ISM model based on the influence factors of China-ROK FTA concluded

Abstract: This paper model by constructing ISM Korea FTA concluded influencing factors analysis, the imbalance of China-ROK Foreign direct investment relationship is the impact of an FTA between the two countries biggest factor; addition, the trade imbalance and friction, FTA strategy differences in motivation, the industrial 'hollowing out' of an FTA between the two countries concerned but also affect the deep-seated factors. Finally the conclusion of the China-ROK FTA policy recommendations, such as the growing China to South Korea's foreign direct investment, reduce the trade deficit, the development of intra-industry trade and other policy recommendations.

Keywords: ROK FTA ISM model factors countermeasures

Fund Project: This is the Ministry of Education Social Science key projects, 'China Northeast Asia Strategy and policy research'; Jilin University Fundamental Research Project 'tracking Korean Peninsula and Northeast Asia Security Innovation Team'; Jilin University Graduate Innovation Research Programme funded project 'Strengthening Regional Innovation Strategies based capacity building.'

I. Background

China and South Korea established diplomatic ties in 1992, bilateral trade and economic relations to the rapid development of bilateral cooperation in the field of trade increasingly widespread trade is growing rapidly. According to the Korea Customs Department statistics, in 1992 South Korea, Japan, America's trade volume was $ 6.4 billion, $ 31.1 billion, $ 36.4 billion; while to 2009 were $ 140.9 billion, $ 71.2 billion, $ 66.7 billion. In 2010, China and South Korea trade rose to $ 207.1 billion, an increase of 32%, a record high. Undoubtedly, China has become South Korea's largest trading partner, South Korea has become China's third largest trading partner. Despite the rapid development of bilateral economic and trade, but there are still hamper the further development of bilateral economic and trade relations constraints, these factors include both changes in the international environment, including two own basis in reality. In this context, the two countries put forward the idea of ​​the establishment of China-ROK FTA, but the current situation between the two countries, the establishment of China-ROK FTA, only there are some favorable factors, there are also some constraints.

Since the 1980s, as the economic integration in the form of bilateral and multilateral FTA rapid development on a global scale, but because South Korea can fully enjoy the benefits of the multilateral free trade system, centerless involving FTA; same Chinese did not pay full attention to the role of FTA . The late 1990s, due FTA rapidly expanding on a global scale and economic highlights, WTO regime increasingly apparent limitations, including China and South Korea and other countries, come to realize the importance of an FTA.

Since the new century, China-ROK FTA vision gradually been recognized. 2004 APEC meeting, Chinese President Hu Jintao and South Korean President Roh Moo-hyun on the feasibility of an FTA Korea reach consensus, marking the China-ROK FTA to accelerate the pace of the beginning of the formation. March 2005, China's State Council Development Research Center of Foreign Economic Policy Institute and South Korea signed the 'China-ROK FTA feasibility study to establish memorandum', you start the 'China-ROK FTA feasibility of joint research and policy proposals folk' agreement, which The study mainly involve South Korea trade and investment, economic cooperation with China and South Korea concluded FTA status of each industry, the impact and policy analysis.

March 2007, China-ROK FTA enters VLSI joint research stage, the Chinese Ministry of Commerce and South Korean Foreign Minister launched the 'China-ROK FTA VLSI joint feasibility study', mainly involving the establishment of China-ROK FTA coverage areas, trade investment liberalization and on both industry and macroeconomic impact. May 2008, South Korean President Lee Myung-bak's state visit in China, with Chinese President Hu Jintao issued a 'Joint Statement.' The statement stressed 'the two sides of the China-ROK FTA joint study VLSI appreciated, the two countries should continue to move in the direction of mutual benefit to actively promote the construction of China-ROK FTA.' This shows the beginning of the study FTA between the two countries entered a new phase . May 2010, Chinese Premier Wen Jiabao attended the meeting in South Korea, Japan and Korea FTA joint research study of the official kick-off meeting, we recommend ROK FTA negotiations began. Meanwhile, the two sides also signed a commercial department 'Free Trade Agreement Memorandum of Understanding.' July 2011, China and the ROK government to further agreement, announced during the China-ROK FTA negotiations began.

This paper analyzes the factors affecting China-ROK FTA, for us to factors that affect the overall state of China-ROK FTA has a comprehensive and clear understanding, you can find the main factors restricting China-ROK FTA. Through the use of systems analysis systems engineering approach between various factors, by explaining the structural modeling method to determine the relationship between the factors affecting the establishment adjacency matrix, reachability matrix form factors of hierarchical relationships, summarize the China-ROK FTA affect the underlying causes, shallow reasons, middle and superficial reasons reasons, to be able to improve the unfavorable factors of China-ROK FTA guidance.

