SEOUL – Last month, the leaders of China, Japan, and South Korea agreed to begin negotiations later this year on a trilateral free-trade agreement. If the talks succeed, the global trade map will need to be redrawn. An FTA that encompasses, respectively, the world’s second, third, and 12th biggest economies (in purchasing power parity terms in 2011), with a population of 1.5 billion, would dwarf the European Union and the North American Free Trade Agreement, comprising the United States, Canada, and Mexico.
Indeed, Northeast Asia would become the third major axis of regional economic integration, following the EU and NAFTA. Until now, the region has been unable to institutionalize economic cooperation as vigorously as Europe and North America have. But if the proposals discussed in Beijing last month are realized, the resulting FTA could surpass NAFTA in its degree of integration and importance to the world economy.
In addition, the formation of a China-Japan-South Korea FTA would most likely trigger a chain-reaction. For example, the momentum could expand southward and stimulate ASEAN, which has bilateral FTAs with all three countries, to join the group. Such a turn of events would be equivalent to establishing the East Asia Free Trade Area, which the ASEAN+3 envisioned about a decade ago. If that happened, other countries – Australia, New Zealand, and, most importantly, India – might seek to jump on the bandwagon.
The US would, of course, need to respond to the conclusion of any trilateral Northeast Asian FTA in order to preserve its own role in global trade – and in the supply chains that dominate the Asian economies. It would likely seek to expand and deepen the infant Trans-Pacific Partnership, the trade agreement that President Barack Obama committed the US to last year.