[Viewpoint] Two different calculations for one

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[Viewpoint] Two different calculations for one

The perennial debate over the Korea-U.S. free trade agreement has resumed, again. This time, the reason was the renegotiation that ended last weekend. While the opposition parties insisted that the revised deal must be shelved immediately, the ruling party made it clear that the agreement must be ratified at all costs.

Civic groups were split over the issue, while those opposing the deal said Korea had suffered humiliation by making big concessions. According to opposition politicians, the United States will gain at least 4 trillion won ($3.5 billion) from the renegotiated deal, while Korea will gain only 400 billion won. If the calculation is correct, Korea will suffer a loss 10 times greater than it will gain, and there can be no question but to scrap it.

The administration and the ruling party, however, have a different calculation. They said the United States will gain about 500 billion won from the renegotiation, while Korea’s total gains will be 36 trillion won. They said the FTA will take effect three years earlier than its original schedule because the renegotiation was concluded.

According to the government and the ruling party, Korea will enjoy about 12 trillion won of gains every year once the FTA goes into effect. Before the renegotiation, the deal was to take effect in 2015. But with the renegotiation, the FTA will now take effect in 2012. By advancing the timing by three years, Korea will enjoy 36 trillion won in gains, they said.

It’s like two tables at a restaurant are paying different bills for the same tuna dish. What’s going on?

First of all, the two sides have different perspectives. While the opposition parties only talk about the results of the renegotiation, the ruling party is talking about the free trade agreement in general, comparing it with the original pact agreed upon three years ago. The two sides are only seeing what they want to see. They both talk about the opportunity costs that benefit their arguments.

The opposition parties said the pact would have been better if the elimination of car tariffs was not delayed by four years, while the ruling party said Korea would have lost so much more if it had to wait another three years for the FTA to take effect.

It is as if one side is calculating the cost of a tuna dish when the ingredients are provided free of charge, while the other side is calculating the bill by including the cost of catching the tuna with a deep-sea fishing boat.

Who will be right?

It is not easy to make a judgment. An economy is like a living organism, and it is hard to experiment with it. Even if we do, it is measuring the future with a yardstick from the past, and we often fail to get the right answer.

The outcome largely varies depending on which variables we factor in. The Korea-U.S. FTA is an even more complicated issue because there are so many noneconomic factors.

In addition to national security, the flammable debates between anti-American and pro-American sentiments and between a servile attitude and independence must be factored in. If the controversy grows, just like the mad cow disease debate in 2008, the aftermath will be catastrophic.

In such a complex situation, it is a good alternative to use a neighbor’s calculation method. If I buy a piece of land, and if my neighbor feels envious, that probably means the purchase was a good deal. When the neighbors are rivals, the assumption has more grounds.

China and Japan are such neighbors of Korea, and Japan appears to be feeling envious of the Korea-U.S. FTA.

The Asahi Shimbun estimated that Japan will lose about 5.2 trillion yen ($62 billion) from the Korea-U.S. FTA by 2020. Nihon Keizai Shimbun expressed frustration that Japan could not be Korea. Although the media reports were intended to warn the Japanese people, the tones were still very intense.

Japan is overly concerned about Korea’s FTA, calling it the modern day expansion of economic territory. Two months ago, NHK in Japan aired a special program on Korea’s FTAs, marking the countries that had formed FTAs with Korea on the world map.

At the press conference in early October after the Korea-EU FTA signing, a Japanese reporter’s first question was, “Why was Korea chosen as the first partner, and does the EU have any intention to sign an FTA with Japan?”

The Japanese cabinet predicts that the country’s gross domestic product will go down by up to 700 billion won annually if Korea expands its FTA efforts to China.

Although the tone was softer than Japan’s, China is also concerned about Korea’s FTAs. According to the Global Times, a newspaper affiliated with the People’s Daily, the Korea-U.S. FTA will reinforce the Korea-U.S. alliance, while Korea’s dependency on China will likely be reduced.

Until the National Assembly ratifies the pact next year, there will be many arguments about Korea’s gains and losses. The nation’s future is dependent upon which method we choose to calculate these gains and losses. At the very least, I hope we won’t choose a method that will make Japan and China happy.

*The writer is the business editor of the JoongAng Sunday.


By Yi Jung-jae
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