Illustration: Liu Rui/GT

With China-South Korea and China-Australia Free Trade Agreements (FTAs) coming into effect on Sunday,  a first round of tariff cuts is taking effect. How should Japan react?

All the China-exported commodities to Australia will be free of duties, and more than 90 percent of the imported Australian goods will enjoy tariff exemptions. Most of the goods between China and South Korea will be duty-free as well. Seoul's GDP growth is expected to increase by 1 percent after the 10-year transitional period. Compared with the benefits which the Trans-Pacific Partnership may bring to Japan, the free trade agreements are more beneficial to the concerning countries.

More importantly, the FTAs can facilitate the integration of the global economic circulation. Earlier, Japanese analysts stated that the global economy has evolved into a circulatory system led by Chinese commodities. Productions factors like minerals, energy, sparing parts, investment and technology are manufactured into products after flooding into China, and then distributed to the global market. Enterprises have to follow this trend for survival. Otherwise, they cannot survive.

Take the liquid crystal giant Sharp. Although Sharp's liquid crystal screen ranks first in the world, most of the Chinese mobile phones import parts from South Korea and Taiwan. As more than 90 percent of the mobile phones are manufactured in China, Sharp has lost a giant part of market share, and its financial crisis is not surprising.

A widely recognized rule of the market economy is that, as the world's second largest economy, China has the right of choice, and will prioritize its FTA partners over others in its policies. In the next few years, China and its FTA partners will go through economic integration, exporting surplus capacity to each other. In this way, the excessive capacity will benefit the countries involved, and a complementary economic structure, namely, a common market will be established. Those nations which are not China's FTA partners will have no access to this market.

Furthermore, by signing the FTA with Seoul and Canberra, Beijing can gain leverage in the East Asian Community. Prior to clinching the deals with South Korea and Australia, China has reached the FTA with New Zealand, Singapore, and other ASEAN (Association of Southeast Asian Nations) countries. Beijing signed an upgraded FTA with the ASEAN this year as well. China has established an FTA circle in the region except for Japan.

China can integrate the bilateral FTA into a common FTA community. Japan has already lagged behind in this field as a Tokyo-Seoul FTA has not been reached so far. In addition, a low-level FTA between Japan and ASEAN can only be clinched by 2018 at the earliest.

Negotiations on building a Beijing-Seoul-Tokyo FTA circle will be facilitated. Although the official talks on establishing this FTA circle have been carried out for three years, no obvious progress has been made till now. As Tokyo is upset at the Beijing-Seoul FTA, it's likely to promote negotiations on the Beijing-Seoul-Tokyo FTA circle.

In addition, the negotiations on the Regional Comprehensive Economic Partnership (RCEP) should be finished. The RCEP is a pan-East Asian FTA circle covering nearly half of the world population including the ASEAN, China, South Korea, Japan, Australia, New Zealand and India. Judging from the current negotiation progress, realizing a primary tax exemption is quite possible.

By taking advantage of the FTA, China's development will generate more pressure on Japan. If Tokyo fails to take actions, it will see a larger gap with China in the future.

The author is a professor at Hosei University in Japan. opinion@globaltimes.com.cn