japan?

Korea, China and Japan are set to negotiate, this month, the framework for a trilateral free trade agreement between the countries.  This meeting is the first meeting with the followup meetings to be held in China and Japan.

The parties will meet in Pyeongchang, Korea, this week and in China early next year. Pyeongchang is the host of the 2018 Winter Olympic games.

We see major stumbling blocks:

  • China is not likely to agree to a significant decrease in tariffs on automobiles or electronic goods.  Both Korea and Japan are major exporters of automobiles and electronic goods and will likely push China hard on the issue.  However, the good news is that many Japanese and Korean automobile and electronic goods companies are operating in China.  These companies hold overwhelming power in Korea and Japan and, generally, strongly favor the lowering of tariffs.
  • Japan holds a very protectionist attitude over its agricultural industry.  China is a major exporter of agricultural products.   The Japanese rice market is off limits because of political realities in Japan. 
  • Korea holds a large trade deficit with Japan and fears that a decrease in tariffs will widen the deficient.  Korea, however, because of the realization that margins are decreasing in most industries and inflation is a major stumbling block to sustained growth is enthusiastically negotiating free trade agreements.  The KOREU and KORUS FTAs have been signed into law.  The KOREU FTA is in effect and KORUS FTA is likely to be in effect early this coming year.

This is great news for consumers and businesses, but don’t expect any positive updates in the near future.

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