China, South Korea reach on FTA

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South Korea and China started negotiations on the FTA in May 2012 and have held 14 rounds of negotiations since then, finally wrapped up 30 months of negotiations on a free trade pact on November 10th, a deal expected to open a new chapter in the economic cooperation between the two countries.

FTA is the agreement between the two countries in trade that the two countries have decided not to impose taxes each one, is brought up the market expansion effects.

Korea-China FTA included the steel, petrochemical, industrial, and food sectors, such as tying the duties and services and investment, most of the non-tariff areas in the agreement details. However, the two areas are reluctant to market opening has been excluded from the agreement targets. The conclusion of the Korea-China FTA is expected to bring a number of changes in the market economy.

First, South Korea’s government is expected Korea-China FTA is raising the growth of our economy, the expanding investment of the United States, European companies in South Korea and simultaneously South Korea and China will be in relations with strategic cooperative partnership to induce North Korea’s opening up through the deepening of reform and to bring the safety and unity in Korean peninsula.

The company will stand a chance to be in the world market and a large increase in profits by the price competitiveness of expensive tariffs. In addition, increases increasing production and exports of large industries will lead the sales of small businesses; export, production, and employment are expected to increase at the same time. . The forecast for consumer is that prices will be stable and extended to the width of choices. Korea-China FTA sector that suffers a benefit to the conclusion referred to areas such as automotive, machinery, cosmetics, and medical.


PRC Korea FTA 반대 2

Despite these claims of some government, the voice of opposition raises to the Korea-China FTA. Opposition insists that due to the Korea-China FTA, agricultural sector will be suffering damage and the agricultural population will be reduced significantly. Also the bow of a small business is degenerate accordingly put forward the claim that national unemployment rate would be increased. Because most small businesses are maintained by contractors of large enterprises, collapsing SMEs is causing the higher production costs of large enterprises. Also

They are concerned that the low-wage labor market policy in China would be encroaching on the Korean domestic market accordingly job losses and wage growth reduction. In addition, lower competitive industry will be hard to survive with that of a Korea-China FTA partners settlement will be hard to survive, and the FTA tariff elimination will lead the influx of Chinese low-cost domestic agricultural products, even though the Korea-China FTA agreement exclude the agriculture.

The Korean government, fearing the extreme opposite of these farmers, exclude of rice and rice-related products excluded from the agreement target (all agricultural products (1,611 pieces) 581 pieces of ultra-sensitive items for the Korea-China FTA agreement. After the entry into Korea-China FTA, the current tariff rates continue to maintain and customs of agricultural season or Safe Guide (ASG) were introduced, but FTA agreement was suspended for tariff elimination for sensitive products.

Meanwhile, China were excluded automobile, but Korea were excluded the enrichment fisheries from agreement targets. China is to eliminate a blow to the Chinese automotive market and Korea is to eliminate the possibility of a recession concentrated fisheries. The finished car was not included, however duties of 6-10% on auto parts will be gone in 20 years, and industrial tariffs for commodities such as the refrigerator, a washing machine and cooker will be repealed within 10 years.

Proportion of the general public import and export trade is only 29.1% occupied. Considering the status of trade tariffs between the two countries, Korea is rather high in commodities. Accordingly, the effect of increasing exports to China by tariff reductions is likely to be limited. Lack of domestic institutions in China, South Korea has the difficulty of the actual enforcement to lead the negotiations to problems.

PRC Korea FTA 2

I guess that cause of FTA between South Korea and PRC, South Korea’s GAP will grow 2.4~ 3.1%, because PRC is first target export country (26.1% in total export of South Korea) to South Korea (based on 145,837 mil. USD (2013) (source: trading economics, Oct, 2014).

Utilizing the experience of comprehensive FTA with Korea-US, or Korea- the EU, South Korea must strive to best negotiation for the best results in these areas. Also South Korea converges from requirements of the export industry and enterprise to yield concrete benefits.




About Eunna Connie Suh

MBA 2016, IBS, Brandeis University
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