Should Korea rush into free-trade talks with China?
ChosunIlbo, Seoul
Should Korea Rush Into Free-Trade Talks With China?
8 April 2007
Korea and China are moving swiftly toward negotiations on a bilateral free trade agreement. China’s courtship of Korea has intensified since Seoul clinched an FTA with the U.S. last Monday, with Chinese Prime Minister Wen Jiabao expressing hope last Thursday that an FTA between Beijing and Seoul can be concluded “as soon possible. But Seoul should go into talks with its eyes open given that the impact on the nation’s agricultural and technological competitiveness could be much greater.
◆ Why the hurry?
China may have two reasons for hurrying FTA talks with Korea. The first is a desire to check U.S. influence in Northeast Asia, which is expected to grow with the Korea-U.S. FTA. Prof. Ahn Se-young of the Graduate School of International Studies at Sogang University, said, "At present, the geopolitical structure in Asia tends to be divided into a Sino-centric economic sphere, where China has FTAs with the ASEAN nations, and a maritime economic sphere, where the United States embraces South Korea and Japan. Korea is at the mid-point between these two economic spheres that compete for Asian hegemony, so China has no choice but to push for an FTA with it."
China may believe that a free trade pact with Korea would incur less cost and more profit than one with the U.S. or Japan. Any FTA with the U.S. would mean that China has to accept American-style global standards in all social sectors. An FTA with Japan is unlikely anytime soon due to the wide gap in views of history. But a trade pact with South Korea, with its advanced economic development, would skirt such difficulties while contributing to China’s progress toward a market economy.
China has caught up by a margin of a mere two to three years with Korea in key industries such as mobile phones, steel and automobiles, and it may feel that an FTA would help it close the gap. Perhaps that is why China is even prepared to postpone discussions on the agricultural sector, which Korea is reluctant to open.
◆ Economic ripple effect
Korea’s volume of trade with China was US$118 billion in 2006, 1.5 times that with the U.S. ($76.8 billion). China’s average tariff rate is 9.8 percent as of 2007, 6.5 times that of the U.S. (1.5%). Thus if tariffs are abolished between Korea and China, economic effects would be seven to eight times those from the Korea-U.S. FTA. The Korea Institute for International Economic Policy (KIEP) estimates that if Korea and China should conclude an FTA, Korea’s GDP would increase 3.17 percent in seven to 10 years, much more than the effects from FTAs with the U.S. (1.99 percent), the EU (3.04 percent) and Japan (1.05 oercent). By industries, Korea would benefit in automobiles, steel and heavy chemicals, but it would be dealt a blow in low value-added goods such as agricultural and fishery products, textiles and timber, where China has the advantage. Increased imports of cheap finished Chinese products and agricultural produce would likely deal a serious blow to small and medium enterprises and farm households in Korea.
◆ S. Korea has the initiative
How should the South Korean government go into FTA negotiations with China? Many stress the importance of taking advantage of the fact that Seoul has the initiative, considering that China is in such a hurry. With the Korea-U.S. FTA already concluded, China is under psychological pressure. Some experts advise simultaneously reviving free trade talks with Japan as a negotiating strategy. That would give Korea more leeway in individual negotiations because China and Japan are each trying to keep the other in check, and allow the nation to consolidate its role as a securely an economic hub in Northeast Asia.
