| Within the context of the recent slow progress in global multilateral trade negotiation, regional economic cooperation, mostly in the form of FTA, is blooming throughout the World. In recent years, the Governments of China and South Korea showed interest on bilateral Free Trade Area. During his visit to South Korea on April, 2007, Chinese Premier Wen Jiabao suggested two sides should put forward win-win proposal for China-Korea FTA as quickly as possible. At the same time, South Korean President Roh Moo-hyun said South Korea would take a positive attitude and sincerity to deal with the study on CKFTA. However, trade liberalization is a double-edged sword all the way. FTA brings not only the welfare effects but also the impact to the relative inferior industries in the member countries. If CKFTA succeeds, the inferior industries in both countries will be impacted. As worrying about this kind of impact, the domestic related interest groups would object to CKFTA desperately.Therefore, in order to propose the counter-strategies for the concrete Industrial sector and reduce the industrial adjustment cost as far as possible, this paper analyzed the expected effects of CKFTA on the basis of the feasibility study. Problems needed to be solved in this paper include: 1) whether there is complementary in the trade between China and South Korea, and whether both sides can offer supports to the reciprocal market; 2) how about the expected macroeconomic effects of CKFTA; 3) how about the expected effects on inferior industries of CKFTA, and how we counter; 4) what strategy we should take to realize CKFTA.On the base of theoretical frame and realistic foundation, we have an empirical study on expected economic effects of China-Korea FTA .The paper includes six chapters:Chapter 1 is the introduction of this paper. It introduces research background and significance, the content of research, train of thoughts, and the possible innovations of this paper.Chapter 2 has outlined the research rationale of CKFTA in order to provide the theoretical frame for the following empirical study. It includes the literature review of Free Trade Arrangement, the analysis of economic effect of free trade area, and the literature review about China-South Korea Free Trade Area.Chapter 3 has analyzed the realistic foundation of CKFTA. Firstly, by analyzing the bilateral trade cooperation between China and South Korea, we can know that the trade relation is very intense, and they have become one of the most important trade partner with each other after 15 year super-velocity growth; Then take the manufacturing sector as the example, on the basis of classifying the industries according to the technique content, this paper has studied the trade competitiveness and complementary between China and South Korea from the bilateral trade and the international market angle separately. We draw the conclusions: the trade and industrial structure is different, hierarchical and complementary between China and Korea. Moreover, the three characters have further enhancement tendency. Therefore, both countries already have had the realistic foundation to set up the FTA. The CKFTA will bring the enormous benefit on the resources and the low technical manufacturing industry in China, and will bring the impact on China's medium technological industry in the short-term. In addition, because both countries had already formed the vertical intra-industry (â…¦) division and intra-product division based on the value chain in the high-tech product domain, the setup of CKFTA will not bring the impact on our country's high-tech industry, on the contrary, will promote further cooperation in the high-tech industry between China and Korea. With cooperation with Korea, we can enhance the technical level and the international competitiveness of the high-tech industry in our country.Chapter 4 analyzed the expected macroeconomic effects of China- South Korea Free Trade Area. Firstly, this chapter forecasted the effects on the expansion of regional trade of CKFTA by introducing dummy variable on behalf of free trade arrangement into gravity equation. We found that the free trade arrangements have significant role in promoting bilateral trade volume of China. Therefore, we can draw a conclusion that the establishment of the CKFTA will also promote the expansion of the volume of bilateral trade between China and South Korea. Secondly, we analyzed the expected effects on bilateral intra-industry trade of CKFTA. We had co-integration test and Granger causality test between average actual tariff and intra-industry trade index, and then we got a conclusion that the decrease of average actual tariff would lead to the increase of intra-industry trade index. Thus, we can predict that bilateral intra-industry trade will grow faster after the establishment of CKFTA with the reduction of trade barriers between China and South Korea, and the long-term dynamic net benefits of CKFTA will increase quickly. Finally, we quoted the result of KIEP using a computable general equilibrium model to simulate the welfare of the establishment of CKFTA. By analysis, we found that CKFTA will have a positive effect on GDP, welfare, the total trade volume and trade conditions of the two countries.Chapter 5 analyzed the expected effects on the China's auto industry of CKFTA. Firstly, we inspected the status quo of the auto industry in the two countries by comparing the trade and investment relationship and tariff barriers. Secondly, we selected the sensitive items on the basis of HS (1992)4-digit level by using KIEP (2005)'s sensitive Product Selection model. Thirdly, in order to analyze the dynamic effect, we compare the sensitive items' competitive power both in the world market and bilateral market respectively. By analyzing, we drew the conclusion that China's auto parts industry is the most sensitive industry, and in the auto parts industry, seat belts, buffers and spare parts, muffler and exhaust pipe, body accessories, the differential with the drive axle and brake parts are the most sensitive products after the establishment of China-South Korea free trade Area. Finally, in order to reduce China's automobile industry adjustment costs as possible, we also put forward to some counter-measures for sensitive items and the whole auto industry respectively.Chapter 6 is about strategic choices for China. On the basis of the previous empirical studies, this chapter found out some barriers confronted by China and South Korea, put forward to the strategic choices to promoting the China-South Korea FTA from the perspective of China, and sum up the conclusions of the full text of the study and make clear the next research objective. Despite our empirical studies show that the establishment of CKFTA will bring significant economic benefits, but some Koreans object to establish CKFTA because of worrying about the hollowing out of industry and agriculture impact, and the realization of CKFTA will be a tortuous process. Some measures should be taken to perfect the multi-level dialogue coordination mechanism, promote trade and investment facilitation of the process of cooperation, identify sensitive products, and implement reasonable transitional arrangements for sensitive products. In addition, we should follow the gradual principle in the process of implementation.There are three innovations in the paper. The first, complementary relation of trade between China and South Korea was analyzed comprehensively on the base of re-classifying products according to technological content. The second, from the perspective of FTA's effects on the bilateral trade patterns and intra-industry trade, this paper proved the win-win effect from the establishment of Sino-South Korea Free Trade Area. The third, the paper analyzed the microeconomic effects on Chinese Auto industry by comparing the competitiveness of industries and identifying sensitive items.
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