East Asian powers agree on trade pact talks

May 13, 2012

Chinese Premier Wen Jiabao urged northeast Asian powers to cooperate more in the face of global economic headwinds

BEIJING - Chinese Premier Wen Jiabao urged northeast Asian powers to cooperate more in the face of global economic headwinds, as China, Japan and South Korea agreed at a summit on Sunday to soon launch negotiations on a three-way free trade pact.

The three nations are major traders, and together accounted for 19.6 percent of global gross domestic product and 18.5 percent of exports in 2010, according to a feasibility study of that the governments issued last year on the proposed trade pact.

But they are divided by political distrust, trade barriers and diverging investment policies.

" In response to a slow economic recovery and rising trade protectionism around the world, many countries are seeking to strengthen regional economic integration to expand their market share and raise their competitiveness," China's Wen told reporters after talks in Beijing with Japanese Prime Minister Yoshihiko Noda and South Korean President Lee Myung-bak.

"Northeast Asia is the most economically vibrant region in the world," Wen said. "The establishment of an FTA will unleash the economic vitality of our region and give a strong boost to economic integration in east Asia."

The three governments plan to counter economic worries and tepid demand from advanced economies by launching formal talks this year for their own free trade agreement (FTA), an idea that has been under discussion for a decade.

"We are pursuing high-level economic cooperation as part of our national strategy," Noda told the Wall Street Journal in an interview before the summit. "The Japan-China-Korea FTA is an extremely important piece of it."

The three leaders also agreed to a three-way investment treaty - a stepping stone to the bigger and much more contentious goal of a free trade deal - said Xinhua.

China is the biggest trade partner of Japan and South Korea. A free trade treaty could lift China's GDP by up to 2.9 percent, Japan's by 0.5 percent, and South Korea's by 3.1 percent, Xinhua said, without citing the basis for its estimates.

"China is simply a huge market," said Noda, according to the Wall Street Journal. "That's all there is to it."

Intra-regional trade and investment levels between China, Japan and South Korea were "much lower" than levels in the European Union or across the North American Free Trade Agreement area, said the feasibility study.

"The early completion of the (FTA) negotiations will benefit the comparative advantages of the three countries," Wen told a meeting of commerce officials and business leaders.

LONG JOURNEY AHEAD

Yet even China acknowledged the negotiations on a three-way trade agreement are likely to be difficult.

"The conclusion of the feasibility study in 2011 and the nearly finalization of the three-way investment treaty has paved the way for launching the FTA talks, but that only marks one step forward along the long negotiation journey," China's Xinhua news agency said in a commentary on Sunday.

"More importantly, political trust is badly needed in this sensitive region, not only in political affairs but also in economic ties."

The plan for a three-way northeast Asian free trade pact jostles alongside other proposals to enhance regional economic flows, especially the Obama administration's promotion of a Trans-Pacific Partnership (TPP).

Japan has said it will join in talks about the TPP, but South Korea and China have not. Policy-makers in Beijing worry that U.S. influence could erode Chinese sway across the region.

Japan's Prime Minister Noda said he saw no conflict between the two trade negotiation proposals.

"We will promote the TPP and the trilateral FTA in parallel," Noda told reporters. "These efforts can be mutually reinforcing to each other."

Tokyo and Beijing have long been in dispute over territorial claims in the East China Sea, where both sides stake claims to potentially valuable gas beds.

Beijing also faces insistent demands from Tokyo and Seoul to put more pressure on North Korea, whose nuclear weapons ambitions and rocket tests have alarmed the region.

Both Japan's Noda and South Korea's Lee nudged China to do more to rein in North Korea.

"We need to work closely together," said Lee.

Wen stuck to China's position that negotiations were the only way to coax North Korea into concessions.

"The various parties need to use their wisdom, exercise patience, and show good will to the greatest possible extent so as to ease confrontation and return to the right track of dialogue and negotiations," he said of the dispute.

(Additional reporting Terril Yue Jones and Sui-Lee Wee in Beijing and Mari Saito in Tokyo; Editing by Sanjeev Miglani)

Source: Reuters

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