How can a trilateral FTA among China, Japan, and Korea fulfil their developmental state objectives within the RCEP framework?

Abstract

The rapid economic development of China, Japan and Korea in the past decades cannot be separated from the government-led model they have adopted. The developmental state model is comprised of the four principles in evidence in all three states: economic development is the priority of the government, the government uses policies to guide the domestic economy, the government tightly collaborates with businesses, and the government establishes capable institutions to support policy implementation. Current economic slowdown reveals difficulties in implementing some of the principles, such as monopolistic enterprises impeding the effectiveness of government policies. However, after 2021, the adoption of the Regional Cooperative Economic Partnership (RCEP) contributes to meeting the Chinese, Japanese and Korean governments’ developmental state aims. RCEP provides mutual benefits to collaboratively achieve the goal of economic development, but still leaves the space for further progress. Hence, this thesis adopts the gravity model to estimate the potential economic benefits China, Japan and Korea can obtain from the China-Japan-Korea FTA (CJK FTA). By aligning with the estimated results of the CJK FTA in trade values and specific industrial volumes, China, Japan and Korea, as developmental states, can leverage the CJK FTA to achieve significant economic benefits and industrial structure upgrading. The idea of a CJK FTA has long been promoted by these states and has recently become an area of renewed interest. This thesis demonstrates that FTAs are powerful tools that can be used by developmental state governments to fulfill their current domestic economic and industrial goals. China, Japan and Korea as developmental states, can further expand a deeper cooperation under FTAs by guiding emerging enterprises to integrate into FTAs and regional industrial chains.