Second, the impact of China-ROK FTA concluded factors ISM model

ISM (interpretative structural model) is an American scholar (J. Warfield) in 1973 as the analysis of complex structural problems of socio-economic systems and the development of a system analysis method. The method is characterized by mutual influence between system elements (including one-way or two-way causal relationship between size, exclusion, the correlation between slave or possessive relationship) identification of the decomposition of complex systems become clear hierarchy of multi-level ladder structure, so many elements of the complex hierarchical relationships, principled. ISM belongs to the conceptual model can be used to clear the image of the conceptual structure diagram showing the system of relations between the various elements, structural analysis is an effective method. In this case, the use of China-ROK FTA ISM structural relationship between influencing factors has good applicability and practical significance.

(A) Factors Korea FTA

Is easy to calculate, in reference to this article on the basis of extensive literature following indicators selected as the factors affecting establishment of China-ROK FTA ISM model. Constitute ROK FTA between the various subsystems are interconnected, including economic factors (sub 1), political factors (sub 2), cultural factors (sub 3) and other factors (sub 4). After analysis of these factors on the impact of China-ROK FTA is more significant, it can be said that the dominant factor affecting China-ROK FTA. Among them, the subsystem also includes a trade structure, industrial structure, technological differences; subsystem 2 FTA strategy also includes motivation, political relations, geopolitical and economic systems, etc.; subsystem 3 also includes Confucian culture, history and psychological aspects; son System 4 also includes concerns such as the industrial hollowing out. Is easy to calculate, in reference to this article on the basis of extensive literature following indicators selected as the factors affecting establishment of China-ROK FTA interpretative structural modeling.

S1 (complementary trade structure): South Korea established diplomatic ties, bilateral trade has been expanding, while also deepening trade structure. 20 In the 1990s, China's exports to South Korea are mostly agricultural products, minerals, raw materials, textiles, base metals such as low technological content and value-added resources and labor-intensive products; while South Korea's merchandise exports to China are mainly concentrated in the chemical, electronics, machinery, shipbuilding and other technical content and high value-added technology and capital-intensive products.

S2 (complementary industrial structure): At present, China's economic fundamentals in the industrial end of the chain, while the Korean economy in the industrial chain in the end, some of the excess Korean industries and industries to be eliminated is transferred to China, indicating that the two industrial structure there is a strong complementarity. From the previous trade relations, China in labor and resource-intensive industries have a comparative advantage, South Korea in the capital and technology-intensive industries have a comparative advantage, and this strong industrial advantages complementarity also determine the future of the two countries economic and trade interests.

S3 (the industrial 'hollowing out' of fear): China's industrial products, especially steel, automotive and chemical industries such as production technology is relatively backward, after the completion of China-ROK FTA, Korea, China will import large quantities of high-end steel, automobiles, etc. industrial products, to a huge impact on the local industry. In addition, after the completion of China-ROK FTA, in order to meet China's trade demand, Korean companies will shift the focus to the production of technology-intensive industries, expect sophistication of industrial structure with a high added value, thus, low value-added sectors Korea will for structural adjustments, which will bring huge economic burden Korea. Therefore, it has also become the construction of China-ROK FTA resistance.

S4 (trade imbalances and trade friction): Although China and South Korea in the trade structure has a strong complementary, but South Korea's trade deficit with China has expanded each year. Trade deficit with China and South Korea economic and trade cooperation between the two countries has become more difficult problem. Not only lasted for many years the deficit has been difficult to change, and trade friction events are endless, more trade friction concentrated in the agricultural fields. After the conclusion of South Korea FTA, China will require Korea to expand the scope of liberalization of agricultural trade, accelerate the process of agricultural trade liberalization, but South Korea worry about changing protection policies on agriculture, accelerate agricultural liberalization would threaten their food security, to agricultural belt to shocks.

S5 (technical differences): South Korea with strong processing and production technology and high-tech superiority, and China in the underlying technology and aerospace higher technical level; ROK core technology development level differences also exist with complementary technical cooperation between the two sides which offers the possibility.

