Korea has signed a free trade agreement with China, its largest trade partner. Although some criticize the agreement for its hastiness and lower-than-expected market opening, there is no doubt that the Korea-China FTA will pose both a challenge and an opportunity for the Korean economy as it goes through these harsh times.
However, concerns are rising over the increasing dominance of Chinese products in the Korean market. Cheap electronics, cars, and many other types of consumer goods are poised to flood the Korean market entirely. Korean consumers will inevitably become even more familiar with Chinese manufacturers’ names than they are now.
In the other FTAs it has signed, the Korean government has emphasized the potential advantages in the manufacturing sector while considering some losses in the primary industry to be inevitable. Still, the Korea-China FTA may be different from the others. Korean manufacturers may not be capable of coping with the rapid growth of their Chinese counterparts.
The government has said that it minimized the degree of market openness when it comes to primary industries, so that those engaged in it can enjoy at least some protection. But in fact Chinese agricultural, fisheries, and livestock products have all been around for years. Farming households in Korea have already lost their competitiveness against China. They are likely to face even greater difficulties once the tariffs on various items are cut by the free trade deal.
Nevertheless, the conclusion of the Korea-China FTA is especially meaningful for us in that it is a free trade agreement for economic integration with a very significant economic bloc. The KORUS FTA and the Korea-EU FTA are long-distance and entail high transport logistics costs, but that between Korea and China is Korea's first FTA with a neighboring country. This signifies that Korea and China will undergo close market integration, like the U.S. and Canada via the NAFTA.
Economic integration requires systemic consistency, not only in commodity exchanges, but also capital transactions. As such, both countries need to tear down tangible and intangible business-impeding barriers. This is why the protection of intellectual property rights, investor protection, and the preparation of dispute settlement measures are particularly important in the Korea-China FTA.
The agreement has significance in terms of national security and diplomacy, too. It can function to deter North Korea alongside the KORUS FTA and the ROK-U.S. Mutual Defense Agreement, and in the longer term, can play an important role in inter-Korean reunification.
Some steps still remain until the final conclusion of the deal, including coordination of the details between interested parties and ratification by the National Assembly. During the period, the Ministry of Trade, Industry and Energy, as the main negotiator, has the responsibility to find the best deal available with the corporate sector and the government as a whole.