1

1

Korea’s FTA Policy and its Perspectives

27 September 2006

Heungchong Kim

Head, European Studies

Korea Institute for International Economic Policy

2

Table of Contents

I. Why does Korea pursue FTAs now?

II. How does Korea pursue FTAs?

III. Current Status of Korea’s FTAs

IV. Korea-US FTA: where are we now?

V. Korea-EU FTA: prospects

VI. Korea’s FTA Networks in the Future

3

3

I. Why does Korea pursue FTAs now?

Why does Korea pursue FTAs?

Korea: heavily dependent upon foreign markets in its development process

- trade openness in 2005: Korea(65.7%) vs. NAFTA(25.8%), Japan (24.3%), EU(32.2%), China(59.3%), ASEAN-7(154%)

strongly supported multilateral trade negotiations as Korea has been one of the greatest beneficiaries of the GATT/WTO, but just ignored FTAs Regionalism revived and making fortress in foreign markets, so urgent need to change its trade policy to take new markets and not to lose

existing ones.

4

4

I. Why does Korea pursue FTAs now?

Why now?

No regionalism in East Asia – “Empty box or White spot” Emerging FTAs…..

- China-ASEAN, Japan-ASEAN, Japan-Mexico….. ………and Korea’s Choice

- A Sense of Urgency = “Already late, but not too late”

5

5

II. How does Korea pursue FTAs?

Basic Strategy of Korea’s FTAs

Forming FTA networks with giant economies and emerging markets Should take a multi-track pursuit with a high-level and comprehensive FTAs supporting MTN

The Roadmap of Korea’s FTA

A need for setting priorities among potential FTA partners Pronounced in August 2003, after completion of negotiations with

Chile, and revised in 2004 Factors of consideration in choosing the partners – maximizing

economic benefits, sensitivity of domestic industries, intention of the FTA partners,

6

6

III. Current Status of Korea’s FTAs

The Early Era of Korea’s FTAs (before 2004)

mid and late 1980s : a move of Korea-US FTA, mainly from USTR (1984) and USITC(1989) – “Korea is not ready for FTA” After financial crisis, the Ministry of Trade established, and its main objectives were to establish Korea’s FTA policy – government-led FTA policy proceeded mid-1998, informal contact with several countries including Thailand, South Africa, Turkey, Chile, New Zealand and Israel,.. …and Chile was chosen as a first partner for Korea’s FTA(1998. 11) FTA negotiations with Chile started(1999. 12.) and finished(2002. 10.) Singapore: suggested(1999. 9.), pronounced of the start of negotiation (2003. 10) and finished(2004. 11) Japan: 1999~2000 research started to published, Joint research group (2003. 3.), start of negotiation(2003. 12) and stalled.

7

7

III. Current Status of Korea’s FTAs

Entry into force

Chile Entered into force since March 2005 and proved successful through mutual benefits

Singapore Entered into force on 2nd March 2006

EFTA Entered into force 1st September 2006

Under

Negotiation

ASEAN Finished commodities area, and on-going negotiations on services

Canada Negotiations since July 2005

Mexico Negotiations since February 2006

India Negotiations since March 2006

U.S. Negotiations since June 2006

JapanStalled (differences over agricultural products)

Joint Study MERCOSUR Under way (until mid-2006)

Making good basis ChinaJoint studies at the academic level (until 2006)

8

8

IV. Korea-US FTA: where are we now?

Why pursue the KORUS FTA?

KORUS FTA will lead to…

- Expanding trade and create additional wealth

- Accelerating the ongoing economic reform, upgrading the Economic and social systems,

- Strengthening the Korea-US Alliance

The current status of KORUS FTA negotiation

Announcing start of negotiation in February 2006 Informal preparatory talks in March and April 2006 1st, 2nd round of negotiations in June and July 3rd round of negotiations held in Seattle in early September 2006 4th round will be held in late October in Korea

9

9

IV. Korea-US FTA: where are we now?

The Outcomes of 3rd round of negotiation

Two sides focused on tariff offers and services/investment reservation lists that had been exchanged

- Korea requested the US’s improved tariff offer for and textile, while US requested Korea’s improved tariff offer for

agricultural products.

- A basic foundation built in the services/investment reservations by assessing the requested reservations and mutual interests of both

parties Progress in certain chapters such as the financial sector, but not much substantial advancement was made regarding the key issues Inter-sessional talks will continue before the 4th round

10

10

IV. Korea-US FTA: where are we now?

Main controversies in the Korean Society on the Issue

No preparation on the KORUS FTA negotiation? Harmonization with (North)east Asian Economic Community? Four contending issues, preconditions for the start of the negotiation?

- screen quota, beef, exhaust control, pricing in pharmaceuticals Growing concerns on the impacts of KORUS FTA on the Korean

Industries

- Agriculture, Services including financial, education, medical services, Investment issues, IPR, etc…

11

11

V. Korea-EU FTA: prospects

Achievements in Trade and Investment

As of 2005, the EU was Korea’s second biggest exporting partner next to China and ahead of the U.S. It is also the fourth biggest importing partner next to Japan, China, and the U.S.

Korea is the 8th trading country for the EU.

- U.S., China, Switzerland, Russia, Japan, Norway, and Turkey stood ahead of Korea

- Korea is the biggest country of MFN status except giant economies of the US, China and Japan

As of 2005, the EU stood as the largest investor in Korea with a registered investment stock of US$33bn in 2005; more than 30% of foreign capital in Korea

12

12

V. Korea-EU FTA: prospects

Strategic Complementarities

Placed multilateralism first on the table but changing the mood from both sides

- EU: a) growing concern about trade diversion in the Korean market caused by its active engagement in RTA (e.g. KORUS FTA) b) searching for momentum to improve market access and to solve problems arising from trade deficit c) active engagement of the EU in dynamic East Asia

- Korea: a) why not the EU? from its FTA policy b) good chance to expand trade with a giant economy and create additional wealth c) good chance to make a stepping stone in accelerating the ongoing economic reform and upgrading the economic and social systems once again

13

13

V. Korea-EU FTA: prospects

Preliminary Talks began

Feasibility studies of a Korea-EU FTA almost finished by both sides The Joint Committee meeting in June 2006 finished 1st preliminary talk on a Korea-EU FTA finished in July and 2nd

round is being held in September  Factors to be Considered

Existence of strong will to evolve preliminary talks to a higher level Development of negotiations in DDA and the KORUS FTA Political sensitivity in the Korean society Interest groups on both sides  

14

14

VI. Korea’s FTA Networks in the Future

Korea’s FTA Networks in the Future

FTA Networks with more than 50 countries in the World

including…..

- Small but strong countries such as Chile, Singapore, EFTA and Canada

- Giant economies of ASEAN, US, EU, Japan and China

- Emerging Markets of India, Mexico, MERCOSUR and Russia

15

15

Thank you