Korea in no hurry for China FTA
Korea Times
Korea in No Hurry for China FTA
By Choi Kyong-ae, Staff Reporter
8 March 2006
South Korea’s Trade Minister Kim Hyun-chong Wednesday said the country should think twice about a free trade agreement (FTA) with China, which has yet to begin because of its possible drawbacks to local industries.
As for an FTA with China, the joint study between the two countries comes out at the end of this year and top consideration should be given to what advantages Korea gets from the deal,'' Kim told a press conference held in central Seoul Wednesday.
Of particular concern is that the bilateral trade talks with Asia's fastest growing economy might place Korean industries in harm's way, as many Koreans are expected to choose cheap but durable goods from China over Korean ones.
The trade minister stressed that a deal with China should be analyzed item by item, as it differs from the FTA negotiations with the United States, whose preliminary meeting began on Monday.
FTA talks between Korea and Japan are now at a standstill over the opening of agricultural markets.Korea and Japan started talks in 1998 to launch an FTA, but the negotiations broke down when Japan changed its willingness to open its agricultural market by 90 percent, as previously promised, to 56 percent,’’ Kim said.
Last year, Korea posted a trade deficit with Japan, but in the agricultural sector it recorded a surplus of $1.1 billion.
He noted the Korea-U.S. FTA negotiations will be in the interest of local citizens, saying FTA is not for manufacturers, services providers, farmers and those involved in the film industry but for general consumers.
The FTA with the U.S., the world’s most powerful market economy, would provide important economic, political and strategic benefits to both countries and build on American’s engagement in Asia, he said.
South Korea would be the largest U.S. free trade partner in Asia as the U.S. has yet to sign an FTA with two other major economies in the region, China and Japan.
More than anything else, an FTA with the U.S. would help raise the competitiveness of local industries, as was the case with local discount chain stores,'' he said.
After 1996 when the domestic distribution market was fully opened, local discount stores such as E-Mart, Homeplus and Lotte Mart posted a good growth in competition with multinational rivals.
To answer criticisms that the government is not preparing for the negotiations, Kim said that a 43-member task force team will sit at the negotiating table with the U.S. in partnership with the Ministry of Finance and Economy and the Ministry of Commerce, Industry and Energy.
Asked if Seoul made too much concessions by reducing the screen quota by half and resuming U.S. beef imports, he dismissed the criticisms.No negotiator shows his hidden card before the real talks begin, and the government will not be dragged around by its counterpart,’’ Kim said.
He also mentioned the local film industry has grown strong enough to fight against Hollywood movies and over the past five years Korean films accounted for more than 50 percent of the market.
Earlier this month, Finance and Economy Minister Han Duck-soo said Korea would have suffered if it had signed an FTA accord with the U.S. in the past but now the deal would contribute local economic growth.
South Korea is the seventh-largest trading partner of the U.S. Trade between the two totaled about $73 billion in 2004, with Seoul enjoying about a $20 billion surplus.
Trade Minister Kim contributed an opinion on the necessity of a Korea-U.S. FTA in the April issue of Korea Policy Review published by the Korean Overseas Information Service. _ ED.
Significance of the Korea-U.S. FTA
Contributed by Kim Hyun-chong, Minister for Trade
Significance of the Launch of the Korea-U.S. FTA Negotiations
On February 3, 2006, the Republic of Korea and the United States made the announcement to launch Free Trade Agreement (FTA) negotiations between the two countries. The launch of the Korea-U.S. FTA negotiations was indeed a historic event not only from the perspective of the Korea-US bilateral economic relationship but from the perspective of Korea’s trade and economic policy as well.
Since embarking on an ambitious FTA program in 2003, Korea has concluded FTA negotiations with Chile, Singapore and EFTA. FTA Negotiations with ASEAN, Canada, India and Mexico and feasibility study for FTAs with China and Mercosur are under way. This vigorous, multi-track FTA policy is not just to expand access to markets abroad for Korea’s exports. Establishing comprehensive and high-level FTAs with main trading partners represents Korea’s sustained efforts to reform and open its domestic economy. As such, it is an integral part of Korea’s broader strategy for advancing to the next stage of economic development.
Therefore, it is only natural that Korea has chosen the United States as its next FTA partner. The United States is the world’s most advanced economy by all measures. The United States is also the most important trading partner of Korea. An FTA with the United States will enable Korea to connect at all levels with the most sophisticated economy, providing the much needed stimulus to accelerate the ongoing economic reform drive and upgrade the economic and social systems.
