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Exclusive Interview with Bark Taeho

Korea-China FTA Below Expectations


Korea-China FTA Below Expectations


Seoul and Beijing announced in November 2014 that they had effectively reached a free trade deal, worrying many in Taiwan. Former Korean trade official Bark Taeho offers some perspective on the pact and its potential impact down the road.



Korea-China FTA Below Expectations

By Shu-ren Koo
From CommonWealth Magazine (vol. 563 )

Bark Taeho, a professor at the Graduate School of International Studies (GSIS) of Seoul National University, served as a key trade negotiator under previous South Korean President Lee Myung-bak. As minister of trade between December 2011 and March 2013, Bark concluded negotiations on the Korea-U.S. free trade agreement and launched FTA negotiations with other nations, including Australia, Canada, China, Japan and New Zealand. In 2012 Bark was in the race for the position of World Trade Organization (WTO) director-general. The following are excerpts from a recent interview with CommonWealth Magazine:

Q: South Korea and China have just announced the conclusion of a bilateral free trade agreement (FTA). What is your overall assessment of the FTA between China and South Korea?

A: The details have not come out yet, but if you look at the overall structure and content, first, this is a comprehensive, really comprehensive FTA. In terms of liberalization, we aimed at a little higher level when we started to negotiate, but that came down throughout the negotiations because both countries have sensitive sectors to protect.

In the case of Korea, we had to protect the small- and medium-sized companies, which are mostly in labor-intensive industries. We needed some protection - that means we needed to get a longer time for liberalization. Also agricultural, lifestyle, and fishery products - we wanted them to be treated as an exception or have a longer time to be liberalized.

For the Chinese side, our strong industries like steel, machines, electronics and auto parts, [that is where] they slowed down the liberalization. So that's why we came up with a low level of liberalization. But overall, when you have this kind of bilateral FTA between the world's largest trading nation [China] and the ninth largest trading nation [South Korea], they will bilaterally set up many different committees and subgroups or working groups, more than 15 maybe, then each committee, subgroup or working group will deal with their own specific issues. We have a full communication channel on international trade and investment. I think that is the benefit of having formal comprehensive FTA.

Q: What is the strategic thinking behind the FTA with China?

A: When we started our negotiations with the United States, China immediately showed its interest, huge interest in having an FTA with Korea. It was in 2005 and 2006, it took like six or seven years of preparation and then we started these negotiations.

It is common sense why you want to have a FTA with China; it is a country with a rapidly growing economy and a huge domestic market so it is very beneficial to Korean companies. And that's why we showed our own interest. Maybe China has not only economic interests, but also other interests. But in the case of Korea, I think, the economic interests dominate our FTA with China.

If you have closer economic relations then, for example, Chinese companies come to Korea to invest and we will have a more in-depth relationship with China. Then from the security view point, when we deal with North Korea, maybe - they didn't say so explicitly - but maybe a closer economic relationship between China and Korea may discourage North Korea from taking a more military or aggressive kind of attitude.

Q: What is the role of the FTA in Korea's triangular relationship with China, Japan, the U.S. and Northeast Asia?

A: I think the Korea-China FTA will provide good momentum or a good platform to have trilateral CJK [China-Japan-Korea] FTA negotiations, which are making very slow progress because of political and territorial sensitivities.

But the Korea-China FTA will provide some kind of baseline for a three-country FTA, although it's still young, yet to come, but it can have a positive impact.

Also, for ASEAN Plus Six, we received some kind of momentum from the Korea-China FTA.

For the United States, the initial plan a long time ago when they activated the APEC activities was to have an APEC FTA. This is the so-called FTAAP [Free Trade Area of the Asia Pacific] we talk about today. We couldn't achieve this [at the time] because of vastly different stages of economic development among APEC members. Now if the RCEP [Regional Comprehensive Economic Partnership], where China participates, and the U.S.-led TPP [Trans-Pacific Partnership], if they concluded these, both of them, there would be a comparatively narrower gap [in economic development] than we used to have a long time ago. Then maybe you can create momentum for the two regional groups to merge to have an FTA as well… I think this is the first time for China to have a comprehensive FTA with a major trading nation. So it can create some moral implications for regional integration, you know, that is my own thinking. It will have a positive impact on regional integration.

Q: Why did you choose the United States and not China as the first major nation to negotiate a FTA? Isn't Korea's bilateral trade volume with China is greater than with the United States.

A: No. The Korea-China trade was very small but growing very, very rapidly and by then [when South Korea negotiated the FTA with the United States] maybe it had surpassed U.S.-Korea trade.

Think about the United States, it is the most advanced, largest economy in the world. If you want to maintain the competitiveness of your products, you have to have a larger market share in the United States. In addition, this is a purely economic reason although some other people would consider other strategic reasons in the Korea-US FTA. However, our trade ratio with the United States continued to decline from a 3 percent to a 2.5 percent market share. I think our government thought that maybe we should do something to reverse this trend so that our companies can do well in the most advanced economy in the world.

Naturally, the EU showed interest because of the Korea-U.S. FTA, China showed interest, so maybe the Korea-U.S. FTA triggered many different countries' interest in having FTA with Korea. The Korea-US FTA was a good starting point for Korea's FTA network.

Q: You just mentioned there is a Korea-Japan-China-FTA. What is the current state, what is the prospect of this FTA? Will there be some progress in 2015?

A: It is a very, very gloomy prospect because of China-Japan relations, Korea-Japan relations, historical and territorial disputes. Of course, this is a FTA, its economic issues, but the political environment actually prevents this three-party FTA from making progress.

If the three leaders meet and create a better environment soon then maybe, we can resume our [talks], we are still negotiating but there is not much substantial progress.

