RIETI
July 13th, 2006
Korea’s FTA Policy
- Focusing its FTA with Japan and US -
安世英 敎授
DEAN,
Graduate School of International Studies,
Sogang University
1
Korea as Japan’s
Economic Partner
“Geese flying development pattern”
2
GDP
Income per Capita
(unit: bil.U$)
(unit: U$)
4,664
50 0 0
37,050
40000
45 0 0
35000
40 0 0
30000
35 0 0
Korea
30 0 0
20000
25 0 0
20 0 0
Japan
15 0 0
801.2
10 0 0
8.8
1970
14,000
15000
10000
5000
206.8
500
0
25000
253
1,963
0
2005
1970
2004
3
Source: OECD, World bank, Bank of Korea
Export
(unit: mil. U$)
594,890
600,000
540,000
480,000
420,000
360,000
284,419
300,000
Korea
Japan
240,000
180,000
18,941
120,000
60,000
835
0
1970
2005
4
Korea’s Trade Balance (unit: bil. U$)
284.42
300
253.84
193.82
200
172.27
136.16
129.72
132.31
125.06
100
143.69
39.03 23.93
150.44 162.47
11.79
9.34
10.34
14.99 29.38
23.18
0
-10.06 -20.62 -8.45
-100
93.28
119.75
135.12 150.34 144.62
-200
160.48 141.1 152.13
178.83
export
import
trade balance
224.46
261.24
-300
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
5
Source : Korea International Trade Association
Korea’s Trade Balance with its
Major partners (1995-2005) unit: mil. U$
US / China
25,000
Japan
China
20,178
US
20,000
13,201
15,000
8,369
10,000
5,000
1,742
2,838
5,460
3,456
2,402
23,267
8,835
4,818
4,552 5,656 4,888
9,772
14,067
10,757
9,405
6,354
0
-5,000
-10,000
-15,000
-20,000
4,603
6,272
8,497
8,280
11,635
13,136
15,557 15,682
11,362
10,128
14,713
19,037
-25,000
24,443
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
Japan
24,376
2005
Source : Korea International Trade Association
6
Export Market (2005, unit: U$ billion)
Korea
1.
2.
3.
4.
5.
6.
7.
8.
China
US
Japan
Hong Kong
Taiwan
Germany
Singapore
United
Kingdom
Japan
61.9
41.3
24.0
15.5
10.9
10.3
7.4
5.3
1.
2.
3.
4.
5.
6.
7.
8.
US
China
Korea
Hong Kong
Thailand
Germany
Singapore
United
Kingdom
136
80.0
46.7
36.0
22.6
18.7
15.2
12.6
7
Source : Korea International Trade Association
Japan’s FDI into Korea(1995-2005)
in terms of U$, annual flow
mil. U$
2,451
2,258
2,500
1,879
2,000
1,749
1,404
1,500
776
1,000
540
504
500
255
266
122
0
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
Source : Ministry of Commerce, Industry and Energy
8
FDI into Korea by origin (2005, stock)
Others
26,459 mil. U$
22.5%
EU
36,595 mil. U$
31.1%
US
35,127 mil. U$
29.8%
Japan
17,737 mil. U$
15.1%
China 1,768 mil. U$ / 1.5%
9
Source : Ministry of Commerce, Industry and Energy
Korea’s FTA Policy
10
Under Nego.
Signed
Effecive
1. K-Chile FTA
Feb. 2003
Apr. 2004
2. K-Singapore
FTA
3. K-EFTA FTA
Aug. 2005 Mar. 2006
Dec. 2005
Jul. 2006
4. K-ASEAN FTA
Dec. 2005
Jul. 2006
(Goods)
5. K-Japan FTA
Dec. 2004
6. K-US FTA
Jun. 2006
7. K-Canada FTA
Jul. 2005
8. K-India FTA
Mar. 2006
9. K-China FTA
Under study(2005)
10 K-EU FTA
Under study※
11
Importance of trade with
country's FTA partners
trade with FTA
partners(%)
number of
FTA
number of
FTA
countries
China
5
14
10.4%
19.6%
Korea
4
16
0%
3.3%
Japan
3
3
2.4%
2.9%
U.S
12
16
33.2%
35.3%
Mexico
16
43
86.3%
88.0%
Singapore
10
19
43.9%
60.1%
2003. Dec. 2005. Dec.
12
The Japan-Korea FTA
why is it at standstill?
