Korea competes to be regional free trade hub
FTA with U.S. expected to be a catalyst for free trade accords with other major economies
A free trade agreement between Korea and the United States, if finalized, could help East Asia's third-largest economy become the FTA hub in the region, experts say.
Seoul and Washington agreed last Friday to launch formal talks on a free trade accord. If clinched, it would be Korea's first FTA with a major economy, while for the United States, it would be its largest in Asia.
"It (a Korea-U.S. FTA) would strengthen Korea's capacity to serve as a regional economic hub, and could enhance its strategic role as a mid-weight nation that brings the larger powers together," said Lee Jun-kyu, head of the Americas Team of the Korea Institute for International Economic Policy. "Presumably, the FTA deal would make Korea a stronger and more attractive partner for others and also help shift future FTA priorities for (the country)."
As the increasing number of bilateral trade pacts among Asian economies, including China and 10 members of the Association of Southeast Asian Nations, serves to integrate the region, the United States feels anxious about losing its leveraging power in the region. Clinching a pact with Korea, which is East Asia's third-largest economy after Japan and China, is also part of Washington's plan to avoid losing its economic influence to China in Asia.
During the official announcement of the trade talks on Capitol Hill last week, U.S. Trade Representative Rob Portman expressed his country's hope to overtake China in trade with Korea and give the United States "a more prominent position in that market, and in other markets in Asia."
The United States was once Korea's largest trading partner but has been replaced by China.
A Korea-U.S. FTA would be the largest economic pact to be pursued by the United States since it signed the North American Free Trade Agreement with Canada and Mexico in 1993.
Korea-U.S. trade totaled around $72 billion last year, more than double the volume of trade between the United States and the Central American countries with which Washington cemented a free trade deal last year.
Although Washington has its motives, some experts strongly believe Korea's partnership with the world's largest economy could be a catalyst for free trade accords between Seoul and other major economies such as China and Japan.
"Forging the bilateral partnership with the U.S. will make it easier for Korea to seek FTA pacts with China and Japan," said Cheong Inkyo, an economics professor at Inha University. "In this sense, Seoul would be at an advantage, as China, Japan and Korea are all competing to be an FTA hub," he emphasized.
The professor underlined that the Korea-U.S. trade deal could also pressure China to speed up the process for starting negotiations with Korea, as Asia seeks economic integration.
An FTA between China and the ASEAN-10 economies already took effect in July 2005. "If Korea established FTAs with big economies like the United States, China and ASEAN, then it could be a free trade hub," said Cheong.
Negotiations between Seoul and ASEAN are now underway. Trade talks have also begun with Canada and Mexico, while negotiations launched with Japan in December 2003 are at a standstill.
Seoul currently has an FTA with Chile and signed another with Singapore and the European Free Trade Association, which comprises Switzerland, Norway, Iceland and Liechtenstein.
The idea that Korea could be the nexus for free trade deals, however, does raise eyebrows.
Park Bun-soon, a researcher at the Samsung Economic Research Institute, doubts the possibility.
"Korea being a free trade hub doesn't make sense," said Park. "Just because the country has launched negotiations with the U.S. does not mean it has the advantage over other countries."
The trade expert highlighted that Washington has already entered Asia through an accord with Singapore, and has also begun talks with Thailand. He stressed that Seoul's talks with Japan are at a standstill, while Singapore has FTAs with about 20 countries. He also stressed that the U.S.-Korea trade negotiations face a rocky road ahead.
"The conclusion of a trade deal between the two countries will not be easy," said Park, stressing that last week's disruption at the public hearing, a step taken before the government could enter talks, forebodes antagonism.
Farmers here believe that further market opening endangers their livelihoods. The Korean agricultural industry is highly subsidized and protected from trade.
Of the Organization for Economic Cooperation and Development members, Korean farmers' income is generated from subsidies or trade protection at more than twice the OECD average.
Strong protests against halving the domestic screen quota to 73 days, one of two major preconditions to launching talks with Washington, also highlights the long road ahead.
Korea in January concluded a joint study with India for an FTA, while one was initiated with MERCOSUR in May 2005. Joint studies are now taking place at the civic level with China.