Forming Free Trade Arrangements In East Asia: Implications For China's Agricultural Trade

While China, Japan, Korea, Taiwan and Hong Kong are all members of the APEC, they have not joined in any multilateral FTA. The Association of Southeast Asian Nations (ASEAN) has achieved limited success in regional economic development since its founding. After the Asian Crisis, ASEAN countries recognize the importance of economic cooperation among themselves and with other countries in Asia. Under such a situation, China and ASEAN initiated in November 2001 negotiations on establishment of China-ASEAN free trade area within 10 years. In order to avoid being excluded from this market, Japan and Korea also accelerated the process of forming FTAs.However, there exist huge differences in geographical conditions, social systems, cultures and economic levels among Asian countries. Besides, China tend to compete with most ASEAN member in the affluent Asian markets, such as Japan and Singapore, as revealed by the calculated overall bilateral complementarity (OBC). So far, Japan and Korea remain high protection on their agricultural sector. It can be anticipated that the establishment of FTAs in East Asian will meet many difficulties and the openness of agricultural market will be one of the focal points in the negotiation.Being a developing country with 800 millions farmers, China needs to consider the potential impacts of FTAs on agricultural development. This paper use the GTAP model to simulate the economic effects of five different FTA proposals: (1) China-ASEAN, (2) China-Japan-ASEAN, (3) China-Japan-Australia and New Zealand-ASEAN, (4) China (including Taiwan and Hong Kong) -Japan-Korea-ASEAN, (5) China (including Taiwan and Hong Kong)-Japan-Korea-ASEAN FTA under the further multilateral liberalization of agriculture trade. The analysis places a focus on assessing impacts on China's agricultural market and trade by different FTAs. Policy implications are discussed based on the findings.The results reveal that establishment of FTA between China and ASEAN has limited impacts on China's agricultural sector. In contrast, China is benefited significantly when Japan gets to be involved into FTAs, which allows China to increase exports of rice, pork, poultry meat, vegetables and fruits to Japan. However, this is unlikely to be the case in near future due to political factors in Japan. In order to push forward the process, China may make concessions to Japan with respect to rice market liberalization. On the other hand, the USA will probably uses the new round of WTO negotiations to weaken the trade-diversion effect of East Asia FTAs, which may get support from Australia, New Zealand and some other APEC countries. Nevertheless, China can still gain from improved access to the Japanese and Korean markets by taking its advantages in geographic location and high competitiveness in some products. In the meantime, China can be also benefited from the worldwide trade liberalization, especially for those labor-intensive products. Therefore, China should take part in the WTO negotiations in an active manner.