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Monday, May 23, 2011

China, Japan and Korea move closer on FTA

Japan, China and South Korea are set to move quickly to decide on a framework for a trilateral free trade agreement, after Chinese Premier Wen Jiabao expressed a positive view on the proposal.

At a trilateral summit meeting in Tokyo that finished Sunday, Prime Minister Naoto Kan, South Korean President Lee Myung Bak and Wen agreed to finish a joint study on the FTA within this year--one year earlier than initially planned.

Completion of the study will pave the way for formal FTA negotiations to begin.

After the meeting, Wen told reporters he would be keen to start the negotiations next year.

Lee said during a meeting with leaders of economic organizations Sunday that negotiations could start next year if the three nations proceed wisely.

The three countries, whose combined gross domestic product accounts for 20 percent of the global total, began joint research into a trilateral FTA in May last year.

An academic, industrial and government research group set up by the three nations is currently assessing the likely effects of and problems related to the trilateral FTA.

Previous research conducted by the private sector estimated such a pact would push up Japan's GDP by 0.3 percent.

Japan and South Korea, with an eye on China's massive and expanding markets, have been keen to discuss the FTA, but China--which tries to protect its domestic industries by placing high tariffs on imports--was previously thought to be unenthusiastic about the idea.

Wen's positive remarks Sunday therefore came as a surprise to Japanese and South Korean officials, sources said.

Sunday's developments follows Japan's postponement of its decision on whether to join talks on the Trans-Pacific Partnership, a multilateral FTA between Brunei, Chile, New Zealand and Singapore that other nations--including Australia, Malaysia, Peru, the United States and Vietnam--are currently in negotiations to join.

China is believed to have some concerns about Japan participating in the TPP, which could turn out to have the United States at its core, sources said.

"[Wen's remarks are] a test to see whether Japan will choose the TPP or East Asia," a source close to the Japanese government said.

However, looking ahead, it is not clear if Wen's attitude will be reflected in China's policy, as a reshuffle of that nation's leadership is expected next year.

In South Korea, meanwhile, voices in industrial circles have objected to forming an FTA that includes Japan, as South Korea is on the losing side of a more than 2 trillion yen trade imbalance between the two countries.

Japan, on the domestic front, will have to conduct agricultural reforms before it is able to join either FTA.

Although all three nations realize there are gains to be made from starting negotiations, there are plenty of twists and turns they have yet to navigate.

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