hankyoreh

Yoon Sang-jick

On Nov. 10, South Korea and China announced that they had reached an “effective conclusion” in negotiations toward a free trade agreement (FTA), 30 months after negotiations began. The Korea-China FTA will not open up markets as much as the agreements that South Korea signed with the US and the European Union, but the settlement does make South Korea the first country to have signed FTAs with the world’s three biggest economic regions.

Furthermore, the agreement is likely to have a domino effect on market liberalization and economic integration in Northeast Asia, pushing forward the US-led Trans-Pacific Partnership (TPP) and the China-led Free Trade Area of the Asia-Pacific (FTAAP).

During a summit with Chinese President Xi Jinping at the Great Hall of the People in Beijing on the morning of Nov. 10, President Park Geun-hye announced that an effective conclusion had been reached in the FTA negotiations. Park was in Beijing to attend the APEC (Asia-Pacific Economic Cooperation) summit.

After the summit, Yoon Sang-jick, South Korean Minister of Trade, Industry and Energy, and Gao Hucheng, Chinese Commerce Minister, signed the agreed minutes while the two countries’ leaders looked on.

The meeting was followed by a press briefing with An Chong-bum, Blue House Senior Secretary for Economic Affairs. “An effective conclusion means that the negotiations have been wrapped up since no areas of contention remain. After editing the document and completing a legal review, the agreement will be initialed by the end of the year. Our goal is to have the agreement officially signed and ratified by the National Assembly so that it can take effect next year,” An said.

Reportedly, the South Korean and Chinese teams of negotiators reached the final agreement after a marathon round of negotiations that lasted from last week until 2 am on Monday.

In the agreement, the two countries agreed to phase out custom duties on 90% of approximately 12,000 product categories over the next 20 years.

South Korean negotiators ensured that most of the more controversial items - agricultural, livestock, and fishery products in particular - were part of the 10% of total items defined as exceptions or concessions. Even so, there is expected to be considerable debate during the ratification process in the National Assembly, with farmers and fishermen staging demonstrations.

For now, the service and investment areas will be opened up on a limited basis, with the “positive method” being used to specify the products that will be liberalized. After two years, further deliberations will be held to convert this to the “negative method,” which only lists the products that will not be liberalized. Under current Chinese law, it is difficult to adopt the negative method, which has a much wider scope of liberalization.

In 2013, trade between South Korea and China was valued at US$228.9 billion, with China being South Korea’s largest trading partner - by far - in both exports (24.9%) and imports (16.6%). More than 50% of South Korean exports to China are categorized as processed trade, which takes advantage of cheap labor in China. The resulting structure is a sort of international division of labor, with South Korea generally exporting intermediate materials to China.

With the domestic market taking on much greater importance in the Chinese government’s strategy for its own economic growth, this free trade agreement presents South Korea with an opportunity to target China’s vast market of 1.3 billion people.

Currently, China has a two-fold tax policy, refunding most of the tariffs on processing trade but imposing high tariffs on finished products.

“The agreement will reduce tariffs by US$5.44 billion per year, the greatest reduction ever. We will see more South Korean companies entering the Chinese consumer goods market,” said Woo Tae-hee, Assistant Minister for FTA Negotiations at the Ministry of Trade, Industry and Energy.

“I’m very happy to be able to announce at the summit today that, after two years of negotiations, we have at last reached an agreement about the key issues affecting the Korea-China FTA and brought the negotiations to an effective conclusion. I hope that the details are quickly worked out so that we can move forward with signing and ratifying the agreement,” Park said during the meeting on Monday.

“During my visit to South Korea in July, President Park and I agreed to sign a comprehensive, high-quality free trade agreement that would achieve overall balance between the interests of the two countries. I was happy to hear the news that major progress was reached in the negotiations through the joint efforts of both sides,” Xi said.

By Jung Se-ra, staff reporter and Seok Jin-hwan, Blue House correspondent in Beijing

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