Professor Yoon Heo (GSIS, Sogang University)
IEAS (Institute for East Asian Studies)
Date : 21 September 2011
Host : IIAS (Institute of International and Area Studies)
Venue : K 508, Sogang Univ.
It is great honor for me to invite you to the IIAS International Seminar, which is
hosted by the Institute of International and Area Studies at Sogang University
since the fall of 2011.
IIAS Seminar provides an excellent opportunity for current and upcoming scholars
of international trade & development to open channels of communication, and for
students to acquaint themselves with the latest academic information in the field
of International area studies.
In addition, the Seminar aims to advance the level of scholarship in international
area Studies at home and abroad, where domestic and overseas scholars can
interact and the latter can gain a deeper understanding of specific international
affairs.
It is open to all of you who are interested in International Area studies,
and I hope that you will attend and actively participate.
I am looking forward to seeing you at this years' Seminar.
Sincerely yours,
Yoon HEO Ph.D.
Director, Institute of International Area Studies
⑪ K (Kim Daegon) Hall 508
Contact : Yun-mok Sohn, Coordinator, IIAS
Tel : 02-705-8235, Mobile : 010-9125-5680 Email : Tony@sogang.ac.kr
Development Strategy in Korea:
Lessons and Implications for
Developing Countries
----------------------------------------------------
IIAS Int’l Seminar on
Trade and Development
21 Sep. 2011
Professor Yoon HEO (GSIS, Sogang Univ.)
Contents
1. Policy Changes in Korea
2. Korea's Multilateral Trade Policy
3. East Asian Regionalism
4. Korea's FTA Policy
Policy Changes in Korea
Import Substitution Policy, 1953-1961
Export Promotion Policy, 1962-1972
Heavy and Chemical Industry Drive, 1973-1979
Import Liberalization and Industrial Rationalization, 1980-1994
Towards a Freer Trade Regime, 1995 - present
Import Substitution Policy, 1953-1961

Status
- Rural peasant economy in poverty
- Lacking in arable land and natural resources
- Heavily depending on foreign aid-transfers
(total 2.28 bill. U$, more than 10% of GDP)
- Closed economy
(exports 2% of GDP, 90% of exports were primary products)
Import Substitution Policy, 1953-1961

Strategy
1. Target
- non-durable consumer goods and their materials (flour, sugar, textile)
2. Key tools
- High tariffs/quota restrictions
- Prior approvals for imports
- Multiple exchange rate system with overvalued foreign
exchange rates
- Regulated financial market with low interest policy
Post-war reconstruction
(completed in 1960: social overhead capital and productive capacity)
Import Substitution Policy, 1953-1961

Performance
- Failure.
Why?
 Insufficient size of domestic market.
(strong anti-export bias)
 Increased demand for foreign currency
(continued dependence on imports for raw
materials and capital goods)
Export Promotion Policy in the 1960s, 1962-1972

Strategy
1. Target
- labor-intensive manufactured products
2. Key tools
- Export credit subsidies at preferential rates
- Tax reduction, wastage allowances
- Exemptions from import controls and tariffs for exporters
- Retainment of foreign exchanges for imports
- Export targeting, Presidential awards, Export Day (1964)
- Export promotion meetings by the President(1964-1979,
every month)
Export Promotion Policy in the 1960s, 1962-1972

Strategy
3. Institutional Infrastructure
- Export Industry Complex (Guro, Seoul, 1964),
Free Export Zones (Masan, 1970), KOTRA, KITA
4. Financial Sector
- A sliding-peg system of unitary floating exchange rates
- Currency devaluation
- Nationalization of commercial banks
- Establishment of specialized banks
- High interest rate policy to induce high savings
• Export incentives were superimposed on protectionist measures
Export Promotion Policy in the 1960s, 1962-1972

Performance
- A dramatic change of economic structures
(Agricultural → Manufacturing)
1961
1966
1971
Agricultural Products
28.6
9.6
4.3
Fishery Products
19.2
10.4
4.6
Mining Products
24.5
22.5
2.2
Manufacturing Products
27.7
67.5
88.9
Total
100.0
100.0
100.0
Export Promotion Policy in the 1960s, 1962-1972

