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Global perspective needed when judging importance of FTA with South Korea

2015-12-07

By He Weiwen    Source: Global Times    Published: 2015-12-6

 

The parliament of South Korea ratified the country`s free trade agreement (FTA) with China last week, marking a big step toward completing the deal. After three years of negotiations, and with the ratification bill having been passed by the National Assembly of South Korea, the legislative review of the bilateral FTA is expected to be completed by China`s National People`s Congress very soon. Under the FTA, both countries will remove tariffs on roughly 90 percent of traded goods within at most 20 years after implementation.


Under the world`s current gloomy economic circumstances, South Korea`s FTA with China - its biggest trade partner - will be beneficial in boosting exports, which declined in October to a six-year low. According to a Xinhua news report on November 30, South Korea believes the FTA with China will increase its real GDP by 0.96 percentage points, and will add around 53,800 new jobs in the next decade.


But despite all the positive expectations, the FTA wasn`t approved by the National Assembly until concerns over possible damage to South Korea`s agricultural and fishery industries were relieved. A 1 trillion won ($870 million) fund will be established over the next 10 years to provide financial assistance to the country`s agriculture and fishery businesses, according to The Korea Herald, a South Korea-based newspaper.


No doubt, in the long run, the FTA will greatly benefit Chinese consumers as it will cut prices for items such as South Korean cosmetics, and for tourism to the country. But there won`t be a rapid expansion in bilateral trade in goods in the short term, because the removal of trade tariffs will proceed in a gradual manner.


And it is quite natural for South Korea to be concerned about potential losses for its hard-hit sectors. In contrast, the Chinese side has not voiced too many concerns about potential losses from the FTA. According to a news report by Reuters on November 30, the treaty did not include the removal of trade tariffs on automobiles. Perhaps we should ask ourselves whether there should be trade barriers imposed on automobiles in order to protect China`s car industry from powerful South Korean competitors. Perhaps there shouldn`t be.


The fact that there are tariffs indicates that China`s industrial sector needs to strengthen its competitiveness in the domestic and international markets. Instead of trade barriers to block outsiders, what Chinese manufacturers need is industrial upgrading.


To achieve that goal, trade tariffs should be lifted for automobiles as well as digital products, which are also an area of strength in South Korea. Admittedly, this will place tremendous pressure on Chinese manufacturers, but it could also spur reform domestically and enhance overall competitiveness. In the long run, the removal of such trade barriers would be beneficial for China.


The Sino-South Korean FTA could also boost progress in talks on the trilateral FTA between China, South Korea and Japan.


Rather than thinking too much about the short-term gains or losses from the elimination of trade tariffs in the bilateral FTA, we should look at the treaty on a global scale.


It is hard to ignore the fast development of the world`s regional, cross-regional, and bilateral trade agreements, especially as the US has been actively promoting the Trans-Pacific Partnership (TPP) and Transatlantic Trade and Investment Partnership (TTIP). Faced with such an external environment, we need space for further development. China should establish its own network of FTAs with other countries and regions. The FTA with South Korea can help with this, as China seeks to participate more in the making of international trade rules for the 21st century.


The article was compiled by Global Times reporter Wang Wei based on an interview with He Weiwen, a senior research fellow at the Chongyang Institute for Financial Studies, Renmin University of China.

Key Words: China   Korea   FTA  

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