The Korea-U.S. FTA in the Context of the Korea-U.S. Economic Relationship
The launch of the Korea-U.S. FTA negotiations assumes added significance in the bilateral context. In the late 1980s and early 1990s, Korea emerged as an important trading partner of the United States. But the Korea-U.S. trade relationship was frequently marred by strains - strains between constant U.S. pressure for further opening of the Korean market and resistance from Korea. The strains generated in the process left a deep imprint on the nationalistic minds of many Koreans that trade liberalization was not something to seek spontaneously, for they believed that it served to mainly benefit the United States.
Against this background, the launch of the Korea-U.S. FTA negotiations marks a major milestone. Comprehensive in scope and high in ambition, the negotiations highlight the fundamental changes in Korea’s perspective towards its economic relationship with the United States. No longer a passive partner, Korea is now fully prepared to lead the way in ushering in an era of free flow of goods, services, capital and people between the two countries.
Expected Gains from an FTA with the United States
An FTA with the U.S. economy with a GDP of 11 trillion dollars will be mutually beneficial. Preferential treatment of Korean products under the FTA will significantly enhance their competitive advantage in the U.S. market, leading to increased export to the United States. Expansion of trade will create additional national wealth and bring about a higher standard of living, benefiting all Koreans. The Korea Institute for International Economic Policy (KIEP) estimates that a Korea-U.S. FTA will increase Korea’s real GDP by as much as 1.99 % and boost exports to the United States by 15%. It will lower the price level in Korea by 0.9%, increasing consumer welfare.
A Korea-U.S. FTA will bring other benefits as well. It will upgrade the economic system to a global standard, attract additional foreign direct investment and enhance financial credit rating. Many experts believe that these invisible benefits are of greater importance than those expressed in numbers.
The implications of the Korea-U.S. FTA reach beyond economics. Korea and the United States have been allies for more than five decades and are bound by common values. A bilateral FTA will further cement the economic, political and strategic ties between the two countries. The decision to move forward with the Korea-U.S. FTA negotiations illustrates that both governments are committed to a stronger and mature bilateral relationship.
This explains why the Korean business community and the general public overwhelmingly support the idea of a Korea-U.S. FTA. In the October 2004 poll conducted by the Korea International Trade Association, 76% of Korean trading companies responded favorably to an FTA with the United States. In December 2004, a Korea Gallup poll showed that 80.4% of Koreans regarded the United States to be a priority candidate for Korea’s FTA partner
Preparations and Prospects of the Upcoming Negotiations
Concluding an FTA of this magnitude is a huge task for both Korea and the United States. The substance of the negotiations covers many difficult areas and time is short. Undoubtedly both countries face quite a challenge.
The negotiations will cover a wide range of subjects, including manufactured products, agricultural goods, services, investment, intellectual property rights, government procurement, labor, environment and competition. While both countries hope to achieve a comprehensive and high-level FTA, some areas are subject to careful review during the negotiations.
However, the different interests of the two sides are not novel to either of the negotiating partners, and Korea is ready to face them in good faith. Of late, through close consultations, both sides have successfully resolved many longstanding trade issues. These experiences and the common aspirations for a robust FTA will certainly guide the two countries in overcoming whatever difficulties they may face in the negotiations.
The Trade Promotion Authority Act of the United States, which gives the US Administration a comprehensive mandate to negotiate trade agreements, will expire on July 1, 2007, thereby making March 2007 as the virtual negotiation deadline for a Korea-U.S. FTA. However, given the commitment of both governments to the bilateral FTA, this deadline may in actuality serve as an impetus, rather than a hindrance, to accelerating the negotiations.
The Korean government is currently in the process of engaging various interest groups encompassing all sectors of the economy - manufacturing, agriculture, fisheries, forestry and services. Liberalization will most likely entail restructuring of less-than competitive sectors, and the government will make an all-out effort to devise effective measures to address their pains and losses.
Conclusion
Free Trade Agreements are invisible infrastructure of the 21st century, linking nations at all levels by funneling products, money, people and ideas. With its size and impact, the Korea-U.S. FTA will work as an exemplar to the global community of what constitutes an invisible highway between two vibrant economies. It is my sincere hope that the Korea-U.S. FTA can be successfully concluded to the mutual benefit of both countries, serving as bedrock for consolidating the overall bilateral relations in the decades to come.
