1. Negotiations
2. Korea

Korea-Singapore FTA: Bridge to SE Asian markets, cornerstone for services liberalization

Korea-Singapore FTA - Bridge to Southeast Asian Markets, Cornerstone for Services Liberalization

Translated from KoPA Newsletter “Globalization and People” #41 (30th November, 2004)

By Jeon Sohi / Ryu Mi-kyung (Korean People’s Action against FTAs & WTO)

Korea-Singapore FTA Finalized

The Korea-Singapore FTA (KSFTA) was first proposed in November 2000, when Korean president Kim Dae-Jung visited Singapore and met Prime Minister Goh Chok-Tong. Two years later, the two countries officially inaugurated a joint study group to investigate into the feasibility of the FTA. The joint study group held three meetings and submitted their report in October, 2003. Based on this report, Korea and Singapore started negotiations from January 2004, and then at the ASEAN+3 Summit held in Vientian, Laos, on 29th November, the Heads of State of two countries declared the negotiations to have concluded. The KSFTA, which had undergone less than a year of negotiations, only awaits official signing and parliamentary ratification.

The KSFTA was promoted by Korea under two main strategies. One is to use Singapore as a bridge to gain more market access in Southeast Asia and strive further towards regional integration, and the other is to use external ‘stimulus’ from Singapore to “strengthen competitiveness” (restructuring and liberalization) of the services industry.

KSFTA: WTO-plus, GATS-plus, TRIPs-plus...

The government, in abiding by its principle of ‘confidentiality’, has up to now merely issued a half-page press release after every negotiation and has not disclosed the text of the KSFTA. Just is the case with Korea-Japan FTA, the only document that has been opened to the public is the joint study report submitted last October. However, this report lays down the premises and directions for the FTA and clearly shows the background, the scope, and in whose interest the FTA will play.

– The report states that the FTA should be ‘WTO plus’ in all areas, from tariffs, services, intellectual property rights to investment, meaning that the KSFTA should strive to be broader in scope and deeper in level of liberalization than the WTO. The KSFTA is clearly in line with the trend of governments to consolidate as many bilateral trade agreements as possible whilst the WTO negotiations remain contentious.
– The report also recommends that the FTA actively eliminate non-tariff measures. At this point, it is difficult to know whether the KSFTA includes explicit clauses that attack labour and other social rights like the KJFTA, since the report does not list the measures to be eliminated. However, it has always been proven true that non-tariff trade barrier both explicitly and implicitly always includes labour, environment or health rights. Also, in view of the fact that Singapore boasts one of the lowest labour standards in Asia, Korean workers can only be seriously concerned about what kind of ‘non-tariff trade barriers’ Singaporean companies investing in Korea will request to be dismantled.
– According to the report, “Services liberalization and cooperation are (...) key elements that would greatly enhance the economic value of the KSFTA to the Korean and Singapore business communities (...) the commitments of each country under the KSFTA should be GATS plus.” The report also recommends that KSFTA “should be as comprehensible as possible” and that the commitments should be scheduled on either a negative-list or hybrid list, meaning that all services should be liberalized except for a stated few. One “recommendation” of great concern is the following: “priority for liberalization could be given to sectors that are either critical to the infrastructure of a country or are the growth areas of the future.” In other words, priority for privatization could be given to essential infrastructural services, and make way for transnational corporations to access public services.
– The KSFTA names de facto capital speculation as ‘investment’, with investment liberalization clauses that provide protection for transnational financial capital and force national economies to face constant danger of economic instability. The report proposes National Treatment, “provisions on expropriation and compensation” for foreign investors, provisions to facilitate investor-to-state dispute resolution, freedom to repatriate and transfer profits, and prohibition on performance requirements, which “frees” corporations from responsibilities such as technology transfer or local employment.
– In emphasizing the importance of intellectual property rights(IPR) in establishing an IT-based economy, the report states that clauses on IPR should be elaborated in a separate chapter inside the agreement. It is thus essential that we scrutinize whether these clauses will lead to infringement of people’s access to medicines and information for the sake of expanding profits for IT or pharmaceutical corporations.

