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South Korea's goal in launching negotiations with Chile over its first free trade agreement in 1999 was to avoid falling behind Asia's fast-growing FTA wave. In addition, as the Association of Southeast Asian Nations was pursuing an FTA between ASEAN plus three (ASEAN and the Northeast Asian states of South Korea, Japan, and China), rising to a pivotal position in shaping East Asia's economic regionalism, South Korea did not want to remain passive.
Although South Korea was a late starter, today it is taking a leading role in trade negotiations. The deal with the United States came after a few other major attempts had failed -- South Korea had declined China's proposal to officially negotiate an FTA prior to the U.S.-South Korea deal, and Japan and the U.S. had failed to agree on the terms of an FTA.
It is highly unlikely that Japan will conclude an FTA either with the United States or South Korea anytime soon, due mainly to Japan's obstinate agricultural protection policy. Likewise, no effort toward a trade agreement between China and Japan is expected soon; earlier expectations collapsed in the struggle over the sensitive issue of Japanese political leaders' continuous visits to the Yasukuni Shrine in Tokyo.
However, Japan's news media and political and business groups have together urged their government to resume its negotiations with South Korea, which halted abruptly when six consecutive dialogues failed to make any progress in 2004.
New Zealand and Australia, which are the third and fourth largest suppliers of meat and agricultural products to South Korea, respectively, have called for FTA talks with South Korea in order not to be left behind in their competition with United States products in the Korean market.
The conclusion of the South Korean-U.S. deal came as a bit of a surprise to China, and prompted it to urgently request a resumption of official trade negotiations with South Korea. In fact, South Korea and China have been discussing a trade deal since 2002, but have made no practical progress. The South Korean government has welcomed China's offer, and last year the two nations broke ground on a cooperative study which industrial, governmental, and academic groups from both sides have joined. Since the early stages of their negotiations, South Korea has seemed to have the upper hand.
In fact, the South Korea-U.S. trade deal concerns China for two reasons. Firstly, South Korea could possibly steal from China the U.S. market for luggage and textiles, thanks to the trade diversion effect. Secondly, for China, which has sought to expand its economic influence to cover East Asia by initiating an FTA with ASEAN, America's expanding influence through its own deal with South Korea is an uncomfortable reality.
A month after Seoul signed the deal with Washington it began negotiating with the European Union. The LG Economic Research Institute expects South Korea to expand its market share within the EU, which has been its second largest market. Furthermore, South Korean consumers and producers would benefit as more EU as well as U.S. interaction with the country would reinforce competition in the fields of consumer products, technological exchanges and investment.
Japan is most likely to suffer from South Korea's closer economic cooperation with the United States and European Union, according to the Peterson Institute for International Economics. Japan is the second largest exporter to South Korea -- surpassed by China for the first time last year -- and its exports most closely resemble those of the United States. As a consequence, U.S. products could partly supplant Japan's in the South Korean market. This situation is bitter to Japan because the idea of a South Korean FTA with Japan surfaced quite a bit earlier than with the United States, but efforts to conclude it failed.
According to Korea's Institute for International Economic Policy, South Korean trade deals with the United States and the European Union would both pose challenges for Japan. The United States could divert trade in chemical fibers and electronic products away from Japan, and the European Union could do the same with autos, machinery and chemicals. In this regard, a South Korea-Japan FTA is a more urgent matter for Japan than for South Korea.
Its trade agreement with the United States seems to have given South Korea the upper hand in FTA negotiations with Japan, China and other possible partners. It also offers a temporary solution to the country's chronic economic challenges, sandwiched as it is between two strong competitors -- low-cost China on one side and high-tech Japan on the other.
South Korea's simultaneous multiple moves to forge FTAs with its significant trading partners pave the way for the country to minimize the trade diversion effect that such trade agreements could possibly cause. Since the term of former President Roh Moo-hyun, South Korea has begun to compete with Hong Kong, Singapore and China to become a major economic hub in East Asia. By taking the initiative in the FTA era, South Korea has laid a critical stepping stone toward achieving that goal.
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(Lee Jae Young is a freelance writer and citizen reporter for Ohmynews International. He has a master's degree from Cornell University Law School in Ithaca, New York. ©Copyright Lee Jae Young.)
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