In recent years, in addition to multilateral trade liberalization agreements under the World Trade Organization (WTO), there have been widespread moves to set up other bilateral or multilateral free trade agreements. The number of such trade agreements now verges on a hundred. In light of these developments overseas, both Japan and South Korea have begun to seek entry into free trade agreements with their trade partners.
Recently, however, a cautious attitude toward bilateral free trade agreements has been emerging in South Korea. This is because Japanese exports to Korea have been increasing sharply since the latter half of 1999.The prevailing argument in Korea these days is that a free trade agreement may be necessary, but there is no need for an immediate execution of the agreement. Also, other problems remain. Before concluding a Japan-Korea free trade agreement, South Korea must first ease the concerns of its neighbors, including China, Russia, North Korea and Taiwan, over such an agreement. Accordingly, I propose the formation of a localized free trade area.
Such a free trade area is not necessarily confined to local areas in both Japan and South Korea. Neighboring countries such as China, Russia, North Korea and Taiwan could also join the free trade area.Therefore, I would like to submit this concept as the "Northeast Asian Free Trade Area Initiative." (
Illustration: Mountain People
Northeast Asia is the region around the Sea of Japan (
Before going into the main discussion, I must touch upon the name of the "East Asian Mediterranean Sea." I refer to the Sea of Japan, Yellow Sea, and the East China Sea in the collective as the "East Asian Mediterranean Sea," because the latitude and size of these three seas are comparable to those of the European Mediterranean Sea. Just like the European Mediterranean Sea, they are land-locked in three of four directions. Seas in such a configuration are susceptible to the build-up of pollution. In fact, in 1976, the coastal nations in the Mediterranean signed the Barcelona Treaty for the implementation of environmental protection measures under the Mediterranean Action Plan (MAP). Likewise, the coastal nations of the East Asian Mediterranean Sea should follow in the footsteps of their European counterparts in launching pollution control efforts immediately. These efforts have be made in concert by all the coastal nations of the "East Asian Mediterranean Sea." As the three seas are connected to each other, any individual conservation effort for any particular one won't make sense. This fact suggests the necessity for the broad and encompassing term of "East Asian Mediterranean Sea."
`One-day area'
With the increased geographical mobility in modern societies, the integration of the Sea of Japan, Yellow Sea, and East China Sea will be accomplished through the expansion of "one-day area" (
All these localized economic Zones would be created with the Sea of Japan, Yellow Sea, and the East China Sea as their intermediaries. High-speed transportation modes, in particular ships, would help forge close ties between these localized economic zones and encourage their integration, eventually leading to the formation of the "East Asia Mediterranean Economic Zone."
The Ministry of Transportation in Japan is deeply aware of the problems caused by over-dependence on trucking transportation, namely traffic congestion and the slow down of transit times, air pollution produced by nitrogen oxides in exhaust emissions, the production of dioxin, a carcinogen,as well as a shortage of truck drivers. The ministry has, therefore, been in a rush to develop the Techno-Super Liner (TSL), a high-speed cargo ship with carrying capacity of 1,000 tonnes and a maximum speed of 50 knots (93kph), and sailing range of 930km. A half-scale experimental model of the TSL has been built already. It has completed trial runs and tests on running at high-speed with a heavy cargo load. However, as the construction costs for a TSL amounts to as high as ?10 to 15 billion (US$112-140 million), there is little prospect for TSLs to replace trucks in domestic transportation. Recently, some people have suggest the the possibility of using TSLs for off-shore international voyage, and an experimental voyage between Nagasaki and Shanghai (
In view of the transportation ministry's policy, Japanese shippers have begun to intensify their efforts to improve the speed of their freight ferries. In fact, Kawasaki Kinkai Kisen (
Tariff problems
My proposal is to further rename this "East Asia Mediterranean Economic Zone" as the "East Asia Mediterranean Free Trade Zone."
In addition to the difficulty in dealing with the agricultural sector, another obstacle stands in the way of a Japan-Korea free trade agreement. According to a joint study conducted by government-run think tanks in the two countries, the average import tariff imposed by Korea on Japanese goods and services is 7.9 percent, whereas import tariffs imposed by Japan on Korean goods and services average 2.9 percent. Even if these import tariffs are eliminated over a 10-year period, due to the discrepancy in import tariffs between the two countries, Korea's trade deficit with Japan will increase by US$6.09 billion. Therefore, the Korean side is very anxious about the possible domination of the Korean market by Japanese products. The "multiple sourcing scheme for imports" that had banned most Japanese imports was lifted at the end of June, 1999. Thereafter, the ban against the remaining 16 product categories, including medium-and full-size passenger cars, larger color TV sets, electric rice cookers, cell phones and NC lathes, has also been lifted, causing an immediate increase of these Japanese imports in the Korean market. As a free trade agreement would further remove all import tariffs, opposition against the signing of such an agreement from local industries is inevitable.