Export
1960: $41 million → 1970: $1,048 million
1st
Plan:
1962-66
2nd
Plan:
1967-71
3rd
Plan:
1972-76
4th
Plan:
1977-81
5th
Plan:
1982-86
Plan:
1987-91
New
Economy
Plan:
(1993-97)
6th
Economic
Growth(%)
7.8
9.3
8.0
5.6
8.8
9.6
6.8
Total
Investment
Rate(%)
15.1
26.4
27.8
35.5
29.4
34.8
35.2
Foreign
Debt
($100mill.)
11.0
31.0
105.3
324.9
445.1
391.4
1,544.0
Trade ratio
to GNP(%)
46.25
5.1
47.6
20.6
10.05
15.66
12.19
BOP
($100mill.)
-3.2
-26.5
-49.0
-151.9
-19.0
-181.6
-469.5
Inflation
(%)
16.3
7.8
19.7
19.3
1.0
2.6
3.7
Source: Economic Planning Board: National Bureau of Statistics.
Export Promotion Policy in the 1960s, 1962-1972
Korean Exports and Its Structure
1962
1972
1982
1992
2002
Total export (mill. USD)
55
1,624
21,583
76,631
162,471
Ratio to GNP
2.4
15.0
30.7
24.2*
34.1*
World market occupancy ratio
0.04
0.42
1.27
2.05
2.43e
Primary
63.0
12.1
7.9
7.2
6.9
Manufacturing
27.0
87.9
92.1
92.8
93.1
(HCI)
(10.4)
(25.4)
(52.8)
(65.0)
(83.2)
(Light Industry)
(89.6)
(74.6)
(47.2)
(35.0)
(16.8)
Primary
37.0
26.7
14.4
7.4
4.0
Secondary
16.4
223.5
29.5
28.1
29.6
(HCI)
(28.6)
(37.0)
(44.9)
(69.4)
(76.4)
(Light Industry)
(71.4)
(63.0)
(55.1)
(30.6)
(23.6)
46.6
79.8
56.1
64.5
66.5
Export – composition ratio
Industrial Structure
Tertiary
Source: Korea Trade Association, Korea Trade Yearly Bulletin: Bank of Korea, National Accounts: Bureau of Statistics.
Major Korean Economic Indicators
HCI Drive in the 1970s, 1973-1979

HCI Promotion Strategy
- Climbing up the development ladder
(shifting to capital-intensive from labor-intensive industries)
Why?
- Structural trade deficit
- Newly emerging competitors
- National security concern
- Protectionism abroad
- Upgrading industrial structure
1. Targeted industries
: steel, machinery, petrochemicals, shipbuilding,
metals, electronics
HCI Drive in the 1970s, 1973-1979
2. Key tools
- Massive subsidized policy loans
- Tax holidays and investment tax credits
- Accelerated depreciation, consulting services
- Government guarantee of foreign loans
3. Industrial Infrastructure
- General Trading Company System(1975): Samsung, Daewoo,
Hyundai, Ssangyong, Hyosung, Lucky Goldstar(LG), Sunkyung(SK),
Koryo (for SMEs)
 1 mill. U$ in exports and over 10 overseas branches required.
- Role of GTC
 Important role in HRD
 Bringing in information and technologies
 Developing new markets
- 13 heavy and chemical industry complexes(1973)
HCI Drive in the 1970s, 1973-1979

Performance
Exports
1970: $1.05 billion
1980: $17.5 billion
- Controversial but overall positive

Problems
- over-capacity
- uprising inflation
- distortion of resources,
- corruptions,
- increased foreign debt
cf) Gov’t led? Export led?
HCI Drive in the 1970s, 1973-1979

