VOLUME XLII NO.12
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“It Will Be Necessary for Neighboring Countries To Ease Non-Tariff Barriers Through Active Negotiations”
To Help Boost the Benefits of the Bilateral Trade Pact
On the occasion of the Korea-China summit between President Park Geun-hye and President Xi Jinping in November 2014, the two governments sign the Korea-China FTA, at the Great Hall of the People, China.
Korea and China marked the first anniversary of their free trade agreement (FTA) in a gloomy mood on Dec. 20, 2016, because of its smallerthan- expected effects. During the first 11 months of 2016, Korea's exports to China shrank 10.9% from a year earlier to US$112.4 billion. The drop was bigger than the 5.6% fall in exports to China posted last year before the bilateral trade deal took effect. Seoul's imports from Beijing also dropped 4.8% in the 11-month period.
This is in acute contrast with the fact that similar trade pacts with Vietnam and New Zealand that went into effect on the same day a year ago boosted trade significantly. In the January-November period of this year, Korea's exports to Vietnam and New Zealand increased 15.2 and 6.4%, respectively. There are various factors behind the China FTA's disappointing trade-boosting effect. First and foremost, the time has not been ripe for the trade pact to work wonders because of China's economic slowdown.
Contrary to the stated purpose of the trade pact, China has been erecting nontariff barriers to Korea's major export items such as steel and computer chips. There are 111 non-tariff barriers erected by China to Korean exports, and this is the third largest after Europe with 203 and the U.S. with 200. Chinese authorities are also moving to launch trade retaliation in angry reaction to Seoul's decision to host a U.S. defense system, anti-missile battery THAAD (Terminal High Altitude Area Defense). Last September, the ROK government made it official that a country club, owned by Lotte Group in North Gyeongsang Province, would be an alternate site for the deployment of the THAAD, a controversial U.S. anti-missile battery.
Specifically, Lotte is also facing tax audits in its various operations in China, while China has reportedly slapped a ban on Korean pop culture. But it's premature to be skeptical about the long-term effect of the bilateral trade deal. In fact, the government is right to argue that the agreement has limited Korea's exports to China from falling further.
Shipments of consumer goods to the world's second-largest economy rose sharply, and there has been little damage from imports of China's cheap agricultural products contrary to our earlier concerns. It's also encouraging that China's direct investment here has kept rising.
To help boost the benefits of the bilateral trade pact, it will be necessary for the neighboring countries to ease non-tariff barriers through active negotiations. But it's worrisome that they haven't even set a date on follow-up talks for the services industry and investment amid the worsening diplomatic atmosphere between the two countries.
It's time for Seoul and Beijing to be reminded of the mutually beneficial nature of their free trade deal and focus on developing it further.