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Korean exporters brace for ASEAN-China FTA

Chosun Ibo, Seoul, June 28, 2005

Korean Exporters Brace for ASEAN-China FTA

A gradual reduction in tariffs on manufactured goods between China and ASEAN as their free trade pact goes into effect on July 1 spells trouble for Korean exports.

Competition in the ASEAN market will likely become fierce between Korean and Chinese products in areas where the two are neck-and-neck such as electrical and electronic goods, machinery and petrochemical products.

China has a 7.1 percent share of the ASEAN market, way above Korea’s 4.9 percent, according to the Korea Trade-Investment Promotion Agency (KOTRA). In 2002, South Korea exported US$12.93 billion worth of goods to ASEAN and China $18.77 billion. If China dumps surplus products there, it could deal a terrible blow to Korean businesses.

The same is true in China, where areas of competition between Korean and ASEAN products are likely to heat up. In 2002, $14.53 billion or 50.8 percent of Korea’s exports to China, a total of 265 items, competed with or lagged behind ASEAN exports. Total Korean exports to the country were $28.57 billion according to KOTRA.

The FTA between China and ASEAN is expected to boost the distribution network of the ethnic Chinese traders scattered across ASEAN, which is showing signs of easing regulations that tie them down.

"If China’s labor-intensive commodities permeate ASEAN countries through ethnic Chinese networks, Korean products will be affected adversely," said Lee Chae-kyung, KOTRA’s Southeast Asia chief.

Once China and ASEAN make up one huge free trade zone, armies of Chinese workers are expected to migrate to ASEAN countries. They are already swarming to Singapore and Malaysia along with cheap Chinese goods.

Meanwhile, pundits say that some foreign investment in ASEAN countries will be diverted to China to take advantage of tax breaks available to foreign investors who manufacture goods in China and export them to ASEAN.

China was first to tie up an FTA with ASEAN, and some observers fear that when Korea and Japan plunge into FTA negotiations with the Southeast Asian bloc, it could result in an all-out trade war.

"The FTA between China and ASEAN is a win-win situation, enabling ASEAN citizens to improve their livelihood and China to export its surplus manufactured goods to the region," says Prof. Ahn Se-yung of Sogang University. "But it’s bad news for South Korea."

 source: Chosun Ilbo