Analysts want the next deal to include Japan

Now that Korea has implemented a free trade agreement (FTA) with China, its next step should be pushing larger deals like the Korea-Japan-China FTA, according to local trade analysts.

The experts explained that a closer relationship among the three countries will help accelerate other regional FTAs that need momentum to become finalized.

But the Korea-Japan-China FTA hasn’t been part of the trade authority’s original agenda, as various diplomatic issues have all but frozen negotiations on the deal for the past few years.

The Ministry of Trade, Industry and Energy rolled out its future trade policy directions in February, right after agreeing to an early version of the Korea-China FTA, which has been the highest priority for the Park Geun-hye administration’s trade authority. The announcement focused on sealing new large-scale FTAs like the Regional Comprehensive Economic Partnership (RCEP) or joining existing ones like the Trans-Pacific Partnership (TPP).

Trade analysts and the government have long emphasized that joining a so-called mega-FTA within or across regions will help sell Korean goods overseas at cheaper prices, largely thanks to rules of origin that would exempt certain products from trade tariffs.

But the significance of the trilateral FTA resurfaced after the presidential summits between the three countries, as well as between Korea and Japan, where the leaders promised to accelerate economic cooperation within East Asia.

Trade analysts said the trilateral FTA would be the easiest to accomplish because it would likely be based on the Korea-China FTA, whereas the RCEP would be modeled on the trilateral FTA.

“The trilateral FTA will come sooner than the RCEP, as Asean countries have shown their intention of following the lead of the three East Asian countries [in accelerating the RCEP],” Park Ji-eun, a researcher at the Institute for International Trade (IIT), an institute under the Korea International Trade Association, said by phone.

“In fact, the negotiations on the Korea-Japan-China FTA have also been slow because the three countries are highly dependent on trade and have similar industrial structures, which makes us think that the liberalization resulting from the trilateral deal may be narrower [than in usual FTAs],” Park added.

“But to accelerate the completion of other mega-FTAs, I think the government will put a similar emphasis on all the mega-FTAs next year, including the Korea-Japan-China FTA, RCEP and TPP.”

The trilateral pact would also give Korea another chance at opening up parts of the Chinese market untouched by the bilateral deal.

“The Korea-China FTA wasn’t as liberalizing as it could have been [due to the exclusion of some manufacturing and agricultural products from the tariff reduction list], but we can open the Chinese market further in the trilateral FTA,” Park explained.

Meanwhile, negotiations on the RCEP began in 2012. The participating nations - all Asean member states, as well as China, Australia, India, Japan and New Zealand - initially aimed to seal the deal by the end of this year, riding on the finalization of the U.S.-led TPP in October. However, the members missed the deadline again and have vowed to complete the deal by the end of 2016.

“Korea will benefit from the RCEP through shortcuts in customs processes and lower trade barriers with Southeast Asian countries,” Park said.

In order to get a sense of which deals were most favored by Korean companies, the Korea International Trade Association (KITA) surveyed some 762 private sector firms with export and import transactions in May, including large conglomerates as well as small and midsize exporters.

The trilateral FTA among Korea, China and Japan was the most anticipated among possible mega-FTAs, selected by 52 percent of survey participants, followed by the TPP (26 percent) and the RCEP (22 percent).

The private sector was particularly enthusiastic about the trilateral pact because there is high demand for any kind of FTA with Japan, with companies across different sectors wanting to import high-quality Japanese intermediary parts at lower prices.

Nearly 35 percent of the survey participants said the Korean government should push the Korea-Japan FTA.

“Korea needs to approach an FTA with Japan cautiously, and prepare meticulous negotiation strategies by which understanding sectors are competitive or complementary when it comes to the two nations,” Je Hyun-jeong, a senior researcher at IIT, wrote in a report.

Regarding the TPP, most analysts say Korea should become one of the first follow-up members after the U.S.-led mega-FTA launches next year.

However, many also emphasized that Korea should make the tariff reduction timeline as long as possible for manufacturing industries in which Japan is more technically competitive, such as precise chemicals, automobiles and machinery.

BY KIM JI-YOON [kim.jiyoon@joongang.co.kr]