S6 (FTA strategic motivations difference): ROK FTA to promote the strategic motivations differ. South Korea hopes the establishment of China-ROK FTA can effectively control the trade friction between the two countries to reduce trade disputes, to further improve bilateral trade reciprocity policy; inadequate protection of internationally operating capability in Korea SMEs; increase investment in China, in particular, to increase Northeast investment to expand exchanges and cooperation with the DPRK opportunity to promote the unity of the Korean Peninsula and Northeast Asia peace. China hopes to conclude an FTA, and enhance international competitiveness, and promote trade liberalization process; expand political and security relations, the impact of the U.S. strategy of containment in Asia; rising China in the international political situation and the status of the multilateral system, to achieve the Asian regional economy prosperity and development.

S7 (common Confucian culture): ROK has a unique geographical advantage, are close neighbors across the sea, a long history of cultural exchange. Back in China's Sui and Tang period began, the people of China and the ROK learn from each other, learn from each other, communicate, have created a splendid culture. Two cultures strain, have their origins in China, Confucianism, so two people have a natural sense of intimacy, cultural traditions similar to the nationals of both countries to communicate and understand each other more easily. China's long history, rich cultural heritage and resources of the Korean people have a strong attraction, but also in China began sweeping Korean. In recent years, non-governmental exchanges between China and Korea also toward deeper, broader direction. In 2007, the 'China-ROK Exchange Year' project was officially launched, China and South Korea to carry out various forms of exchange activities. Cultural exchanges between the two countries and for the establishment of China-ROK FTA convergence laid a solid emotional foundation to further expand mutually beneficial cooperation and promote common development of the two countries.

S8 (stable political relations): China and South Korea established diplomatic relations in 1992, has always maintained a good-neighborly and friendly political relations, and constantly establish and improve the political and security dialogue mechanism between the two countries, bilateral high-level visits between the leaders of the ongoing and meetings. In 1998, the two governments established a '21st century partnership.' In 2003, the two leaders signed again 'Joint Declaration', the statement stressed that the '21st century partnership' to further enhance the 'comprehensive cooperative partnership.' May 2008, the two governments sent the 'comprehensive cooperative partnership' to enhance the strategic partnership between China and South Korea to achieve a qualitative leap. China supports a unified Korean peninsula, with both the north and south sides have maintained good neighborly and friendly political relations, South Korea also announced its recognition of China's market economy status, recognizing only one China and support China's reunification. ROK steady development of bilateral political relations, the two sides to promote the process of paving the way for free trade.

S9 (history of psychological factors): With China's rapid economic take-off, China has gradually become the driving force of economic development in East Asia, some Koreans believe that China's economic and political status of the upgrade will lead to restored ancient Chinese domination of Asia 'tributary system.' model, over dependence on China will lead Korea to be absorbed into the 'China Economic Circle', became a vassal of the Chinese economy. Therefore, this kind of psychological factors also become an FTA between the two barriers.

S10 (geopolitical): a geopolitical point of view: who controls the edge of the area, who will be able to control Eurasia, which determines the fate of the world. Korean Peninsula determines its special geographical position to become the country eleven Russian land power, sea power of sovereign states eleven US-Japan intersection of the core. Located on the Korean peninsula while South Korea faced both land and sea, so Japan, the United States and Russia and South Korea etc actively seeking to conclude FTA, consolidate and enhance their position in Northeast Asia. For Russia is concerned, South Korea and its main driver of an FTA is the attractiveness of oil and other resources, while Russia is also able to leverage resources in Northeast Asia to increase their strategic advantage. For Japan, in terms of an FTA with South Korea to actively help accelerate the process of political power to prevent China to become the leading nation in East Asia. The United States as the world's largest import market and military powers, regional economic integration in Northeast Asia showed a high degree of attention. Korea in Northeast Asia in order to survival and development can not be good to get rid of dependence on the United States. Meanwhile, the United States in order to enhance economic cooperation in East Asia in the role of a solid economic position in Asia must contain China, to contain China and South Korea integration. Therefore, the United States to contain China would like to use to achieve the purpose of Korea. And prevention and to contain China is South Korea signed an FTA is an important factor, the United States hopes to strengthen the US-South Korea FTA and East Asian economic and trade ties, hindering Korea into China economic circle and weaken China's influence in East Asia. The signing of the Korea-US FTA conclusion of the China-ROK FTA worse, bilateral FTA negotiations more difficult.

S11 (ROK bilateral direct investment relationship imbalance): In recent years, South Korea's investment in China has always maintained investments in other countries in the world's top investment in China, South Korea's direct investment in China grew rapidly, but the South Korean investment in China scale and small scale. 2010, China's total investment $ 1.2 billion South Korea, foreign investment in China ranked 15 countries. In the same year, South Korea's investment in China was $ 31.8 billion, accounting for Korea's total foreign direct investment in fifth.

