Building a consensus at homePresident Park Geun-hye and Chinese President Xi Jinping agreed to work toward a “higher-level” bilateral free trade agreement encompassing effective liberalization and tariff clearance in a broad scope. The pace of negotiations has been slow as Seoul and Beijing began talks in the final stages of the terms of former leaders Lee Myung-bak and Hu Jintao. The agreement by the two new leaders is expected to serve as traction to the negotiations.
A higher-level free trade pact usually refers to an arrangement where trade items for tariff elimination account for more than 90 percent. It would be no different from our current FTAs. Tariff-free level reaches 99.6 percent in the FTA with the EU and 98 percent with the United States. Even when excluding market- and industry-sensitive items, the share of tariff-free items in a trade deal with China would easily exceed 90 percent.
This week’s working-level talks between South Korea and China in Busan picked up vitality following the agreement. Trade Minister Yoon Sang-jick said that a first-round agreement on the basic framework of the trade deal could be possible by August or September. A member of South Korea’s negotiating team said the two sides ironed out many differences following the summit and are close to agreement.
On the economic front, South Korea and China are inseparable. China accounts for 20 percent of South Korean external trade and South Korea is the fourth-largest trading partner to China. A tariff-free pact among South Korea, China and Japan would create an economic bloc accounting for 19.6 percent of the world’s gross domestic product and 18 percent of global trade. If it succeeds in boosting domestic demand, China could also make the shift from being the world’s biggest industrial base to the world’s largest consumer market. A free trade pact with a huge market is vital to bring growth momentum to our slow-moving economy.
But former trade minister Bark Tae-ho was skeptical of a high-level FTA with China due to the potential loss to our farm industry being as high as five times that with the U.S. We hope our negotiation team wisely balances the interests of both countries. We should also avoid making concessions for non-economic factors like promises to help deal with the North Korean nuclear threat. Most importantly, the government must draw consensus from consumers and industries at home. It should draw up a set of protective measures and persuade key industry players. An FTA with China is a very tricky and challenging process. The government must address it with good strategy and negotiating skills.