China and Korea are the two most vigorous economies in East Asia and both are accelerating the FTA process. A China-Korea FTA would be a key leverage point from which to move forward multilateral institutional economic cooperation in Northeast Asia, as well as a major move to strengthen economic and trade interactions between China and Korea. The strong growth in economic and trade relations and industrial complementariness (revealed comparatine advantage index and trade specialization coefficient calculations) between both sides has laid the solid foundations for an FTA. Partial eguilibrium model calculations reveal that a China-Korea FTA would have remarkable economic effects on both sides and bring much more benefit to Korea than a Korea-US FTA. The so-called barriers (agriculture, hollowing-out, SMEs) are not the major issues of a China-Korea FTA. The real problem blocking the process of a China-Korea FTA is geopolitical. Deciding on a China-Korea FTA is dependent on the Korean government and experts in different fields changing their worrying minds about China. We suggest that China and Korea complete feasibility studies and enter into negotiations for the purpose of enjoying mutual benefits from an FTA at the earliest possible time. Should Japan's political position remain substantially unchanged, a China-Korea FTA is likely to be signed before a Korea-Japan FTA.

Executive Summary

Ⅰ. Introduction

Ⅱ. The International and Regional Background of a China-Korea FTA and Its
Position in China's FTA Strategy
1. International Trends of Regional Economic Integration
2. Regional Background of a China-Korea FTA
3. Position of a China-Korea FTA in China's FTA Strategy

Ⅲ. Overall Understanding of a China-Korea FTA
1. A China-Korea FTA as a Key Leverage Point from Which to Move Forward
Multilateral Regional Economic Cooperation in Northeast Asia
2. A China-Korea FTA: A Natural Product of Full-Range Closer Economic
Cooperation between China and Korea
3. A China-Korea FTA: Boosting the Full Utilization of the Comparative
Advantages of Both Countries
4. An FTA's Potential Contribution to the Trade Balance between China and Korea

Ⅳ. Model Analysis
1. PEM model Introduction
2. Data Sources
3. Calculating the Results
4. Model Limitations

Ⅴ. Major Issues and Barriers Confronting a China-Korea FTA
1. Agriculture
2. Manufacturing Competition and Collaboration (the Hollowing-Out Issue)
3. Small and Medium Sized Enterprises and the Employment Issue
4. Impacts on other Countries

Ⅵ. Prospects
1. The Korea-US FTA, a Top Priority for Korea Now
2. A China-Korea FTA and a Korea-Japan FTA: which will be Next?
3. Timetable for a China-Korea FTA

Ⅶ. Conclusion

References