November 25, 2011 14:09
Now that the National Assembly has passed the Korea-U.S. free trade agreement, the Korean economy has been given another opportunity to grow in both quality and quantity. Korea is the only country in Asia to have forged FTAs with the world's top two economic spheres -- the U.S. and the European Union. It will be able to get ahead of its Asian rivals in the competitive global economy as it secures its position as a trade hub linking them.
Some industries will inevitably be impacted. Agriculture and fisheries are forecast to see output shrink by W13 trillion (US$1=W1,157) over the next 15 years due to the opening of the market. The service industry, which includes the legal, accounting and tax fields, is also bracing for tougher conditions. Such jitters are amplified each time the government opens the country's doors further to trade, from membership in the World Trade Organization, scrapping of import bans on certain products, opening of Korea's distribution market, abolition of the screen quota that made it mandatory to show a set number of Korean movies a year, to allowing imports of Japanese cultural products. But the result was always the opposite of what the public feared.
Wal-Mart and Carrefour, the global supermarket chains that opened up a large number of outlets in Korea following the opening of its retail market, ended up losing in their competition with domestic rivals and had to pack up and leave. On the other hand, Korean retailers are setting up chain stores overseas based on confidence built while competing with such big players. Korea's cultural products market ended up growing stronger even when globally popular Japanese products such as the Hello Kitty label flooded stores here. In fact, the country's entertainment business is growing, not shrinking, as Korean pop culture has won legions of followers throughout the world.
To maximize the benefits of the FTA, Korean businesses need to invest more in research and development, product quality and overseas operations. The government must come up with measures so that these companies do not suffer losses due to U.S. laws that are different to Korea's.
Most of all, Korea needs a strategy that will allow it to use the service industry opening to its benefit. The Economist wrote in a recent special report on Korea that the country's manufacturing industry is top-notch but the service sector is still Third World. It accounts for 60 percent of Korea's GDP, but productivity is only 40 percent of the manufacturing industry's. At this rate, the country will not be able to sustain growth and create jobs. Japan boasts the world's best manufacturing technologies, but failed to innovate its service sector. As a result, it has fallen from being the world's No. 2 economy to third place behind China.
Korea needs to tap its experience in bolstering the manufacturing industry and apply it to boosting the legal, financial, retail, culture and arts, tourism and education industries and accomplish what Japan was unable to achieve. The country needs a vision to use the FTA as a chance to embrace the methods of advanced countries and boost the productivity and competitiveness of the service sector so that it can generate top-notch products the world envies. Such a big push could transform the very landscape of Korea's economy.
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