Needless to say, Korea is deeply in the red vis-a-vis trade with Japan. But, in its trade with China it is Korea which has a steady climbing surplus. Even if Korea's trade with Japan is still in deficit, if a surplus is assured in its trade with China, the voices against a free trade agreement in Korea can be muted. Interestingly enough, each of the three countries -- Japan, Korea and China -- shows large trade deficits against the same trading partner among the three, and a trade surplus from the other trading partners. These facts suggest that all three countries could enjoy similar benefits from the positive economic effects of free trade. As far as trade statistics are concerned, the conclusion of a free trade agreement between Japan, China and Korea would benefit all three countries. For this reason, China should be invited to join the contemplated free trade area.
Other neighboring countries Russia, North Korea and Taiwan should also be invited to join the free trade agreement to ease their alarm over it. Currently, Russia is yet to completely leave behind its economic turmoil, and North Korea does not have a full open-door policy. If they cannot join the free trade agreement when it comes into being, then the most critical obstacle to its happening would be the alarm of these two countries. Reassurance would be needed. In my opinion, it could be accomplished through border trading between China and Russia, and between China and North Korea. The bulk of trade between China and Russia, and China and North Korea take place at the borders. The Chinese government encourages such trade, also known as the "frontier trade," by providing incentives, including tax-free treatment on import tariffs.
Northward expansion
If simultaneous with its participation in the free trade agreement, the Chinese government also exempted border trading from import tariffs, then both Russia and North Korea may thereby reap benefit from their participation in the agreement through export expansion. This would then ease the alarm of these countries about the free trade area. If both Russia and North Korea are able to offer tax exemption measures for border trading, trading at the borders will flourish. When the introduction of foreign capital into the border areas is accelerated by the duty free measures, the economic vitality of the underdeveloped border regions could be improved. In the course of these events, the regional free trade area would spread through border trading to Japan, China and South Korean to the entire "East Asia Mediterranean Economic Zone."
Finally, I would like to discuss the chronological steps for the realization of this initiative. The topic is important because the signing of an all-encompassing free trade agreement and the implementation of total market liberalization from the start would have too serious an impact on the would-be members. Despite a similar industrial structure, South Korea trails far behind Japan in terms of technological advancement. Under the circumstances, Japanese products are likely to dominate the Korean market. Likewise, Japanese and Korean imports would strike a devastating blow against China's automotive industry, a key domestic industry nurtured by the government.
Therefore, I propose localized free trade zones. As a country tackling reform of its state-owned enterprise and placing top priority to the stability of domestic economy, China should be especially interested in such a localized free trade zone. In fact, reform and liberalization in China have been phased in from local areas to the rest of the country, a model described as "from a point to a line, from a line to an area." In accepting the initiative of free trade zones, China is likely to first implement free trade in limited regions, such as Liaoning (
In fact, trade between these areas features Korean exports such as marine products, textiles and electric devices produced by local Korean industries. According to custom clearance statistics of Japan, the balance of trade in these local areas tips in favor of Korea, constituting a contrast with the overall trade between two countries. Therefore, as long as the application of the free trade agreement is confined to these local areas, Korea should not oppose the agreement. Also, because Japan imposes relatively higher import duties on marine and textile products, and certain non-tariff barriers exist for these imports, Korea will benefit from the localized free trade agreement. On the other hand, Japan's deficit from this local trade is relatively small, so that opposition to the localized free trade in Japan should not be to strong. Thus, free trade should first be implemented in these areas.
China's involvement
Under this approach, localized free trade with China may be implemented as well. In the past, China opened Shandong and the Liaodong peninsula (
Therefore, if the Chinese government allows participation of the Yellow Sea/Bohai (
Furthermore, this approach enables Taiwan to join the free trade area. This is because the government of China would not be able to oppose Taiwan's participation into the free trade area at the local level. As stated earlier, the government of China once permitted its local government to engage in economic exchanges with South Korea, despite a lack of diplomatic relations with the latter. Under the principle of "separating the government from the private sector," (
Moreover, when the government of China expands its free trade area into its northeast provinces, Russia and North Korea, too, could reap benefits from regional free trade through border trading as stated earlier. By then, a genuine "East Asia Mediterranean Free Trade Zone" will be born.
Ogawa Yuhei (
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