ΆΓ [Editorial] Free Trade Agreement With Japan

 KoreaTimes 2000.08.21

Economic and Finance Minister Jin Nyum revealed that the government would seriously consider establishing a Free Trade Agreement (FTA) with Japan during a meeting with heads of state- and privately-run economic research institutes last Wednesday. He reportedly cited the necessity of attracting investment from

Japanese high value-added industries as the primary reason to establish the economic partnership between the two neighboring countries.

Jin's remark attracts people's interest as it was the first official government response in the matter. Despite worrying voices among economic analysts here, the positive government attitude on the matter is considered appropriate in view of the fast-changing global economic structure and South-North rapprochement that would make it possible for the South to actively participate in the economic renovation of the North, which will require astronomical amounts of money. The FTA with Japan is also deemed to be necessar to secure investment from Japan since the South would have no other choice but to rely on foreign capital in the process.

Jin reportedly said in the meeting that ``It would be mutually beneficial if Japanese parts makers were to establish operations in Korea. That would serve the function of stimulating economic growth and reducing the alarming trade deficit with Japan.'' The possibility of a FTA between South Korea and Japan has been studied jointly by leading economic think tanks of the two nations since last year.

The Korea Institute for International Economic Policy and Japan's Institute of Developing Economies, which took part in the research, released a comprehensive report on the wide-ranging impact the agreement could have on both nations last June. They recommended that the two governments start negotiations for signing an agreement, saying that the it would work positively for the two nations.

Jin's positive attitude toward the FTA is warranted enough as the market situation in Asia is changing rapidly and South-North economic exchanges are expanding in accordance with the recent thawing mood. China is on the threshold of being admitted to the World Trade Organization (WTO) and nobody can predict exactly what impact the country's entrance will have on South Korea and other neighboring nations.

However, the government should be fully prepared for the possible ill-effect the FTA with Japan could have on the national economy despite favorable assessments by the two institutes from a long-term point of view. Many economic analysts here are not positive toward the matter, saying that it is still premature to sign such an agreement between the two nations at this juncture.

They are claiming that the wide gap in economies and the level of technology between the two countries would make it inevitable that Japanese commodities, including electronic goods, which are especially relished by Korean consumers, would ransack the Korean market if and when the agreement comes into force. Actually, the tidal wave of Japanese goods has already started to surge into the Korean market since the government lifted import restrictions on 16 Japanes commodities last year.

The imports of some Japanese goods in the first four months of this year registered increases as high as 200 to 400 percent compared to last year. South Korea's GDP is only one tenth of Japan's and our total trade volume stands at only 40 percent of that of Japan in addition to the technological disparity. The amount of exports and imports to and from Japan stood respectively at $15.8 billion and $24.1 billion last year, marking an $8.3 billion deficit.

The FTA, if adopted, is sure to drastically aggravate Korea's trade deficit against Japan, having an unimaginably bad impact on the overall national economy. That is the widespread concern among Koreans in regard to signing an FTA with Japan. Some even say the agreement may cause the Korean economy to become colonized by Japan.

The government is needed to clarify its remedy for the trade imbalance, destined to worsen with the FTA. It is also required to explain specifically the merits or positive impacts the FTA could have on the Korean economy to the people. However, the report suggested that the FTA will enhance the efficiency of the Korean economy by streamlining investment in specific fields between the two nations. The productivity of Korean industries is also forecast to increase by 10 percent in the next 10 years and hike Korea's actual GDP by 2.81 percent a year, according to the report.

The establishment of economic partnerships among the neighboring nations has accelerated since early 1990s. Amid this trend, South Korea, Japan and China are the only major economic countries which remain nonaligned to any of the regional economic organizations. Foreign analysts point out that the positive side of FTA is not limited to expanding trade volume. As seen in the case of the European Union (EU), the FTA serves as a catalyst to vitalize competition among member nations, accelerate industrial realignment and expedite economic reformation.

The lack of confidence toward Japan is also thought to play a major role in Korean people's reluctancy toward an FTA with Japan. What is also needed at this point are efforts by the Japanese government to show the generosity and broad-mindedness befitting their economic capabilities.