RIETI July 13 th, 2006 Korea s 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 (unit: bil.u$) Income per Capita (unit: U$) 5000 4,664 40000 37,050 4500 35000 4000 3500 30000 3000 Ko re a 25000 2500 20000 2000 Japan 15000 14,000 1500 801.2 10000 1000 500 0 206.8 8.8 1970 2005 5000 0 1,963 253 1970 2004 Source: OECD, World bank, Bank of Korea 3
Export 594,890 (unit: mil. U$) 600,000 540,000 480,000 420,000 360,000 300,000 240,000 180,000 120,000 18,941 284,419 Korea Japan 60,000 0 835 1970 2005 4
300 Korea s s Trade Balance (unit: (unit: bil.. U$) 253.84 284.42 200 125.06 129.72 136.16 132.31 143.69 172.27 150.44 162.47 193.82 100 39.03 23.93 11.79 9.34 10.34 14.99 29.38 23.18 0-10.06-20.62-8.45-100 135.12 150.34 144.62 93.28 119.75-200 160.48 141.1 152.13 178.83 export import trade balance 224.46 261.24-300 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Source : Korea International Trade Association 5
25,000 20,000 15,000 10,000 5,000 0 1,742 Korea s s Trade Balance with its Major partners (1995-2005) Japan China US 2,838 3,456 5,460 2,402 4,818 4,552 8,369 5,656 8,835 4,888 9,772 6,354 unit: mil. U$ US / China 13,201 9,405 20,178 14,067 23,267 10,757-5,000-10,000-15,000-20,000-25,000 4,603 6,272 8,497 8,280 11,635 10,128 11,362 13,136 15,557 15,682 14,713 19,037 24,443 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Japan 24,376 Source : Korea International Trade Association 6
Export Market (2005, unit: U$ billion) Korea Japan 1. China 2. US 3. Japan 4. Hong Kong 5. Taiwan 6. Germany 7. Singapore 8. United Kingdom 61.9 41.3 24.0 15.5 10.9 10.3 7.4 5.3 1. US 136 2. China 80.0 3. Korea 46.7 4. Hong Kong 36.0 5. Thailand 22.6 6. Germany 18.7 7. Singapore 15.2 8. United 12.6 Kingdom Source : Korea International Trade Association 7
Japan s s FDI into Korea into Korea(1995-2005) mil. U$ 2,500 2,451 in terms of U$, annual flow 2,258 2,000 1,749 1,879 1,500 1,404 1,000 500 122 255 266 504 776 540 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Source : Ministry of Commerce, Industry and Energy 8
FDI into Korea by origin (2005, stock) Others 26,459 mil. U$ 22.5% US 35,127 mil. U$ 29.8% EU 36,595 mil. U$ 31.1% Japan 17,737 mil. U$ 15.1% China 1,768 mil. U$ / 1.5% Source : Ministry of Commerce, Industry and Energy 9
Korea s s FTA Policy 10
Under Nego. Signed Effecive 1. K-Chile FTA Feb. 2003 Apr. 2004 2. K-Singapore FTA Aug. 2005 Mar. 2006 3. K-EFTA FTA 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 10 K-EU FTA Under study(2005) Under study 11
Importance of trade with country's FTA partners number of FTA number of FTA countries trade with FTA partners(%) 2003. Dec. 2005. Dec. 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% 12
The Japan-Korea FTA why is it at standstill? 13
History 1 st st stage Joint-research (1998-2003) 2 nd stage Negotiation (Oct. 2003 Dec. 2004) APEC Summit (Oct. 2003) Open government to government negotiation Conclude by 2005 Six rounds of negotiation 3 rd stage Standstill since Dec. 2004 14
Domestic politics of JK FTA - Putnam s Two-level game - Korean government Japanese government Level I game Level II game domestic groups Level I game is to bargain with foreign trade partners, leading to a tentative agreement. Diplomacy Level II game is to negotiate domestically with various interest groups. To persuade domestic constituencies to ratify the tentative agreement ement Domestic politics 15
Two Level Game in JK FTA Congress Interest groups Level II game Japanese gov. Level I game Korean gov. Level II game Congress Interest groups Hard domestic politics Failure of concession making Game (No win-set) Hard domestic politics Political & Historical Issues 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 Nature of negotiation issues Reaction of domestic interest groups Politicization Political leadership 18
