Desert Island FTAs: How the CJK Agreement and the Territorial Dispute Actually Co-exist

If you believe the Western press, we are approaching a major conflict over the Senkaku islands or Diaoyus, depending on who you side with. There is little interest for an outsider to have an opinion on the subject matter, which is a century old problem without a mutually satisfactory solution. On one hand, the United States returned the islands after the WWII occupation to Japan, who inarguably administered them since. On the other hand, the islands were surely at some point claimed by the Chinese – like much of Asia in ancient history. If you believe in the principle of self-determination, there are no means to verify whether the goats (who are the only inhabitants of the islands) speak Japanese or Mandarin.

There are several reasons to assume that status quo will prevail in the end. To begin, every country in the region uphold an air defence identification zone (ADIZ), that China unilaterally imposed last week. The Chinese ADIZ would have been less controversial if they had followed the common practice of only requesting data from civilian aircrafts inbound towards China, and not from those merely flying through international airspace – which sounds too much like a territorial claim for comfort.Regarding the risks of an accident due to human error, the Japanese Self-Defence forces and Chinese PLA are perhaps the two best disciplined forces in the world. The likelihood of an escalation, which the current political leadership cannot manage, is practically minimal. However, this is by no means a win for China. The US flew two unescorted B52s through the ADIZ without any implications, resulting in a massive loss of face for the Chinese: The B52 is a notorious cold war symbol for nuclear obliteration without any defensive capabilities. When they regally sail through the ADIZ in slow speed unintercepted, the US has practically called the Chinese bluff. Only pundits and provocateurs that live off the narrative of “a new assertive China” stand to gain from the current tension – not China.

The only option to status quo in territory disputes are either to claim the islands by force, or settling the dispute in the International Court of Justice, which is a lose-lose scenario with very permanent ramifications. Another convincing argument why status quo will prevail is hardly reported in the West: Although the Japanese FDI to China is rapidly declining to 10 bn USD per year, it has always been a one of the major investor in China, even before China’s acceded to the WTO. The interdependency between China’s processing trade and Japan’s industrial base, monozukuri, is an essential to the economic survival of both. As for now this political determinant is stronger than national pride.

Japan has chosen to abandon the export-led growth, and has successfully transitioned into an investment-driven response to globalisation, something Europe is yet struggling to do. Meanwhile, China has failed to secure a free trade agreement with a major, advanced service economy, that it needs for to secure its export-driven growth. Moreover, it is in desperate need of equity and know-how to reform its underdeveloped services sector. As a FTA with either the EU or the US is simply out of question, only Japan could fill such role for China.

In complete disregard of the B-52s and the Chinese ADIZ, the Chinese, Korean and Japanese trade negotiators successfully concluded their third round of negotiations for a three party CJK FTA that would involve 30% of world GDP. In a region where neither occidental realpolitik nor proverbs rarely apply, it seems that too many cooks don’t spoil the broth – the three adversaries agreed on the modalities (i.e. basic framework and landing zones) last week at the height of the tension. In comparison, Koreans merely finalised “basic negotiation architecture” after six rounds of laborious talks in a separate attempt to a bilateral FTA with China.

The territorial disputes and the CJK negotiations may exist in two parallel universes, where one is merely a sideshow. The question is – which is which?