Korea, China, Japan to conclude investment pact after 5 years

Korea, China, Japan to conclude investment pact after 5 years. February. 28, 2012 01:51. january@donga.com.

Five years of negotiations on a bilateral investment treaty among Korea, China and Japan will be concluded at the 13th round of talks in Tokyo Tuesday. The agreement covers protection of intellectual property rights and liberalization of investment.

The three countries are also expected to announce the opening of trilateral free trade talks concurrently with the signing of the treaty in their summit meeting slated for May in Beijing.

The Korean Trade Minister’s Office said Monday that Korea, China and Japan will conclude the final round of the investment talks by agreeing to exclude investments made prior to the establishment of a company from the entities entitled to protection.

Whether to protect such companies “before the establishment phase” has been the most heated point of contention at the talks. Korea and Japan, which have large investments in China, say China should protect investments even before such companies are established there to protect the companies. China has refused, however, citing it has never done so in its investment treaties or free trade agreements with other countries.

Korea and Japan have decided to accept China’s demand. The investor-state dispute system, a highly disputed point in the Korea-U.S. free trade talks, has been included in the new treaty since the parties had no significant differences in positions.

Experts say the signing of the trilateral investment agreement could serve as a stepping stone to the opening of talks of a Korea-China-Japan free trade agreement. Investor protection is an important pillar in the formation of a free trade accord, and if this is agreed on, the parties can immediately discuss the scrapping of tariffs on goods and dismantlement of barriers to the service market.

A source at the Korean Trade Minister’s Office said, “If the leaders of the three countries declare the opening of free trade talks at their summit in May, steps towards a Korea-China FTA and a Korea-China-Japan FTA can proceed via a two-track approach.”

The probability cannot be ruled out, however, that even if the three countries agree on a free trade deal in principle, ensuing talks might not see seamless progress depending on the interests of individual states.

Many experts say Korea has been highly proactive in its push for free trade with China to advance into the Chinese market, which is rapidly expanding. Yet Seoul has little to gain from a free trade accord with Tokyo, whose country has an industrial structure similar to Korea’s but has better technological prowess.

A ranking Korean trade official said “If the opening of Korea-China-Japan free trade talks is declared in May, Korea’s expected gains from the deal could be traded off.”

Seoul fears a situation in which a trilateral agreement will lead to Korea and Japan competing against each other in the Chinese market. The three countries have taken highly scrupulous stances thus far on talks for economic integration, as evidenced by a joint study that has lasted nine years and the formation of a fairly simple investment agreement that has taken five years to conclude.

Over the past one or two years, China has taken a proactive stance in free trade talks with Korea and Japan to secure leadership in Northeast Asian economic integration and counter the Trans-Pacific Partnership Agreement led by the U.S. Japan seeks to emerging as the free trade hub of the Asia-Pacific region through the partnership agreement and the trilateral free trade deal.