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[Viewpoint] Toward the FTA 2.0 era

The late Peter Drucker was one of the world’s foremost experts in the area of management theory and practice. By 2001, when “The Essential Drucker” was published, most countries had already followed his advice to focus on their strengths rather than squander resources to compensate for their weaknesses.

In other words, nations were specializing in business areas in which they excelled. This led to increased globalization and more free trade agreements.

At the turn of the 21st century, only two World Trade Organization member states had concluded no FTAs whatsoever. It may come as a surprise to learn that Korea was one of them.

Just a decade later, the latecomer has startled the world, having recently concluded two important trade deals in a row: one with the United States and one with the European Union. These far-reaching agreements will strengthen Korea’s business competitiveness, as well as its political ties with the world’s superpowers.

Korea is what economists call a “small open economy” - one that engages in international trade but is too small to affect world prices or interest rates. We have to work hard to reach larger, more lucrative overseas markets.

Situated between two powerful neighbors, Korea must also overcome what is sometimes called the “nutcracker phenomenon.” To survive in the highly competitive environment of Northeast Asia, Korea has no choice but to attract capital, technology and human resources. By the same token, Korean businesses, products and services need to flow outward beyond its national borders.

In response to these conditions, the Korean government successfully ushered in the “FTA 1.0 era” by aggressively pursuing FTAs with a variety of partners around the world.

These agreements reduce obstacles to the free circulation of resources and make the national economy more open, transparent and attractive to investors. If the deals Korea have already concluded are ratified, Koreans will soon gain faster and more convenient access to more than 35 percent of the world’s economic terrain.

In the course of its FTA negotiations, the Korean government revised regulations governing a broad range of business sectors to harmonize them with internationally accepted norms. Both the Korea-U.S. and Korea-EU FTAs will benefit Korean businesses by attracting funding and technology from abroad.

Another result is that high-end service areas - for example, finance, law and health care - are as open to foreign investment as they are in the world’s most advanced countries. This gives Korea a significant advantage over China and Japan, where the service sectors have not undergone nearly as much liberalization.

If FTA negotiations with China and Japan are successful, Korea can transform itself into the service industry capital of Northeast Asia in much the same way that Singapore became the finance capital of Southeast Asia, Dubai became the finance capital of the Middle East, and the Netherlands became the finance capital of Europe. All those successes were the result of greater openness gained through trade pacts.

Now that the FTA 1.0 era is here, the Korean government is setting its sights on the FTA 2.0 era by pursuing more extensive partnerships with emerging economies. FTAs are already in effect with India, Chile and the Association of Southeast Asian Nations.

A deal with Peru has been concluded and awaits ratification. Feasibility studies are under way for possible FTAs with the Gulf Cooperation Council, the South African Customs Union and the South American association Mercosur.

All these agreements will give Korea access to lucrative markets and valuable natural resources. In return, Korea will share its experiences and expertise in the hope that its partners can repeat the economic miracle it achieved in only half a century.

Exporters in emerging markets have the advantage in areas such as agriculture and low-end manufacturing, where high production costs render Korea less competitive. Emerging economies will also benefit from the knowledge Korea acquired in the course of the Korea-U.S. and Korea-EU FTA negotiations, which led to the restructuring of the Korean service sector.

With more FTAs in place, Korea will be ideally positioned to advance into third countries with its emerging partners and launch joint manufacturing and plant construction projects. Such projects present a chance to utilize Korea’s advanced technology and expertise in combination with the partner countries’ natural resources and skilled labor.

To facilitate these partnerships, the minister of knowledge economy is preparing to appoint a new vice minister for international affairs.

Beginning in June, the new vice minister will oversee industrial cooperation throughout the world with particular emphasis on emerging economies.

The Korean government agrees with Drucker and does not believe a nation can excel in every business field. Instead we welcome assistance from trading partners around the world, especially in Korea’s less competitive fields.

In areas where Korea does have great strength, strategic trade partnerships will help us assist our partners more effectively.

Finally, Korea is a gateway to the 1.5 billion-strong combined market of Korea, China and Japan. This geographical advantage is an enormous draw for any trading partner with a global vision.

*The writer is director general for trade and industrial cooperation at the Ministry of Knowledge Economy.

By Woo Tae-hee