Discuss the Advantages and Disadvantages, to the Participating Countries and the Rest of the World, of Forming a Free Trade Arrangement. China, Japan and Korea Are Now Undertaking Preliminary Research Into the Formation of a Free Trade Area. Withi...

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With the lowest integrated level in regional economic integration, Free Trade Arrangement (FTA) is applied most frequently, accounting for almost 90% of regional integration. (Hill 2007) Theoretically, all trade barriers both tariffs and non-tariff ones are eliminated in an ideal FTA. However, each member countries are free to determine independent trade policies against nonmember countries. (Hill 2007) Currently, the number of free trade arrangements is proliferating. FTA spread almost all over the world with the European Free Trade Association (EFTA), the North American Free Trade Agreement (NAFTA) and the Association of Southeast Asian Nations (ASEAN) are the most famous trade blocs. Additionally, in the Northeast Asia, China, Japan and Korea are undertaking preliminary research into the formation of a FTA. The formation of those FTA can be viewed as a way of gaining further benefits from free trade and investment during the long-term process of forming a global common market. Yet it has changed the situation of global economy to a certain degree. This essay will explore the benefits and costs of forming a free trade arrangement for both member and nonmember countries, paying particular attention to the economic and political aspects. It continues with an in-depth analysis of gains and losses in terms of industry from the formation of a free trade area with Japan and Korea. Based on the foregoing issues, finally it will recommend that China should support the establishment of this regional integration in general.

Economically speaking, the free trade is a positive-sum game and all participating countries would gain from it ultimately.
To begin with, forming a FTA would benefit the member countries to a great degree. According to traditional international trade theories especially Ricardo’s theory of comparative advantage, with unrestricted free trade countries could specialize in the production of those goods and services that they produce most efficiently,

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