China-Japan Lead 16 FTA Cases for Two Years

The 7th ASEAN+3 (Korea, China, Japan) summit meeting held in Bali, Indonesia yesterday is paving the way for the Free Trade Agreement (FTA) deal among the Asian countries. Korea, China, and Japan are expected to have a concentrated discussion on the FTA issues among Korea, China, and Japan at this summit meeting.

In the upcoming Asia Pacific Economic Cooperation (APEC) meeting scheduled in Bangkok on October 21, there will be debates on the FTA deal among the Asian countries. The FTA is rising as a crucial topic related to new world trade prior to the multilateral cooperation beyond bilateral cooperation in trade between the countries concerned.

Flourishing FTA talks in Asia: FTAs, which deals with countries conducting tariff-exempt deals, have been increasing recently and has become the current stream of the world trade.

The number of FTAs concluding cases was just 26 in 1990 but jumped to 225 cases by late 2002. There are now more than 70 FTA cases now in the process of conclusion.

Competition on the FTA negotiations among the Asian countries has become cutthroat since 2001. There was no FTA concluded in Asia by late 2002. 16 FTA were concluded however for 2 years from 2001, and 40 cases are now in the process of FTA talks.

Japan and China are leading the FTA competition in Asia.

Japan is supposed to reach an agreement to the basic framework with ASEAN. China began to take the initiative in the Asian economy, including reaching an agreement to the basic framework and is giving the problems awaiting solutions to Korea, suggesting ‘FTA among Korea, China and Japan’ in order to offset the ‘Korea-Japan FTA.’

FTA conclusions in Asia are leading to the regional economic blocks. China is using the strategy of absorbing each Asian country into its huge native market.

ASEAN is planning to form a unitary economic block reaching a population of 0.5 billion after abolishing all tariffs of the member countries by 2015.

10 member states of ASEAN including Thailand and Indonesia held a meeting on October 6 with finance ministers and discussed issues including the establishment of the Asian Economic Community (AEC) by which the transfer of the goods, investment, service and manpower are liberalized.

Japan is focusing on offsetting China by promoting FTA conclusions with Korea and ASEAN.

During this ASEAN+3 meeting and APEC summit meeting, competition between China and Japan on taking the initiative in Asian economy and regional block of ASEAN is expected to be revealed.

Korea is anxious not to be the victim. “It is possible for Korea to be isolated between China and Japan” said Chung In-kyo, FTA research team chief of Korea Institute for International Economic Policy (KIEP), adding, “As rival nations increase their FTA, Korea may lose its import markets.”

Trades among the member states of FTA during 2000 exceeded 65 percent of the world trade.

Growth rate of trade among FTA member states is 17-28 percent, higher than that among non-member states, 14 percent.

FTA member states receive preferential treatment including non-tariffs when importing to countries concerned and can be exempt from the trade regulating measures such as anti-dumping as well as be given preferential treatment when companies invest, which means corporations alienated from the FTA negotiations will be in a relatively disadvantageous position.

In particular, Korea depends on overseas trade dependence over 70 percent, and trade account for 55 percent of economic growth.

“High dependence on trade may lead to the benefits of FTA,” said Kim Chang-gyu, International Cooperation Planning Department chief in the Ministry of Commerce, Industry and Energy and adding, “Korea will sink to a victim country status if we are alienated from the stage of FTA.”

The Korea-Chile FTA has to be ratified without delay: The Korean government held a meeting with international finance ministers last September, presenting a plan to drive or consider FTA conclusions with Japan, Singapore and ASEAN.

However, the first FTA of Korea, ‘Korea-Chile FTA’ is being delayed for the National Assembly ratification because of the uproar of the farmers. “If the Korea-Chile FTA does not succeed, we can’t promote more FTA talks with other countries,” said Yoon Young-gwan, multilateral trade department staff in the Ministry of Foreign Affairs.

Corporate damages are already revealed due to the delay in FTA ratification or alienations in FTA negotiations.

Mexico is expecting to collect 50 percent of customs on imported vehicles from next year. A member nation of the NAFTA will be made an exception. Some experts analyzed that if the progressing Japan-Mexico FTA is concluded, it is hard for Korean autos to maintain their existence.

Also, the EU’s non-tariff on Turkish textile, Malaysia’s discriminatory tariff on Korean steel manufactures (H-shaped steel), Hungary’s non-tariff on EU-made autos, and Vietnam’s non-tariff on the ASEAN-made paper are good examples of the damaged Korean industry.

Because of the delayed Korea-Chile FTA contraction, Korean autos and mobile phones are substituted for products of the EU’s or the U.S.’ in Chile.

Professor Jeong Moon-soo, of the School of International Trade & Regional Study at Inha University said, “Not to be cut off from the FTA stage, President Roh has to handle the domestic interest with his leadership.”

Eun-Woo Lee libra@donga.com