:::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::: NIRA Newsletter No.10 (Web Version) January 2007 :::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::: The NIRA Newsletter provides an overview of the direction of research at NIRA and the policy proposals made by the Institute. ************************************************** //Feature Articles// NIRA Policy Proposals Joint Report and Policy Recommendations concerning A Free Trade Agreement among China, Japan and Korea Topics Policy Research Index ***************************************************** [NIRA Policy Proposals] Joint report and Policy Recommendations concerning A Free Trade Agreement among China, Japan and Korea December 11, 2006 Trilateral Joint Research conducted by Development Research Center (China) National Institute for Research Advancement (Japan) Korea Institute for International Economic Policy (Korea) Based on an agreement between the leaders of China, Japan and Korea at the historic Manila Meeting in November 1999, a joint research project on economic cooperation between the three countries has been conducted by the Development Research Center of the State Council (DRC) of China, the National Institute for Research Advancement (NIRA) of Japan and the Korea Institute for International Economic Policy (KIEP) since 2001. Executive Summary Introduction Since 2003, three research institutes representing China, Japan and Korea have jointly undertaken a study on a possible Free Trade Agreement among the three countries (termed a gCJKFTAh below). Following an assessment of the macroeconomic impact of a CJKFTA and a survey of businesses in 2003, the three institutes conducted sector studies ranging over the agriculture, automobile, electronics, fisheries, textile, and steel sectors and sections of the service sector in 2004 and 2005. Continuing their study of a CJKFTA in 2006, the institutes decided to extend the previous sector studies to cover a broader area of the service sector. They also decided to examine other important issues, including rules of origin (ROOs) and sensitive sectors in the existing Free Trade Agreements (FTAs) concluded by China, Japan, and Korea. This report first presents a general perspective on regional trade agreements in Northeast Asia, followed by the major findings of the joint study of the research issues for 2006. Finally the report presents the conclusions of the study together with policy recommendations. Summary Conclusion of the Joint Study in 2006 Our joint research from 2003-2005 identified major macroeconomic benefits from an FTA among China, Japan and Korea. The CJKFTA will be a win-win-win strategy for the three countries, bringing macroeconomic benefits to them all. Business surveys indicated that the majority of the business sector of the three countries generally supported early realization of a CJKFTA. Our industrial impact studies identified various policy implications, issues and challenges, but the general conclusion was that a CJKFTA would be desirable and any measures required to overcome the difficulties in achieving it should be considered. The study conducted in 2006 has implied that China, Japan and Korea should pursue a strategy aiming at early establishment of a high-quality CJKFTA. Broad coverage in a CFKFTA, including service trade liberalization, would bring greater benefits to all the countries. The service sector of each of the countries generally displays a comparative disadvantage, and improvement of productivity will be a challenge to each, in particular in important areas such as logistics and the wholesale and retail trades. On the other hand, extensive exemptions of service industries from a CJKFTA would weaken the effect of enhanced competition achieved through trade liberalization, thus reducing the overall benefits provided to the three countries by the FTA. China, Japan and Korea have each been extensively involved in signing and negotiating FTAs with other partners. The rules of origin (ROOs) of the FTAs concluded by the three countries might be incompatible with each other. Incompatibility between the ROOs and the resulting increase in trade costs would seriously reduce the economic benefits of a CJKFTA as well as an East Asia-wide FTA. The existence of incompatible ROOs in the FTAs, together with numerous exempted items, would impede the establishment and functioning of cost-effective production networking in East Asia. Joint Policy Recommendations[1] Recommendation 1: Reaffirm that the formation of a CJKFTA should be achieved as a mid-term goal Our joint report in 2005 recommended that the formation of a CJKFTA should be established as a mid-term goal. The joint research in 2006 identified an increasing need to reaffirm this recommendation, given the increasing pursuit of FTAs by the three countries, in addition to reaffirming the necessity of considering a region-wide FTA in East Asia. Recommendation 2: Recommendations from the Study in 2006 Based on the findings of joint research in 2006, the three representative institutes jointly offer the following policy recommendation. a. A CJKFTA should include liberalization of the service industries Service trade among China, Japan and Korea is increasing in importance. A CJKFTA should include extensive liberalization of the service industries, in particular in the important areas, such as logistics and the retail and wholesale trades. b. The governments of China, Japan and Korea should endeavor to minimize incompatibilities between the ROOs in the FTAs concluded by the countries China, Japan and Korea should be aware of the importance of minimizing the incompatibilities between their FTAs in terms of rules of origin (ROOs). Information concerning the ROOs in FTAs that are under negotiation or have been agreed upon should be exchanged among the three countries. c. The number of excluded items in a CJKFTA should be minimized The number of exceptional items exempted from tariff concessions should be minimized to the extent possible. This is extremely important in ensuring economic benefits from such an FTA. It would be pragmatic, however, to allow limited transition periods before liberalization and to introduce compensation schemes, so as to mitigate short-term adverse impact and ensure broad-based domestic support. Recommendation 3: Research Agenda in 2007 Recognizing the importance and the urgency of forming a CJKFTA, the three institutes jointly recommend that the remaining important research issues should be completed in 2007, to enable China, Japan and Korea to design an ambitious and high-quality CJKFTA. At the same time, the three institutes recommend that government officials from China, Japan, and Korea be invited as observers of the process of joint research in 2007. It is also recommended that all the participants in the joint study in 2007 give serious consideration to how to further advance the study, and that the results of these considerations be reflected in the 2007 report. [1] These recommendations do not necessarily imply official agreements between the governments of the three countries. For more information, please access the following: [http://www.nira.go.jp/newse/paper/joint6/houko_E.pdf] Related research papers: 2006-3 (NIRA Working Report) : Sensitive Sectors in Japan: An Examination of EPAs Concluded by Japan, Misa Okabe , November 2006 [http://www.nira.go.jp/newse/wp/300/303/2006-3.pdf] 2006-2 (NIRA Working Report): Sector Analysis toward a CJK FTA: Logistics Sector, Mitsuhiko Kataoka, November 2006 [http://www.nira.go.jp/newse/wp/300/303/2006-2.pdf] ***************************************************** [Topics] Policy Research Index Policy Research Index contains outlines of papers available in Policy Research Watch (PRW), a database that collects bibliographic information concerning publications available through the websites of selected think tanks. The Index aims to extend and enhance think tank networks and the policy research community. The Index lists recently published policy-related articles and papers included in PRW dealing with specific topics, and provides brief overviews of the content of selected papers. For more Information, please access the following: [http://www.nira.go.jp/ice/libe/prw/index.html] ***************************************************** If you wish to cancel your subscription to the Newsletter, or your email address changes, please contact us at the following address: pprd@nira.go.jp ===================================================== NIRA Newsletter is published by National Institute for Research Advancement (NIRA) Yebisu Garden Place Tower 4-20-3 Ebisu, Shibuya-ku, 150-6034 Tokyo, Japan URL: http://www.nira.go.jp/index.html ===================================================== We welcome readers' comments and suggestions.
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