Time for an FTA with Japan

The government came under fire when Korea failed to get in on the Trans-Pacific Partnership (TPP) which concluded in early October with 12 Pacific Rim countries that account for 40 percent of the global economy and 25 percent of global trade on board.

President Park Geun-hye indicated Seoul could join the TPP during summit talks with Barack Obama. What had stopped the world’s eighth-largest trading country from becoming a part of the world’s largest free-trade zone? We should contemplate the reasons to map out a future strategy.

The TPP is no longer a U.S. trade extravaganza since Japanese Prime Minister Shinzo Abe declared participation in February 2013. President Park then just swore an oath. Later in the year, Seoul offered to join the negotiations, but Washington reportedly declined, saying the talks were already at a late stage. But it wasn’t impossible to be part of the pact at the time since the U.S. administration had not gained the trade promotion authority, a fast-track approval of international trade bills without prior congressional consent. Obama won final Senate approval of the fast-track authority in June this year. Final-stage negotiations only picked up speed then.

We cannot believe Seoul gave up the TPP just because Washington did not approve it. It might not have pushed ahead to join the trade agenda led by the United States for fear of stoking anti-American sentiment in Korea during the honeymoon stage of the Park administration. It also did not want to upset the country’s largest trading partner, China, which was intentionally excluded from the trade framework.

If the TPP was victimized by the Korea-China free trade deal, we cannot explain why the FTA agreed to between Seoul and Beijing failed to pass the National Assembly. Even now, there is no sign of political will and drive to ratify the FTA that could allow Korea to make bigger inroads into China, which accounts for a quarter of Korean exports, and to make headway into the enormous service sector of the world’s most populated nation, at a time when the economy is weighed down by sluggish domestic demand and slowing exports.

Seoul toned down the significance of the TPP, saying Korea already has bilateral trade agreements with 10 nations out of 12 TPP members. Korea does not have FTAs with Japan and Mexico among the members. However, Korea can potentially miss out enormously by being excluded from the exclusive rule of origin in the multilateral TPP framework.

Korea and Japan mostly export raw materials and parts to Southeast Asian countries and manufacture them there to export the finished goods to advanced countries like the U.S. Japan, as a member of the TPP, can capitalize on the supply chain of origin with other TPP members in Southeast Asia to further expand its exports market. But Korea is bound to be disadvantaged if it clings to bilateral FTAs. In a nutshell, despite all its endeavors to conclude FTAs over the last decade, Korea could lag behind while Japan zooms away on the TPP super-highway.

What forced Seoul to hesitate most about joining the TPP could be a free trade pact with Japan. Talks on a bilateral agreement with Japan have stalled since November 2004 due to strong domestic opposition. Opponents claim that striking a free trade pact with Japan would work unfavorably for Korea, with higher tariffs and still incurring large deficit in trade with the technology powerhouse.

But this reasoning does not explain why Korea concluded FTAs separately with the United States and European Union with much lower tariffs. If Korea feared competition with Japan, how can you explain the Hallyu, or Korean Wave, fever in Japan and the rest of the world? The Korean movie industry has become stronger even after scrapping the screen quota designed to protect our local movie industry against imported films in 2006.

Local automakers could argue that the influx of cheaper Japanese cars could ruin domestic car sales. But they cannot rely forever on the government to cover up for them in a country that is the world’s fifth-largest automobile producer. Can the Ministry of Trade, Industry, and Energy, with trade negotiation authority, be free of the suspicion that it is dragging its feet in striking the Korea-Japan trade deal to defend local automakers?

We need an FTA with Japan to make the local market more competitive and rationalize the inflated prices in our market so as to benefit consumers. By joining the TPP and at the same time seeking a bilateral free trade deal with Japan, we also can find a much-needed breakthrough in the Seoul-Tokyo relationship and elevate it to a higher level. We have no reason to fear an FTA with Japan. Authorities must incorporate their vision of enhancing competition and consumers’ rights into their strategy for the TPP as traction to pull Korea out of its deep-rooted phobia and thrust it into the ranks of advanced society. This is what a creative economy is all about.

Translation by the Korea JoongAng Daily staff.

JoongAng Ilbo, Nov. 4, Page 33

*The author is a professor at Ewha Womans University.

by Choi Byung-il