The wolf is coming!

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The wolf is coming!

In the late 1990s, then-Chinese Premier Zhu Rongji pursued China’s entry into the World Trade Organization. His plan was met with considerable industrial opposition. The buzzwords at the time was, “The wolf is coming!” The Chinese companies felt threatened that the Western wolves would prey on them. However, Zhu was firm and argued that China needed to reform and upgrade its industries in order not to get eaten when the wolves do come. His prescription was to apply “shock therapy” and move up the reform by joining the WTO. China joined the WTO by the end of 2001 and enjoyed an economic boom in the 2000s.

Discussions for a free trade agreement between Korea and China are in progress. The modality negotiation will end as early as next month, and the second round of talks will begin. Now, Koreans fear Chinese wolves will raid Korean industries.

The government argues that the IT, automobile and petrochemical industries would benefit from an FTA with China. However, taking advantage of the free trade pact would not be easy. Due to the Information Technology Agreement, most of the semiconductor, mobile phone and computer products are already exempt from tariffs. Hyundai and Kia Motors are already manufacturing more cars locally than it can sell in China. The dominance in the petrochemical industry has obvious limits, considering Chinese companies’ ambitions to expand. The attack of the wolves is a real possibility.

Why are we pursuing an FTA with China? Zhou Rongji’s tactic to deal with the wolf is the answer. We must draft a new paradigm of mutual economic trust based on a free trade deal with China.

So far, the grand frame of the trade between Korea and China has long been a structure of intermediary goods to assembly. The intermediary goods are made in Korea and exported to China, which would assemble them into final products to export to the United States and Europe. Seventy percent of Korea’s exports to China come from intermediary goods. But, having accomplished considerable technological advancement, Chinese companies are no longer importing Korea’s intermediary goods as much. The Chinese economy is sucking in Korean industries and companies. Production plants of LCDs and semiconductors, the top two export items to China, are being taken over by the Chinese.

A free trade agreement should provide a breakthrough. When an FTA with China is signed, we will be able to pave an economic highway to the top three economic systems, the U.S., EU and China. We should create a structure that American and European companies come to Korea to produce high-value products to export to China. Such a structure is possible since we have a “free market order” that China cannot imitate. With solid technical professionals and a stable labor environment, Korea can become an advance base to China, an “FTA hub” that will make the Korean economy attractive.

But the labor-management relationship in Korean industries is mired in disputes, and the government is trapped in the rhetoric of “economic democratization.” Science and engineering majors are still avoided by students. We must wake up and prepare for the arrival of the wolf.

The author is director of the China Institute of the JoongAng Ilbo.

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