There is a growing consensus that a revision of the South Korea-China Free Trade Agreement (FTA) is necessary to address the trade deficit with China. South Korea’s trade surplus with China has been shrinking every year until it turned into a deficit in October last year, marking 12 consecutive months of deficits.
According to the Korea International Trade Association (KITA) on Oct. 17, Jeong Man-ki, vice chairman of the KITA, presided over a “Strategic Meeting to Expand Exports in Key Markets” held the previous day at the Trade Tower in the Gangnam district of Seoul. During the meeting, he said, “China’s competitiveness in manufacturing, such as electric vehicles and secondary batteries, has improved very rapidly over the past few years. However, the product permissions of the existing South Korea-China FTA do not take into account changing conditions for our companies and can work against our interests in the medium to long term. We need to analyze these issues and bring up the necessity for revising the South Korea-China FTA with the Chinese side.”
The range of applied items and provisions in the Korea-China FTA is only about 30 percent compared to the Korea-U.S. FTA. There is a need to make improvements that align with the interests of both countries.
South Korea’s trade surplus with China was US$62.82 billion in 2013, but in 2022 it had plummeted to US$1.21 billion, a tenth of the previous year. This year, from January to September, recorded a deficit of US$15.71 billion. On a monthly basis, South Korea’s trade deficit with China, which started in October last year, has been ongoing for 12 consecutive months. Factors contributing to this include declining memory semiconductor prices, weak exports, and a slump in the export of intermediate goods such as petrochemicals.
There is also an analysis suggesting that the competitiveness of Chinese products is strengthening relatively. As a result, there are concerns of a possible reversal in South Korea-China trade dynamics among domestic businesses already operating in China.
The Federation of Korean Industries (FKI) has also called for the need to revise the South Korea-China FTA to address the possibility of an expanded trade deficit with China. It also analyzed that South Korean companies are facing increasing challenges in generating profits in China with China’s rapid economic and technological growth.
The Chinese government also appears to be receptive to the need for a revision to the FTA. Premier Li Keqiang of China expressed a desire to “upgrade the FTA in the direction of increased openness” during a meeting with President Yoon Suk-yeol in September. The South Korea-China FTA negotiations began in 2012 and the agreement was formally signed in June 2015, taking effect in November of that year.