An Exchange Rate System to Facilitate Trade Cooperation in the Agricultural Sector Between China, Japan, and Korea

Abstract

The problem of how to broaden access to one another's markets in the agricultural sector remains the key obstacle to establishing an FTA among China, Japan, and Korea (CJK). This paper takes the Common Agricultural Policy (CAP) of the EU as a reference model for future CJK agricultural cooperation and offers suggestions on exchange rate issues in the context of prospective trilateral trade and policy coordination in the agricultural sector. This paper finds CJK trade in the agricultural sector to be negligible in magnitude compared to that in the manufacturing sector, but not entirely inelastic to exchange rates and income growth. Expansion of agricultural trade is expected to open a new dimension of benefit by moderating the adverse welfare effect of high food prices in Japan and Korea, where the proportions of the population in income groups with high Engel's coefficients are increasing.