Korea and China wrapped up the first stage of free trade talks last week and agreed to either cut or abolish tariffs on 90 percent of the 12,000 goods traded between the two countries. In the second round, they will negotiate the protection of intellectual property, transparency in legal procedures and mandatory environmental regulations.
At the same time Korea is about to join the U.S.-led Trans-Pacific Partnership, a multilateral free trade agreement that aims to liberalize the economies of 12 Pacific-rim countries including Australia, Japan, Mexico and Vietnam.
The 90 percent rate Korea and China have set for trade liberalization is higher than in Korea's FTA with India (88.7 percent) but lower than in the pacts with the U.S. (99.8%), Europe (99.6 percent) and ASEAN (96.2 percent). The main reason is that Korean officials worry about the impact on farmers and other small businesses here from a massive increase in imports from China.
Korea is China's third largest trading partner and China is Korea's biggest. Last year, Korea achieved a US$53.5 billion surplus in trade with China, and Korean businesses have invested $58.8 billion in the world's most populous country. Considering such close economic ties, 90 percent seems not enough to ensure maximum benefits from the FTA.
The ratification of FTAs with other countries has almost always been followed by tremendous public backlashes here. Following the ratification of the Korea-U.S. FTA in 2008, the Lee Myung-bak administration faced its greatest crisis after hysterical fears of mad cow disease from American beef triggered widespread demonstrations.
These backlashes were due in large part to the lack of transparency in the negotiation process, because government officials here tried to keep things quiet until the negotiations were complete and then appease farmers and other interest groups with incentives and subsidies.
This time, the government must ensure that the public here gets plenty of information upfront. For sectors that are sure to be affected, the government should take preemptive steps to compensate them in order to minimize the side effects.
Resource-poor Korea was able to achieve an economic miracle from the ruins of the 1950-53 Korean War through exports and by tapping into new markets abroad. Opening its own market to imports from more countries will create more competitive businesses here.
If Korea wants to emerge from the low-growth phase, it must tap into wider markets overseas and attract infusions of more foreign technology and resources to create better products for export. More FTAs will serve as the springboard for new economic achievements.