The Impact Of China-Korea FTA On The Bilateral Automotive Products Trade And Countermeasures

With the national economic cooperation developing, contact and impact betweencountries has been continuously strengthened. Economic globalization has become aworldwide trend, and regionalization of economic cooperation develops vigorously.Inorder to national interests and development, Countries have to participate in themultilateral or bilateral and regional economic cooperation, seeking to reduce tradebarriers and promote trade liberalization in the multilateral trade system. EstablishingFTA is one of important forms of participation in regional economic integration. EastAsia is one of the economy centers of the world, but due to its complexity anddiversity, the process of economic integration is slow.China and Korea as the corecountries of Northeast Asia, since the two countries established diplomatic relations,the development of economic and trade relations have been in good health, so they areimportant economic partners for each other.The two countries have strongcomplementarities on resources, market and technology and industrial structure. Theyare adjacent to each other in the geographical location, and they have common historyand culture. All of these are special comparative advantage for the two countries toestablish FTA. The establishment of China-Korea FTA will promote the economicdevelopment of the two countries, improve bilateral economic welfare level, and havea significant impact to the economic cooperation and development, prosperity andstability between the two countries and the whole East Asia region.FTA will bring benefits and also has bad impact on their comparativedisadvantage industries. China’s auto industry started late, and it has weakcompetitiveness. So auto industry is the focus during our negotiation with Korea. Theestablishment of China-Korea FTA is both an opportunity and a challenge for China’sauto industry.Under this background, this thesis based on Based on the Customs UnionTheories, Free Trade Area Theories, as well as other relevant International Economic Theories, by means of qualitative analysis and quantitative analysis combing relevantknowledge of Econometrics, analyze the impact of China-Korea FTA on the bilateralautomotive products trade. At last put forward the corresponding countermeasures.The full thesis is divided into six chapters. The main contents are as follows:The zero chapter is the introduction that describes briefly the background andsignificance of the research, literature review, research ideas, research methods andthesis structure as well as the innovation and shortcomings.The first chapter mainly introduces the theoretical basis of this thesis, includingthe Customs Union Theories, Free Trade Area Theories, as well as other relevantInternational Economic Theories.The second chapter is analysis of the status of automotive products tradebetween China and Korea as well as the competitiveness and complementarities.Review the development process and the status quo of automotive products tradebetween China and Korea, analyze the automotive products’ competitiveness andcomplementarities with the trade competition index and intra industry trade index.The results display that in the overall the competitiveness of automotive products inChina is not stronger than Korea. Our country’s automotive products havecomparative disadvantage. The intra industry trade is more obvious on automotivecomponents trade and trailer parts and semi-trailers and parts.The third chapter analyzes the static trade creation effect after the establishmentof the China and Korea FTA under the condition of zero tariff reductions. Review theprocess of China and Korea FTA negotiation. Analyze the status quo ofAutomobile Products Tariff between China and Korea. And then analyze theFTA trade creation effect empirically. The results display that the automotiveproducts trade creation effect value is131.71dollars in China, which accountingfor30%of the total imports amount from Korea. The automotive productstrade creation effect value is131.71dollars of Korea, which accounting for14%of thetotal imports amount from China. Conclusions: first, because the scale of importingautomotive products from world and Korea is large in China and tariff level is higher,so Chinese trade creation effect greater than Korea. Second, motor cars and motor vehicle accessories brings major trade creation effect in China butparts, accessories ofmotor vehicles and trailers and semi-trailers and parts in Korea.The fourth chapter the analysis of indirect effects of China-Korea FTA toautomotive products trade, that is, the FDI effect. Outline the features of China FDIand Korea FDI, the current situation between China and Korea automotive industry toattract foreign direct investment. The use of econometric empirical research showsthat FTA was positively correlated with FDI. After the establishment of FTA, Chineseforeign direct investment is much larger than Korea. To a certain extent, increasedforeign capital will promote Chinese automotive products trade, also canbring technology spillover effects, and promote the upgrading of the industrialstructure, but also have adverse effects, such as, the industrial upgrading in China willbe passive and dependent, be not conducive to the auto industry to improve their coretechnology, independent innovation, independent research and development ability issuppressed, there is the phenomenon of uneven distribution of gains.The fifth chapter of this paper is summary, and discusses the policies fromthe China automotive industry development point. FTA is the coexistenceof opportunities and challenges, Chinese automotive industry should seize theopportunity to achieve sustainable development, with the endeavor of governmentsand enterprises themselves. Increase the independent research and developmentability, use foreign capital rationally, and strengthen them to meet the challenges.