Example
- LG, Samsung, Daewoo to invest in the
electrical industries ( from Radio and TV assembling
businesses)
- Hyundai, Daewoo, Samsung in shipbuilding
industries (from construction businesses)
- LG and Samsung in petrochemical industries to
provide new materials (from textile industries)
• Comprehensive Stabilization Program in 1979 (end of HCI)
Towards a Freer Trade Regime, 1995 - present
Top 10 export countries (%)
1970
1980
1990
2000
2009
Rank
country
%
country
%
country
%
country
%
country
%
1
U.S.
47.3
U.S.
26.3
U.S.
29.8
U.S.
21.8
China
24.0
2
Japan
28.1
Japan
17.4
Japan
19.4
Japan
11.9
U.S.
10.0
3
HongKong
3.3
SaudiArabia
5.4
HongKong
5.8
China
10.7
Japan
6.0
4
Germany
3.3
Germany
5.0
Germany
4.4
HongKong
6.2
HongKong
5.5
5
Canada
2.3
Hong Kong
4.7
Singapore
2.8
Taiwan
4.7
Taiwan
3.8
6
Netherlands
1.6
Iran
3.5
U.K.
2.7
Singapore
3.3
Germany
3.6
7
U.K.
1.6
U.K.
3.3
Canada
2.7
U.K.
3.1
Singapore
2.6
8
Vietnam
1.5
Indonesia
2.1
Taiwan
1.9
Germany
3.0
U.K.
1.9
9
Singapore
1.3
Netherlands
2.0
France
1.7
Malaysia
2.0
Indonesia
1.7
10
Sweden
0.9
Canada
2.0
Indonesia
1.7
Indonesia
2.0
Malaysia
1.6
Total
Source: KOTIS
91.4
71.6
72.9
68.8
65.5
Towards a Freer Trade Regime, 1995 - present
Top 10 export items (%)
1970
1980
1990
2000
2010 (Jan. ~ Oct.)
Rank
Item
Share
Item
Share
40.8
Garments
2
Plywood
11.0
SteelPlaterolled product
5.4
Semiconductor
7.0
Computer
3
Wigs
10.8
Footwear
5.2
Footwear
6.6
4
Iron ores
5.9
Vessel
3.6
Video
Apparatus
5
Electronic
goods
3.5
Audio
Apparatus
3.4
6
Confectionery
2.3
Man made
Filament fabrics
7
Footwears
2.1
8
Tobaccos
9
10
Share
8.5
Vessel
10.8
Automobile
7.7
Petrochemical
Products
7.7
5.6
Petrochemical
Products
5.3
General
Machinery
7.6
Vessel
4.4
Vessel
4.9
Automobile
7.4
3.2
Computer
3.9
Wireless
Telcom
4.6
SteelPlate-rolled
product
6.0
Rubber
Products
2.9
Audio
Apparatus
3.8
Synthetic
Resin
2.9
Wireless
Telecom
5.7
1.6
Wood&Wood
Items
2.8
SteelPlate-rolled
product
3.8
SteelPlaterolled product
2.8
Parts of
Automobile
4.0
Iron products
1.5
Video
Apparatus
2.6
Man made
Filament fabrics
3.6
Garment
2.7
Electronic goods
2.0
Metal products
1.5
Semiconductor
2.5
Automobile
3.0
Video
Apparatus
2.1
Computer
1.9
Source: KOTIS
15.1
Item
11.1
53.4
Semiconductor
Share
Semiconductor
47.6
11.7
Item
Textiles
81.1
Garments
Share
1
Total
16.0
Item
56.6
65.1
Top 10 trade items in Korea
<Hundred Million$, %, 2008>
Export
Rank
article
Total Sum
Import
amount
change
article
4,220
13.6
Total Sum
amount
change
4,353
22.0
Crude Oil
859
19.7
1
Vessel, Ocean structure
and parts of Vessel
432
10.2
2
Petroleum Products
376
8.9
Semiconductor
320
7.4
3
Wireless communication
Apparatus
357
8.5
Natural Gas
198
4.6
4
Automobile
350
8.3
Petroleum Products
175
4.0
5
Semiconductor
328
7.8
Steel Plate-rolled Products
172
4.0
6
Flat display and sensor
187
4.4
Coal
128
2.9
7
Steel plate-rolled products
159
3.5
Computer
97
2.2
8
Synthetic Resin
149
3.5
Alloyiron, Pigiron or
Scrapiron
80
1.8
9
Parts of Automobile
140
3.3
Fine Chemical Material
69
1.6
10
Computer
107
2.5
Articles of Copper
63
1.4
Trade volume: 62nd (’64) → 11th (’08)  8th(‘10) (‘2008)
($Bil.)
Export
Rank
country
Import
amount
country
Trade volume
amount
country
amount
1
Germany
1,465
United States
2,166
United States
3,467
2
China
1,428
Germany
1,206
Germany
2,671
3
United States
1,301
China
1,133
China
2,561
4
Japan
782
Japan
762
Japan
1,544
5
Netherlands
634
France
708
France
1,317
6
France
609
United Kingdom
632
Netherlands
1,208
7
Italy
540
Netherlands
574
Italy
1,096
8
Begium
477
Italy
556
United Kingdom
1,090
9
Russian Fed.
472
Begium
470
Begium
947
10
United Kingdom
458
Korea
435
Canada
874
11
Canada
456
Canada
418
Korea
857
12
Korea
422
Spain
402
Russian Fed.
764
Import Liberalization and Industrial Rationalization,
1980-1994

