Simulation on Trade Effects of CJK FTA and the Prospects of Negotiation

The first part of the paper discusses and simulates the possible trade effect and boundary effect of the establishment of the China-Japan-South Korea free trade area. Firstly, it analyzes the trade creation effect, the trans effect, and the substitution effect of the realization degree of trade liberalization under different reduction proportions of the three countries in their free trade area negotiations, by means of GSIM model simulation. Secondly, the paper builds a boundary effect measurement model based on the gravity model and analyzes the changes of boundary effect to the principal trade partners caused by the tariff changes after the establishment of the free trade areas, by taking the China-Japan-South Korea free trade area as an example. The research shows that the reduction of tariff will lead to the reduction of the boundary effect not only to China, Japan, and South Korea but also to other trade partners to some extent. However, on the whole, the reduction of the tariff is not enough for the elimination of the boundary effect, due to the existence of many other trade barriers. What’s more, this paper makes a review of the process of the China-Japan-South Korea free trade area negotiations, discusses the respective interest appeals, and negotiates strategies on the one hand and its future prospects on the other hand.