I think they will make some progress [in 2015]; I don't know whether they will conclude [the agreement], they will make some progress assuming that the political environment will improve.

Q: When Taiwan and China signed the Economic Cooperation Framework Agreement (ECFA) in 2010, do you think this was one of the reasons for Korea to accelerate trade negotiations with China?

A: No. Well, this is part of the reason but not because of Taiwan. As I said, you know, our neighboring country is generating huge economic growth and they have a huge domestic market, this is beneficial to Korean companies. It took us thirty months, two and a half years, so we are not hastily concluding the negotiations. Normally one year, one and a half years or two years are enough because we already have lots of examples of FTAs.

But both governments may - I don't work for the government anymore - both governments may think even if we spent more time we could not improve more concessions so we have to stop and conclude [the agreement].

Q: What is the focus of debate within Korea about the Korea-China FTA?

A: First of all, our farmers and fishermen are really worried although our imports of agricultural or fishery products from China are less than six percent of our total imports from China. Now they are still afraid of having a FTA with China. For sensitive items, we actually delayed the liberalization or sometimes we excluded them from the negotiations so the fear has been calmed down a bit…Our early kind of opposition or fear has been reduced.

Q: Why is kimchi on the list for tariff reductions but cabbage is not? Can Korea export kimchi to China after the FTA is signed?

A: Well, cabbage is raw material and kimchi is more value added, is regarded as a manufactured food…so the tariffs are different.

Right now, we cannot export kimchi to China because they don't have any sanitary standards. Because kimchi has lots of so-called good bacteria, they don't have that kind of criteria, for fermented food like makali [milky Korean rice wine] or kimchi, they don't have any criteria…

[After the FTA is signed] you need more time to ratify, to prepare everything, you cannot start implementing right away. So maybe until the time when we start to implement [the FTA], I hope China has a global sanitary standard for importing kimchi.

They [China] are exporting kimchi to Korea, because we have sanitary criteria. Some kimchis are imported from China, but mostly, Korean people invest in kimchi factories there, it is not really that the Chinese are exporting, it is the Koreans making some investment in China, and they make kimchi and then re-export it to Korea.

Q: Does Korea have any political concerns over the FTA with China? Some countries worry that if their economic relations with China get too close Beijing could use to exert political leverage.

A: Yes, we have a lot of concern among scholars and companies and NGOs, but think about this, we were doing trade anyway, even before the FTA, and trade was growing rapidly. The only barrier you have at the border is a tariff. Of course, we have also non-tariff barriers. But if you keep a tariff like 10 percent, for example, for good, permanently, does that mean you can prevent China things from coming into Korea? No, we cannot.

You know, we want to participate in the Chinese domestic market earlier than other competitors. This is the purpose of having FTAs. But on the other hand, when we liberalize our own economy, let's say for small- and medium-sized companies the tariff will be eliminated over a ten- or a 15-year-period. Then some companies looking at the schedule will start to compare themselves so that they can increase their competitiveness. If the government says, we don't have any FTA, only the 10 percent tariff will be remaining there, that will not protect you. We have to do something, some preparations, some restructuring, and some enhancing of the efficiency of the industry.

The FTA schedule for liberalization can then motivate small– and medium-sized companies to do something for the future. An eight or ten percent tariff cannot protect you permanently; we have to do something to enhance our efficiency. That's the key objective of having planned liberalization. Imports from China will increase anyway as time goes by. In return we can actually open up the Chinese market, this is good.

Q: What is Korea's position on the Trans-Pacific Partnership (TPP) and the Regional Comprehensive Economic Partnership (RCEP)?

A: We must actively participate in RCEP, that's for sure, we are a major player there. But the TPP, we have bilateral FTAs with ten out of twelve currently participating countries. So in terms of expanding our export markets TPP doesn't provide us huge opportunity except for China, Japan and Mexico. But once these countries are integrated, then joining TPP is much better for our business people because our flexibility in using big ITA is much more efficient. In other words, you can assemble goods from Vietnam, Malaysia, Korea and can still use it, assemble this and go into the U.S. market.

But if you only have a Korea-US FTA you have to manufacture things in your own country. It [TPP] provides much bigger flexibility to Korean companies… After TPP is concluded, they will open up for new members. We already showed officially our interest in joining TPP but we don't have to haste, we don't have to hurry, because we already have a huge FTA with the United States and ten other members.

Q: You mean, if Korea joins TPP, big Korean companies can assemble in all other countries?

A: Or still assemble things in Korea but you are importing the parts and components from many different countries but you can still use this to enter into the United States. I don't know about the final rules of origin in the TPP but gaining more members in a bigger ITA provides a good flexibility to the firms. They can supply many things for the final goods from many different sources.

Q: Some people expect RCEP to be concluded in 2015?.

A: We have a deadline of 2015, but we are making very slow progress. I don't know whether they will make it by the deadline… We are making some progress but the end result will be much lower level than TPP.

Q: What is the reason for the lack of progress in RCEP negotiations?

A: Nobody is pushing, ASEAN is driving. ASEAN themselves cannot achieve a high level of negotiations. Also, India is there so we have very diverse voices. There is no U.S. in RCEP. We are all working together but ASEAN consensuality is the key for RCEP because they initiated it. Nobody says I want to drive, we don't do that, we cannot do that. But ASEAN is forming the ASEAN Economic Community by next year; since they are doing many things together they are making slow progress.

Q: How about the prospects of TPP?

A: Actually, after the election in Japan, Prime Minister Abe will provide more aggressive momentum to conclude the TPP with the United States. If that happens, then maybe in the first half of next year, there is a high probability [for negotiations]  to conclude but nobody knows. If you miss the first half of next year, then for a couple of years you cannot do this because of the election process of the United States, the presidential election.

Transcribed by Susanne Ganz