A Prior Study for the Effects of the FTA among South Korea, China, and Japan

A computable general equilibrium model is used to evaluate the economic effects of a free trade agreement (FTA) among China, Japan, and South Korea on the world economy. This study is focused on estimating trade creation and diversion effects of the FTA. Results show that there are strong trade diversion effects of the FTA between the member countries and the rest-of-the world, including the United States and the EU. This is especially true in the trade of high-technology manufacturing good between the United States and China. China diverts its imports of high technology manufacturing goods from the United States to Japan and South Korea under the FTA. However, U.S. exports of agricultural goods and utilities/services increase under the FTA. This study also reveals that the member countries under the FTA tend to specialize on the basis of resource endowments, but there exists a significant amount of intra-industry trade among the member countries in all sectors except agricultural and service/utility sectors. In addition, the FTA stimulates the economies of the three countries through increased trade volume, but provides a significant negative effect on economies of non-member countries.