Yomiuri Shimbun | 18 December 2004

S. Korea FTA faces stormy ride
Protectionist interests could hamper talks

Satoshi Nakagawa and Tatsuya Watanabe
Yomiuri Shimbun Staff Writers

Negotiations to conclude a free trade agreement between Japan and South Korea—one of the major issues in discussions during South Korean President Roh Moo Hyun’s visit to Japan on Friday and Saturday—are expected to face tough going because of ongoing disputes in specific areas of bilateral trade.

Though the general atmosphere of bilateral relations has improved—partly due to a boom in the popularity of Korean stars in Japan triggered by Seoul-based television melodramas, economic relations between the two countries are expected to take more time to deepen.

Following talks between Prime Minister Junichiro Koizumi and Roh in Ibusuki, Kagoshima Prefecture, on Friday and Saturday, the FTA negotiations are expected to enter their final stages next year.

Earlier this month, however, South Korea filed a complaint against Japan with the World Trade Organization over Japan’s import quotas for nori dried seaweed.

The two sides are expected to begin discussing the issue next week, but so far neither side has shown any intention of making concessions.

South Korea is believed to have taken a hard-line stance over a marine product that it does not export in great amounts to symbolize its protest against the Japanese negotiating stance and to put pressure on the Japanese side ahead of the FTA negotiations.

The two governments are looking to conclude the FTA by the end of next year.

Another reason for South Korea’s complaint to the WTO could be Japan’s firm stance on other areas of trade.

The Japanese government this year began preparing to impose countervailing duties on South Korean semiconductors, on the grounds that a South Korean semiconductor maker exported chips to Japan at low prices with South Korean government assistance.

In the private sector, Matsushita Electric Industrial Co. and Fujitsu Ltd. have filed an injunction against the sale in Japan of plasma display panels manufactured by South Korean makers, saying the makers had violated the Japanese makers’ patents.

Such moves by the government and the private sector are lessons learned after a surge in South Korean exports in the 1990s. At the time, Japan failed to address the outflow of technological know-how to South Korea in such fields as liquid crystal displays.

A South Korean trade observer said: "Japan shouldn’t see South Korea as an enemy. Rather, Japan and South Korea should work together to deal with emerging economies, such as China."

The negotiations for the FTA have not made significant progress. The two governments started the negotiations last December, but have yet to exchange request-offer lists for specific fields of trade that request or offer to eliminate tariffs.

In behind-the-scenes negotiations, Japan expressed reluctance to abolish tariffs on agricultural products, while South Korea hesitated to drop tariffs on industrial products it worried could affect its auto industry.

"Both sides have developed a skepticism toward the other," a Japanese trade source said.

The South Korean trade deficit with Japan reached 1.9 trillion yen in 2003, and South Koreans are worried that concluding an FTA with Japan could expand the trade deficit.

In the current negotiations, the South Korean side is expected to request that Japan extend assistance in high-tech fields with the aim of placating domestic opinion against an FTA with Japan.

But the Japanese side fears such a move would cause further outflow of technology from Japan to South Korea in a manner similar to that seen in the 1990s.

Some bureaucrats are skeptical about the significance of an FTA with South Korea.

A senior Economy, Trade and Industry Ministry official said, "If it’s a half-baked FTA, it’s better not to conclude it."

Still, some experts and government officials in Japan and South Korea say boosting bilateral trade relations through an FTA is necessary to maintain competitiveness against China, which through its economic growth is increasing its presence in the region.

South Korea is Japan’s third-largest trading partner and is indispensable in firming up the country’s economy. For South Korea, Japan is key to its growth because its industrial structure is based on importing parts from Japan and assembling them into final products for export.