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Hopes and Fears: Haste Should Not Make Waste in Free Trade Talks

Korea Times

Hopes and Fears: Haste Should Not Make Waste in Free Trade Talks

3 February 2006

The launch of free trade negotiations between Seoul and Washington Friday marks another watershed in the two allies’ overall relationship. Particularly in economic areas, the two countries will almost become one with 90 percent of trade being made without tariffs in a decade. Doubts are still strong about the need for hurrying into a free trade agreement with the world’s largest economy, but the die is cast. This is no longer a matter of whether or not but of how and what kind.

A government think tank here estimates the Korea-U.S. FTA will expand the nation’s GDP by nearly 2 percent and create 100,000 new jobs. A U.S. trade organ, however, expects America’s export growth to Korea to more than double that of Korea’s U.S.-bound shipments, which will reverse the trade balance to Washington’s favor in four years. For now, both are mere forecasts to justify their governments’ decisions. Which side proves to be more correct will largely depend on the yearlong bargaining.

History shows free trade is basically a game for bigger, stronger players. Some large Korean manufacturers will be winners, but numerous farmers and self-employed providers of goods and services face the danger of demolition. What the government should do is therefore simple: Promote the strong sector and protect the weak one. As there will be a limit to how much this can be done in the give-and-take game of trade bargaining, the government ought to devise a mechanism in which winners compensate losers.

No less important is an industrial restructuring program aimed at enhancing the competitiveness of weaker industries and phasing out the least promising ones by changing their trades and jobs. Even making a master plan for all this takes time, probably far longer than a year. And this is what makes the internal negotiations more difficult than external bargaining. Many economists say the nation’s unprepared entry into the OECD led to a financial crisis. Another such scenario is a nightmare.

True, Korea may enjoy the effects of preemption by signing an FTA with the U.S. ahead of Japan and China. It also can upgrade the alliance with Washington to a higher dimension, reducing security risks and drawing more foreign investment. At stake is how to materialize the rather vague and long-term benefits while minimizing concrete and more immediate damages. As in the case of Mexico, increases in trade and investment does not automatically lead to economic growth when there is a lack of preparation.

Most important is how to win over the people, particularly the victims, who will be affected by the agreement. The government’s handling of the screen quota gives strong doubts on its sincerity about building popular consensus. Even an FTA with Chile took four years. The expiry of the U.S. trade promotion authority may be a reason for Washington to hurry, but it’s not one for Seoul.