Simultaneous Push of Multiple FTAs
The Korean government is moving swiftly to sign more FTAs within the first half of this year. In particular, it is focusing on the conclusion of the Korea-China FTA and the accession to the Trans-Pacific Partnership (TPP). In addition, more deals are expected to be signed with Canada, New Zealand, and Indonesia before the end of the first half.
Specific guidelines concerning free-trade items are likely to come out by then for the agreement with China. The ninth round of negotiations was wrapped up in January this year, and the next round is scheduled for March, with the draft for the tariff concession having been exchanged regarding the highly sensitive items.
Unlike in the other FTA talks, the scope of sensitive items subject to protection is determined in the first phase of the negotiations, and then the overall talks are underway in the following stage to allow for concerns on the part of the primary and manufacturing industries. Both of the governments have agreed to a tariff cut of 90% on an item basis and 85% on imports basis for key products.
According to the Korea Institute for International Economic Policy, the Korea-China FTA is estimated to increase Korea’s GDP by up to 3.04 percent for 10 years to come, while boosting the consumer benefits by US$36.58 billion. North Korea’s military threats can be reduced as well when more Chinese companies set up R&D centers or the like in Korea in the wake of the conclusion.
In the meantime, the Korean government is going to make the final decision soon on its participation in the TPP, which is a regional trade agreement covering 12 Pan-Pacific countries. The Ministry of Trade, Industry and Energy has had bilateral talks since late last year to collect opinions of the members, meeting with Canada on Feb. 7, Australia (11th), Brunei (13th), New Zealand (14th), Japan (early March) and Vietnam (early March). It also had discussions with the United States, Mexico, Chile, Peru, Malaysia, and Singapore in January this year, too.
The TPP’s goal is tariff elimination and economic integration in the Trans-Pacific region. The partnership covers almost all issues concerning free trade, including commodity transactions, rules of origin, trade relief measures, sanitary inspections, technical barriers, intellectual property rights (IPR), government procurement, and economic policy. A mega-scale economic bloc is formed when the TPP is concluded, as the number of the combined population amounts to 792 million and the total GDP reaches US$27.5 trillion, which is equivalent to 38% of the international GDP. The members of the TPP are working on regulatory principles commonly applied to themselves so that they have the same trade rules in such fields as investment, tariff cuts, IPR protection, labor and environmental regulations, small and mid-size enterprises, and state-run enterprises.
Additionally, the Korean government’s FTA talks with Canada, New Zealand, and Indonesia are yielding some tangible results. The discussions for the Korea-Canada FTA had been in progress over 13 rounds between July 2005 and March 2008, but were halted due to the difference in the opinions on primary industry products. However, the 14th round kicked off in Seoul in November last year, and the following round finished last month in Canada. Since Korea and Canada have complementary economic structures, the conclusion of the FTA is expected to result in increasing car exports from Korea.
The talks with New Zealand have been resumed in four years. The ministry met with its counterpart in Wellington between February 17 and 21 for the fifth negotiations. The talks are predicted to act in favor of the government’s efforts for the TPP, since New Zealand is a member of the partnership.
Once the Comprehensive Economic Partnership Agreement (CEPA) is signed with Indonesia, the Indonesian market will be fully open for Korean companies, and their competitiveness vis-à-vis their Japanese rivals can be boosted. The CEPA has the same effects as an FTA but the former is a wider concept, because it covers overall economic exchange such as the transactions of commodities and services, investment, and economic cooperation. It is said that the partnership agreement will become effective within this year.
Potential Concerns over Simultaneous Conclusion
Nevertheless, not a few economists are voicing concerns over the simultaneous progress. Particularly, the protection of vulnerable sectors such as the agricultural and fisheries industries is likely to be a hot-button issue. All of China, New Zealand, and Vietnam are characterized by highly competitive primary industries.
The TPP entails more complex calculations in that it has 12 members. Even some of the manufacturing-sector segments may be affected when the Korean market is opened to manufacturing giant Japan. In this case, manufacturing segments like automobiles and industrial components could be subject to some losses.
Another problem is the lack of trade experts in the ministry. It was given the role as the national trade supervisor after the inauguration of the incumbent administration, but most of the personnel in charge of foreign affairs and trade are expected to return to the Ministry of Foreign Affairs. Then, it has to be staffed with new dispatch workers or its own non-experts. There may be some hiatus in the management of trade work with the conclusion of the agreements imminent.