[Viewpoint] Chinese FTA a bittersweet prospect

Raindrops on rosebuds are lovely. But what makes me happy is when my stomach is full of makgeolli and bindaetteok pancakes or wine and a steak.

I prefer bitter Italian wine, and steaks made from American beef are as tasty as local beef. I don’t feel completely safe eating American beef, but I take comfort in the fact that I take many more risks with my health than eating imported beef.

In March, I attended a debate to assess the incumbent government’s performance on external economic policy in its first two years. The debate began on a buoyant note. President Lee Myung-bak’s approval rating was skyrocketing thanks largely to the government’s economic accomplishments on the foreign front.

Then I splashed cold water on the exultant mood when it was my turn to speak. I pointed out that the biggest incident in trade during the last two years was the nationwide candlelight vigil campaign sparked by the government’s decision to begin American beef imports, and that the government should apply the lessons learned from the disaster in preparing for future free trade agreements with other countries.

A local newspaper a while ago attempted to reignite the fiery debate over the public response to the mad cow scare. The subject immediately inflamed an ideological war between the advocates of the vigil movement, who declare it a “great public victory,” and its critics, who call it “the failed left-wing revolt.”

Two years ago, our spring nights in downtown Seoul were full of shrewd bell-ringers leading a large herd of cattle. On the sidewalks were cheering citizens who derived satisfaction from watching the public rebel against an arrogant government.

An economist does not need to parse a political incident.

But I do have an interest in a couple of the motivations behind the vigils. First, the effect of a Korea-U.S. FTA had been disproportionately overstated, and conflict from that had divided society. Second, the market liberalization for beef imports had been pursued too rapidly. If authorities had considered quarantine measures, limiting imports to cows of a certain age or only certain beef parts, the fiery public protests would have been avoided.

Talks between Korea and China to strike a free trade accord have recently picked up speed. Many welcomed the breakthrough amid slow progress in the government’s campaign for a consolidated East Asian economy.

I am among them. A broad non-tariff pact would boost exports of value-added industrial goods to the immense Chinese market while allowing cheap Chinese goods and farm produce into our market, bringing both stimulus and benefits to our economy.

The benefits from a bilateral free trade accord with China will likely eclipse a similar pact with the United States. China’s trade barriers are currently higher than America’s, and bilateral trade with China is greater than with the U.S. Moreover, China is geographically closer.

Some say the merits of a free trade pact with China may be limited because exports to China are intermediate goods that already enjoy low tariffs.

But we must be farsighted, considering spending by Chinese consumers is rapidly growing and turning more high-end. Exports of final consumer products will soon likely benefit from non-tariff measures under an FTA framework.

However, whether a Korea-China FTA can avoid fierce political and public debate when even the Korea-U.S. pact failed to do so remains unclear. Political conflict can leave deep scars on a society and erode economic benefits. But the chance of political exploitation of a Korea-China FTA creating a social divide is lower than for the Korea-U.S. pact.

A Korea-China free trade deal will be bittersweet for liberals, who are pro-China and anti-liberalization, as well as conservatives who favor both market opening and the American alliance, and both sides will have to swallow the pill whether they like it or not.

But a free trade pact between the two markets can intensify the role of large manufacturers, while undermining weaker companies and the agricultural industry.

The government would have to highlight the benefits of cheaper industrial and farm produce to low-income households while at the same time providing relief and support measures for small and midsized manufacturers and farmers to ward off social conflict.

The government also must remember that public anger is provoked more by its overbearing approach in introducing new policies than by the policies themselves.

Most importantly, authorities must try to extinguish the fearful bias against Chinese food products. It should ready scientific evidence to prove the safety of Chinese imports, offer fair treatment to local and imported products and establish a modern quarantine system according to international standards.

It may already be too late. If the authorities ease quarantine measures while free trade talks are in progress, the public may think the government is playing up to China and negotiations may become difficult.

*Translation by the JoongAng Daily staff.
The writer is a professor of economics at Sogang University.

By Song E-young