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Preconditions for Korea-China FTA
Korea finally appears to be ready to start negotiations for a free trade agreement (FTA) with China. If signed, the trade pact would have considerable effects on the bilateral political, military, diplomatic, social and cultural relations between the neighboring nations under the broad concept of economic security surrounding the Korean peninsula. Therefore, Korea will need to carefully calculate the potential profits and losses in terms of geopolitical security as well as actual economic impact before it begins to negotiate.
Beijing tends to prioritize political factors in its FTA strategy. Thus, Chinese officials are more enthusiastic than ever about signing an FTA with Seoul due to the Korea-U.S. FTA. One of Beijing`s multidimensional strategies is to draw Korea into the greater Chinese economic bloc by means of free trade and in the long run prepare for the day when it shares a border with a unified Korea. Consequently, more than reducing or eliminating tariffs on commodities and agricultural and marine products will be at stake.
There are eight key issues that must be addressed in the negotiations. Protection of investors is the foremost problem. A group of Korean investors were not properly compensated years ago, when they were forced to withdraw from hotel business near Mount Paektu under order from Chinese authorities. Therefore, provisions on investor-state dispute settlement should be included in the Korea-China FTA.
Second, Korea has to demand additional opening of China`s services market, especially the financial service sector. The FTAs that China has concluded so far only involve tariff elimination and reduction on industrial, agricultural and fisheries products. China has refused to open its domestic services sector beyond the concessions it offered upon joining the World Trade Organization.
Third, environmental and safety standards should be absolutely strengthened. If nuclear reactors located along China`s western coastal regions are stricken by an earthquake or man-made disasters, the Korean peninsula will certainly suffer severe effects.
Fourth, we, as a nation pursuing reunification, should try to forge agreement with China to build an industrial complex in Dandong near the western North Korean border and allow tens of thousands of North Korean workers to commute to the plants. By doing so, the North Korean people will be exposed to capitalism and the North`s regime will be able to implement arms reduction. Such developments would elevate the livelihood of North Koreans who face chronic food shortages and thereby provide the momentum for practical changes in the isolated communist state.
Fifth, we must demand that products manufactured by South Korean investors in North Korea`s special districts, such as Hwanggumpyong, an islet in the mouth of the Amnok (Yalu) River, the Rajin-Sonbong special economic zones, be classified as “Made in South Korea.” At present, products from the Kaesong (Gaeseong) Industrial Complex north of the DMZ are recognized as South Korean-made in some of Seoul`s FTAs. Such an agreement will entice investment in North Korea from foreign companies eyeing the vast Chinese market and help create jobs for North Koreans. In addition, stronger protection of intellectual property rights, cooperation in food safety control and standardization of food safety procedures should be included in the Korea-China FTA.
Negotiations with China won`t be easy. Leverage is important in all negotiations. Depending on the progress in free trade negotiations with China, the time may come for Korea to raise the issue of striking a similar pact with Taiwan. If necessary, Seoul may have to persuade Beijing to upgrade their two-way FTA to a multilateral regional trade agreement, or RTA, that would include Hong Kong, Macau, Taiwan, Mongolia and the 10 ASEAN countries. Authorities in Beijing should be persuaded that an RTA representing continental powers is needed to counter the 10-member Trans-Pacific Partnership, or TPP, which is led by the United States, Japan and other maritime powers but excludes China.
We need to make a cool-headed assessment of what would benefit us the most – membership in the continental powers` RTA, or success or failure of the maritime powers` TPP. Simultaneously, we should push for an inter-Korean FTA based on comprehensive economic cooperation with North Korea, which depends on China for 83 percent of its international trade. But the two Koreas would first need to settle matters stemming from the North`s 2010 attacks on Yeonpyeong Island and the warship Cheonan.
We must be careful to maintain a balance between a rising China and a waning United States. While striving to be impartial between the two powers, we must establish our domestic, unification and diplomatic policies on the basis of realism, rather than ideology. A superpower generally tends to demand more from a weaker party than it gives. Time on the Korean peninsula is ticking in favor of China, not the two Koreas. We must go to the FTA negotiating table with China while bearing in mind this stark reality.