Study On The Realistic Basis And Economic Effect Of China-South Korea Free Trade Area

Since the beginning of the21st century, the development of regional economiccooperation which takes regional trade agreements as the main form continues toaccelerate rapidly. Compared to the rapid speed of development of regional economicintegration of Europe, North America, the East Asia, which is the fastest growingeconomies and the most populous area in the world, haven’t form a unified regionaleconomic integration organization. Since China and South Korea has establisheddiplomatic relations in1992, bilateral trade has developed rapidly. And because of thenatural geographical, cultural and economic ties between China and South Korea,consistency on regional security, and strong economic complementarities, calls for theestablishment of China-South Korea free trade area is growing more and morestrongly. In China and South Korea FTA as the breakthrough point, establishingChina-South Korea free trade area as soon as possible and promoting the negotiationprocess of China Japan and South Korea free trade area by its demonstration effect, isthe best choice of the East Asian regional economic integration currently.However, what basis in reality do they have if China and South Korea establish afree trade area between them? And how much economic effect will it bring to the twocountries since the establishment of the China-South Korea free trade area?In order to answer these two questions, the paper first introduces the relatedconcept of regional economic integration and free trade agreement and the relatedtheory of customs union theory, large market theory, the agreement of internationaldivision of labor theory and comprehensive development strategy theory, which laid atheoretical foundation for later analysis.Next with the use of three sets of index which are trade intensity index, dominantcomparative advantage index and complementary index, trade specializationcoefficient to quantitatively analysis the tightness, the nature of complementary andcompetitiveness, the degree of complementary of trade between China and SouthKorea, draw the conclusion: there are very close trade links between China and SouthKorea; their close trade links between them are because that there is a significant,stable, long-lasting trade complementarity between them; the trade complementaritybetween China and South Korea is mainly intra-industry complementary, andinter-industry complementary as well, and the intra-industry trade between China andSouth Korea is mainly in the industrial products.Then use the GTAP model to measure China, South Korea and the rest of theworld ’s economic and welfare effects, trade effects and industry effects under twodifferent scenarios that one is a basic scenario of China and South Korea all-roundtariff reductions and another is a realistic scenario of China and South Korea each having their sensitive industries protected and part of the tariff reductions in China,draw the conclusion: the establishment of China-South Korea free trade area, willpromote the growth of the national income and enhance the economic well-being; willpromote import and export and improve the conditions of foreign trade; will increaseoutput and promote the optimization and upgrading of the industry.Finally, the article suggests that China and South Korea should strengthenconsultation and communication; take the transition form; cooperate by stages,designedly, step-by-step; gradually realize trade liberalization. And they also shouldstrengthen the cooperation with Japan and other East Asian countries and regions, andpromote the process of regional economic integration in East Asia with China-SouthKorea free trade area as a breakthrough.The innovation of this paper is that with the use of historical analysis method, thecombination of qualitative and quantitative method, the method of induction,combined the aspects of the degree of trade integration, competition andcomplementarity, trade specialization, economic effect to analysis the reality basis andeconomic effect of China-South Korea free trade area comprehensively. Through theresearch of the tightness, the nature of complementary and competitiveness, thedegree of complementary of trade between China and South Korea and the economiceffects of China-South Korea FTA, there is also a more in-depth understanding of howto promote the development of bilateral economy better. As the same time, thecomprehensive study of the nature of trade between China and South Korea will alsohelp to promote the construction of China-South Korea free trade area better,strengthen the cooperation in the field of trade, investment, etc with South Korea, givefull play to the different comparative advantage of both sides, optimize allocation ofresources, make the bilateral trade and economic relations get more vigorousdevelopment under the big background of promoting the establishment of free tradearea.