South Korea has got the jump on Japan after getting the nod from China to begin negotiations on a free trade agreement.
South Korea has already signed free trade pacts with the United States and Europe.
Reaching a similar accord with China would be the icing on the cake in terms of South Korea's FTA strategy.
China and South Korea reached agreement May 2.
Tokyo, which is hoping to start talks with Beijing and Seoul on a prospective trilateral FTA, now faces the risk of being left behind by its two neighbors.
"This is a historic moment for both countries," Bark Tae-ho, South Korea's trade minister, said at a joint news conference on May 2 after meeting with Chen Deming, China's commerce minister, in Beijing and agreeing to start the FTA talks by the end of this month. "Enterprises will be given a broad gamut of business opportunities."
South Korea seeks to become a hub in a global network of FTAs.
A senior official of the South Korean Ministry of Foreign Affairs and Trade said the talks with China, the country's largest trade partner, are tantamount to giving a finishing touch to Seoul's FTA strategy.
Among key items that South Korea rivals Japan in exports to China are machinery, electric appliances, optical medical equipment and chemicals.
With a presidential election looming in December, Seoul's leadership managed to get a head start over Tokyo to enter the trade pact talks, something that captains of industry in South Korea have clamored for.
Japan, China and South Korea will hold a summit meeting in Beijing on May 13. Japan and China have sought to draw on that occasion to start official trilateral FTA talks.
But the trilateral discussions have proceeded slowly, because South Korea, which runs trade deficits with Japan, has been less than eager to sign an FTA with Japan.
China, however, has no intention of abandoning the trilateral framework, although it has given the go-ahead to bilateral talks with South Korea first.
Beijing has consistently sought to create a free trade zone in Asia, centered on Japan, China, South Korea and the Association of Southeast Asian Nations (ASEAN), to rival Washington's lead in the talks for a Trans-Pacific Partnership (TPP) free trade pact.
China's decision to go ahead with the bilateral talks at Seoul's request was likely intended as a message to Tokyo, which has been trying to shake up Beijing by weighing the TPP against the Japan-China-South Korea framework.
"Beijing wants to pressure Tokyo and tell it to prioritize the Japan-China-South Korea triangle over the United States," said a researcher at a Chinese government-affiliated think tank.
Japan would be the most affected should China and South Korea agree on an FTA.
The Japan External Trade Organization estimates that an FTA would increase South Korea's export to China by $27.7 billion (2.2 trillion yen). Of that value, $5.3 billion accounts for shares of Japanese enterprises that would be lost to South Korean rivals, which would gain an advantage in exporting liquid crystal display panels, storage batteries and other products.
Tokyo has sought to push forward the Japan-China-South Korea FTA talks by courting the United States to seek participation in the TPP and thereby prodding Beijing and Seoul. As a general rule, progress in one set of trade talks often prompts progress in other sets of talks because it stirs up a sentiment of impatience among members of other camps.
Japan's "two-front diplomacy" was intended to create that kind of circle. But Tokyo also risks being left behind by Beijing and Seoul and could fail to make progress on both fronts of negotiations.
"We want to proceed with talks so we can inch forward with a Japan-China-South Korea (FTA)," said Yukio Edano, Japan minister of economy, trade and industry.
A crucial watershed for Japan will be whether Tokyo, Beijing and Seoul can agree to enter trilateral FTA talks during the May 13 summit meeting.
(This article was compiled from reports by Keiko Yoshioka in Beijing, Akira Nakano in Seoul and Mari Fujisaki.)
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