Freer Trade
The Korea-China FTA was officially signed on June 1, three years after the start of the negotiations. According to the agreement, China’s import tariffs on 7,428 trade items (90.7 percent) are to be eliminated within 20 years. The import amount figures amount to US$141.7 billion and 85 percent.
The Korean government is predicting that the Korea-China FTA will add 0.96 percent to Korea’s real GDP for 10 years to come, while improving consumer benefits by US$14.6 billion and contributing to the creation of 53,805 jobs. These estimates are based on a quantitative analysis of the effect of the free trade deal, which means more positive effects can be anticipated when qualitative factors such as the opening of the service market, promotion of investment, and removal of trade barriers are taken into account. The export of consumer goods like cosmetics, home appliances, and apparel is expected to be boosted as well by the popularity of the Korean Wave.
Still, it is also said that cheaper manufactured goods from China will increasingly take the place of their Korean counterparts. These days, domestic consumption remains tepid in Korea, in spite of the government’s interest rate cut and economic stimulus package, and its industrial production is on the decline, implying that the effect of the FTA could be limited at best.
“Today’s stagnation in exports from Korea to China is due to structural factors such as Korea’s high dependence on processing trade and the rapid development of the tertiary industry in China,” said Jeong In-kyo, economics professor at Inha University, adding, “The FTA’s positive effects are predicted to be rather limited, and small manufacturers and exporters in Korea are likely to face a daunting challenge.”