Korea ’ s FTA Policy and its Perspectives

1. Korea’s FTA Policy and its Perspectives 27 September 2006 Heungchong Kim Head, European Studies Korea Institute for International Economic Policy

2. Table of Contents • Why does Korea pursue FTAs now? • How does Korea pursue FTAs? • Current Status of Korea’s FTAs • Korea-US FTA: where are we now? • Korea-EU FTA: prospects • Korea’s FTA Networks in the Future

3. I. Why does Korea pursue FTAs now? • Why does Korea pursue FTAs? • Korea: heavily dependent upon foreign markets in its development process - trade openness in 2005: Korea(65.7%) vs. NAFTA(25.8%), Japan (24.3%), EU(32.2%), China(59.3%), ASEAN-7(154%) • strongly supported multilateral trade negotiations as Korea has been one of the greatest beneficiaries of the GATT/WTO, but just ignored FTAs • Regionalism revived and making fortress in foreign markets, so urgent need to change its trade policy to take new markets and not to lose existing ones.

4. I. Why does Korea pursue FTAs now? • Why now? • No regionalism in East Asia – “Empty box or White spot” • Emerging FTAs….. - China-ASEAN, Japan-ASEAN, Japan-Mexico….. • ………and Korea’s Choice - A Sense of Urgency = “Already late, but not too late”

5. II. How does Korea pursue FTAs? • The Roadmap of Korea’s FTA • A need for setting priorities among potential FTA partners • Pronounced in August 2003, after completion of negotiations with Chile, and revised in 2004 • Factors of consideration in choosing the partners – maximizing economic benefits, sensitivity of domestic industries, intention of the FTA partners, • Basic Strategy of Korea’s FTAs • Forming FTA networks with giant economies and emerging markets • Should take a multi-track pursuit with a high-level and comprehensive • FTAs supporting MTN

6. III. Current Status of Korea’s FTAs • The Early Era of Korea’s FTAs (before 2004) • mid and late 1980s : a move of Korea-US FTA, mainly from USTR (1984) and USITC(1989) – “Korea is not ready for FTA” • After financial crisis, the Ministry of Trade established, and its main objectives were to establish Korea’s FTA policy – government-led FTA policy proceeded • mid-1998, informal contact with several countries including Thailand, South Africa, Turkey, Chile, New Zealand and Israel,.. • …and Chile was chosen as a first partner for Korea’s FTA(1998. 11) • FTA negotiations with Chile started(1999. 12.) and finished(2002. 10.) • Singapore: suggested(1999. 9.), pronounced of the start of negotiation (2003. 10) and finished(2004. 11) • Japan: 1999~2000 research started to published, Joint research group (2003. 3.), start of negotiation(2003. 12) and stalled.

7. III. Current Status of Korea’s FTAs

8. IV. Korea-US FTA: where are we now? • Why pursue the KORUS FTA? • KORUS FTA will lead to… - Expanding trade and create additional wealth • Accelerating the ongoing economic reform, upgrading the Economic and social systems, • Strengthening the Korea-US Alliance • The current status of KORUS FTA negotiation • Announcing start of negotiation in February 2006 • Informal preparatory talks in March and April 2006 • 1st, 2nd round of negotiations in June and July • 3rd round of negotiations held in Seattle in early September 2006 • 4th round will be held in late October in Korea

9. IV. Korea-US FTA: where are we now? • The Outcomes of 3rd round of negotiation • Two sides focused on tariff offers and services/investment reservation lists that had been exchanged • Korea requested the US’s improved tariff offer for and textile, while US requested Korea’s improved tariff offer for agricultural products. • A basic foundation built in the services/investment reservations by assessing the requested reservations and mutual interests of both parties • Progress in certain chapters such as the financial sector, but not much substantial advancement was made regarding the key issues • Inter-sessional talks will continue before the 4th round

10. IV. Korea-US FTA: where are we now? • Main controversies in the Korean Society on the Issue • No preparation on the KORUS FTA negotiation? • Harmonization with (North)east Asian Economic Community? • Four contending issues, preconditions for the start of the negotiation? - screen quota, beef, exhaust control, pricing in pharmaceuticals • Growing concerns on the impacts of KORUS FTA on the Korean Industries • Agriculture, Services including financial, education, medical services, Investment issues, IPR, etc…

11. V. Korea-EU FTA: prospects • Achievements in Trade and Investment • As of 2005, the EU was Korea’s second biggest exporting partner next to China and ahead of the U.S. It is also the fourth biggest importing partner next to Japan, China, and the U.S. • Korea is the 8th trading country for the EU. • U.S., China, Switzerland, Russia, Japan, Norway, and Turkey stood ahead of Korea • Korea is the biggest country of MFN status except giant economies of the US, China and Japan • As of 2005, the EU stood as the largest investor in Korea with a registered investment stock of US$33bn in 2005; more than 30% of foreign capital in Korea

12. V. Korea-EU FTA: prospects • Strategic Complementarities • Placed multilateralism first on the table but changing the mood from both sides • EU: a) growing concern about trade diversion in the Korean market caused by its active engagement in RTA (e.g. KORUS FTA) b) searching for momentum to improve market access and to solve problems arising from trade deficit c) active engagement of the EU in dynamic East Asia • Korea: a) why not the EU? from its FTA policy b) good chance to expand trade with a giant economy and create additional wealth c) good chance to make a stepping stone in accelerating the ongoing economic reform and upgrading the economic and social systems once again

13. V. Korea-EU FTA: prospects • Preliminary Talks began • Feasibility studies of a Korea-EU FTA almost finished by both sides • The Joint Committee meeting in June 2006 finished • 1st preliminary talk on a Korea-EU FTA finished in July and 2nd round is being held in September • Factors to be Considered • Existence of strong will to evolve preliminary talks to a higher level • Development of negotiations in DDA and the KORUS FTA • Political sensitivity in the Korean society • Interest groups on both sides

14. VI. Korea’s FTA Networks in the Future • Korea’s FTA Networks in the Future • FTA Networks with more than 50 countries in the World including….. • Small but strong countries such as Chile, Singapore, EFTA and Canada • Giant economies of ASEAN, US, EU, Japan and China • Emerging Markets of India, Mexico, MERCOSUR and Russia

15. Thank you