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2004-11-01 18:27:18
Korea, ASEAN move toward free trade pact
Korea, ASEAN move toward free trade pact  

Nov. 30 summit expected to decide whether to adopt timetable for FTA negotiations

In its rush to catch up in free trade agreements, Korea is nearing a decision on a blockbuster pact with the 10-member Association of Southeast Asian Nations.

The economic bloc, which has a population of 500 million, is the No. 3 overall investment destination for Korean companies with a total of $11 billion poured into the region in the past 50 years. It also is a major supplier of energy and raw materials.

On Nov. 30, a Korea-ASEAN summit is expected to decide whether to adopt a timetable for negotiations. The plan, hammered out in six rounds of working talks since last October, calls for negotiations to start in January and an agreement by 2007.

Tariffs on non-sensitive items would be lifted two years later with the six richest ASEAN states: Singapore, Brunei, Malaysia, Thailand, Indonesia and the Philippines. Duties on the four poorest states - Cambodia, Laos, Myanmar and Vietnam - would be removed in 2014.

Given the diversity of ASEAN countries, in terms of stage of economic development, political systems and variety of sensitive sectors, it will require a great deal of time and effort to establish a single free trade agreement between Korea and the trading bloc, said Cheong Inkyo, research fellow at the Korea Institute for International Economic Policy.

"In this context, Korea believes that it may be necessary to pursue FTAs with individual ASEAN countries as well as with ASEAN as a whole. Therefore, Korea is pursuing the Korea-Singapore FTA, assuming that such efforts will eventually serve as building blocks for the establishment of a Korea-ASEAN FTA," he said.

Korea and Singapore hope to conclude their deal by the end of this year. Negotiations have been smooth so far.

"In selecting prospective FTA partners, Korea carefully takes into account all key factors such as economic benefits, political and diplomatic considerations, and domestic constraints, including the vulnerability of the agricultural sector. The issue of an trade deal with ASEAN has been given careful consideration, taking into account the regions strategic importance and close trade and investment relations with Korea," Cheong says.

A recent study on the economic effects of a Korea-ASEAN free trade deal foresees higher sales of Korean vehicles and other transport equipment, and better ASEAN performance in exports of farm products, electronics equipment to Korea.

The study, by Yiseok Hong, assistant professor at Seokyeong University, estimates that total exports from Korea to ASEAN will increase to $20.6 billion and ASEAN exports to Korea will reach $4.6 billion a year.

KIEP and the Korea International Trade Association have, in their studies, estimated that the country's gross domestic product will benefit by 0.64 percentage points and the trade account balance will rise by $5 billion to $6 billion, making ASEAN one of the more ideal free trade partners for Korea.

In 2003, Korea exported $15.1 billion to Southeast Asia, accounting for 4.2 percent of ASEAN's total imports from the world. The region exported to Korea $17.1 billion or 4 percent of her total exports to the world.

Singapore, Malaysia, Indonesia and Thailand accounted for most of $29.5 billion in total trade between ASEAN and Korea last year.

In the first nine months of this year, bilateral trade was valued at $29.8 billion, while trade with the four countries is valued at $22.8 billion.

There is, however, room for more improvement.

As observed by an official at commercial affairs division of the Royal Thailand Embassy in Seoul, even as trade between the two countries has grown steadily at an average annual rate of 16 percent, the trade volume is considered short of its potential.

"Thailand has maintained a trade deficit with Korea averaging $1 billion annually for the past 10 years. It is, therefore, necessary that Thai-Korean trade relations show an upward trend," he said.

Korea's investment in ASEAN generally accounted for about 3 percent of the total foreign direct investment flows into ASEAN in 1995-2003. Korea's cumulative investment in the eight years amounted to $11 billion, or 15.2 percent of Korea's total FDI outflow, making ASEAN the third-largest investment destination for domestic firms.

Economists are hopeful that an agreement will be reached soon.

"It is imperative for Korea, heavily dependent on foreign trade, to continuously expand trade opportunities for economic growth and development. Korea's export goods have been faced with the relative disadvantages in foreign competition with those from the countries having participated in any trading bloc," says Koh Joon-sung, researcher at Korea Institute for Industrial Economics and Trade.

However, there are no assurances of smooth free trade negotiations or parliamentary approval, despite the overall benefits the trade pacts may deliver. The intense protests that preceded the Korea-Chile trade deal were a reminder of Korea's history of trade protectionism.

Street demonstrations by Korean farmers and vehement opposition by rural-based legislators delayed National Assembly approval of the Korea-Chile pact for a year, until February. They complained bitterly that Chilean agricultural products would threaten the livelihoods of Korean farmers, even though most Chilean imports are non-farm goods.

Until the ratification of the agreement, Korea, the 12th largest economy in the world, was one of only two members of the World Trade Organization without a free trade agreement. The other was Mongolia.

Korean Peoples Action Against FTA and WTO - a coalition of around 50 nongovernmental organizations, social movement organizations, political parties, peasant organizations and trade unions - has expressed its reservations against all such bilateral agreements.

The Korea-Singapore free trade agreement may not trigger much rancor because it mainly deals with manufactured goods and financial services, But Korea's free trade agreement with Japan, which is targeted for completion at the end of next year, may become volatile because of historical animosity and the import of Japanese farm products.

Jeffrey J. Schott, researcher at the Institute for International Economics, feels Korea cannot escape the need to liberalize its longtime farm trade barriers. The alternative, he said, is isolation.

"If Korea wants more open and secure access to foreign markets and a stronger economy, it will have to reform its agricultural policies," he says.


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