The Study Of Impact Of Sino-Korea FTA Establishment On Electromechanical Products Trade Between China And South Korea

ABSTRACT:Regional economic integration is developing rapidly. The establishment of a free trade area is to promote regional economic cooperation and overcome the negative effects of economic integration in the most effective, convenient and relatively easy way. In this context, China and South Korea Free Trade Area negotiations started in2012. The trade of electromechanical products is the main component of China South Korea bilateral trade, but also in a very controversial way. Therefore, deeply research about the economic effect of Sino-Korea FTA is necessary.Against this background, this paper analyses the trade structure of the two nations in the mechanical and electrical industry by measuring both countries’trade competitive power, complementarities, technology sophistication of export and the inter-industry trade. The situation that South Korea has an significant advantage in bilateral trade has completely changed. Empirical results show that the competitiveness of the mechanical and electrical products, which are made by China, is growing gradually. And some products even excelled the congeneric Korea commodities. In general, the connection between the two nations is still bidirectional complementary. Combining with the situations nowadays, the technological gap between China and Korea is shrinking while the amount of the inter-industry trade is soaring. Therefore, the two countries could obtain huge mutual benefit from the cooperation in the near future.Whereafter, using the extended GTAP model, the following paper simulates the influence on electromechanical trade for both nations in a more practical way. The results show that, the advantage of the trade liberalization of mechanical and electrical products between China and Korea outweigh the disadvantages. Improvement in terms of trade and export increasebrought by bilateral trade liberalization will improve social welfare; the total output of China’s Electromechanical industry and total exports would expand, and mainly reflected in the increase of export to Korea; bilateral trade liberalization will form a significant trade creation effect, at the same time, Japan and the United States will affect by trade diversion in the deepest way; construction of the Sino-Korea FTA will create new opportunities for macro-economy and electrical industry trade of both countries.