China-Japan-South Korea Sign Trilateral Agreement and Launch FTA Talks

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By Xiaolei Gu

May 14 – Leaders from China, Japan, and South Korea concluded the Fifth Trilateral Summit Meeting and signed the Trilateral Agreement for the Promotion, Facilitation and Protection of Investment (hereinafter referred as the Trilateral Agreement) at a summit in Beijing yesterday. The Trilateral Agreement represents a stepping stone towards a three-way free trade pact to counter global economic turbulence and to boost economic growth in Asia.

According to a joint declaration, the three nations will further enhance the “future-oriented comprehensive cooperative partnership” to unleash vitality into the economic growth of the three countries, accelerate economic integration in East Asia, and facilitate economic recovery and growth in the world.

In the joint declaration, the three nations list directions and prioritization of future cooperation, which includes enhancing mutual political trust, deepening economic and trade cooperation, promoting sustainable development, expanding social, people-to-people and cultural exchanges, and strengthening communication and coordination in regional and international affairs.

Among all these proposals, the signing of the Trilateral Agreement and the decision to endorse the recommendation from the trade ministers to launch the trilateral FTA negotiations within this year are at the top of the priority list in deepening economic and trade cooperation.

The Trilateral Agreement, as stated on the website of China’s Ministry of Commerce, is a milestone in trilateral economic and trade cooperation between China, Japan and South Korea, as it is the first legal agreement and mechanism to enhance and protect investment between the three nations. The agreement is made up of 27 articles and one additional protocol, covering all important aspects of an international investment agreement from definition of investment, scope, and most-favored-nation treatment to taxation, general exceptions and dispute settlements.

According to a feasibility study that the three governments issued in 2011 on the proposed trade pact, China, Japan and South Korea accounted for 19.6 percent of the world’s gross domestic product and 18.5 percent of exports in 2010. A free trade treaty between the three countries could lift the GDP of China, Japan and South Korea by 2.9 percent, 0.5 percent and 3.1 percent respectively, according to estimates made by Xinhua News Agency.

However, as the three countries are divided by political distrust, trade barriers and diverging investment policies, there remains a long road ahead before they reach any free trade agreement.

“The conclusion of the feasibility study in 2011 and the nearly finalization of the three-way investment treaty has paved the way for launching the FTA talks, but that only marks one step forward along the long negotiation journey,” Xinhua said.

If China does successfully create a free trade area with Japan and South Korea, it would be another substantial accomplishment for the country to go along with the China-ASEAN Free Trade Area which should be in full effect by 2015.