Free trade begins now

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Free trade begins now

A landmark trade conference took place in Nairobi last month. The World Trade Organization (WTO) held its 10th ministerial conference in Kenya, the first time members of the global trade body met in Africa. Members of the developing economies category urged for resolution of key issues in the agriculture sector of the long-stalled Doha Round. Negotiations with the ultimate goal of removing all tariffs on industrial and farm produce across the world have made little progress since they first started in November 2001 in Doha, Qatar.

Talks broke down at the last minute in December 2008. In September, Washington proposed to abandon the talks and go back to the terms of the previous Uruguay Round framework. The Doha Round works in favor of developing and poorer countries by allowing them to protect their farmers with tariffs, while the earlier Uruguay Round talks of 1995-2000 demanded universal tariff cuts for both developed and developing nations. Many think that the days of the Doha Round are done.

The United States has turned toward a universal trade agenda after it successfully led an agreement on the Trans-Pacific Partnership (TPP) on Nov. 12. It doesn’t need the multilateral WTO platform as much anymore, having its own free trade deal with 12 Pacific Rim nations. The TPP has now emerged as the shaper of a new trade order to replace the clout of the broader 162-nation WTO.

The world is engaged in an unprecedented contest of free trade agreements (FTA). The mega-deals led by major economies like the United States and China have triggered a wave of spinoff bilateral FTA negotiations. After the conclusion of the TPP, FTA talks between Japan and the European Union picked up speed. The United States and EU plan to draft the Transatlantic Trade and Investment Partnership (TTIP) early next year to negotiate specific terms. A free trade pact between the U.S. and EU is tantamount to a global trade pact. As other North American members Mexico and Canada already have FTAs with the EU, the TTIP would integrate the North American and European continents, which take up more than half of the global economy.

Such mega-deals undermine the status of Korea, which has taken pride in leadership in FTAs over the past few years. Once the bilateral FTA with China takes effect, Korea inevitably would have to join the multinational trade bandwagon. Seoul offered to join the TPP and is preparing a tripartite deal among Korea, China and Japan. It will participate in the Beijing-led Regional Comprehensive Economic Partnership (RCEP). It is also working on an FTA with six Latin American countries to make up for the failed multinational trade frameworks.

To stay competitive in a global trade framework, Seoul must establish strong guidelines on liberalization. It will inevitably have to renew bilateral talks with Japan, as it will be dealing with Tokyo in other multilateral deals like the tripartite FTA, RCEP, and TPP. It won’t be able to be as assertive on protecting local industries in multilateral talks as in bilateral ones. Therefore, Korea must decide policy directions to change various social, cultural, legal and economic environments in sync with global standards. It will otherwise lose consistency in policies and end up wasting administrative resources.

Our local industries also have to morph into multinational entities to prepare for the advent of a multinational free trade order. Competing on the global stage will no longer be a must for large companies alone. Small and midsize companies that remained under the patronage and protection of the government and its policies will be pushed into the jungle of free trade. Local companies must be as apt in business skills and management as enterprises in Singapore, Shanghai and Hong Kong. They must learn more about global practices and be proficient in language skills.

The trade surpluses that Korea has been raking in over the past several years could actually be disadvantageous for us. On the macro level, investment has been sagging to below the savings ratio due to the prolonged slowdown. Our fat current-account surpluses, despite a poor economy, resemble Japan’s before it slipped into its two-decade slump.

The last so-called arrow fired by Japanese Prime Minister Shinzo Abe - who has been doing everything to revive Japan’s economy and shake it out of a deflationary cycle for good - as part of his Abenomics campaign was not localization or protectionism but liberalization through the TPP. The arrow helped reinforce the competitiveness of state enterprises and restructure the agriculture sector to enter a multinational framework.

Protecting our industries should not be the goal in a multilateral FTA age. The government and corporate sector’s will to survive in a full liberalized global trade environment will shape our future.

Translation by the Korea JoongAng Daily staff.

JoongAng Ilbo, Dec. 18, Page 33

The author is a professor at the Seoul National University Graduate School of International Studies.

by Ahn Duk-geun
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