[OUTLOOK]Free trade with Japan is logical

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[OUTLOOK]Free trade with Japan is logical

Three years have passed since Korea and Japan declared their new partnership, and I believe we finally have come to a point where Korea-Japan ties can bloom. This year Korea and Japan co-host the World Cup games, an opportunity the two nations can capitalize on to further develop their ties into a political and business partnership by signing a free-trade agreement. A trade pact will surely bring about tremendous changes that would ripple through not just Asia, but the world.

The winds of regionalism have already arrived in Northeast Asia. China, Japan and the Association of South East Asian Nations are already working their ways toward the ambitious goal of creating an East Asian economic zone.

But where does Korea stand? The general public understands that free-trade agreements are an inevitable goal to guard Korea's interest in the tumultuous economic and political environment. What we have to decide on now is when, with which country and how to draw up the pacts.

Many candidate countries are already on the list - Chile, with whom Seoul already has started free-trade talks, Singapore, Thailand, ASEAN members, Japan, China and the United States. Among them, I believe Japan is the nation with which Korea should promptly conclude a free-trade agreement, for the following four economic and political reasons.

First, Japan can contribute the most to a dramatic increase in the total volume of Korean exports. A possible side effect of signing a free-trade agreement with Japan is the aggravation of Korea's trade deficit with Japan, but that has been given too much emphasis.

Even if liberalization of trade with Japan further tips the balance in favor of Japan, the free-trade agreement should be given more positive consideration if it can contribute to expanding Korea's overall exports. Increased trade with Japan would strengthen the industrial structures of Korea, which in turn would increase the nation's industrial productivity to its maximum advantage.

Second, if we miss this opportunity, we will eventually pay the price. Many exports by Korea and Japan overlap, and as the two countries continue their fierce competition, sometimes they cut their own throats by dumping their products, leaving each other's export businesses badly damaged.

The pact could be the most effective catalyst for corporations from the two countries to form strategic alliances. If Japan concludes a free-trade pact with Taiwan or ASEAN members first, Korea would be severely damaged.

Third, we should make the most of Japan's situation. In a free-trade pact, what the partners think about the other side is essential. Japan considers Korea the most logical potential free-trade partner.

Japan needs to resolve the problem of overcompetition with Korea in major export industries. To overcome a decade-long economic slump and prepare to provide for its aging society, Japan should recast its sprawling industrial structure, specializing in services and high value-added areas.

In terms of economic scale and technological level, Japan regards Korea as the most suitable partner for a strategic alliance. Obviously, Korea can reap more advantages from the situation if Japan wants an agreement more badly than we do.

Fourth, entering a free-trade agreement with Japan is a politically important strategy. A free-trade agreement with Japan can be a key stepping stone for Korea to enter into other such agreements with the United States, China or ASEAN members. Some argue that a free-trade agreement with China would bring more benefit to Korea than one with Japan. But China is not in a position to sign a pact.

The most realistic strategy for Korea is to set up a free-trade agreement with Japan first. This would lure China into joining the agreement, eventually leading to a free-trade agreement that encompasses all East Asian countries.

President Kim's visit to Japan in 1998 initiated discussions on a trade pact between Seoul and Tokyo. A Korea-Japan business forum on a free-trade pact soon followed, and another meeting will be held in Tokyo next Friday. Representatives from both countries pledged to ask Seoul and Tokyo to pursue a free-trade agreement.

A free-trade agreement between Japan and Korea would serve as a cornerstone for the two countries to form a genuine partnership and would be the first step toward constructing a Northeast Asian economic block. The ambitious vision just needs the determined efforts of the Korean government and the support of the Korea people.


The writer is research director at the Korea Institute for International Economic Policy.

by Hong Yoo-soo

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