[Viewpoint]Protect competition, not competitorsThe negotiation of a free trade agreement with the United States was a milestone for Korea on its way to a global network of FTAs, following its signing of similar trade pacts with Chile, Singapore and Asean (without Thailand). And, though the renegotiation of social and environmental standards is still tough, the political significance of the pact is high, given the alliance with the United States and the recent strains on it.
Much less in the spotlight are the FTA negotiations that began almost immediately after the much-heralded pact with the United States ― the negotiations with the European Union.
Will there be an EU-Korea FTA after the Korea U.S.-FTA? And will this become a cornerstone for worldwide free trade?
Though politically less controversial, the economic significance of the pact with the European Union should not be underestimated. In 2006, the EU states together accounted for $78.6 billion in trade volume, lagging clearly behind China (with more than $118 billion), but beating Japan and the United States.
Additionally, the EU is one of the largest investors in Korea and held the top position again in 2006 with about $5 billion. For the EU, FTA negotiations with non-European partners were an exception ― only the growing feeling of isolation in a world of free trade pacts made the EU reverse its former stance of relying on multilateral liberalization of world trade.
The highest decision-making body of the EU, the European Council, gave a mandate for FTA negotiations on April 22 this year, paving the way for negotiations with India, Asean and Central and Latin America, besides Korea.
In the first round of negotiations in Seoul, the EU expressed an interest in a comprehensive agreement, including investment, public procurement, a competition policy and intellectual property rules. The goal of the EU is “fair” competition, fully compatible with the rules of the World Trade Organization. However, the number of trade pacts alone are transforming world trade slowly, since considerations including different levels of tariffs, exceptions existing in almost all trade pacts and different bureaucratic procedures enter individual companies’ calculations. Trade diversion is inevitable in the emerging “spaghetti bowl” world of trade agreements.
The WTO created a framework for trade that remains in place in countries once they conclude trade pacts. Though not perfect, the WTO greatly enhanced the possibilities for settling trade disputes peacefully. The geographic extension from 120 to 150 member states, representing most of the world’s trade volume, has strengthened the WTO. However, implementation of the rules is still cumbersome and important sectors like agriculture and, in part, services remain. The EU and Korea, with their protectionist agricultural policies, share responsibility for this. The consequence is that in both areas the agricultural structures are rigidly non-competitive.
Also, the burdening of trade pacts with additional requirements such as social and environmental standards complicate the quest for free trade. For example, in the EU, some politicians demand that only companies fulfilling certain conventions of the International Labor Organization should be allowed to participate in public procurement. Such managed “free” trade leads nowhere, since it opens the way for industrial countries and developing countries alike to suspend free trade, with the inevitable retaliation following suit. The goal of worldwide free trade suffers from such a trade pact, as well as the enforcement of such rules, which require a worldwide super-bureaucracy.
If the EU-Korea FTA wants to be successful, it has to concentrate on one thing alone, and that is the protection of the competition, not competitors.
Coherent competition policy rules, against private ― but especially against public ― limits to foreign competition, and effective enforcement are the cornerstones of an FTA compatible with worldwide free trade. This is not “untamed capitalism,” as some critics assert. It is rather a competitive order for bilateral trade, analogous to the national competitive order. Whether the EU-Korea FTA can achieve such an order is dubious: Agriculture, but also other sensitive sectors such as textiles, pharmaceuticals and the automotive sector will create enough tensions, not to speak of the challenge to reduce non-tariff barriers.
The effects of an EU-Korea FTA on world trade are not clear. Even in the case of an agreement largely compatible with WTO rules, the fact that states concentrate their resources on bilateral instead of multilateral liberalization makes progress on multilateral trade more difficult. Given the enormous opportunities of multilateral trade liberalization ― the World Bank estimates that implementation of the WTO’s “Doha agenda” will lift between 66 and 95 million people above the poverty threshold of $2 per day ― the current focus on bilateral trade is certainly discouraging. However, there is the hope that the EU and Korea, though currently more interested in bilateral negotiations and disappointed by the slow progress in multilateral negotiations, will return to multilateral negotiations with the same verve, and with more understanding of each other and their respective trade policies, becoming champions not for exceptions and bureaucracy, but for competition, embracing the sometimes painful but necessary adjustment of the economy toward vitality and competitiveness.
*The writer is the representative in Korea of the Hanns Seidel Foundation, a German organization that supports international understanding through political education.
by Bernhard Seliger