For China FTA, only fools rush in

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For China FTA, only fools rush in

During his visit to Beijing this week, President Lee Myung-bak agreed with his Chinese counterpart Hu Jintao to initiate domestic procedures for the start of talks on a bilateral free trade agreement. This is the first time that the heads of the two countries have reached a formal consensus after the issue was first raised eight years ago.

But Beijing appears more eager than Seoul to get the ball rolling. Chinese officials have been calling for the process to quickly get underway by focusing on mutual benefits first and leaving the thorny issues for later. China has been trying to establish a customs-free trade bloc with Southeast Asian nations as well as Taiwan and Singapore. It also wants to strike a deal with South Korea, which has already ratified free trade deals with the United States and European Union for greater access to the world’s two largest markets.

Now Lee has seemingly changed tack by aggressively pushing for the two countries to free up trade. However, he may have a hidden agenda beyond the immediate material gains, with security also likely to be high on his agenda. If China and South Korea were linked with such a deal, it would be harder for Beijing to side with Pyongyang and tolerate North Korean provocations.

But the government must nevertheless be prudent in moving to sign a deal with China. Once cheap produce from China swamps the local market, it could ruin domestic agriculture and livestock businesses. China may also resist opening up its financial industry and services sector, insisting that these sectors are relatively underdeveloped, while its protection of intellectual property rights remains murky at best. Any deal must be thoroughly examined and prepared before negotiations begin. The government should also bear in mind that formal talks are not likely to start until the next administration takes over following December’s presidential elections. If it tries to speed things up, it could exact protests far greater than those which arose in opposition to the Korea-U.S. FTA.

Moreover, the two countries should not expect to sign a broad free trade deal, and some sensitive areas should be omitted or granted a grace period. The success of a free trade deal is 90 percent reliant on how businesses capitalize on the new opportunities at hand and just 10 percent on diplomatic efforts. Seoul must listen to the voices of vulnerable industries and work to build a consensus at home first. It should move slowly and not make any mistakes or court controversy.
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