[VIEWPOINT]Korea should tout regional tradeThe economic integration of member countries of the European Union is almost completed, and the North America Free Trade Agreement, led by the United States, will embrace all South American countries by 2005. Other nations are scrambling to sign free trade agreements to expand trade partnerships because the gains of forming regional economic blocs have become tangible.
President Kim Dae-jung suggested creating a fee trade area in East Asia at a meeting last November in Brunei between the Association of South East Asian Nations members and Korea, China and Japan. Shortly after that conference, China and ASEAN agreed to sign a free trade agreement within 10 years. Japanese Prime Minister Junichiro Koizumi also proposed to five of the ASEAN member countries to form a comprehensive free trade area, including cultural and technology exchanges, during a tour of the region at the beginning of the year.
This year, China will continue to seek foreign investment and continue to make inroads into overseas markets. The Chinese government will invite high-profile government officials of the 10 ASEAN member countries to Kunming on April 1 to discuss the details of forming a trade bloc. China wants to attract $10 billion of foreign investment by 2010.
Free trade agreements with other countries would help expand overseas markets, attract more foreign capital, secure footholds for exports and introduce advanced management strategies and technology. They would also force revisions of domestic economic regulations to meet global standards; Korea is now in the process of restructuring its corporations to meet those international standards.
Forming free trade areas on the regional level is an inevitable step for Korea as part of its open economy policy. Korea and Chile are in talks to strike a free trade agreement as well. Chile is the first nation with which Korea is conducting free trade agreement talks. Negotiations to form bilateral free trade areas require time, and many nations conduct FTA research and negotiations with more than one negotiating partner at the same time, as was the case with the United States and Canada and the United Sates and Israel. Japan is considering a trade partnership with Chile and Mexico now that it has struck a free trade pact with Singapore.
Korea is also considering a free trade agreement with Mexico, while Chile-Korea negotiations are in progress. Trade between Korea and Japan contributed greatly to the remarkable economic growth of Korea in the past 40 years. Taking into account the importance of economic cooperation between Korea and Japan, economic research institutes in the private and public sectors have conducted basic studies on how to form a free trade area with Japan. Recently, Korean agricultural interests have begun to favor the notion of forming a free trade zone with Japan and business circles of the two countries have found common ground, which led them to submit proposals to their governments to strike a deal.
China may join any trade bloc that Korea and Japan form. It is also possible that the three nations could conduct talks at the same time. If a trade bloc of China, Japan and Korea were linked with ASEAN, the framework of East Asia economic cooperation would be in place.
Korea and Japan are expected to sign a bilateral investment treaty soon, despite the uneasy historical relationship between the two nations. They have agreed to swap up to $7 billion of their currencies at a prearranged interest rate when liquidity problems occur. This is a regional move to defend local currencies that may come under attack by speculators without having to turn to the IMF. Financial officials of China, Japan and Korea are devising a multilateral supervisory system on the movement of funds for this purpose.
If Mr. Koizumi's Seoul visit paves the way for the Korean and Japanese governments to begin FTA talks that eventually result in a free trade agreement, the relationship between the two nations would be put on a more mature basis.
No matter with which nation Korea first strikes a free trade agreement, it should be kept in mind that such an arrangement does not automatically guarantee economic gains. Free trade areas only work well if countries conduct corporate restructuring to enhance their competitiveness and learn profitable tactics.
The trade strategy of the past - East Asian nations focused on trade with the United States - is reaching its limits. The economic mechanism of the 21st century is to create multilateral demand within regional blocs. A free trade agreement among Northeast Asian nations may spur the trend. Korea should actively lead such a drive for economic partnerships.
The writer is the president of the Korea Institute for International Economic Policy.
by Ahn Choong-yong