13
History
1st stage
Joint-research (1998-2003)
2nd stage
Negotiation (Oct. 2003 – Dec. 2004)
ƒ APEC Summit (Oct. 2003)
• Open government to government negotiation
• Conclude by 2005
ƒ Six rounds of negotiation
3rd stage
Standstill since Dec. 2004
14
Domestic politics of JK FTA
- Putnam’s “Two-level game” Korean government
Level I game
Japanese government
Level II game
domestic groups
ƒ Level I game is to bargain with foreign trade partners, leading to
a tentative agreement. Æ Diplomacy
ƒ Level II game is to negotiate domestically with various interest groups.
To persuade domestic constituencies to ratify the tentative agreement
15
Æ Domestic politics
Two Level Game in JK FTA
• Congress
• Interest
groups
Level II
game
Japanese
gov.
Hard domestic politics
Level I
game
Korean
gov.
Failure of
concession
making Game
(No win-set)
Political & Historical
Issues
Level II
game
• Congress
• Interest
groups
Hard domestic politics
16
R. Strauss
- STR, Tokyo Round -
“ As an US ambassador of STR, I spent as
much time in negotiation with domestic
constituents(Labor Union, Industry etc.)
and the US congress as I did negotiating
with our trading partners. ”
17
Four determinants of domestic politics
ƒ Nature of negotiation issues
ƒ Reaction of domestic interest groups
ƒ Politicization
ƒ Political leadership
18
1. Nature of negotiation issues
Interests of
Interest groups
Level II game
(domestic politics)
ƒ Homogeneous
not so difficult
* Peace treaty between
North – South Korea
ƒ Heterogeneous
difficult
• Winners - exporting industries
• Losers - import-competing industries
(declining industries)
™ Clear distinction between winner groups and
loser groups in Japan and Korea
19
Korea
very heterogeneous
Loser
Winner
• Employees in parts &
components
(1.1 mil. , 46% of the whole
manufacturing employment)
• SME(中小企業)
(33,282firms, 30 % of the
whole manufacturing)
• Farmers
Japan
heterogeneous
• Farmers
• Manufacturing
20
2. Reaction of domestic interest groups
ƒ Symmetry of
political reaction
not so difficult
• Losers and winners : same political reaction
NAFTA
Union
NGOs
Political
reaction
US
Political
support
Business
-endorse
group
• More political donation to pro NAFTA politicians
than con-NAFTA
21
22
ƒ Asymmetry
difficult
Japan
Korea
• Losers
strong political reaction
labor unions
SME
strong political reaction
farmers
free-riding
• Winners free-riding
Korea-Chile FTA
Farmers’
association
Political
reaction
Korean
government
Freeriding
Big
business
23
3. Political issues
ƒ Not political issues
• Korea – Singapore
• Korea - EFTA
ƒ Political issues
• Indifferent NGOs
easy
• Korea – AEAN
difficult
• Politicians
* The JK FTA will become excessively delicate
political issues because it is expected to injure the
interest of socially weak group like
- Japan : farmers
- Korea : small business, labor unions
24
4. Political leadership
™ It seems that politicians, who have to also
count the votes of farmers and labor unions,
will not exercise strong political leadership
ƒ Japan : Prime Minister
ƒ Korea : President
- Clinton’s political leadership in the
ratification of NAFTA
25
New Agenda
- Mid-level FTA as an Ice-breaker -
1. Mid FTA as Second Best
2. New Geo-political landscape
in East Asia
3. US-Korea FTA
26
1. Mid-level FTA
as Second-Best
27
Economic effect, feasibility and WTO-consistency
