Bridging the Gap between the Ideal and Reality: Services Liberalisation in the China - Japan - South Korea Free Trade Agreement

By Jingxia, Shi | Asia Pacific Law Review, January 1, 2014 | Go to article overview

Bridging the Gap between the Ideal and Reality: Services Liberalisation in the China - Japan - South Korea Free Trade Agreement


Jingxia, Shi, Asia Pacific Law Review


I. Introduction

China, Japan, and South Korea all are important global economies.1 On the economic scale three nations rank only behind the European Union (EU) and North America. These three countries are also major trading nations with close business links in global industrial chains.2 Compared with their economic power, however, no substantial economic integration in East Asia has yet evolved. Along with the proliferation of other free trade agreements (FTAs) in recent decades, China, Japan, and South Korea also began negotiating a trilateral FTA in 2012, subsequent to the successful conclusion of a trilateral investment agreement.3 Thus far, four rounds of negotiations have been conducted, focusing on the subjects and modalities of negotiations instead of substantive issues.4 By reflecting the actual demands of trilateral economic cooperation, the China - Japan - South Korea (CJK) FTA is expected to enhance their trade ties substantially and bolster regional integration in East Asia.

In the negotiation and conclusion of the CJK FTA, which is scheduled to be finished by the end of 2015, one cannot overlook the importance of the services sector for three main reasons. First, modern economies are services economies. Services have emerged as the largest dynamic component in the world economy, accounting for over half of global GDP and one-fifth of the world's entire trade volume.5 The services industry is inseparably related to the development of the manufacturing industry.6 This trend is termed the 'servicification of the manufacturing industry'.7

Second, China, Japan, and South Korea have reported long-lasting trade deficits in services despite their good performance on commodity trade,8 indicating that there is great room for the three nations to improve in this regard.

Third, more importantly, owing to the halt of Doha services negotiations, many WTO members have been actively expanding their services trade through regional arrangements. As a result, most FTAs concluded since 2000 contain the liberalisation of services.9 Trade in services also constitutes a key part of the ongoing negotiations of several mega-FTAs, particularly the Trans-Pacific Partnership (TPP) with the US in the lead,10 the Transatlantic Trade and Investment Partnership (TTIP) between the US and the EU,11 and the Regional Comprehensive Economic Partnership (RCEP) among ASEAN countries and China, Japan, South Korea, Australia, New Zealand, and India (10+6).12 The plurilateral negotiations on the Trade in Services Agreement (TiSA) within the WTO is another striking development in services liberalisation in an effort to overcome the Doha impasse.13 The TPP, TTIP, and TiSA are reportedly setting up so-called '21st century trade rules', including rules on services liberalisation. Therefore, the CJK FTA may offer an opportune test of whether and the extent to which these three countries are willing to accept high-quality trade rules on services sectors in an FTA.

Against this complicated backdrop, this paper examines the reality of services industries and trade in China, Japan, and South Korea and argues that the CJK FTA should ideally contain high-quality services liberalisation. Several key issues in bridging the gap between reality and this ideal state are discussed accordingly. The remainder of this paper proceeds as follows. Following this introduction, the services economies of China, Japan, and South Korea are first considered. Then, the paper analyses the background and conditions for the CJK FTA negotiations. On this basis, the paper aims to chart the contour of advanced services liberalisation in the CJK FTA in order to offer tailored negotiation suggestions. The article concludes by emphasising the importance of the CJK FTA, the complex negotiation environment, and the necessity of political wisdom for bridging the gap between the ideal state of high-quality services liberalisation and the reality of trilateral relationships. …

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