Market Access to Southeast Asia and Cornerstone for Services Liberalization

According to a report issued last January by the Korean International Trade Association, there are concerns that the KSFTA will increase imports in computer and petroleum products. In fact, Singapore already applies 0% tariff for 99.9% of its tariff products. For the four alcoholic beverage products that it does apply tariffs, it will eliminate them by 2010. On the other hand, out of the 100 products that are imported from Singapore, 42 products have zero tariffs whereas 58 have tariffs. Those products that are applied with a high tariff include petroleum-related products, some machinery such as ship engine parts and raw materials. Low tariff products include some computer components and raw materials such as gold, silver and aluminium. These products that are applied with tariffs will gain higher market access in Korea when the tariffs are eliminated through the KSFTA. On the other hand, because Singapore already imports most of its product with no tariffs, Korean export to Singapore is not expected to increase. As the Korean government acknowledges, the KSFTA is not being promoted under the hope of actually increasing trade between the two countries, but to construct a basis on which to facilitate the Korea-ASEAN FTA and also to liberalize services.

Attracting corporations to Kaesung Industrial Park and Gaining Leadership in Regional Integration

The most contentious issue during the seven negotiating sessions of the KSFTA was Rules of Origin(RO). RO refers to rules that stipulate which products produced where will be benefited with preferential tariffs when exported. In other words, it refers to the set of rules that outline under which conditions the products can be labeled “Made in Korea” to benefit preferential treatment. The importance of RO is an inevitable result of the internationalization of capital and production. During negotiations with Singapore, the Korean government pushed for products made in Kaesung Industrial Park (a “free economic zone” in North Korea for South Korean investors) to be labeled “Made in Republic of Korea (South Korea)” and eventually gained agreement from Singapore. So South Korean corporations are able to set up production lines in North Korea, produce there, “import” them back to South Korea, stick a “Made in ROK” label, and then export them to Singapore with no tariff. This RO agreement is basically a method of attracting South Korean companies to invest in Kaesung, particularly small to medium enterprises. On one hand, it was promoted in the political context of “strengthening economic cooperation between North and South Korea” but one other aspect that we must not overlook is the geo-economic context of this RO agreement. In short, South Korean companies can strengthen their cost competitiveness by using cheap North Korean labour and logistics (Kaesung is near the DMZ), expand their access to markets in Asia and eventually gain momentum in the government’s grandiose plan to integrate the region through expansion of neoliberal free trade.

Immediate Counteraction Needed

With all issues agreed upon, the Korean government has concluded its second FTA following the Korea-Chile FTA. While corporations and the government celebrate another breakthrough, it is true that anti-globalization movements have not been able to properly counteract this KSFTA. However, it is clear that the KSFTA, just as other FTAs, is in the interest of transnational capital. Also, the fact that the FTA was promoted under Korean government’s strategy to become the ‘Hub of Northeast Asia’ is evident. While estimating that the KSFTA will not have great economic effect from ‘trade’ in the narrow sense of the word, ie. elimination of tariffs, the government’s fundamental aim is restructuring the services sector, ‘learn’ from and interact with the already a ‘hub’ country (which had already undergone extensive liberalization, the brunt of which is being borne by the people), and thus find a leverage on which to restructure the Korean economy and open all roads for Korean transnational corporations. In short, the KSFTA also has a broader political-economic aim.

Perhaps the government is afraid of the resistance against the FTA from the people, and is thus still not disclosing the agreement. Social movements must strongly demand that the government immediately make the text public, from which we must expose the economic and political implications of the KSFTA. The KSFTA now leaves official signing and ratification in the National Assembly. Movements must stop the KSFTA being ratified until it has been thoroughly scrutinized, and must go further to formulate concrete plans to stop the flood of FTAs that are scheduled under the government’s Roadmap, some of which are to open for negotiation from beginning of next year, as well as the Korea-Japan FTA currently negotiated.

For Reference: Korean Government’s FTA Schedule and Present State