Analysis: South Korea strives for FTAs
Analysis: South Korea strives for FTAs
By Jong-Heon Lee
UPI Business Correspondent
Published November 30, 2004
SEOUL — South Korea, which has long remained out of the race for free trade zones, has geared up for high-profile efforts to jump on the free trade bandwagon, which could ensure more benefits to its export-driven economy.
President Roh Moo-hyun, who was mainly supported by anti-American, younger Koreans, has emerged out of the nationalistic shell, and used his Asian trip this week to seek more free trade agreements, vowing to turn his country more open economy with less trade barriers.
In Laos, Roh met leaders from the 10 members of the Association of Southeast Asian Nations (ASEAN) and adopted a joint declaration in which they agreed to launch FTA negotiations next year with a target of concluding the accord in two years.
"We are convinced that the creation of a free trade zone between South Korea and the ASEAN will facilitate both sides’ economic development, improve the quality of life and bring benefits to the overall region in the long term," the joint declaration said, according to South Korean officials.
The declaration calls for efforts to seek the highest possible level of liberalization in the envisioned free trade pact and scrapping tariffs on at least 80 percent of the total trade items by 2009, officials said.
A government-run think tank, Korea Institute for International Economic Policy estimates that an FTA with the ASEAN would boost South Korean gross domestic product by $14.6 billion in short term gains and $18.2 billion in long-term effects.
"The changed situations have forced us to expand free trade zones as a national strategy," Roh told journalists. "We will seek free trade accords more aggressively," he said. "It is imperative for the country not to be left out of the global trend for bilateral free trade."
The agreement with ASEAN leaders came just one day after Roh sealed an FTA with Singaporean Prime Minister Lee Hsien Loong in a hastily arranged summit meeting on the sidelines of the ASEAN summit in Vientiane, Laos.
The treaty will undergo some fine-tuning before it is signed and ratified by the respective parliaments. Both sides are hoping to put it into effect by mid-2005.
The accord would give South Korean companies greater access to Singapore’s construction market and government procurement contracts. South Korea’s leading conglomerates such as Samsung and LG are already poised to expand their operations in Singapore to strengthen their market presence in Southeast Asia.
South Korea also could tap the city-state’s world-class know-how in finance, logistics and shipping as Seoul is trying to transform itself into a regional hub. Singapore is South Korea’s seventh-largest export destination, with annual trade volume at $8 billion.
South Korean officials and exporters also praise the deal with Singapore as paving the way for the country to conclude more FTAs with other Asian nations, such as Japan and China.
"The conclusion of an FTA with Singapore will further strengthen economic ties between the two countries and serve as a stepping stone for South Korean businesses’ expansion into Southeast Asian countries, including those of ASEAN," the Korea International Trade Association said in a statement.
South Korea had lagged far behind other members of the World Trade Organizations in free trade accords at a time when the FTA wave was spreading in Asia and elsewhere. South Korea was the only of two WTO members, along with Mongolia, that are not part of a free trade agreement, before it signed an accord with Chile in February.
Now, South Korea is in negotiations with Japan, Canada, Mexico, India and the European Free Trade Association (EFTA).
Talks with Japan were started late last year, though have remained in a stalemate over oppositions by less competitive industries in both sides. South Korea seeks to sign an FTA with Japan by 2005.
Tokyo wants greater access to manufactured goods, while Seoul is demanding the opening of Japan’s agricultural market and various non-tariff barriers. The two sides are working out differences in service sector liberalization, investments, intellectual property rights and government procurements.
South Korea plans to hold full-fledged talks with the EFTA early next year. Seoul officials say a possible FTA with the EFTA would increase South Korean exports by 26 percent annually and imports by 27 percent.
An agreement with the EFTA is considered as a prelude to non-tariff accords with the European Union because the EFTA consists of four European countries — Iceland, Liechtenstein, Norway and Switzerland - already has an FTA with the EU.
South Korea has also conducted joint research with Mexico and China on the feasibility of FTA negotiations. South Korea will move to set up FTAs with India, Canada, and members of the South American common market Mercosur within the next few years, Seoul officials said.
Minister for Trade Kim Hyun-chong vowed to made all-out efforts to expand free trade zones. "South Korea was a late starter in signing FTAs, but it would be a leading country in the region with more FTAs than rivals. We will make more efforts to conclude more FTAs as early as possible," he said.
"Bilateral free trade accords are part of a trend that we cannot afford to ignore," said Kim Jae-cheol chairman of the Korea International Trade Association. "Free trade is good, and inevitable, but benefits only those who are fully prepared," he said.
The South Korean economy, the world’s 12th-largest economy, is heavily dependent on exports. The total volume of its external trade amounts to 70 percent of the country’s gross domestic product. Economists say South Korea has been a primary beneficiary of economic growth derived from market liberalization.
"The FTA is a matter of survival of our trade-led national economy," said Ahn Se-young, a professor at Sogang University in Seoul. "Bilateral trade pacts are essential to avoid being isolated in global commerce."
