[ASEAN-Korea Summit]ASEAN and Korea: Rising Partners in Prosperity

The Association of Southeast Asian Nations, or ASEAN, is not only Korea’s political partner but also a close economic neighbor with a Free Trade Agreement (FTA) in force since April this year.

ASEAN became Korea’s third largest trading partner, following China and the EU, last year.Korea-ASEAN cooperation has been particularly active in natural reso-urces, as ASEAN member countries have abundant oil, natural gas and minerals. Bilateral economic ties are expected to further improve as the two regions recently agreed to set up a fund aimed at overcoming the global financial crisis.

Korea and ASEAN held the first round of official negotiations for the Korea-ASEAN FTA in February 2005. The FTA on goods entered into force in June 2007. At the beginning of May 2009, the FTA on services took effect. In April, Korea concluded a bilateral investment agreement with ASEAN, thereby completing FTA negotiations with the region across all sectors. The investment agreement will take effect as soon as it is officially signed by participating countries at the summit and ratified in all national assemblies.

Spurred by the FTA, bilateral trade is surging. The total volume, including both exports and imports, amounted to US$61.81 billion in 2006, but rapidly grew to US$71.86 billion in 2007 and US$90.2 billion in 2008, recording an annual growth rate of 15-25 percent.

As a result, Korea’s exports to ASEAN stood at US$49.28 billion in 2008, meaning that ASEAN replaced the United States (US$46.38 billion) as Korea’s 3rd largest export destination, following China(US$91.39 billion) and the EU (US$58.38 billion). Korean imports from ASEAN amounted to US$40.91 billion dollars in 2008, making the grouping of nations the third largest exporter to Korea after China (US$76.93 billion) and Japan (US$60.96 billion).

Recently, financial cooperation between Korea and ASEAN has also gained substantial momentum. The gathering of ASEAN+3 (China and Japan, Korea) finance ministers was held in Bali, Indonesia on April 3. During this meeting, the finance ministers of the ASEAN+3 countries finalized the ratio of contribution between ASEAN and the three countries to the Chiang Mai Initiative, a regional emergency fund to help counter the economic downturn. Of the US$120 billion fund, China and Japan will offer US$38.4 billion (32 percent) each, South Korea will provide US$19.2 billion (16 percent) and the ten ASEAN countries will contribute US$24 billion (20 percent).

International trade experts expect this ratio of contribution to enhance Korea-ASEAN cooperation in the future as, should China and Japan fail to reach a consensus, Korea and ASEAN have the casting vote. The finance ministers also endorsed the establishment of the Credit Guarantee and Investment Mechanism (CGIM), a trust fund designed to guarantee corporate bonds to further develop bond markets in Asia, with preliminary capital of US$500 million. This signals a further acceleration of regional financial cooperation.

“ASEAN is a market with huge potential because member countries have a combined population of 580 million, higher than that of other economic blocs such as the EU, NAFTA(North American Free Trade Agreement) and Mercosur (the Southern Common Market), and their economies are growing rapidly,” said Cho Won-kyung, an official at Korea’s Ministry of Strategy and Finance. “The Korea-ASEAN FTA has strengthened bilateral financial cooperation, making ASEAN an even more attractive region for investment.”

By Cha Ji-wan cha@donga.com