Type of
integration
Quality of
FTA
Effect Feasibility WTO-
Deep
integration
Highlevel FTA
High
Mid-level
FTA
Average Average Consistent
Shallow
integration
Low-level
FTA
consistency
Low
Low
High
Consistent
Nonconsistent
28
™ WTO’s “substantially all the trade”(GATT XXIV-8)
ƒ Low level FTA : not accepted by WTO
™ Two FTA policy options
ƒ Option I
- High level FTA in long perspectives
aiming at its maximum effect
ƒ Option II
- Mid-level FTA in near future
with its low effect
29
Mid-level FTA as Second-Best
™ ‘Significantly’ exclude the sensitive items from
the JK FTA
ƒ as long as this ‘significant’ exception is not against the
WTO
30
Mid-level FTAs
™ US-Australia FTA
ƒ Exception : Sugar, dairy products (partly)
™ EU-Mexico (Chile) FTA
ƒ Tariff elimination of 58% Agricultural products
™ Singapore-India FTA
ƒ 51% of two Countries bilateral trade
™ China-ASEAN FTA
ƒ Exception (Agricultural products) : Cambodia 30 items, Vietnam 15 items
31
2. New Geopolitical landscape
in East Asia
- Emergence of
the Greater Chinese Economic
Zone中華經濟圈
32
China’s FTA Policy
南方政策 Æ 中華經濟圈
Greater Chinese
Economic Zone
FTA(2010)
ASEAN
• 400 mil. Oversea Chinese
• 10% population →
60% economic power
33
3. The US-Korea FTA
34
7th trading partner
US
Korea
2nd trading partner
™ 1st round of Negotiation : 5th June (US)
™ 2nd round of Negotiation : 10th July (Seoul)
™ 5 rounds of Negotiation by March, 2007
ƒ US Trade Promotion Authority : July, 2007
35
Why US chose Korea?
™ 25 Counties on the waiting list
™ US FTAs with 29 Countries
Effective
Peru , Singapore, Oman, NAFTA, Morocco, Jordan,
Israel, the Dominican Republic, Chile, Bahrain, Australia,
Central and South America (Costa Rica, El Salvador,
Guatemala, Honduras, Nicaragua,)
Under
Korea, UAE, Thailand, Panama, Malaysia, Columbia,
negotiation Ecuador, Republic of South Africa, FTAA
36
US FTA Policy
1. Economic Cooperation
ƒ NAFTA
ƒ US-Australia FTA
2. Alliance (Security)
ƒ US-Israel FTA (1984)
ƒ US-Jordan FTA (2002)
3. Economic Cooperation + Alliance
ƒ US-Korea FTA
37
US Encirclement Policy
ƒ East Asian Summit (EAS)
• ASEAN + JKC + Australia + New Zealand + India
Korea
Singapore
Malaysia
Thailand
US
FTA(2003)
FTA(2006)
Australia
FTA(2006)
38
Hot issues
Korea
™ Service
ƒ Finance, Law,
Education, Health
™ Agriculture
ƒ rice & beef
™ Manufacturing
ƒ automotive tax system
US
™ Gaesung complex
™ Trade Remedy
Measure
ƒ AD
™ Visa, migration
ƒ Mutual recognition of
license (nurse, teachers)
39
Anti-KORUS FTA in US
40
Cautious Forecast
™ Domestic Politics In Korea
ƒ Political issues
™ Political leadership in Korea and US
ƒ Korea : Very fierce political reaction
ƒ US : US congress
™Very hard and thrilling concession-making game.
41
Win-set game for Mid-level JK FTA
More realistic negotiation strategy based on
hard domestic politics in both Countries
⇒ Win-set game for Mid-level FTA
42
Basic Role of win-set
™ Size of Japanese(Korean) government’s winset is decided by level Ⅱgame (political
reaction of interest groups)
™ When Japanese and Korean government’s
win-sets overlap → FTA agreement
43
Win-set Game
2004.12
2004.12
日本 win-set(50% 農産品)
韓國 win-set(50%工産品)
日本 win-set(100%農産品)
Japan max
100% 工産品
0% 農産品
日本 win-set(70%農産品)
韓國 win-set(100%工産品)
Korea max
0% 工産品
100% 農産品
韓國 win-set(70%工産品)
Agree
日本 利益極大化 協商案
韓國 利益極大化 協商案
44
Thank you
Good luck!
45