An assessment of China-Japan-Korea Free Trade Agreement’s economic and environmental impacts on China

Abstract

Recently, China, Japan, and the Republic of Korea (Korea) are conducting a government-commissioned feasibility study on the Free Trade Agreement among the three countries (CJKFTA) to form a regional free trade zone in East Asia. Considering that freer trade can cause unexpected impact on domestic environment, there is a need to evaluate the environmental impact of such a trade policy. This move should be made to help negotiators understand and pay more attention to environmental issues during CJKFTA negotiations, and to help lobby with the government to carry out appropriate policy instruments for adaptation or mitigation. Following the Chain Reaction Assessment Method that integrates and links the elements of trade, production, and environment, the present research aims to quantitatively assess CJKFTA’s possible impact on China’s environment. This is done by estimating the variations of China’s major conventional pollutants and greenhouse gases (GHGs) emission in two policy scenarios to represent CJKFTA’s scale and composition effects on China’s environment. Estimating the variations is based on a static Computable General Equilibrium model, working with Global Trade Analysis Project (GTAP) 7 database and China’s energy-environment statistics. Based on these assessments, CJKFTA is predicted to lead to notable environmental impact, including increased emissions of agricultural total nitrogen, agricultural total phosphorus, chemical oxygen demand, and GHGs. On the other hand, decreased emissions of industrial SO₂ and dust are also expected to happen. Suitable policies need to be made to combat negative effects and amplify positive ones, while aiming at a more sustainable regional freer trade system.

Keywords

Free Trade Agreement / Strategic Environmental Assessment / Chain Reaction Assessment Method / Computable General Equilibrium model / Global Trade Analysis Project

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Acknowledgements

In the process of this research, Qinghua XU, Li FANG, Xiaoyue SHEN, Yao DONG, and Yuping WU from China’s Ministry of Environmental Production (MEP) have shared their experience from the viewpoint of policy makers and consultants. Jianwu HE from the Development Research Center of China’s State Council (DRC) and Nathan Rive from Imperial College London (ICL) have made suggestions in the CGE modeling work. Their kind help is greatly appreciated by the authors.

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2014 Higher Education Press and Springer-Verlag Berlin Heidelberg