Effect Of The China-korea Free Trade Area On Trade Between Shandong And Korea And Countermeasures

With the deterioration of trade environment of the world after the financial risk in 2008, each country attaches more and more importance to establishing Free Trade Area(FTA) with other countries to develop its economy. According to the Free Trade Area Effect Theory, FTA can bring the members trade creation, trade diversion, competition promotion, production diversion, investment concentration and scale economies effect. 20 Free Trade Areas have been constructed or under construction by China at the beginning of 2015. The China-Korea Free Trade Association was initialed in Feb 2015 after 9 years of negotiation, which is the one that involves the largest trade volume, the most comprehensive range of fields up to now. Some former researches forecasted the economic effect of the China-Korea FTA, however, they made research from the angle of nation, few analysed the effect of the China-Korea FTA from the angle of province. This paper answers two questions mainly: What effect will the China-Korea FTA bring to Shandong province? What should Shandong province do to deal with the chances and challenges that the China-Korea FTA brings?This paper analyses the current situation of trade between Shandong and Korea, proposes problems in it and the challenges and chances that the China-Korea FTA brings to Shandong in the combination of qualitative and quantitative ways. The export from Shandong to Korea fluctuates a lot, the export from Korea to Shandong shows rising trend, the trade between Shandong and Korea shows rising trend with slower speed, the trade between the two is imbalanced, Shandong has been in deficit in most years. Moreover, degree of trade integration between Shandong and Korea is very high. Many obstructions exist in trade between Shandong and Korea now. From the angle of Shandong, the pattern of economic growth is extensive, the export products are lack of competitiveness, Shandong undertaking Korea’s processing and manufacturing industry transferring deepens the bilateral trade imbalance, market information service system is not sound, trade service policy mechanism is not perfect. From the angle of Korea, Koreans are inclined to buy products of their own country, moreover, there are many tariff and non-tariff barriers in Korea, especially in agricultural products that Shandong has comparative advantage. The chances the China-Korea FTA brings to Shandong are that Shandong can take advantage of its geographical location to take the lead in economic cooperation with Korea, speed up the optimization of its industrial structure, and increase opening degree. The challenges are that the FTA will shock Shandong’s mechanical and electronic industry, and weaken the geographical advantages of Shandong.This paper analyses in the combination of theoretical and empirical ways, introduces regional integration and free trade area effect theory to supply theoretical foundation for the China-Korea FTA effect, and then uses the trade data of Shandong and 24 main trade partner countries or regions to build trade gravity model, analyzing effect of the establishment of the FTA to bilateral trade. The research result shows that when other conditions remain the same, the export from Shandong to its trade partner increases by 0.49% under the FTA compared to that when there is no FTA, the import of Shandong from its trade partner increases by 0.52% under the FTA compared to that when there is no FTA. It is predicted that when the China-Korea FTA is established in 2015, export from Shandong to Korea in 2015 will increase by 63.53 percent compared to 2013, import in 2015 will increase by 66.98 percent compared to 2013, export from Shandong to Korea in 2019 will increase by 257.66 percent compared to 2013, import in 2019 will increase by 264.48 percent compared to 2013.Focus on the problems in trade between Shandong and Korea and the challenges and chances that China-Korea FTA brings to Shandong, this paper proposes countermeasures from six aspects, improving the mechanism of trade service policies, increasing the investment of technology, establishing sound information service system, adjusting industrial structure, speeding up construction of agricultural industrial chain, and improving construction of infrastructure. As a result, this paper can offer reference for Shandong province to make full use of the chances the China-Korea FTA brings and prepare for meeting the challenges the FTA brings.