Korea's bilateral FTAs put to severe test
By Dr. Jeffrey I. Kim
Korea’s first bilateral FTA (Free Trade Agreements) was made with Chile. Korea’s National Assembly ratified the Korea-Chile FTA in April 2004. Since then Korea has established FTAs with 52 nations including China and the U.S. Fortunately most of our FTAs have been assessed as moderately successful. Korea and partner countries have been beneficiaries of their FTA. No strong complaints have been voiced about the agreements from any side until recently. However, Korea is now experiencing unprecedented trade and investment disputes with China and the U.S.
Since the early part of 2017, China has been taking retaliatory economic measures against South Korea’s deployment of THAAD, a U.S. missile defense system. From China’s standpoint, the THAAD deployment in South Korea may be a threat to China. But from our standpoint, we Koreans believe it is just for self-defense. In this manner, there seems to be an interest conflict in national security between South Korea and China.
Diplomatic relations between the two countries were formed for the first time in 1992 and they became close economic partners by signing the bilateral FTA in June 2015. Since the launching of the Korea-China FTA, China has become Korea’s second largest partner in trade. However, I am concerned that this close economic tie is getting weaker. Among the many Korean firms in China, Lotte Group, South Korea’s fifth-largest conglomerate, has been the main target of the THAAD reprisal because it had provided a golf course as the site for a THAAD battery.
Similarly Mr. Trump, President of the U.S., bitterly criticized the Korea-U.S. FTA as a bad agreement for the U.S. right after his presidential inauguration. Years ago, Korea had a bitter experience when getting the Korea-U.S. FTA ratified. When the two governments signed the FTA in June 2007, the U.S. Congress did not welcome it, but the Korean national Assembly did. Later on the two legislatures reversed positions. It took more than four years before the Korea-U.S. FTA became effective.
After his inauguration, Mr. Trump declared that the Korea-U.S. FTA should be revised since it is a “job killer.” Nevertheless, according to an analysis done by the U.S. Department of Commerce, the Korea-U.S. FTA has benefited both countries. His initial position about this FTA seems to have become weaker since President Moon accommodated the U.S. request for full-fledged deployment of the THAAD missile defense system in Korea. Mr. Trump has toned down his rhetoric toward the FTA.
As the word-war between North Korea’s Kim and America’s Trump seems that it will continue for some time to come, China’s THAAD reprisal will continue, too. But there will be a limit in economic retaliation against South Korea. Chinese people have to forego the consumption of South Korea’s higher-quality products and services at cheaper prices. Also the Chinese exporters have to give up the import of reliable parts and intermediate goods from South Korea. Meanwhile, South Korea will have to look for other economic partners such as India, ASEAN, and others.
Regarding the revision of the Korea-U.S. FTA, its necessity is going to diminish because of the solid recovery of the US economy. Mr. Trump made an impressive remark at his UN speech delivered last September 19, “… Fortunately the United States has done very well since Election Day last November 8th. The stock market is at an all-time high _ a record. Unemployment is at its lowest level in 16 years, and because of our regulatory and other reforms, we have more people working in the United States today than ever before….”
Now, I can only wait for better prospects for all of us who share the common interest, while I keep my fingers crossed.
Dr. Jeffrey I. Kim (ickim@skku.ac.kr) is a foreign investment ombudsman, a state-appointed troubleshooter for investors and entrepreneurs from overseas. He earned a Ph.D. in economics from the University of Chicago and taught at the University of Colorado, Boulder, and at Sungkyunkwan University.