hankyoreh

In April, South Korea and Chile will mark the third anniversary of their free trade agreement (FTA). However, the much-predicted positive impact of Korea’s first ever FTA, made with South America’s third-largest economy, has yet to materialize, and in some instances was way off target, a government report said.

According to the report by the Korea Customs Service, South Korean exports to Chile for the first two months of this year amounted to $US332 million, while imports from the South American country reached $779 million, amounting to a trade deficit for South Korea of $447 million. This figure is up 75.3 percent from the same period a year earlier, the report said.

The trade deficit with Chile, which stood at $540 million in 2003, just before the FTA went into effect, rose to $1.22 billion in 2004. The figure slightly decreased to $1.12 billion in 2005, before it skyrocketed again $2.24 billion in 2006. If the current pace continues, Korea’s trade deficit with Chile this year will amount to $2.7 billion, the report showed.

The steady increase in Korea’s trade deficit with Chile is in stark contrast with what the government forecast when it sought an FTA with the South American country years ago. The government had predicted that an FTA with Chile would translate into $66 million worth of additional exports every year and $26 million worth of imports, which would improve its trade balance with the South American country by an annual average of $40 million.

Instead, Chile-bound exports, except for a surge in 2005, have shown signs of a slowdown, with an annual growth rate in the export market with Chile hovering around 36.1 percent, just about the same average increase Korea has seen with other nations in South America outside of an FTA. These rates pale in comparison to the annual growth rate of the Chilean import market to Korea of 67.3 percent in 2006 and a rate of 71.6 percent during the first two months of this year. This increase is from a 2005 Chilean import market growth rate with Korea of 17.9 percent.

In particular, shipments to Chile of Korean automobiles, computers, and cellular phone handsets, which were expected to gain the most from the economic deal due to the abolition of customs and tariffs under the FTA, have instead lost steam over the past few years.

But the Korean government’s current promotional push for an FTA with the U.S. uses evidence from the current trade deal with Chile based on false figures. The presidential committee aimed at promoting the proposed FTA with the U.S., led by prime ministerial nominee Han Duck-soo, claims in a recently published brochure that the FTA with Chile has seen an increase in exports to Chile, while the import rate from Chile is on the decline.

Please direct questions or comments to [englishhani@hani.co.kr]