After agreement with China, time to sell FTA

As questions continue about the effectiveness of the bilateral free trade agreement (FTA) between Korea and China, the government yesterday released explanatory reports containing details of how the trade pact will benefit consumers.

Although the government describes it as a “highly liberalized” trade deal for both Korea and China, the pact excludes automobiles from negotiations for at least two years.

Consumers and businesses questioned the effectiveness of the trade deal because the automobile industry is a major part of the two economies.

“Both countries’ auto industries want to maintain their status quo,” said a report by the Ministry of Trade, Industry and Energy. “Korean vehicles exported to China face a 22.5 percent tariff, while an 8 percent tariff is imposed on Chinese cars imported to Korea. There would be no advantage for Korea even if the tariffs were removed because Korean automakers already produce cars in China that are not subject to tariffs.”

The government judged that eliminating the tariff on vehicles produced in China could have a negative impact on the domestic market.

“Because there is a possibility that European cars assembled in China would be imported to Korea, a tariff removal might adversely affect local automakers as consumers increasingly prefer those imported brands,” the report said.

Basically, the government judged it is too risky to put automobiles on the negotiating table for only a minimal increase in the share of Korean cars in the Chinese domestic market.

With regard to the petrochemical and steel industries, the government addressed why Korea decided to fully open the two markets, while China agreed to only a partial opening.

“Since the petrochemical industry is one of Korea’s competitive export sectors and records a trade surplus with China, the government is confident that our petrochemical companies can easily survive free competition,” the report said.

Last year, Korea exported a total of $23.5 billion worth of petrochemical products to China, while purchasing $1.8 billion in Chinese products.

“By making a concession in this sector, the government was able to get more in the agricultural industry,” a trade official said.

China decided to keep its high-end petrochemical and steel markets closed, but open cheaper markets to Korea.

For most imported steel products, Korea currently levies no tariff, so an inflow of cheaper Chinese steel won’t affect the local market much, the government says.

As for foods, the Korea-China FTA is expected to make Chinese jams and jelly much cheaper when tariffs are removed 20 years after the pact goes into effect. Currently, Korea imposes a 30 percent tariff on those products. The current 45 percent tariff on dried fruit also will be phased out, the government said.

Korea has a maximum 630 percent tariff on sesame seeds, but with the trade pact, Korea will be able to import 24,000 tons, about 29 percent of the total domestic consumption, free of tariffs.

Various Chinese medicine materials also will be subject to tariffs lower than the current 8 percent.

The entertainment market cannot be ignored in the FTA because of the popularity of the Korean Wave. China agreed to open its entertainment market to Korea for the first time to investors interested in building concert halls and performance planning and directing services. Copyrighted Korean broadcast materials will be protected in China for as long as 50 years after the accord takes effect, compared to 20 years at present.

Korean businesses also will be able to create joint ventures with Chinese companies as they will be allowed a stake of as much as 49 percent.

BY SONG SU-HYUN, LEE TAE-KYUNG [ssh@joongang.co.kr]