[VIEWPOINT]Surviving in the New Trade Environment

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[VIEWPOINT]Surviving in the New Trade Environment

A fundamental change has occurred in the international trade environment in the past several years, blurring the long-term prospects for our exports. It is time to review our trade strategy.

Economic blocs have been shaped throughout the world and the size of the blocs is becoming colossal. As a result, South Korea is losing negotiation power and weight in the international market.

In the mid-1990s, 15 European nations formed the European Union, which in terms of its economy surpasses the European Economic Community, the predecessor of the EU.

The EU is already in the final stages of recruiting about 10 former communist countries in eastern and central Europe, which means the entire continent of Europe will be turned into one economic zone.

In North and South America, 35 nations recently kicked off the Free Trade Area of the Americas, led by the United States, in the wake of several free trade agreements which opened bilateral markets. We are now watching gigantic economic blocs emerging in Europe and on the American continents.

Along with this trend toward free trade areas, our neighbor China has emerged as the seventh largest economy in the world.

China will spur its economic growth when it succeeds in joining the World Trade Organization within a few months. China is projected to be the world's biggest national economic entity, exceeding the United States, by 2025. As a result, China itself will turn into one enormous economic bloc.

Trade volume between Europe and countries in the Americas is likely to expand, as is trade between China and Japan. Europe, China and Japan are each single markets that have high potential purchasing power.

Countries of the American continents will lure investment capital due to those countries' high economic efficiency. This investment will result in an expansion of exports from there.

But there are some serious obstacles that a series of recent trade disputes highlighted.

The United States launched an investigation into damage to its domestic steel industry caused by steel products imported from South Korea, and may impose safeguards.

The European Union plans to file complaints at the World Trade Organization in the near future criticizing alleged Korean government subsidies to the shipbuilding industry.

South Korea took emergency sanction on garlic imports from China and China responded with retaliatory measures.

This trade conflict between the two countries is accompanied by China's discontent with its persistent trade deficit in trade with Korea.

Japan also is preparing to impose antidumping measures against South Korean polyester exports.

Trade disputes are very common. But it is likely that the four major economic blocs are likely to fortify protective trade barriers and escalate their reactions to other economic blocs' protectionism. In the future, we must keep an eye on this trend.

The European Union and the U.S.-led bloc will push this kind of trade assault because those economic blocs are inward-oriented. China's retaliatory measure in the garlic dispute was 50 times the value of the garlic exports in question. Its action gives us an advance notice that China may be unilateral in its trade relations.

Japan can be more offensive in its trade policy due to its economic difficulties and the emerging rightward-turning tendencies of its people.

How can we react to this aggravated trade environment? First of all, we have to take the lead in consolidating the multilateral trade rules of the World Trade Organization.

Economic great powers can be compared to a giant Gulliver and multilateral trade rules can be compared to the ropes that tie up Gulliver. We have to check the economic great powers with multilateral trade rules and solve trade disputes through those multilateral rules.

Second, it is desirable for us to join at least one of the existing economic blocs or to take the initiative to form an economic bloc ourselves. The Korean government should pursue a free trade agreement with the United States, the European Union, Japan, China or ASEAN.

We can refer to similar strategies of Chile and Mexico. Chile has 17 free trade agreements and Mexico has 25, including an agreement with the European Union.

Third, to implement these two strategies, our industry policy should be open, and our trade policy should follow the spirit and rules of the World Trade Organi-zation.

To achieve this goal, the government should set up visions for externally oriented development and confirm its intention to restructure our economic system.

Our people need to support such strategies, including the ongoing free trade agreement negotiation between South Korea and Chile. That agreement is a symbolically important touchstone, even though it is small one.


The writer is a senior advisor at the Institute of Global Economics and former ambassador to the OECD.

by Yang Soo-gil

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