After agree­ment with china, time to sell fta

JoongAng Daily - - Business - BY SONG SU-HYUN, LEE TAE-KYUNG ssh@joongang.co.kr

As ques­tions con­tinue about the ef­fec­tive­ness of the bi­lat­eral free trade agree­ment (FTA) be­tween Korea and China, the gov­ern­ment yes­ter­day re­leased ex­plana­tory re­ports con­tain­ing de­tails of how the trade pact will ben­e­fit con­sumers.

Although the gov­ern­ment de­scribes it as a “highly lib­er­al­ized” trade deal for both Korea and China, the pact ex­cludes au­to­mo­biles from ne­go­ti­a­tions for at least two years.

Con­sumers and busi­nesses ques­tioned the ef­fec­tive­ness of the trade deal be­cause the au­to­mo­bile in­dus­try is a ma­jor part of the two economies.

“Both coun­tries’ auto in­dus­tries want to main­tain their sta­tus quo,” said a re­port by the Min­istry of Trade, In­dus­try and En­ergy. “Korean ve­hi­cles ex­ported to China face a 22.5 per­cent tar­iff, while an 8 per­cent tar­iff is im­posed on Chi­nese cars im­ported to Korea. There would be no ad­van­tage for Korea even if the tar­iffs were re­moved be­cause Korean au­tomak­ers al­ready pro­duce cars in China that are not sub­ject to tar­iffs.”

The gov­ern­ment judged that elim­i­nat­ing the tar­iff on ve­hi­cles pro­duced in China could have a neg­a­tive im­pact on the do­mes­tic mar­ket.

“Be­cause there is a pos­si­bil­ity that Euro­pean cars as­sem­bled in China would be im­ported to Korea, a tar­iff re­moval might ad­versely af­fect lo­cal au­tomak­ers as con­sumers in­creas­ingly pre­fer those im­ported brands,” the re­port said.

Ba­si­cally, the gov­ern­ment judged it is too risky to put au­to­mo­biles on the ne­go­ti­at­ing ta­ble for only a min­i­mal in­crease in the share of Korean cars in the Chi­nese do­mes­tic mar­ket.

With re­gard to the petro­chem­i­cal and steel in­dus­tries, the gov­ern­ment ad­dressed why Korea de­cided to fully open the two mar­kets, while China agreed to only a par­tial open­ing.

“Since the petro­chem­i­cal in­dus­try is one of Korea’s com­pet­i­tive ex­port sec­tors and records a trade sur­plus with China, the gov­ern­ment is con­fi­dent that our petro­chem­i­cal com­pa­nies can eas­ily sur­vive free com­pe­ti­tion,” the re­port said.

Last year, Korea ex­ported a to­tal of $23.5 bil­lion worth of petro­chem­i­cal prod­ucts to China, while pur­chas­ing $1.8 bil­lion in Chi­nese prod­ucts.

“By mak­ing a con­ces­sion in this sec­tor, the gov­ern­ment was able to get more in the agri­cul­tural in­dus­try,” a trade of­fi­cial said.

China de­cided to keep its high-end petro­chem­i­cal and steel mar­kets closed, but open cheaper mar­kets to Korea.

For most im­ported steel prod­ucts, Korea cur­rently le­vies no tar­iff, so an in­flow of cheaper Chi­nese steel won’t af­fect the lo­cal mar­ket much, the gov­ern­ment says.

As for foods, the Korea-China FTA is ex­pected to make Chi­nese jams and jelly much cheaper when tar­iffs are re­moved 20 years after the pact goes into ef­fect. Cur­rently, Korea im­poses a 30 per­cent tar­iff on those prod­ucts. The cur­rent 45 per­cent tar­iff on dried fruit also will be phased out, the gov­ern­ment said.

Korea has a max­i­mum 630 per­cent tar­iff on sesame seeds, but with the trade pact, Korea will be able to im­port 24,000 tons, about 29 per­cent of the to­tal do­mes­tic con­sump­tion, free of tar­iffs.

Var­i­ous Chi­nese medicine ma­te­ri­als also will be sub­ject to tar­iffs lower than the cur­rent 8 per­cent.

The en­ter­tain­ment mar­ket can­not be ig­nored in the FTA be­cause of the pop­u­lar­ity of the Korean Wave. China agreed to open its en­ter­tain­ment mar­ket to Korea for the first time to in­vestors in­ter­ested in build­ing con­cert halls and per­for­mance plan­ning and di­rect­ing ser­vices. Copy­righted Korean broad­cast ma­te­ri­als will be pro­tected in China for as long as 50 years after the ac­cord takes ef­fect, com­pared to 20 years at present.

Korean busi­nesses also will be able to cre­ate joint ven­tures with Chi­nese com­pa­nies as they will be al­lowed a stake of as much as 49 per­cent.

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