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Looking Beyond Borders

Despite frictions old and new between China, Japan and South Korea, trilateral cooperation among Asia’s three economic powerhouses remains promising, say economists

By NewsChina Updated Nov.1

On August 21, China’s Foreign Minister Wang Yi and his Japanese and South Korean counterparts, Taro Kono and Kang Kyung-wha met in Beijing for the Ninth Trilateral 
Foreign Ministers’ Meeting. The three ministers reached consensus on a Concept Paper on “Trilateral+X” Cooperation, and agreed to aim to conclude negotiations on the Regional Comprehensive Economic Partnership (RCEP) by year’s end. They also pledged to accelerate negotiations for the Japan-China-Republic of Korea Free Trade Agreement (FTA). The three sides agreed to work together on big data, AI and 5G. 

Despite territorial, trade and historic disputes among the three countries, especially the recent tit-for-tat disputes between Japan and South Korea that cast a shadow over the event, leaders of the three countries need to be aware that deep economic and trade integration remains in the common interest of all three countries. 

Driving Forces
The driving force behind trilateral cooperation in past years was the complimentary nature of the three Asian economies. While Japan has a strong high-tech sector, China has the world’s second-largest market as well as robust manufacturing and agricultural sectors. South Korea, as a major industrial economy, has an edge in some key industries. Given their geographic closeness, China, Japan and South Korea have long been deepening their economic cooperation. In 2018, the combined GDP of the three countries surpassed that of the European Union and came close to that of NAFTA. China is now the largest trade partner of both Japan and South Korea, while Japan and South Korea are China’s second- and third-largest trade partners, next only to the US. In 2018, combined volume of bilateral trade between China and Japan, and that between China and South Korea surpassed the trade volume between China and the US.  

In the past year, the three countries formed strong collaborations in the global supply chain, especially in the automobile, machinery and electronics sectors. Therefore, rising protectionism and anti-globalization sentiment poses a serious threat to all three. While China has been engaged in an escalating trade war with the US, Japan and South Korea have come under US pressure regarding trade and other issues. Japan, for example, shifted its focus from the RCEP and other regional trade initiatives after the US withdrew from the Trans-Pacific Partnership.  As global protectionism persists, safeguarding and strengthening trilateral economic and trade relations among the three countries have become ever more important to ensure long-term economic stability and prosperity in the region.  

Disputes, Interruptions 
Since November 2012, the three countries have been engaged in talks over an FTA. It is estimated that if the three countries can reach a free trade agreement, it will promote growth of 1-3 percent for China, 0.1-0.5 percent for Japan and 2.5-3 percent for South Korea. ��Unfortunately, these efforts were frequently interrupted by political and historical disputes. Japan’s wartime history and its interpretation of it have long been a thorny issue between the three countries. Japan also has territorial disputes with China over the Diaoyu/Senkaku islands and with South Korea over the Dokdo/Takeshima islets. Rising tension regarding the Diaoyu dispute between China and Japan since Tokyo announced the nationalization of the islands in 2012 has contributed much to the apparent stalemate in development of the trilateral FTA.  But the latest threat to the trilateral cooperation has been the disputes regarding so-called “comfort women,” sex slaves forced to work in Japan’s wartime military brothels. Tension had been building up since Seoul reneged on an unpopular 2015 agreement between 
Japan and South Korea over the issue. In the fall of 2018, South Korea’s Supreme Court handed down rulings ordering Japanese companies to pay reparations for Korean forced labor and “comfort women” during Japan’s colonization of the Korean Peninsula. The dispute eventually led Japan to impose export controls on materials used in South Korea’s semi-conductor industry and removed Seoul from its “white list” of trusted trade partners. This triggered a similar reaction from the South Korean government, and Seoul recently announced it was terminating its intelligence sharing mechanism with Japan, the General Security of Military Information Agreement (GSOMIA).  

As the dispute looks set to drag on, it appears major progress on trilateral cooperation will be impossible. And given the intertwined supply chain in the region, the disputes between Tokyo and Seoul will inevitably have a negative impact on China.  

Despite these hurdles, there is still ample space for the three countries to push forward cooperation. Even though there is an escalation of tensions between Tokyo and Seoul, both sides have incentives to mend their relationship. Economically, while Japan’s ban on semi-conductor materials may lead to a loss of US$19 billion for South Korea’s semi-conductor industries, it also means that Japan could lose 11.6 percent of its share in its total market. Politically, both sides have indicated their intent to de-escalate their feud through continued dialogue. Moreover, both the US and China have urged the two countries to solve their disputes. 
Beyond the FTA 
But given the complexity of the trilateral relationship, and even if political and historical disputes can be put aside, there is a long way to go before the three countries can reach an FTA. There are many technical issues to be solved given the discrepancy in the trade structure of the three countries. Given China’s advantage in agricultural sectors, Japan and South Korea tend to have a guarded attitude toward further opening their farm products markets. Likewise, China looks set to have a guarded policy for high-tech sectors where Japan and South Korea have advantages.  
But even if an FTA remains a distant prospect, the three countries can still make incremental steps in deepening regional integration in a variety of fields. For example, recent technology developments provide ample incentives for the three countries to cooperate in exploring the market in key emerging sectors.  

During the trilateral meeting, the three sides agreed to work together on big data, AI and 5G, which could provide a new platform for trilateral cooperation in these fields.  

With a consensus on the “Trilateral+X” Cooperation framework, the three sides can collectively promote their trade relationship with other regional partners, such as members of ASEAN. The three sides can work together to push forward the negotiations on the RCEP, which in turn would help the three countries stabilize their relationship and manage their disputes.  

As the countries are already exposed to threats posed by rising global protectionism, all three should cool off and seek a rational solution to their disputes. Policymakers in the three countries should have the vision and political will to look beyond their immediate situation to aim for the long-term stability and prosperity of their own countries as well as the entire region.