Policies
- Market opening (goods and services, FDI, financial markets)
- Active participation in bilateral and multilateral trade negotiations
- Abolished preferential lending rates
- Privatized the commercial banks
- Abolished numerous regulations
- Promoted semiconductor industry
- Enhanced skilled-labor intensive industries (machinery, electrical equipment,
automobiles)

Rationalization industries
- fabrics, alloyed steel, automobile, diesel engines for ships, heavy electric
equipments and fertilizers (limiting additional investment)

Korea Export Insurance Corporation(1992)
Import Liberalization and Industrial Rationalization,
1980-1994

Export volume
1980: $ 17.5 billion
1990: $ 65.0 billion
2000: $ 172.3 billion
2009: $ 363.5 billion
Towards a Freer Trade Regime, 1995 - present









Implementation of WTO commitments
Active participation in the DDA negotiations
The first FTA negotiation with Chile started (1999)
FTA roadmap adopted (2003)
East Asian integration initiatives proliferate
Foreign Investment Promotion Act (1998)
Abolishment of import diversification policy (1998)
Indirect support for exporting sectors
Further liberalization in finance, public, corporate sectors
(1998)
Evaluation of Korean Experiences

Positive Aspects
- Rapid economic growth (GDP, Capital formation)
- Remarkable export performance
- Constant upgrading of the economic structure
- Establishing competitive heavy industrial sectors
- Establishing infrastructure for industrial development

Negative Aspects
- Price distortions by the government
- Distortions in financial sectors (non-performing loans)
- Excess capacity in some HCIs
- Collusive relations between gov and business
- Concentration of Chaebol’s economic power
- High debt/equity ratios for Chaebols
- Lack of foreign competition in domestic market
- Nationalistic sentiments in the general public
- Less focus on social welfare and environment protection programs
(Labor rights strengthened since 1987)
Evaluations of Korean Experience (trade area)







Exports concentration in selected industries
Exports concentration in selected regions
(China, US, Japan)
Declining Terms of Trade (‘05=100, ‘08=78.5)
Low Profitability
Lower linkage between export sectors and domestic
economy
Growing trade deficit with Japan
(‘00 11.4  ’08 32.7 bill. US$)
Lessons for Other Developing Countries
Dynamics of comparative advantage in global markets
An outward orientation with strong incentives for exports
Synchronized efforts to upgrade the economic and trade structure
R&D, global marketing, int'l exhibition, training trade specialists
Sound macroeconomic policies
Investment in human capital and R&D
Competition in the domestic market
Indirect institutional support for export promotion
Capacity building for the government
Political stability and commitment from all levels
Korea's Multilateral Trade Policy
Overview: WTO/DDA
Korea's Position on DDA
Overview: WTO/DDA

Accession to the GATT in 1967

Implementing WTO commitments since 1995

Bringing domestic laws and regulations into conformity with WTO
rules

DDA(Doha Development Agenda) Negotiations: The 9th MTN since
GATT and the 1st MTN since the WTO, 2001 - present

Key Agenda: Agriculture, Non-Agricultural Market Access, Service,
Rules, Trade Facilitation, Trade and Development, TRIPS, Trade and
Environment, and Dispute Settlement Understanding

Korea supports the rule-based multilateral trading system of the WTO
and has been playing an active role in DDA negotiations tabling over
100 submissions on various subjects
Korea's Position on DDA
1. Agriculture
- Long-Term Goal
- Establishment of a fair and market-oriented trade regime

Korea's position
- Gradual improvement of market access
- Phasing-out of export subsidies
- Gradual reduction of trade-distorting domestic subsidy
- Flexibility for sensitive products
- Non-trade concerns: food security, rural development and
environmental protection
Korea's Position on DDA
2. Non-Agricultural Market Access (NAMA)
- Comprehensive coverage with no prior exceptions
- Supporting an ambitious tariff-cutting non-linear
Swiss formula to address tariff peaks, high tariffs,
tariff escalation
- Sectoral zero-tariff initiatives should be an integral part of the
negotiations with a "critical mass" approach
- Substantial reduction of non-tariff barriers as set out in the
Doha Declaration
- Consideration of flexibility for fishery products
Korea's Position on DDA
3. Services

