THE BLOG

Trading up

03/25/2014 11:27 am ET | Updated May 25, 2014

Jean Young Koo reports on the Free Trade Agreement between China and South Korea

It seems that the world's fastest growing major economy and an Asian Tiger will together evolve into the biggest trading bloc in East Asia. The Free Trade Agreement between China and South Korea, initially proposed in 2012 and discussed by the two nations at summits in Seoul and Beijing, holds much promise for economic growth and interdependence in the region.

The interdependence between the two in matters of trade is unmistakable. Trade between China and Korea exceeded $220 billion in 2011. China is South Korea's largest trading partner, and Korea is China's fourth largest national trading partner. Therefore, the two countries' economic cooperation through the Free Trade Agreement is projected to greatly impact their economies as well as to alter socio-political dynamics within the atmosphere of East Asia.

Many experts view the Free Trade Agreement in a positive light from an economic perspective. This treaty is projected to increase China's GDP by up to percent 0.4-0.6 percent and Korea's by 2.4-3.1 percent, according to a 2005 study by the Korea Institute for International Economic Policy. Korea has much to gain from the FTA, with many Korean companies and 22,000 Korean start-ups flourishing in China. Korea's volume of export in the automobile, textile, and petrochemical industries will increase. Korea already benefits from a trade surplus of $48 billion with China, and an increase in exports will further help stimulate its economy. Fan He, the Assistant Director at the Institute of World Economics and Politics, noted, "China-Korea Free Trade Agreement will be good for both countries, especially if it can include some high-level issues [such as] competition and investment."

The FTA can also fulfill South Korea's more political goal in terms of relations with other countries: its goal of becoming a "FTA hub" nation. South Korea is currently in the process of stimulating its trade through sealing Free Trade Agreements with major economies, including the United States and European Union. China's benefits will come mostly from the agricultural and fishing sectors, the two areas in which Korea imports the most from China.

Beyond the immediate economic gains, the FTA will facilitate the consolidation of economic and political security in East Asia. With the Free Trade Agreement as a conduit for greater cooperation, China and South Korea will share a more amiable and stable diplomatic and geopolitical relationship. A stronger China-South Korea relationship will ease the tension within East Asia, leading to better outcomes in overarching issues such as the North Korean nuclear crisis, land disputes between China, Japan and South Korea, and the reunification of the Korean peninsula.

Some raise questions about the feasibility of this Free Trade Agreement. Initially, Japan was a part of the Free Trade Agreement, which would have made it a trilateral treaty. However, due to Japan's participation in multiple Free Trade Agreements, including the Trans-Pacific Partnership and the ASEAN-led Regional Comprehensive Economic Partnership, Japan pulled out to avoid a "multilateral bet."

A key concern surrounding the Free Trade Agreement is that Korea's biggest exporting industries -- automobiles, chemicals, and electronics -- will face fierce competition from China, which is currently developing and investing heavily in these areas. Despite its potential challenges, the Free Trade Agreements seems to be on a smooth path for now, as China and Korea are taking small steps in negotiations about specific policy ideas. Abraham Kim, the Director at the Maureen and Mike Mansfield Center at the University of Montana, noted, "the China and Korea FTA is quite plausible. The two countries are working toward completing it and getting it implemented by next year. Chinese government is pressing hard to get it done."

When South Korean President Park Geun-hye visited China last June, she emphasized the importance of reaching a consensus on the negotiations on the Free Trade Agreement in a speech. On the Chinese side, President Xi Jinping made a public statement last October, urging both China and South Korea to actively push further developments in the treaty. Xi noted that the bilateral agreement would be highly beneficial for both countries by expanding common interests and facilitating development within the region.

_____

Jean Young Koo is a freshman at Yale University. Contact her at jeanyoung.koo@yale.edu.

This article also appears in China Hands.

YOU MAY LIKE