The impact of EU-Korea FTA on Chinas economic and trade: Based on the Dynamic GTAP model

EU-Korea FTA will come into effect in July 2011.European Union and South Korea is China's first and third largest trading partner. Therefore, the EU-Korea FTA will have an important impact on China's economy and trade. Based on the latest Dynamic GTAP model, this paper analyses the economic impact of the full realization of EU-Korea FTA in 2015 on China's macro economy and the various industrial sectors. The results show that China's overall economy was on the negative impact, but the magnitude is very small with only-0.007%. Compared with exports, imports fell more sharply, so China’s trade balance has improved. From the view of output, China's agricultural products, agricultural products’ processing industry and service sectors will suffer negative impact, while there is a certain role in promoting China's industrial sectors. From the view of regional product trade, the implementation of the EU-Korea FTA has a obvious diversion effect on China import and export trade, and China will be more inclined to export to EU market than Korean market. In contrast, there is a trend that the demand of importing China’s agricultural products and processed products will transfer from the EU to South Korea, which to a certain extent, form a export substitution of South Korean to the EU .Finally, some policy implications are discussed.