High priority on infrastructure services (competitive areas)
- such as telecommunications
- distribution
- maritime transportation
- construction
- and financial services

Adjusting speed and scope of audio-visual, legal, and educational services
(non-competitive areas)

1st offer (2003.3), 2nd offer(2005.5)
- Enhancement of the overall economic competitiveness

Expecting meaningful offers from a majority of WTO members
Korea's Position on DDA
4. Singapore Issues

Anti-dumping:
to clarify and improve disciplines while preserving the basic, concepts, principles
of the agreement, to reduce abuse of ADM, banning zeroing, improving review
process, sunset clause, lesser duty rule

Subsidies:
clarification and improvement of Subsidies agreement necessary, fisheries
subsidies important to developing countries limiting its application to resourceexhausting (environmentally damaging) subsidies

Regional Trade Agreements:
interpreting the wording of these rules has proved controversial, clarifying and
improving disciplines and procedures under the existing WTO provisions
applying to regional trade agreements considering the developmental aspects of
regional trade agreements, exemptions of trade remedy measures for member
countries, preferential rule of origin
East Asian Regionalism
Proliferation of FTAs: Trends
Integration Scenarios Going Forward
Korea's Options
Proliferation of FTAs: Trend 1

Move from closed regionalism to a more open model since 1990
- Import substituting development with high external barriers in the
1960s and 1970s
- New-wave RTAs are more outward looking and boosting not
controlling int'l commerce in line with national economic policy

From shallow to deep integration
- FTAs becoming more comprehensive in the coverage of economic
instruments and policies (FTA+: competition, tax harmonization,
domestic subsidy, e-commerce and IT, HRD, development
assistance)  See the next page
- modalities of harmonization
EU: single uniform, convergence, minimum standards, mutual recognition
US-centered FTAs: cooperation between regulatory authorities
Proliferation of FTAs: Trend 1
Goods
Tariffs and Non-Tariffs measures
Rules of Origin
Customs Clearance Procedures
Service
FTAs
Service
Investment
cover
Regulations
Standards, Government Procurement,
Trade Remedy, Intellectual Property
Rights, Environment, Labor
DSP and Other Areas
Dispute Settlement procedures
Other cooperation and review groups
or committee
Proliferation of FTAs: Trend 2

Advent of North-South trade blocs
- NAFTA in 1994, developed from Canada-US FTA, extended to
include Mexico
- EU with Eastern Europe, a CU with Turkey and arrangements with
many Mediterranean nations, reciprocal trade arrangements with
ACP countries

The race to build spokes is now driving the trend
Ex) EU, US, Mexico, Chile, Singapore, ASEAN

With more spokes, the hub
- Expands its free access market
- Becomes more efficient and gets more investment
- Increases political influence internationally as well as bargaining
power vis-à-vis spokes
Proliferation of FTAs: Trend 3

Major Countries’ FTAs
Japan
Strategy
US
• Encourage/safeguard Japanese
trade/investment interests in
East Asia
• Avoid/redress discrimination
caused by other pacts
• Shelter Japanese farm policies
Effective
Concluded
Under
negotiation
ASEAN & 9 countries
Mexico, Chile, Swiss
India
Australia, GCC,
Peru, TPP (?)
China
• Mix of economic/foreign policy
• To secure its leadership
in the Asian region
reform in agriculture,
• To cope with increasing
manufactures, and services
regional trade like the EU
• Strengthen investment and IP
and NAFTA and
protection
discriminatory treatment
• Maintain US engagement in the
to countries outside
region especially East Asia via TPP regions
• Export gains from trade/regulatory
NAFTA, Israel, Australia,
Jordan, Singapore, Chile,
Morocco, Bahrain, Oman, Peru,
CAFTA-DR
Hong Kong, Macao (CEPA)
Taiwan(ECFA)
New Zealand, ASEAN,
Pakistan, Chile, Singapore,
Peru
Columbia,
Panama, Korea
FTAA, SACU, Thailand,
Malaysia, Ecuador, UAE
Australia, GCC, Iceland
SACU, Norway, Costa Rica
Proliferation of FTAs: Trend 3

