&#91OUTLOOK&#93Pursuing trade talks with Japan

In the wake of President Roh Moo-hyun’s recent visit to Japan, discussions over a South Korea-Japan Free Trade Agreement are expected to be accelerated. By agreeing to facilitate the process of the trade pact, leaders of both countries laid the ground to boost negotiations that had shown little progress. But several tasks should be completed before talks take place.
First, we need to take a look at the fundamental reason negotiations on a free trade pact have stalled. Most important is the fact that it pays for Japan to have South Korea as its third free-trade partner, after Singapore and Mexico.
Given the differences in tariffs between South Korea (7.9 percent) and Japan (2.9 percent) and the level of industrial competitiveness, Japan can gain huge profits through trade. Not only that, with the conclusion of the trade agreement, Japan may keep the hegemony in Northeast Asia by China in check and take this opportunity to find a way out of its economic stagnation.
Compared with Japan, the situation in Korea is not that simple. There are loud voices that a free trade agreement between the two countries should be carried out cautiously because the technological gap with Japan may damage vulnerable Korean industries and exacerbate the already unfavorable balance of trade. Understandably, the strongest opposition comes from such industries as machinery and electronics, which are expected to be more adversely affected by any agreement than other industries.
Both countries should take urgent measures to solve the problem of Korea’s unfavorable trade balance with Japan, the greatest hurdle to a pact. South Korea should improve its investment environment, as Japan demands, whereas Japan should seek measures to guarantee the abolition of non-tariff barriers to trade about which Korea is concerned.
Mr. Roh promised during his visit to Japan that within a year or two Korea’s labor-management culture would be based on mutual trust and cooperation, and that illegal or violent strikes would be sternly dealt with. Japan should find this encouraging. Japan has no reason to look askance on such a proposal because only if Korea’s labor-management environment improves can the nation become a more suitable place to invest. And if not, it has nothing to lose by not investing in Korea.
But efforts to improve the domestic investment environment should go hand-in-hand with a clear declaration by Japan of its position toward the abolition of its non-tariff trade barriers. If we pursue negotiations for a free trade agreement without tangible efforts by Japan to tear down its barriers, the negotiations will only add burdens to our economy. Japan’s non-tariff barriers, found in its laws, institutions, collusive commercial practices and exclusive distribution system, are cited as keeping foreign products out.
Even if it is difficult to change commercial practices overnight, the Japanese government should at least make clear its intention to remove such institutional barriers as the import quota system. In this respect, it is important for both countries to discuss Japan’s non-tariff barrier problem before entering an agreement. Unlike the tariff problem, which the talks will set for resolution in due time, it is highly likely that the non-tariff barriers will be a stumbling block to South Korea-Japan economic cooperation.
Another point to consider is that a bilateral pact should be pursued as a single package which encompasses every industry, including agriculture. Japan wants to begin negotiations with industries on which an agreement can be easily reached -- agriculture is not one of them. Considering that Korea could make $400 million from bilateral agricultural trade, Japan seems to be putting off negations it sees as unfavorable to its interests, pursuing a strategy of profit first.
A South Korea-Japan free trade agreement should not become a variant of the Japan-Singapore Economic Partnership Agreement. In particular, Korea should not accept a deal that excludes agriculture.
We cannot move individually against the trend toward the gradual integration of the world’s economies. But because the basic principle of any free trade pact is to bring balanced profits to both parties, along with Korea’s efforts to improve its investment environment, Japan should also make a sincere effort to open its market substantially. Without such an endeavor, South Korea and Japan will end up being even more separated than they presently are.

* The writer is the president of the Korea Chamber of Commerce & Industry. Translation by the JoongAng Daily staff.

by Park Yong-sung