Ratify the Korea-China FTA
Korea and China inked a free trade agreement (FTA) after announcing they had reached a de facto settlement in November. Under the final deal, the two governments broadened the scope for liberalization, albeit gradually. Both agreed to reduce tariffs by 90 percent, but the cuts will be incremental and take as long as 20 years, and there are numerous exceptions. Clearly, the two governments wanted to get a deal in place as soon as possible.
Since an agreement has been reached, disputing its effect and scope would be in vain. It is more important to concentrate on making the arrangement work for our economy. Even at a restricted pace, tariff reductions in bilateral trade could save $5.44 billion a year. We should maximize tariff benefits to accelerate exports to China. Instead of intermediate trade, Korean companies should directly target the enormous market of 1.3 billion people with completed consumer products. They should capitalize on the popularity of Korean brands in China and Korea’s relatively advanced service sector.
Another merit of the bilateral FTA is its stipulation that 310 industrial products manufactured at the inter-Korean joint-venture industrial complex in Kaesong, North Korea, will bear South Korean origination and be directly exported to China under the reduced tariffs. Products made through other inter-Korean joint venture sites also can be given the South Korean place of origin status for export after review by an offshore processing committee. We can use the FTA to expand sales for products manufactured in Kaesong and gain momentum toward the development of other industrial joint ventures with North Korea. Through the FTA with China, South Korea will be able to bolster economic cooperation with Pyongyang and further encourage the opening of the reclusive state.
The two countries also included a clause on customs zones and third countries so economies like Hong Kong, Macao and Taiwan will be able to join the FTA later. If the free trade pact expands to all Chinese-speaking territories, it could pave the way for the biggest Asian economic cooperation bloc.
The bilateral FTA now requires formal signing and legislative approval. The National Assembly must cooperate fully and approve the deal to benefit from an FTA with the world’s second-largest economy.
JoongAng Ilbo, Feb. 27, Page 30