Peter Sylvestre's picture

THE much-touted Free Trade Agreement between China and South Korea is not all it seems – but it serves other purposes for both countries . . .

SEOUL — Politics can often be more about symbolism. A case in point is the Free Trade Agreement reached in November between China and South Korea.
Contentious issues may not be readily visible — but they continue to lurk just below the surface.
The FTA, a hazy project even in the final year of President Lee Myung-bak's administration (which ended in February 2013), assumed greater urgency under his successor, the incumbent Park Geun-hye.
But haste in signing off the agreement at November’s APEC meeting in Beijing is clearly evident in both its 'incomplete' coverage and lengthy implementation.
As the Wall Street Journal determined, tariffs will remain on nearly 10 per cent of total China/Korea bilateral trade (US$ 20 billion out of US$ 230 billion).
By comparison, the Korea-US FTA (KORUS FTA) and the Korea-EU FTA retain tariffs on just 0.1 per cent and 0.4 per cent of products, respectively.
Up to seven per cent of Chinese exports (including 30 per cent accounting for 614 items of politically-sensitive agricultural and fishery products, as well as automobiles) will be excluded.
For its part, China, which accounts for the biggest chunk of all Korean exports (25 per cent), will likewise retain tariffs on Korean cars.
And, finally, the FTA will be phased in over 20 years, leaving plenty of time to smooth over any difficulties that may emerge.
The short negotiation period, the incompleteness of the FTA’s coverage, and its lengthy phase-in all beg the question: why were Presidents Park and Xi so intent on establishing a treaty that may remain primarily symbolic, at least in the short term (especially as it has yet to be ratified by either country)?
The answer is that, whatever the "defects" of the agreement are from the perspective of classical international trade theory, it serves the international and domestic interests of both.
For Korea, closer political and economic ties to China serve both the attainment of its national holy grail of eventual reunification and stimulation of economic growth.
China is widely seen in South Korea as having the means to pressure the DPRK into assuming a less hostile posture toward its southern counterpart, so the agreement serves as a tangible symbol of the "strategic partnership" that President Xi has advocated.
As for the economic benefits, given that China has long overtaken the US as Korea's most significant trading partner, the hope is that the agreement may, at a minimum, ward off the looming spectre of a prolonged Japan-style era of stagnation in Korea.
That it also serves China's interest of putting on notice both the ungrateful Kim dynasty, which has been gravitating toward Russia and snubbing China, and the Taiwanese, where student protests scuppered have closer cross-strait economic co-operation, renders this agreement politically acceptable on nearly all levels.
That it puts Japan's nationalistic, and hence antagonistic, Government on notice is an added benefit, especially considering Xi's overt linkage of this agreement to the promotion of Asia-Pacific regional integration.
Given the historical backdrop of Japan's brutal attempt to create its own "Co-prosperity Sphere", Japan will need to reconsider how to re-engage in Asia. And so will the United States.

* Peter Sylvestre is Seoul correspondent for ATI Magazine