Long-delayed FTA a boon
After much delay and controversy, the bilateral free trade agreement (FTA) between South Korea and China finally passed the Korean National Assembly. And the pact could take effect by year’s end if the two governments expedite their administrative procedures.
The tariff exemption with China, Korea’s largest export destination, could be a windfall to Korea, whose exports have been slowing sharply. China accounts for a quarter of Korea’s outbound shipments, and the deal brings down tariffs on 958 export items worth $8.7 billion annually, ranging from air fuel to medical equipment. Over the next decade, 5,846 items will be shipped tariff-free, and an additional 748 within the next 20 years. In the first year, the FTA will help boost bilateral trade by $2.7 billion, and Korea’s gross domestic product by nearly 1 percent after 10 years.
As many as 53,000 new jobs can be created. A bilateral free trade deal with China alone, however, does not ensure a promising future for the Korean economy since the global economic order is shifting toward a multilateral trade framework.
The Trans-Pacific Partnership (TPP) led by the United States and Japan will launch next year, and China is also accelerating the establishment of its version of multilateral trade platform, dubbed the Regional Comprehensive Economic Partnership. These multilateral free trade platforms not only scrap duties on manufactured goods but also encompass the labor, environmental and services sector. All the materials and intermediaries provided by member countries will be recognized as a single country of origin. They offer an entirely different playing field than your typical bilateral FTA. The government should make sure the FTA with China runs well and at the same time broadens its trade policy, currently oriented toward tariff benefits and the manufacturing sector.
Korea must also strengthen its industrial competitiveness to keep an edge over rival economies. The FTA would make the two markets closer and serve well as long as Korea is stronger in manufacturing. But China is quickly catching up. The technology gap between us, which averaged 3.7 years in 2011, has now narrowed to 3.3 years. Companies, likewise, need to speed up their own restructuring, and labor sector must be overhauled.
Korea’s politicians must also change their attitudes toward trade and industrial policies. Although they were in agreement on the necessity of the FTA with China, the bill was tossed around as a bargaining chip. The ruling and opposition parties agreed on the ratification only after they linked bills they wished to pass onto the FTA legislation. We cannot depend on the legislature to aid the economy if it keeps placing political gains ahead of national interests. JoongAng Ilbo, Dec. 1, Page 34