The 10 Association of Southeast Asian Nations member states and China, Japan, the Republic of Korea, Australia and New Zealand formally signed the Regional Comprehensive Economic Partnership agreement on Nov 15, marking the birth of the world's largest free trade area.
This has led to speculation about the free trade agreement among China, Japan and the ROK being finally realized. Leaders of the three countries agreed at the trilateral summit in 2012 to start negotiations on the FTA and have held 16 rounds of formal negotiations since March 2013. However, a China-Japan-ROK FTA is yet to emerge.
The three countries are not just close neighbors but also close economic and trade partners. For China, Japan is its second largest export destination after the United States and the second-largest source of imports, while the ROK is its third largest export destination and one of the largest import sources.
For Japan, China has replaced the US as its largest export destination and has been the largest source of imports since 2007, while the ROK is its third-largest export destination and fourth-largest source of imports. For the ROK, China has been its largest export destination since 2003 and the largest source of imports since 2007, while Japan is its fifth-largest export destination and second-largest source of imports.
The three countries have also formed a prominent foreign direct investment partnership. Such close trade and investment ties should have hastened an FTA, but a series of factors are obstructing it. However, the signing of the RCEP and the recent China-US political and economic trends have brought about some changes.
First, there will soon be a new administration in the United States, with Joe Biden replacing Donald Trump as US president. Under the Biden administration, US allies such as Japan and the ROK may have more space to make their own strategic choices.
Second, despite the trade and high-tech wars the US has waged against it in recent years, China's economic growth rate is still much higher than that of the US, Japan and European countries. Moreover, as China's "dual circulation" development paradigm will focus more on expanding domestic demand, the huge size of its market and new business opportunities will become increasingly important policy variables for strategic policymakers in Japan and the ROK.
Therefore, the signing of the RCEP has made a China-Japan-ROK FTA more likely. The signing of an advanced trilateral FTA in the future will certainly encounter obstructions from the US, but Japan and the ROK will encounter less pressure than before the RCEP deal.