The 80th "Diplomatic Roundtable" meeting on "Korea's FTA Policy and the Prospect for Korea-Japan FTA" Held

JFIR and its two sister organizations, the Global Forum of Japan and the Council on East Asian Community, taking advantage of an occasion of a visit to Japan of a prominent person on international and other affairs, monthly organize a "Diplomatic Roundtable" meeting, which is an informal gathering of members of the three organizations for a frank exchange of views and opinions with the visiting guest. The 80th "Diplomatic Roundtable" meeting was held on June 7, 2012 on the topic of "Korea's FTA Policy and the Prospect for Korea-Japan FTA." An outline of the presentation by Dr. CHOI Byung-il, President and CEO, Korea Economic Research Institute, was as follows:

Importance of FTA Policy for South Korea
For South Korea depending for more than 95 % of its GDP on trade, the promotion of FTA is one of the vitally important foreign policies. The strategy called "Multi-track Approach" is designed to pursue FTA talks with several countries at the same time. For South Korea which is founded as a trading nation, it is of vital importance not to depend on specific countries or regions as market. This simultaneous approach in FTA negotiations also enables her to seize the right timing in the conclusion of FTA amidst an ever-changing international economy. While South Korea's economic growth potential is declining due to her low birth rates and so forth, she needs FTA to revitalize her economy through extending application of global standards to domestic firms. Furthermore, FTA gives an opportunity to South Korea to strengthen her political and diplomatic relations with major powers. In this context, her recent agreements on FTA with US and EU, in addition to an agreement of starting FTA talks with China, are praiseworthy. It is true that there exist deeply-rooted criticisms against FTA in South Korea; however, the benefits from FTA are much greater than the damages attributed to FTA by those critics at home. Though the share of GDP of South Korea is as small as 2 % in that of the world, the "economic territory" which has been formed by South Korea through the conclusion of FTA occupies greater than 60 % of the world GDP.

South Korea's perspectives on Japan - South Korea FTA negotiation
Since the last FTA negotiation between Japan and South Korea on November 2004, we have shelved its new round of official negotiations so far. Here are mainly two reasons from South Korea's viewpoint. First, this suspension comes from Japan's trade surplus with South Korea, which is partially caused by technological gaps between two countries. As high-tech manufacturing products made in Japan are backbone of the success for South Korean firms, the more they are successful in the global market, the more they need to rely on Japan's technology and its export to South Korea. This structure still remains as long as the technological gap exists even if the FTA with Japan is materialized. Second, South Korea concerns for "paradoxical effects" from the tariff eliminations. Theoretically, a conclusion of the Japan-South Korea FTA can provide a significant benefit for both countries. However, it will not work if there exist differences in tariff rates. Indeed, comparing these rates of industrial sector with Japan, the number of goods imposed higher tariff rates is large in South Korea's side. Therefore the bilateral tariff elimination will bring more economic losses to South Korea, rather than Japan. The same holds for an ongoing issue such as agricultural sectors between two countries. Although there exists a strong opposition to the tariff elimination in agricultural sector in Japan, it is South Korea's farmers and fishermen that will suffer more heavily from losses when the tariffs are eliminated. For these reasons, the future of talks about the FTA with Japan remains murky from the viewpoints of South Korea despite that the FTA is likely to contribute to trust building and developments in political cooperation between two countries.

Japan pressed for her decision on FTA Policy
While Japan, China and South Korea agreed to initiate the FTA negotiation among three countries by the end of the year at previous trilateral summit meeting, China and South Korea also agreed to initiate the FTA talks. South Korea estimated that her political and diplomatic cost will be high unless she concludes FTA with China, her giant neighboring country and largest trading partner. On the other hand, China is enthusiastic to have the FTA with South Korea, willingly pursuing FTA with other East Asian countries. Against the backdrop of the initiation of South Korea – China FTA talks, now Japan seems to be pressed to make a huge decision, if she should pursue either TPP or FTA with South Korea and China. From the South Korea's viewpoint, it is Japan that can decide whether to resume the Japan- South Korea FTA negotiation. South Korea tries to figure out if Japanese policy makers are sharing a same interests and goals with Korea. In contrast to pursuing FTA with South Korea and China, Japan would be burdened by high risks and severe political oppositions if it joins the TPP. Japan would need to make a tremendous decision about its level of liberalization, besides to deal with harsh domestic critics. It is desirable that Japan will make a wise decision as the Japan-South Korea FTA will be a first step for East Asian economic integration, as well as further promote a high-level trilateral FTA among three countries.

 

The Japan Forum on International Relations (JFIR)

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