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Free trade with China

Publication Date : 05-05-2012

 

South Korea, which relies on external trade for growth, needs to promote free trade. The need for free trade is shared by China. Still, they find formidable obstacles to their pursuit of a free trade agreement.

Growth in South Korea’s trade with China, which is larger than combined Korean-U.S. and Korean-EU trade, will certainly accelerate when many of the tariff and non-tariff barriers are removed or lowered. It is only natural for South Korea, which has concluded free trade agreements with both the United States and the European Union, to pursue a similar treaty with China.

Bilateral free trade will not have economic implications alone. It will have strategic implications as well, given that South Korea is a military ally to the United States and China is not just a military ally to, but the de facto guardian of, North Korea ― a bellicose communist state isolated from the international community.

Seoul and Beijing are set to start negotiations on a free trade agreement at a time when tension is building between South and North Korea, and competition between China and the United States is intensifying for hegemony in the Asia-Pacific region. The pursuit of closer economic ties by South Korea and China will certainly have geopolitical implications.

As the Korean and Chinese trade ministers declared the launch of negotiations in Beijing earlier in the week, negotiators will sit down for the first session sooner or later. They will do so eight long years after China proposed a free trade agreement to South Korea, which speaks volumes about how long it may take until an agreement is successfully negotiated.

Both countries may appear to have ample reason to expedite negotiations, given that expanding bilateral trade through liberalisation will be beneficial to each of them. On the contrary, Seoul is a reluctant negotiating partner to Beijing, which is eager to wrap up the negotiations in two years. That is understandable but not desirable.

As a pluralistic society, South Korea cannot commit itself to opening up its agricultural market at the expense of farmers. An association of farmers, a powerful voting bloc, is already up in arms against a free trade agreement with China, from which it says low-priced vegetables and other perishables, not to mention fruits and other agricultural items, could be brought to the Korean market within hours.

The ruling Saenuri Party, which apparently wishes to avoid antagonising the farms’ group, is calling on the administration not to speed up the negotiations. The main opposition Democratic United Party, which is more vocal in demanding caution, insists that the Lee administration, in its final year in office, has no mandate to start negotiations in earnest.

But China has no such organised opposition. As such, it has a freer hand in promoting free trade with South Korea and other trading partners.

Moreover, China may find a degree of strategic value in a free trade agreement with South Korea, which it may regard as an antidote to the U.S.-led Trans-Pacific Partnership, a multilateral free trade agreement that aims to liberalise Asia-Pacific economies. A Chinese-Korean accord should be all the more valuable to Beijing, now that Tokyo, while dragging its feet on a proposal to conclude a trilateral trade pact among China, South Korea and Japan, has decided to participate in TPP negotiations.

As the Korean and Chinese trade ministers agreed, negotiations will be conducted in two stages ― the first for the categorisation of trade items into general, sensitive and super-sensitive ones. South Korea is set to propose to classify rice and some other agricultural items as super-sensitive ones for their exclusion from concessionary tariffs, and to phase out tariffs on some sensitive items in a long term and cut tariffs on other sensitive items.

The first-stage negotiations will seal the fate of the proposed agreement. The reason is that they cannot move on to the next stage unless they are concluded. Of crucial importance will be how many items each side agrees with the other to classify as sensitive or super-sensitive ones. Too few will be politically risky for Seoul and too many will make the accord near worthless. Negotiators will be given a mission to strike a balance between the two.

 

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