By Zhang Qi & Xu Hongqiang, Research Department of Foreign Economic Relations of DRC

Research Report No 195, 2009

I. Goals and Connotations of Trade Facilitation

Trade facilitation refers to the simplification and harmonization of international trade procedures and the acceleration of the cross-border flow of factors. As the relevant measures can reduce transaction costs, enhance trade efficiency and produce immense economic efficiency, trade facilitation has always been an important tool adopted actively by various countries in their multilateral and regional trade arrangements.

The World Trade Organization (WTO) has no special agreement on trade facilitation, but its importance has been universally recognized by member countries. As the only topic in the Singapore Issues, trade facilitation has been incorporated into the negotiations of the Doha Development Agenda and a consensus has been reached on the negotiating model. The model has the following main points: 1. Opening negotiations on the basic principles and rules related to trade facilitation; 2. Offering comprehensive technical assistance and establishing and implementing broader plans for trade facilitation-related technical assistance and ability building; 3. Carrying out effective cooperation between the customs and related institutions.

After APEC was inaugurated, trade and investment facilitation has been slated as the most prominent area for progress in regional cooperation. According to the Trade Facilitation Action Plan I, the trade transaction cost between all members would be cut by 5% during the 2002~2006 period and trade facilitation will affect four major areas: customs procedures, standards and unification, business flow and e-commerce. After that, the leaders of various countries jointly put forward the Action Plan II, under which the intra-regional trade transaction cost would be cut by another 5% by 2010. In addition to the four major areas, they expressed interest in wider trade facilitations such as the improvement of domestic rules and systems, the building of commercial ethics and the assurance of trade security.

In the regional and bilateral trade agreements already reached between various countries, trade facilitation covered wide-ranging contents. In summary, they include the trade in goods, the trade in services, the flow of natural persons and the flow of capital and information. This article gives an analysis of the key contents and modes of trade facilitation in the free trade arrangement signed respectively by China, Japan and South Korea in the four areas.

II. Free Trade Agreements Already Signed by China, Japan and South Korea

So far, China has signed four free trade agreements. In addition to the closer economic and trade arrangements signed with China's Hong Kong and Macao, China has signed free trade agreements with ASEAN, Chile, Pakistan, New Zealand, Singapore and Peru.

China has completed negotiations with ASEAN, Pakistan and Chile on FTA trade in goods and services. With regard to the issue of investment, China has just concluded investment negotiations with ASEAN and signed an investment agreement in August this year, and has completed three rounds of investment negotiations with Chile. China's FTA trade in goods included the provisions on "investment", and an additional protocol was signed in October 2008, which would define the rules on the establishment of the China-Pakistan Investment Area to promote investment cooperation (within the China-Pakistan Free Trade Area, this additional protocol would give priority consideration to tariff concessions to the goods produced in the Haier-Ruba Economic Zone and other China-Pakistan investment areas and the goods the two sides have interest to export).

China-New Zealand Free Trade Agreement was the first comprehensive free trade agreement China has signed to cover the areas of trade in goods, trade in services and investment. It was also the first of its kind China has signed with a developed country. Since then, China, Singapore and Peru have adopted the model of holding package negotiations and signing free trade agreements.

Table 1 FTAs Signed by China

	Trade in goods	Trade in services	Investment
China-ASEAN FTA	Nov. 2004	Jan. 2007	June 2009
China-Chile FTA	Nov. 2005	April 2008	Under negotiations
China-Pakistan	Nov. 2006	Feb. 2009	Investment provisions and additional protocol
China-New Zealand	April 2008, package agreement
China-Singapore	Oct. 2008 package agreement
China-Peru	April 2009, package agreement

Source: Based on the Ministry of Commerce website information.

South Korea has signed bilateral free trade agreement with five countries and regions. Specifically, its free trade agreements respectively signed with Chile (Jan. 2004), Singapore (Feb. 2006) and the European Union (Sep. 2006) have been reported to the WTO and been enforced; it concluded free trade agreement negotiations with the United States in April 2007; and its free trade agreement with ASEAN comprised three parts: the negotiations on trade in goods and trade in services were respectively concluded in June and November 2007 and the bilateral investment agreement was signed in 2009.

Japan promoted its regional or bilateral free trade arrangement in the form of signing economic partnership agreement. Since 2002 when Japan launched the EPA strategy, it has signed this agreement with 11 countries, respectively with Singapore, Mexico, Malaysia, the Philippines, Chile, Thailand, Brunei, Indonesia, ASEAN, Vietnam and Switzerland. Besides, Japan is holding EPA negotiations with South Korea, the Gulf Cooperation Council, India, Australia and Peru.

III. Comparison between China, Japan and South Korea: Trade Facilitation in FTAs

1. Facilitation of trade in goods

The rules of origin, an indispensable component of a free trade agreement, constitute an important scheme to prevent roundabout trade and protect the interests of member countries. All the free trade agreements signed by China, Japan and South Korea contained the place of origin rule and relevant operational procedures (Table 2) as well as detailed provisions. China's place of origin rule for most products takes the value-added rate as the main determining criterion (the domestic value-added rate is generally 40%) and uses the free on board pricing; the tariff heading standard and the processing procedure standard are used for a few products.

The simplification of customs procedures is a key step to quicken the cross-border flow of factors and also an important content of and the most direct tool for trade facilitation. The aim is to ensure that the customs procedures and practice are predictable, uniform and transparent. Trade facilitation contains customs valuation, tariff classification, pre-determination, customs cooperation and ability building. The latest package FTAs signed by China with New Zealand, Singapore and Peru all have a special chapter for the discussions on customs procedures and cooperation or on customs procedures and trade facilitation. Nearly all the FTAs signed by Japan and South Korea also have this content.

Paperless trade is a new area concerning trade facilitation in FTAs. All the free trade agreements signed by China, Japan and South Korea have this new content. For example, the FTAs signed by China with New Zealand and Peru have a chapter on "customs procedures and cooperation", including the provision on the "use of automatic system in paperless trade environment". This means the customs authorities of the two sides should use the low-cost and high-efficiency information technology and should "use information technology to expedite the goods release procedure."

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