1. Nature of negotiation issues Interests of Interest groups Homogeneous * Peace treaty between North South Korea Heterogeneous Level II game (domestic politics) not so difficult difficult Winners - exporting industries Losers - import import-competing industries (declining industries) Clear distinction between winner groups and loser groups in Japan and Korea 19
Korea Japan Loser Winner very heterogeneous 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 heterogeneous Farmers Manufacturing 20
2. Reaction of domestic interest groups 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
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Asymmetry Losers Korea Losers strong political reaction labor unions SME Winners free-riding riding difficult Japan strong political reaction farmers free-riding riding Korea-Chile FTA Farmers association Political reaction Korean government Free- riding Big business 23
3. Political issues Not political issues Korea Singapore Korea - EFTA 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 Japan : Prime Minister Korea : President - Clinton s 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 Deep integration consistency Quality of FTA High- level FTA Mid-level FTA Effect Feasibility High Low WTO- Consistent Average Average Consistent Shallow integration Low-level FTA Low High Non- consistent 28
WTO s substantially all the trade (GATT XXIV-8) Low level FTA : not accepted by WTO Two Two FTA policy options Option I - High level FTA in long perspectives aiming at its maximum effect 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 as long as this significant exception is not against the WTO 30
Mid-level FTAs US-Australia FTA Exception : Sugar, dairy products (partly) EU-Mexico (Chile) FTA Tariff elimination of 58% Agricultural products Singapore-India FTA 51% of two Countries bilateral trade China-ASEAN ASEAN FTA Exception (Agricultural products) : Cambodia 30 items, Vietnam 151 5 items 31
2. New Geopolitical landscape in East Asia - Emergence of the Greater Chinese Economic Zone- 中華經濟圈 32
China s s FTA Policy 南方政策 中華經濟圈 FTA(2010) Greater Chinese Economic Zone ASEAN 400 mil. Oversea Chinese 10% population 60% economic power 33
3. The US-Korea FTA 34
7 th trading partner US Korea 2 nd trading partner 1 st round of Negotiation : 5 th June (US) 2 nd round of Negotiation : 10 th July (Seoul) 5 rounds of Negotiation by March, 2007 US Trade Promotion Authority : July, 2007 35
Why US chose Korea? 25 Counties on the waiting list US FTAs with 29 Countries Effective Under negotiation Peru, Singapore, Oman, NAFTA, Morocco, Jordan, Israel, the Dominican Republic, Chile, Bahrain, Australia, Central and South America (Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua,) Korea, UAE, Thailand, Panama, Malaysia, Columbia, Ecuador, Republic of South Africa, FTAA 36
US FTA Policy 1. Economic Cooperation NAFTA US-Australia FTA 2. Alliance (Security) US-Israel FTA (1984) US-Jordan FTA (2002) 3. Economic Cooperation + Alliance US-Korea FTA 37
US Encirclement Policy East Asian Summit (EAS) ASEAN + JKC + Australia + New Zealand + India Korea Singapore Malaysia Thailand Australia FTA(2003) FTA(2006) FTA(2006) US 38
Hot issues Service Korea Finance, Law, Education, Health Agriculture rice & beef Manufacturing automotive tax system US Gaesung complex Trade Remedy Measure AD Visa, migration Mutual recognition of license (nurse, teachers) 39
Anti-KORUS FTA in US 40
Cautious Forecast Domestic Politics In Korea Political issues Political leadership in Korea and US Korea : Very fierce political reaction 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 s win- set 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 ) 韓國 win-set(100% 工産品 ) Japan max 100% 工産品 0% 農産品 日本 win-set(70% 農産品 ) 韓國 win-set(70% 工産品 ) Korea max 0% 工産品 100% 農産品 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