14 June, 2012
Legal News & Analysis – Asia Pacific – China – International Trade
China and South Korea launched bilateral free trade agreement (CKFTA) negotiations on May 2, 2012 and held the first round of negotiations on May 14, 2012 in Beijing. During the inaugural round, the two sides set the rules and principles for the negotiations, discussed the scope and coverage of the agreement, and established a Trade Negotiating Committee to formulate the modalities and coordinate the negotiations.
The CKFTA will cover trade in goods, services and investment. Negotiations will be carried out in two stages to safeguard respective sensitive sectors—the first stage focusing on the negotiation modalities and priorities, and the second stage consisting of actual negotiations on the draft text. The parties aim to grant WTO-plus concessions for trade in goods and trade in services liberalization and establish “normal” and “sensitive” tracks for trade in goods. According to a Joint Ministerial
Statement, the sensitive track may include “sensitive” and “highly sensitive” lists and other possible treatment, such as longer phaseout periods, partial reductions and exclusions for certain products. Such lists are fairly commonplace in FTAs between China, Korea and their trading partners. According to officials involved in the negotiations, Korea is seeking to list agricultural and fisheries products as sensitive or highly-sensitive items, while China is focusing on automobiles, petroleum and machinery products.
Similar to previous FTAs that South Korea has concluded, including
with ASEAN (ASEAN comprises Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam), the European Free Trade Association (EFTA) (EFTA comprises Iceland, Liechtenstein, Norway and Switzerland) and Singapore, China and South Korea also agreed to apply favorable tariff concessions under the CKFTA for products produced in outward processing zones (OPZs), including the Kaesong Industrial Complex located in North Korea. The Kaesong Industrial Complex was not recognized as an OPZ in Korea’s FTAs with the European Union or the United States, although Korean Peninsula OPZ committees are scheduled to be formed to discuss possible consideration under these FTAs in July 2012 and March 2013, respectively.
In a related development on May 13, 2012, China, Japan and Korea announced their intention to launch trilateral FTA negotiations within 2012. The announcement came at the heels of the signing of a trilateral investment agreement by the three parties to promote and protect mutual investments. Since May 2010, the parties have held seven joint study group (JSG) meetings on the potential trilateral FTA and finalized a feasibility study report in December 2011. The parties agreed that the proposed trilateral FTA would not only boost economic prosperity in the three countries, but also contribute to the development of regional FTA initiatives, including the Regional Comprehensive Economic Partnership (RCEP) Agreement (Proposed in 2011, the RCEP is envisaged to combine ASEAN+1 FTAs into a single regional FTA. Membership would be open and inclusive, giving priority to current ASEAN FTA partners) the East Asia Free Trade Agreement (EAFTA), (Proposed in 2001, the EAFTA is a region-wide proposal among ASEAN members, China, Japan and Korea, i.e., ASEAN+3) and the Comprehensive Economic Partnership for East Asia (CEPEA) (Proposed in 2006, the CEPEA is a proposal for trade cooperation among the ten ASEAN members, Australia, China, India, Japan, Korea, and New Zealand, i.e., ASEAN+6). In addition, the parties agreed to expand their trade settlements in local currencies to boost financial cooperation in East Asia and enhance cooperation on environmental protection and the recycling economy, among other areas, to realize sustainable development in the region.
While all three parties recognize the potential benefits from the trilateral FTA, particularly in light of the sluggish economic situation in European and American markets, they also aware of a number of challenges. Unsurprisingly, similar to the bilateral CKFTA, agriculture is likely to be the bottleneck issue for South Korea and Japan, while for China the treatment of petrochemicals, automobiles, steel, and machinery could slow progress in the negotiations. Political disputes, particularly between China and Japan, could also hamper progress.
Still, in light of the recent launch of the CKFTA negotiations as well as the uncertainty surrounding Japan’s potential participation in the Trans Pacific Partnership Agreement (TPP), the CJKFTA process may yet gain sufficient momentum.
For further information, please contact:
Samuel Scoles, White & Case
Tong Yu, White & Case
Christopher Corr, White & Case
Patrick Ma, White & Case