Industrial Structure, Regional Trade Bias, and China's FTA with Korea and Japan

Abstract

This paper investigates the potential for China's FTA with

Korea and Japan. We examine the similarities of industrial

structures and regional trade biases among the three countries

as indictors for establishing a China-Korea-Japan FTA. Even

though the three countries are at very different developmental

stages, their industrial structures will converge over time and

their regional trade bias is high. Regression results of the

gravity equation show that the trade volume among the three

countries will increase. Based on our analysis of industrial

similarities, we suggest a step-by-step procedure for the economic

integration of Northeast Asia. A successful China-Korea-Japan

FTA can be realized through the initial establishment of Korea-

Japan and China-Korea FTAs, followed by subsequent negotiations

between these two FTAs.