Seoul remains divided over benefits and drawbacks from the free trade pact

This is the fourth in a series of articles to mark the 20th anniversary of diplomatic ties between South Korea and China. ― Ed.


With discussions on a free trade agreement between South Korea and China in full swing, some doubt how much the deal might benefit Korea.

After initiating a joint research project in 2005, the neighboring countries kicked off the first round of negotiations in May in Beijing and the second round on Jeju Island last month.

The third round is scheduled to take place in August in China, and Korea expects the deal to be concluded as early as 2014.

Seoul and Beijing, however, still have much to agree on before inking the deal.

During the three-day, second-round negotiations, the two countries exchanged views on how to define ultra-sensitive, sensitive and general items, and agreed to separate industrial and agricultural products in deciding the details of the FTA. Ultra-sensitive and sensitive items will be excluded from the tariff concessions or will be subject to only partial tariff cuts.

“Korea is sensitive about agricultural and fisheries products, while China is sensitive about certain industrial goods. Considering this sensitivity, the two sides agreed to divide the agricultural and industrial goods, and handle them separately,” Choi Seok-young, then Seoul’s chief FTA negotiator, said after the negotiations.

The two countries also exchanged views on how to divide chapters in the FTA during negotiations. Korea said it wants separate chapters on government procurement, competition, labor, e-commerce and environment, but China is reluctant, saying it has never put them under separate chapters in its FTAs with other countries. 

Choi also noted that it will not be easy to agree on the service and investment categories either, since they are directly linked to legal and systematic matters.

Voices are also split within the nation about the deal. Here, the agriculture industry is the most strongly opposed to the FTA, as expected. Farmers held protests throughout the nation last month, ahead of the second round of talks, arguing that the FTA will hurt Korean farmers.

According to a report in January by the Korea Institute for International Economic Policy, the nation’s agricultural production may decrease by 14.26 percent compared to 2005, which would bring a loss of about 3.3 trillion won ($2.9 billion) per year. The figure is four times bigger than that expected by the government as a result of the Korea-U.S. FTA, which was 815 billion won.

Chinese agricultural products are cheaper, although the range of products the two countries grow is almost the same. The Korea Rural Economic Institute forecast earlier this year, given that the import tax rate will be cut in half, agricultural earnings will decrease by a total of 2.7 trillion won per year.

Experts stress that discreet decisions on ultra-sensitive products are needed.

“One way could be to exclude vegetables like ginseng, red peppers, garlic, radishes and cabbage from the agreement,” suggested Moon Han-pil, a researcher at KREI.

In a wider perspective, some voice that the Korea-China FTA is essential to capitalize on China’s surging domestic demand, which could boost Korea’s GDP. After ten years under the FTA, Korea’s GDP could jump by 3.04 percent, according to KIEP.

KIEP also expected that in that time, the chemical industry could gain $4.87 billion, textile industry $1.98 billion and automobile industry $1.03 billion.

Some experts, however, have different opinions about Korea’s net gains from the FTA. Kim Young-han, professor at Sungkyunkwan University, pointed out that since the industrial structure of the two countries have become so similar, the FTA may not give Korea much opportunity for growth unless it becomes a high value-added production market.

“Korea needs to undergo restructuring procedures to create more high value-added products and establish a social security net to pass through the transition period,” said Kim.

What the Trade Ministry is hoping for most, however, is to attract more foreign investors to Korea through the FTA.

“Our biggest goal is to have more investors invest in Korea thinking ‘labor costs may be a bit expensive in Korea but we can export to China through Korea without tax,’ and therefore create more jobs (here),” Korean Trade Minister Bark Tae-ho said last month.

So far, Korea has inked FTAs with Chile, Singapore, the EFTA, India, the EU, Peru, the U.S. and most recently Turkey. Negotiations are under way with Vietnam and Colombia.

By Park Min-young  (claire@heraldcorp.com)