7/25/2012

Korea International Trade Orgaizations Chair calls for FTA with China

Duk-Soo HAN, the Chair of the Korea International Trade Organization (KITO), has noted in a recent interview that Korea should aggressively attempt to conclude a Free Trade Agreement with China.

The Korea Times has reported in a recent article:
``I hope the trade deal with China will be a high-level one in consideration of the fact that the gist of an FTA is about underpinning trade, employment and economic growth,’’ Han said. ``In addition, products with inexpensive price tags will benefit people here, and thus benefit Korea. We will need measures for those who lose from the FTA such as farmers, though.’’

he negotiations for a Sino-Korea FTA started this year under the stewardship of Trader Minister Bark Tae-ho, who was appointed to head the ministry late last year. The professor-turned-minister’s rationale has been that signing a high-level FTA with China would be biting off more than Korea Inc. can chew because of its potential negative effects. In particular, Korea’s agriculture segment is feared to suffer greatly if cheap Chinese products come into the nation without the barriers of tariffs _ because of the geographical proximity of the two, Chinese farm products are expected to wreak havoc on Korea’s agricultural sector since fresh items, not frozen ones, could easily be imported.

As a result, Bark vowed not to forge ahead with the FTA talks unless China agrees to “hands-off” items like some farm produce to be designated by Seoul and others to be picked by Beijing, which would not be affected by the bilateral contract. ``As far as I know, the Seoul administration is currently preparing measures aimed at financially helping farmers in the short term as well as those for improving the agricultural sector over the long haul,’’ he said. ``In fact, we can advance into the vast Chinese territory in the farming industry through renting land there and cultivating crops. We cannot afford to fix our eyes only on our own territory.’’ Follow-up benefits The 73-year-old expects the FTA will offer double benefits to Korea _ in terms of increased transactions with China and the follow-up of brisker cooperation between the two.

``China accounts for up to 23 percent of our outbound shipments and the FTA would further jack up the figures. Plus, the FTA would help the two streamline a host of irrational systems,’’ he said. ``For instance, many non-tariffs barriers for such items as cosmetics would be scrapped and different standards of the two nations would be coordinated in line with the trade deal.’’
In a nutshell, the low-level FTA with China sought after by Trade Minister Bark would be all bark and no bite in buttressing the Korean economy from the perspective of Han, the self-proclaimed FTA evangelist. Han has been proactive in accelerating Korea’s efforts to boost trade during his four decades of career as a public servant, which started back in 1970 and culminated as the prime minister in 2007 and ambassador to the United States from 2009 through 2012.

 Especially, the life-time bureaucrat’s influence on the FTA between Korea and the U.S. has been more than skin deep _ he was a leader in pushing the positive effects of the Korea-US FTA under the previous administration and also played a key role in effectuating the deal this year as the ambassador to Washington. He is a firm believer in the significance of exports for Korea, whose trade is almost equivalent to its national output. Its exports also accounted for almost 70 percent of its growth during the first decade of the new millennium. ``If we are just stalled inside the national border, we will lose opportunities to create jobs and improve our people’s living standards.

I think we had better expand our economic territory (through FTAs),’’ he said. Han contended that the FTA with Europe, which went into effect beginning last July, worked positively for Korea although the figures show the negative trends amid the downturn in Europe. Over the latter half of last year, Korea’s exports to the EU amounted to $25.11 billion, down 7.9 percent from a year before, while imports rocketed by 19.9 percent. Things aggravated over the first five months of 2012 as the exports dipped by 15.2 percent on a year-on-year basis so that the country saw its exports to the EU plunge by a double digit rate since last July. However, Han pointed out that the FTA with the EU has substantially offset the downward trajectory. ``Over the past year, exports of items whose tariffs were eliminated or cut thanks to the FTA jumped by 16.5 percent.

Without the pact, Korea would have faced far worse situations,’’ he said. 4% growth in exports The country joined the $1 trillion club in trade last year to great fanfare _ the ninth country in history to do so _ but the euphoria was short-lived due to the debt crisis in the eurozone and sluggish economy in China. Originally, Korea strived to chalk up $595 billion in exports this year, up 7.17 percent from 2011 but recently slashed the goal by big margin to $574.5 billion due to a weak performance in the first half. During the January-June period, the country’s outbound shipments edged up a mere 0.7 percent from a year before and critics came up with worries that the annual figure might fall short of that of 2011.

 Some have gone even further by presenting concerns that Asia’s fourth-largest economy might experience a “sophomore jinx” of losing the membership of the $1 trillion fraternity as the United Kingdom and Italy did in the late 2000s. Yet, Han did not buy such gloomy expectations although he did not sugarcoat the situations, either. ``The growth rate of exports tapered off from late 2011. Hence, the so-called base effect will take place from now on so that we can see decent expansion of exports,’’ he said. ``During the latter half, we project that exports would rise by 4 percent from a year ago.

Overall for 2012, the figure would grow by 2.4 percent, quite a feat at a time when the global economy languishes.’’ Five missions ­ democratization of trade To further strengthen the fundamentals of the nation, Han offered five missions of diversifying export items, invigorating domestic demands, establishing cultural brands, relating it with products and improving the national brand values. ``We overly depend on a handful of products in exports.

We are required to expand the horizon and toward that end, the participation of small- and medium-sized enterprises (SMEs) is indispensable,’’ Han said. ``If they lack the capacity to tap into global markets, our trading firms would be of the help so that we can reduce the high reliance on a few items. That would be democratization of trades.’’ The top five products accounted for 42.3 percent of Korea’s total exports in 2011 _ automobiles, semiconductors, shipbuilding, petro-chemical products and flat-panel displays. Those are all manufactured or provided by conglomerates such as the Samsung and Hyundai Motor groups.

Even though many local SMEs supply components to the groups, their direct involvement in exports has been relatively week. Plus, the KITA chairman iterated the importance of cultural brands whose values are amply demonstrated by the Korean wave, or "hallyu" that creates great stirs across the world.

``Cultural brands are crucial. Cultural products like our dramas or songs can be exported or they can be linked to the sales of related items. Then we will be able to achieve the Korea premium, instead of the Korea discount,’’ he said.

The Korea discount refers to the relatively low share prices on the Seoul bourse or the somewhat negative awareness of its products in the world markets due to such risk factors as the long-time confrontation with the North or the Seoul administrative red tape, which foreigners here constantly take issue with. KITA looks to contribute to the agenda through setting an example in its underground facilities, which are now under refurbishment to accommodate a variety of malls and cultural spaces.

The organization of more than 65,000 exporters is vying to make the area a landmark of Seoul by 2014 where multicultural approaches will attract foreigners. Separately, the Harvard University Ph.D. in economics argued that the national brand should be embellished. ``The national brand is different from the cultural brand.

The former cannot be boosted through merely culture as it has something to do with the transparency of society, the rule of law, the market economy and human rights to name but a few,’’ he said. ``We have to persistently put forth efforts to let the world know our real faces so that our national brand can gain higher scores in other countries. Then we would be able to achieve the Korea premium.’’
The full article may be found at:  FTA Evangelist
_________
Sean Hayes, IPG's Co-Chair of the Korea Practice Team, may be contacted at: SeanHayes@ipglegal.com