Towards Deeper Integration Among China, Japan and Korea

In this paper, we analyze the contents of all preferential trade agreements (PTAs) of China, Japan, and Korea whose date of entry into force is prior to February 2015, on the basis of sectoral coverage and legal enforceability. Based on the methodology of Horn et al. (2010), the 52 policy areas covered by the three countries' agreements are classified into two groups, WTO (provisions reconfirming the existing commitments in the WTO agreements and providing for additional obligations) and WTO-X (provisions in areas outside the mandate of WTO). We find that the three countries' coverage of WTO provisions is extensive, while less so for WTO-X. Among the three countries, Korea has the most extensive coverage of WTO provisions, followed by Japan, then China. The legal inflation rate is also low for these provisions. On the other hand, WTO-X provisions show higher legal inflation, implying that these provisions tend to be less legally enforced. Among the three countries, Korea displays the highest coverage of WTO-X areas, followed by Japan, and then China. Overall, the three countries' legal inflation rate is below the world and the EU PTAs average, but higher than the average of US PTAs. Interestingly, Korea and Japan show a broader sectoral coverage and contain higher number of legally enforceable provisions in recent PTAs. While China's PTAs have shown low coverage of deep provisions in the past, more recent PTAs are converging to the depth of Korea's and Japan's PTAs as China began negotiating PTAs with developed countries.