FTA with China brings challenges

Korea and China hammered out a monumental trade deal in Beijing yesterday. Though both sides reached a lower-level free trade agreement - as seen through a minimal opening up of our agricultural market - the trade pact will most likely have an unparalleled impact on Korea given the enormous bilateral trade volume, the geographical proximity of the two countries and the significance in terms of politics, diplomacy and security. The 1.3 billion-strong Chinese market can serve as a “black hole” or a panacea for our lackluster economy. It all depends on how we deal with it down the road.

The FTA is a great opportunity for both sides. In economic terms, it opens up a huge domestic market for our companies with much less restriction. If we can take advantage of the deal, we can not only overcome our domestic market’s saturation, but we can also develop our economy, which is mired in low growth. On China’s part, the deal provides economic benefits that will come from the expansion of bilateral trade as well as give it a foothold to reinforce economic leverage against the United States in the Asia-Pacific region. Beijing is likely to use the trade pact to gain momentum for the Regional Comprehensive Economic Partnership (RCEP) that China has been pursuing as a counterweight to the U.S.-led Trans-Pacific Partnership (TPP).

The high expectations for the trade deal compared to our previous FTAs come from the fact that China is our largest trading partner in the world. Last year, Korea’s exports to China topped $141.3 billion, a whopping 26 percent of our total exports. This number is larger than our combined exports to the United States, the EU and Japan. China’s share and influence in our trade will grow further. Moreover, China’s geographical closeness offers a definite advantage compared to other economic blocs. The government estimates that when the trade deal is finally approved, Korea can save $5.44 billion in tariffs a year, 5.8 times more than in the Korea-U.S. FTA ($930 million) and 3.9 times more than in the Korea-EU FTA ($1.38 billion).

The Korea-China economic cooperation paradigm will also change. As our exports focused on processing trade will lose their attractiveness, we can only survive when we draw up strategies directly aimed at Chinese consumers. As China is fast catching up to us, as seen in its remarkably strengthened competitiveness in IT, we watched our cellphone and shipbuilding industries lose their edge in the Chinese market. Despite our current relative strength, we can hardly guarantee that our core manufacturing industries like automobiles, petrochemicals, steelmaking and semiconductors, as well as our services industry, will remain the same. The Chinese market is also tough. If you can’t be the world’s No. 1, you can’t survive there. That’s why we must re-examine and reinforce our overall industrial competitiveness.

You can’t always win it all. Many worry that the agricultural market will die when we start to open it up to China. Farmers and politicians are already voicing their vehement opposition. But the government cannot negotiate further as it has already exempted certain agricultural items from the deal. The government said that 30 percent of all agricultural and fishery products have been excluded from the tariff concessions, including sensitive items such as rice, chili, garlic, onion and beef.

Regardless, the government needs to consider ways to raise non-tariff barriers by enforcing stricter quality tests on China’s agricultural products. Despite the state’s levying of high tariffs, we saw a $3.5 billion deficit in agricultural trade with China. If you want to turn a crisis into an opportunity, you should change the way you think. We must continue to export high-quality agricultural products to China, as seen in the amazing popularity of our dairy products in the Chinese market.

The Korea-China FTA will likely have a positive impact on the security front, too. As the economy is increasingly linked to security, the strengthened economic partnership can help ease mutual distrust stemming from this area. With economic power having an upper hand in international politics, we can create an organic cooperation paradigm beyond the realm of military and security thanks to the more than eight million visitors each country recorded last year and the more than 800 inter-country flights per week. China needs Korea as a “buffer zone” that can help lessen worldwide concern about its dramatic rise on the global stage. We can also expect Beijing to play a positive role in resolving North Korea’s nuclear threat and establishing an environment for a unified Korea. The FTA will serve as a litmus test for all these expectations.

However, we must not have excessive hopes or worries. The world won’t change overnight. An FTA is only a trade deal for mutual benefits. As we witnessed in the fierce oppositions to our FTA with the United States, one party cannot enjoy the trophy alone. Ultimately, it all depends on our competitiveness. Cooperating with China on economic terms is one thing and equipping ourselves with industrial competitiveness is another. Korea must not forget that.

JoongAng Ilbo, Nov. 11, Page 34