Analysis: S. Korea’s FTA push
Analysis: S.Korea’s FTA push
By Jong-Heon Lee
UPI Business Correspondent
Published March 30, 2005
SEOUL — Upbeat about surging exports following its first free trade accord with Chile a year ago, South Korea unveiled an ambitious plan on Wednesday to push for free trade agreements with more than 15 countries by 2007.
To achieve the goal, South Korea will launch negotiations with 50 trading partners worldwide, the trade ministry said in an annual policy report to President Roh Moo-hyun.
Officials said the multi-track policy would help South Korea jump on the free trade bandwagon which could ensure more benefits to its export-driven economy, whereas critics warned against a hasty push that could backfire, undermining some key local industries.
In the policy report, Trade Minister Kim Hyun-chong said FTAs are critical for the country’s economic growth, vowing to turn his country more open economy with less trade barriers.
The South Korean economy, the world’s 11th-largest economy, is heavily dependent on exports. The total volume of its external trade amounts to 70 percent of the country’s gross domestic product.
"A long-term strategy to expand trade is necessary for the South Korean economy facing unfavorable external conditions, such as soaring oil prices, the stronger won against the U.S. dollar and more trade barriers," Kim said.
"The only solution is to have more FTAs that give South Korean companies greater access in foreign markets," he said. "We will no longer remain out of the race for free trade zones," Kim said.
South Korea has lagged far behind other members of the World Trade Organizations in free trade accords at a time when the FTA wave was spreading in Asia and elsewhere. South Korea was the only of two WTO members, along with Mongolia, that are not part of a free trade agreement, before it concluded an accord with Chile in March last year.
South Korea’s second FTA is undergoing finishing touches for official ratification by the National Assembly in April with Singapore.
The country is now in negotiations to scrap tariffs with 16 nations, such as Japan, Canada, the 10-member Association of Southeast Asian Nations (ASEAN) and the four-member European Free Trade Association (EFTA).
Joint research is being conducted with seven nations, including India, Mexico and Russia, on the feasibility of free trade negotiations. "We are also forging pre-talks environments with 27 nations, such as the United States, China and the European Union," a ministry official said.
South Korea hopes an FTA with Singapore will help the country speed up negotiations with China, ASEAN and other Asian nations. An agreement with the EFTA is also considered as a prelude to non-tariff accords with the European Union because the EFTA consists of four European countries — Iceland, Liechtenstein, Norway and Switzerland — already has an FTA with the EU.
A government-run think tank, the Korea Institute for International Economic Policy, estimates that an FTA with the ASEAN would boost South Korean gross domestic product by $14.6 billion in short term gains and $18.2 billion in long-term effects. An FTA with the EFTA would increase South Korean exports by 26 percent annually, it said.
"We are pushing for FTAs with at least 15 nations by 2007 just before the end of the Roh Moo-hyun government’s five-year terms," the official said. Roh steps down in February in 2008.
In a bid to speed up FTA negotiations, Roh recently installed U.S.-educated expert in international trade, Han Duck-soo, to the country’s top economy post as deputy prime minister and finance-economy minister. Han, an advocate of free trade, has served as trade minister and ambassador to the Organization for Economic Cooperation and Development.
The multi-track FTA plan comes one year South Korea signed an FTA with Chile which has led to South Korea’s brisk exports to the South American country.
South Korea’s shipments to Chile have increased 58.7 percent in the past 11 months from a year earlier with the effectuation of the bilateral FTA in April last year, according to the Korea International Trade Association.
South Korea’s car exports to the South American country jumped 59.3 percent, mobile phone exports increased 225.7 percent, and color TV shipments 110.4 percent.
Imports from Chile also jumped 54.3 percent during the same period, mostly raw materials, including copper ore. Imports of agricultural goods, except wine, from Chile grew less than expected by 2.6 percent, which has eased concerns of farmers who are protesting against the opening of the country’s closed agricultural market.
"The FTA with Chile, which has proven potential as a new growth engine for the past year, boosts the confidence of our market opening, easing public concerns over market liberalization," the ministry official said.
Not a few analysts call for the government to come up with measures to shield the country’s agriculture and other sectors from foreign competition, before kicking off full-fledged FTA talks.
"Free trade is a threat to the livelihoods of the public and South Korean farmers," said Lee Young-soo, a leader of a farmers’ group. "Several sectors is still vulnerable to foreign competition and is in need of some degree of protection," said Yoon Sok-young, an economic professor at Chung-Ang University in Seoul.
A possible delay in an FTA with Japan could serve as a stumbling block to Seoul’s multi-track free trade push with bilateral relations sharply strained in the wake of territorial dispute, analysts say.
Talks with Japan were started in 2003, but negotiations with Japan are deadlocked due to differences over the levels of the market opening in the agricultural sector and the diplomatic row over Japan’s renewed claim to South Korea-led island.
Japan is a key trading partner of South Korea, with bilateral trade reaching $67.8 billion last year. Foreign direct investment from the neighboring country topped $2.24 billion, a 310 percent gain from a year earlier, making it one of the leading investors in the country along with the United States.
Economists also call for the Seoul government to focus its efforts on concluding FTAs with China and the United States, South Korea’s biggest markets, rather than hasten accords with many nations with small markets.
But the government is facing strong oppositions by farmers and filmmakers who are concerned that any market opening might jeopardize them. The screen quota system, the decades-long legal shield for homegrown films against the flood of Hollywood movies, is the biggest hurdle in trade-related matters between Seoul and Washington.
