In the 1980s and ’90s, housewives from Korea traveling to Japan made sure to purchase a Zojirushi rice cooker, which, with its iconic elephant logo, was beloved by middle-class Korean families. Sony’s Walkman was another hot seller among youngsters and hipsters, eager to free themselves from the confines of classrooms and cubicles.

These items were so popular in Korea, and such a threat to nascent domestic companies, that they were banned from being imported. The painful structural reforms that were part of the International Monetary Fund loan conditions in 1997 involved lifting this ban, leading to Korea’s market being flooded with Japanese products.

Ultimately, this had the effect of making Korean companies more globally competitive. Nowadays, Chinese tourists who roam shopping malls in Seoul stuff their oversized bags with Korean products, including Cuckoo rice cookers ― now must-have items.

Amid the accelerating pace of global economic integration through free-trade pacts and World Trade Organization treaties, mega-sized trade agreements will dominate East Asia’s economic landscape in 2015 and beyond, experts say. The agreements are expected to be a catalyst for technological innovation, commercial vitalization and institutional upgrading, despite the prospect of a handful of sectors and small-and-medium-sized enterprises losing out.

In the international academic symposium “The First China-Japan-Korea Cooperation Dialogue” hosted by the East Asia Foundation in November last year at Plaza Hotel in Seoul, leading East Asian scholars discussed ways to “find measures to solve common problems faced by (the three countries), to disseminate them for policy impact and promote peace and prosperity in the region.” 

Professor Ahn Duk-geun, who teaches international trade law and policy at Seoul National University’s Graduate School of International Studies and participated in the seminar, said that Korean companies should reap the benefits of free trade by enhancing their productivity and competitiveness, and turn the threat of global competition into an opportunity.

“There has never been a case in the last half a century where our economy progressed by preventing, not facing, global competition from entering our market,” Ahn said in an interview with The Korea Herald in his office in late December. “Free trade is not merely about lowering or eliminating tariffs. It is equally about facilitating the movement of capital, people, ideas and services.”

The benefits of an enlarged market may not be as visible or impressive in the short term, Ahn added, but its main long-term advantage lies in forcing companies to reinvent themselves following global standards, Ahn stressed.

“The days of making copycat counterparts are over. With Chinese and emerging economies rapidly upping their capacities to chase and converge with Korea, we have no other option but to upgrade our technologies and business practices,” Ahn said. 

With the “very realistic possibility” of Korea following Japan’s “lost 20 years, soon to become the lost 30 years” ― characterized by an aging society, low growth and depressed consumer sentiments ― Korean President Park Geun-hye’s much-touted “creative economy” road map hinges on integrating the Korean and world economies, and inventing high-value-added products and services, according to Ahn.

“A free-trade pact between China, Japan and Korea will come after the signing of the Trans-Pacific Partnership (a regional trade and investment treaty involving 12 countries in the Asia-Pacific region), expected to reach an agreement early this year,” Ahn said. “The China-Korea FTA, made official last November, will be the mainstay of the trilateral pact, with Japan playing a minor role to protect its agricultural industry.”

Panelists at the seminar said that the steel, transport, machinery, automobile and electronics sectors in Japan and Korea are expected to benefit from the trilateral trade, while many agriculture and small and medium-sized firms are likely to suffer losses. To minimize the damage, establishing a safety net and providing subsidies are necessary, they said.

Rep. Choo Mi-ae of the New Politics Alliance for Democracy party called the FTA a “double-edged sword,” noting that “the South Korean government’s rush to ink as many free-trade deals as possible without objectively considering their consequences shattered the rosy expectations of financial rewards.”

“The biggest victim of Korea’s free-trade (pacts) has been the agricultural sector,” Choo said. “But our government treated farmers as rebels or free riders, while failing to provide a long-term framework for their survival.”

Choo added that the industry, as a “valuable public good,” provides a number of benefits, including food security, national land management and environmental protection.

“Trade and agriculture need not be traded off against each other. The Korean government must break from its conventional approach to achieve sustainable growth,” Choo cautioned.

Meanwhile, Ahn emphasized that “FTAs are not only about economic gains and losses. Politics, diplomacy and security concerns are intertwined.” He added, “New geopolitical dynamics have become more complicated with the rise of China; Korea, which has managed to tread the middle ground, is now pressured to choose sides between China and America.”

Academics have long pointed to the “Asian Paradox” ― a plethora of commercial exchanges despite a dearth of political trust ― as a product of historical discord between China and Japan, and China and Korea.

“Unlike the European Union, which put its bloody history behind it for a common prosperous future, China, Japan and Korea wasted the last 70 years in terms of genuine reconciliation and progress,” Ahn said. “Politicking demagogues have exploited the people’s sentiments by arousing nationalism. Regional cooperation has been nonexistent on their agenda.”

Ahn noted that following the 2008 global financial crisis, which deepened the global income divide, there has been an upsurge of resistance to neoliberal policies aimed at eliminating government intervention in the economy.

“As amply demonstrated by the popularity of the argument of French economist Thomas Piketty, or people’s outpouring of rage over the Korean Air ‘nut rage’ incident, people are not so forgiving about the privileged and better-off,” Ahn said. “It is necessary to protect the vulnerable sectors, but the compensation must lead to gradual restructuring of the economy, to make it more efficient and competitive, rather than doling out no-strings-attached subsidies.”

By Joel Lee (joel@heraldcorp.com)