Major Countries’ FTAs
E U
ASEAN
• To simultaneously pursuing FTAs
• To pursue an FTA hub in Asia
with multilateralism focusing on DDA by rapidly expanding FTAs
Strategy
Effective
Concluded
Under
negotiation
• To promote European
regionalism accelerating economic
integration and trade diversification
EFTA, Turkey, Israel, Mexico,
Chile, Egypt, Morroco,
South Africa, etc
• To pursue FTA individually or
collectively
AFTA, China, Japan, Korea,
India(goods), Australia+New Zealand
Korea
ASEAN, MERCOSUR, GCC,
Canada, India, Columbia, Peru, Libia,
EU
Proliferation of FTAs: Trend 4

Problems
- Negative effects on excluded economies
- Proliferation increases cost of doing business due to
divergent standards, tariffs, and ROOs
- Hub and spokes create multi-layered preferences with
complex effects: "spaghetti bowl" effect

Benefits
- When trade creation effect dominates, promotes trade
liberalization
- With each new FTA, domistic coalition for protection weakens
Integration Scenarios Going Forward

Scenario 1

Consolidating ASEAN initiatives with China, Japan, Korea (10 + 3)
Make CJK(NEA) FTA → Link with ASEAN → EAFTA or
Link Existing Pacts (ASEAN + 1 and new ones)


- Obstacles: political readblocks to a Japan-China pact, country
readiness in China and Japan,
differing levels of openness and market-orientation of the
membership (especially India when we consider
ASEAN + 6)
Integration Scenarios Going Forward

Scenario 2

APEC implements the Bogor Goal vision
Free Trade Area of the Asia-Pacific

- Obstacles: entrenched protectionism
(e.g., agriculture), lack of reciprocity and
free-rider problem, no political leadership
Integration Scenarios Going Forward

Scenario 3

Trilateral agreement of US-Japan-Korea (Schott, 2007)
 Consolidating US-Japan and Japan-Korea initiatives
 US-Japan-Korea deal on manufactures/services following
KORUS template
 Separate bilateral farm deals a la NAFTA
- Obstacles: agricultural barriers to a Korea-Japan and a
US-Japan pact
However, KORUS FTA and Korea-EU FTA would change the calculus of
moving forward with a US-Japan FTA and reviving Korea-Japan FTA
Integration Scenarios Going Forward

Scenario 4

TPP(Trans-Pacific Partnership); P4
Singapore, Chile, New Zealand, Brunai (effective since 2006)
US decide to participate TPP in 2008 to realize FTAAP
US ask Korea, Japan, Malaysia to join the discussions
P4 + US, Australia, Peru, Vietnam, Malaysia under negotiation
Thailand, Canada and Japan shows interests in Nov. 2010




- Obstacles: strategic consideration, agricultural sector in Japan
(leverage for domestic farm sector reform), different pay-off matrix for
each member (FTA already concluded for most of them in case of
Korea), US initiation too strong (wholesale reconfiguration in the
region)
Korea's Options

Participate in the race for spokes

Contribute to APEC work toward Bogor Goals as well as to
success of DDA round

Most importantly, promote liberalization of agricultural policies
at home, as part of rural restructuring and revitalization

Focus East Asian regional cooperation on
- Financial and monetary cooperation: AMF and AMU
- OECD type of peer pressure exercises to modernize,
harmonize, and globalize national standards and institutions
- Work with ASEAN to provide the necessary leadership to
steer cooperation
Korea's FTA Policy
Current Status
A Grand Shift to FTA, Why?
Basic Strategies (FTA Roadmap in 2003)
Selection Criteria of FTA Partners (FTA Roadmap in 2003)
Future Plan and New Strategies
Current Status

Effective: Chile (April 2004), Singapore (March 2006), EFTA
(Sep. 2006), ASEAN (June 2007, Goods; Services, Investment,
2009), India(2010), EU(July 2011)

Ended Negotiation: U.S. (June 2007, signed, Dec. 2010,
renegotiated), Peru(Nov. 2010)

Under Negotiation: Canada, Mexico, Australia, New Zealand,
GCC, Colombia, Turkey
 Stopped Negotiation: Japan (Nov. 2004)

Preliminary Consultation and Joint Study: China, MERCOSUR,
GCC

Under Consideration: MERCOSUR, SACU, Russia, Vietnam,
Israel, Japan, China, CJK
Current Status