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(Two) ISM model building

Establish adjacency matrix A. By reading the contents of the relevant literature and analysis to determine the impact on the relationship between the elements, according to the selected 11 to establish the relationship between system elements adjacency matrix.


Where '1' indicates that there is some element of Si on Sj binary relations. '0' indicates that without some sort of binary relations.

Solving reachability matrix M. Formula using MATLAB M = (A + I) r-1 = (A + I) r programming, where I is the identity matrix, through the implementation of the program was written in MATLAB iterative reachability matrix M as follows.

Regional breakdown. Seek first elements of reachable sets R (Si), first set A (Si), jointly set C (Si) and the starting set B (S), the results shown in Table 1.


Solving level partition matrix. By writing the MATLAB program can be divided into hierarchical matrix L.

Establish hierarchical structure model diagram. Since this is the object of analysis ROK FTA, interpretative structural modeling system used to characterize the various factors on the Korean FAT (Code S0) as well as the impact of various factors within the system of mutual relations, and therefore, in the final hierarchical structure of the model should be ROK FTA will join on the first level. This eliminates the need for intermediate process, given directly to the final hierarchical structure model diagram shown in Figure 1.

Third, China and South Korea FTA System ISM model and Suggestions

(A) structural model analysis

Derived from the structural model ISM handed pick figure, the factors affecting ROK FTA building has four levels, the first level is the imbalance between China and the ROK bilateral direct investment; second level of trade and industrial structures complementary, on the hollowing out of industry concerns about trade imbalances and friction, FTA strategy motivation differences, a common Confucian culture and a stable political relations; The third level is the technical differences and the history of psychological factors; fourth level is the geopolitical factors .

(Two) and South Korea FTA concluded Suggestions

1 continues to expand China's foreign direct investment in South Korea

In general, the level of a country's economy and foreign direct investment have a great relationship. At present, China's foreign direct investment has had the economic conditions in the next period of time, and gradually increase the international especially South Korea's foreign direct investment is important. Since 1995, South Korea has been to improve the domestic investment environment, but due to high labor costs, foreign localized high difficulty and higher business risk factors has influenced Chinese enterprises to enter the South Korean territory. Therefore, Chinese enterprises should continue to overcome difficulties and to increase Chinese enterprises 'going out' efforts to expand foreign direct investment in South Korea share.

(2) reduce the deficit, the development of intra-industry trade

China trade deficit has expanded each year to South Korea, China and South Korea trade structural convergence. China should continue to improve the trade deficit between the two countries, to achieve two complementary industries. Therefore, China must constantly readjust the industrial development direction, to achieve the level of intra-industry trade division, especially in traditional industries from the vertical division of labor, through the level of intra-industry trade diversion division level to achieve the product differentiation strategy, and continuously cuts ROK trade deficit. China should strengthen the high-tech and value-added industry R & D efforts to attract Korean companies investing in China, to encourage domestic enterprises to promote product innovation and to strengthen cooperation with South Korea cutting-edge technology industry exchanges and cooperation and promote the development of intra-industry trade between the two countries.

3 Determine sensitive industries, to achieve a reasonable transition

In South Korea FTA concluded before the country to assess the situation and for sensitive industrial sectors to arrange a reasonable transition period, try to take a phased tariff reduction approach, thereby reducing the cost sensitive industrial restructuring. China's agricultural impact of agriculture on the Korean FTA negotiations has been the resistance, how to determine the varieties of agricultural tariff reductions and timing are the focus of the negotiations. In addition, China's textile products, manufactured goods and other industries in China and South Korea concluded FTA will be a huge hit. China should try to avoid these industries the degree of trade liberalization negotiations, the first product on the small impact of trade liberalization agreement, the easier, the first partial solution to the overall trade liberalization sensitive industries.

4 to make appropriate concessions in exchange for more cooperation opportunities

China and South Korea signed an FTA for Northeast Asian economic integration, and promote peace and stability in East Asia is significant. In the process of FTA negotiations the two sides will inevitably encounter various problems and disputes, it is necessary to make appropriate concessions country, temporarily abandoning a small part of the benefit, in exchange for more opportunities for cooperation. In order to reduce South Korea 'industrial hollowing out' of concern, our country can develop some Korean enterprises in China and other terms of the amount of investment restrictions; open questions for agricultural products in Korea, China also can temporarily shelved to future multilateral mechanisms to resolve. In short, China must make the appropriate concessions, to take forward the positive attitude towards the early conclusion of Sino-ROK FTA agreement.

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