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S Korea signs trade deal with Asean

Financial Times, London

S Korea signs trade deal with Asean

By John Burton and AmyKazmin in Kuala Lumpur

December 14 2005

South Korea and the 10-member Association of South East Asian Nations yesterday signed an agreement to establish a trade area by the end of next year.

It was the latest move by Asean to create a network of trade pacts with Asian countries that would place south-east Asia at the centre of regional economic integration.

Asean wants to preserve its role as the main driver of Asian co-operation in spite of the inauguration today of the first annual East Asia Summit that will include the economic powerhouses of China, Japan and India.

However, analysts see this patchwork approach to agreements as a trade-distorting alternative to concluding a new global trade pact, under the World Trade Organisation, which is currently being discussed in Hong Kong.

The South Korean-Asean agreement would include the free flow of goods, services and investments, but a stumbling block has emerged with a dispute over rice imports from Thailand. The issue is a sensitive one when Korean farmers are protesting about the removal of trade barriers on farm products under the WTO.

Korea has sought to keep out rice imports through high tariffs. Thailand last week refused to sign an initial Asean deal on goods trade with Seoul due to Korea’s insistence on excluding rice from the pact, although Asean’s other members agreed to it.

Talks on the completion of two other accords on trade in services and investments will be completed next year. Agricultural trade issues also have delayed an "economic partnership agreement" between Asean and Japan. A Japanese official said yesterday that Tokyo hoped to complete the deal by April 2007, although he noted that gaining "agreements within Asean have complicated" the negotiations.

There have been complaints that Japan is undercutting a comprehensive trade pact with south-east Asia by signing bilateral trade deals with Asean members. Japan has already signed a trade agreement with Singapore and another one yesterday with Malaysia. It is also negotiating with Thailand, Indonesia and the Philippines and agreed this week to start bilateral trade talks with Vietnam and Brunei.

Japan has said it will accelerate efforts to reach deals with Asean nations because of fears that Tokyo is falling behind China and South Korea on trade agreements.

Japan is worried that a China-Asean trade pact will increase Beijing’s influence in south-east Asia, which Japan sees as vital to its growth. Japan is the region’s biggest aid donor and unveiled aid packages of more than $200m this week. In explaining the delay in reaching a trade agreement with Asean, a Japanese official yesterday contrasted China’s proposed trade pact with Asean as a "bicycle" while Japan’s proposed pact was "a car that needs to be filled with petrol before it runs smoothly".

Asean suffered a further setback this week when India unexpectedly produced a list of nearly 2,000 items that it wanted to exclude from a trade agreement.

 source: Financial Times