Coverage of FTAs
Classification
Goods
Services
Korea-Chile
Korea-Singapore
KORUS
Korea-ASEAN
O
O
O
O
O
O
O
O (excluding
Finance)
Investment
O
O
O
O
Government
Procurement
O
O
O
X
Competition
O
O
O
X
Intellectual Property
Right
O
O
O
X
Transparency
O
O
O
X
Dispute Settlement
O
O
O
X
Electronic Commerce
X
O
O
X
SPS / TBT
O
O
O
O
Cooperation
X
O
X
O
Source: KITA
Current Status
 Tariff Concessions (Goods)
FTAs
Nations
Manufacturers
Agricultural
product
Total: 96.4
immediate: 87.2
Total: 100
immediate: 99.9
Total: 71.2
immediate: 15.6
Chile
Total: 99.0
immediate: 41.8
Total: 99.8
immediate: 30.6
Total: 94.2
immediate: 92.9
Korea
Total: 91.6
immediate: 59.7
Total: 97.4
immediate: 68.8
Total: 66.6
immediate: 16.0
Singapore
Immediate elimination on all the goods traded
(100%)
Korea
Total: 99.7
immediate: 80.4
Total: 100
immediate: 91.6
Total: 98
immediate: 38.1
U.S.
Total: 100
immediate: 82.1
Total: 100
immediate: 87.7
Total: 100
immediate: 58.7
Korea-US
Source: KITA(2007)
Overall
(fishery and
forestry included)
Korea
Korea-Chile
KoreaSingapore
(Unit:%)
A Grand Shift to FTA, Why?

Accelerate domestic economic reforms to increase productivity/growth
- TFP declining since 1980s, low birth rates with aging population,
facility investment↓ since 2001, backward service sector

Reduce barriers to manufactured exports
- Securing overseas market is a key factor to success

Induce FDI and promote development of North East Asia economic hub
- Inviting needed foreign capital and advanced technology, share of
intra-regional trade increases (55%)

Reinforce strategic alliance with key partners
- to contribute to the political stabilization of the peninsula
A Grand Shift to FTA, Why?

Low productivity and inefficiency in the growing service
sector
Comparison of Korea’s Service Sector with Advanced nations
(Unit:%)
Korea
U.S.
Japan
Share of Service Sector in
GDP(2005)
56.3
76.7
69.4
Productivity in Service
Sector(2002)
100
216
183.2
Source: KIEP(2006)
A Grand Shift to FTA, Why?

Declining growth rates of total factor productivity (TFP)
since 1980s
Trend of Korea’s Growth Rates of TFP
(Unit:%)
Years
1980-1990
Growth Rates of TFP
3.5
Source: KIEP(2006)
1990-2000 2000-2005
2.0
1.8
Basic Strategies (FTA Roadmap in 2003)

Multi-track approach with simultaneous negotiations

Comprehensive FTAs in terms of substance

Public consensus building on trade liberalization
Selection Criteria of FTA Partners
(FTA Roadmap in 2003)

Economic Benefits
 Cooperation in security and foreign policy
 Country readiness: Countries active to have FTA with Korea
 From regional periphery to core advanced countries

Sequencing
 Short-term: Japan, Singapore, ASEAN, EFTA, Mexico, Canada,
India
 Mid & long-term: U.S., EU, China, MERCOSUR, NEAFTA
 Other countries: GCC, Russia, Australia, New Zealand, Peru,
Israel, Morocco, Algeria, SACU
Future Plan and New Strategies

A New FTA Roadmap (with new selection criteria)
- Representativeness in the region
- Possibility of cooperation in resource development
- Compatibility with Korean interests in security and
diplomacy
- Economic impacts
- Country readiness
Future Plan and New Strategies

New Strategies
- From core countries to periphery: sequencing
- Systematic approach to domestic negotiations: consensus building,
governance, institutional infrastructure
- Exploration of cooperation in resource development: mid & long term
objectives
- Holistic approach with security and diplomacy factors considered:
geopolitical factors
- Effective restructuring of agricultural sector
- Further liberalization of service sector
Levels of Linkage among FTAs:
(Low – Mid – High Level)
60
Copyright by CHOI Won-Mog
Long-Term FTA Strategy of Korea
61
Copyright by HEO Yoon & CHOI Won-Mog