Dr. Hwan-Woo Jung is a research fellow at the Institute of International Trade (IIT) of the Korea International Trade Association (KITA).

Abstract

South Korea cannot hold off negotiating a Free Trade Agreement (FTA) with China any longer as the U.S.-Korea FTA negotiations have settled and the EU (European Union)-Korea FTA went into effect recently.

Both China and South Korea will be expecting positive benefits from the Korea-China FTA, which for Seoul will be the first FTA that moves it toward regional integration. The Korea-China FTA will allow South Korea to extend its global FTA network to East Asia and break into the Chinese domestic market, which is rapidly rising as one of the largest in the world. Moreover, South Korea can strengthen its ability to cope with the ongoing integration of the “Greater China Market” which includes China, Hong Kong, and Taiwan. On the other hand, for China, which has been trying to establish an economic order in East Asia under its influence, the FTA with South Korea holds a major strategic value. South Korea, a market that is not under the Chinese sphere of influence, is highly valued as it has an important role in the global economy. In addition, South Korea also holds value as a “roundabout trade market.”

With high expectations come a number of concerns. South Korea is worried about China’s “visible and invisible” trade barriers, and any possible negative effects on Korea’s so-called “sensitive products.” The biggest concern, though, is whether the FTA could produce any tangible positive effects on the South Korean economy once the agreement goes into effect. As for China, it will face enormous opposition in terms of domestic politics concerning the opening of automobile, IT, electronics, mechanics, and petro chemical industries. In particular, Seoul’s demand for the opening of the investment and service sectors as well as abiding by international economic norms will likely be difficult for Beijing.

In order to resolve such problems, South Korea needs to establish a domestic consensus that the Korea-China FTA will provide opportunities for both countries to fully realize their potential as the most important commercial states in East Asia. Moreover, South Korea needs to persuade China to properly respond to its interests by explaining the implication and future direction of the Korea-China FTA. Maintaining a balance with other East Asian FTAs is also an important effort toward promoting a more desirable development in the region.

The Korea-China FTA provides an opportunity for South Korea to strengthen its position in the Chinese market, establish a central global market, and readjust the regional division of labor structure, all of which will provide a foundation for South Korea’s sustainable growth. In addition, by reaching FTA agreements with the world’s largest markets: the United States, European Union, and China, South Korea will not only be able to function as the economic hub of East Asia but also for the world. To further its goal, South Korea must not view this as having to choose between either its alliance with the United States or its economic ties with China, nor should it focus exclusively on immediate or partial gains. South Korea should overcome any “zero-sum” approach that is limited to only calculating the benefits or losses derived from an FTA. Rather, South Korea must position the Korea-China FTA in a way that accords with the long-term and overall national interests of South Korea.

The full text in Korean is available here