Forming a cross-regional partnership: The South Korea-Chile FTA and its implications

Pacific Affairs

Volumn 80, Issue 2, 2007, Pages 259-278

  Park, Sung Hoon ^a   Koo, Min Gyo ^b  

^a Korea University   (South Korea)

^b Yonsei University   (South Korea)

Author keywords

[No Author keywords available]

Indexed keywords

BILATERAL AGREEMENT; ECONOMIC RELATIONS; FREE TRADE; INTERNATIONAL RELATIONS; MULTILATERAL TRADE; PARTNERSHIP APPROACH; POLITICAL INTEGRATION; STRATEGIC APPROACH; TRADE AGREEMENT; TRADE POLICY;

ASIA; CHILE; EURASIA; FAR EAST; KOREA; SOUTH AMERICA; SOUTH KOREA;

EID: 36148942908     PISSN: 0030851X     EISSN: None     Source Type: Journal    
DOI: 10.5509/2007802259     Document Type: Article

References (77)

1. East Asian countries' interest in regionalism has surged dramatically at the turn of the new millennium. In East Asia, the shift toward alternatives to the General Agreement on Tariffs and Trade (GATT) /World Trade Organisation (WTO) and the Asia-Pacific Economic Cooperation (APEC) took its most pronounced turn with the conclusion of Japan's first post-World War II bilateral FTA, the Japan-Singapore Economic Partnership Agreement (EPA). Other East Asian countries, traditionally loyal supporters and beneficiaries of post-war multilateral trading regimes, are also actively weaving a web of bilateral FTAs, targeting countries both within and outside the region in hopes of securing access to much-needed export markets. See Vinod K. Aggarwal and Min Cyo Koo, "The Evolution and Implications of Bilateral Trade Agreements in the Asia-Pacific," in Vinod K. Aggarwal and Shujiro Urata, eds., Bilateral Trade Agreements in the Asia-Pacific: Origins, Evolution, and Implications (London: Routledge, 2006).
2. Min Gyo Koo, "From Multilateralism to Bilateralism? A Shift in South Korea's Trade Strategy," in Aggarwal and Urata, eds., Bilateral Trade Agreements in the Asia-Pacific, pp. 140-41.
3. Koo, "From Multilateralism to Bilateralism," pp. 142-43;
4. Byung-Nak Song, The Rise of the Korean Economy (Hong Kong: Oxford University Press, 1997), pp. 91-93,
5. In 1975, seven Asian countries including South Korea, the Philippines, Thailand, India, Laos, Sri Lanka and Bangladesh met in Bangkok and agreed to a list of products for mutual tariff reduction. The agreement, known as the Bangkok Agreement, was ratified by five of the original seven members (not included were the Philippines and Thailand). China joined the agreement in 2001. Yet the Bangkok Agreement is governed by the Enabling Clause rather than by Article 24 of the GATT/WTO. See "Asia-Pacific Trade Agreement (APTA)," [Online, cited 8 September 2006]. Available from .
6. According to one study, South Korea's economic opportunity costs due to the exclusion from the global web of regional FTAs would likely amount to at least a 1.33 percent decrease in growth rate and a $34.4 billion decrease in exports per year (Inkyo Cheong, The Economic Effects of A Korea Japan FTA and Polity Implications, KIEP-Policy Paper 01-04 [Seoul: Korea Institute for International Economic Policy, 2001]).
7. Dong-han Lee, "Han-Il Ja-yoo-moo-yuk-ji-dae Je-ahn: Ogura Dae-sa," Chosun Ilbo, 17 September 1998. [Online, cited 5 December 2006]. Available from .
8. Interviews with South Korea's FTA negotiators, Seoul, July 2006.
9. Hae-kwan Chung, "The Korea-Chile FTA. Significance and Implications," East Asian Review, vol. 15, no. 1 (2003), p. 74;
10. Chan-Hyun Sohn, "Korea's FTA Developments: Experiences and Perspectives with Chile, Japan and the US" (paper presented at Regional Trading Arrangements: Stocktake and Next Steps, Trade Policy Forum, Bangkok, 12-13 June 2001).
11. Inkyo Cheong,"Han-Chile FTA eui kyung-je-jeok hyo-gwa mit eui-eui," Journal of International Economic Studies, vol. 3, no. 4 (1999), pp. 115-36;
12. Sohn, "Korea's FTA Developments," p. 7.
13. Ministry of Foreign Affairs and Trade of Korea (MOFAT), "U-ri-na-ra FTA chu-jin: FTA chu-jin jeong-chack," [Online, cited 1 December 2005]. Available from ;
14. Soon-Chan Park, "Recent Changes in World Trading System and Korea's FTA Strategy" (paper presented at a workshop organized by the Korea Chamber of Commerce and Industry, Seoul, 28 January 2005).
15. MOFAT, "U-ri-na-ra FTA chu-jin."
16. After along gestation period, South Korea andjapan started official negotiations for a bilateral FTA in December 2003. The two countries held six rounds of negotiations by November 2004, but the negotiation has been stalled since then due to disagreements on the speed and coverage of bilateral trade liberalization. In addition, the diplomatic tensions caused mainly by the controversial visits by the Japanese Prime Minister Koizumi to the Yasukuni Shrine have heightened bilateral tensions, thus undermining the desire for an FTA between the two countries.
17. South Korea's screen quota system was designed to stem a flood of Hollywood blockbusters. South Korea cut the quota from the current 146 days or 40 percent reserved for domestic films to 73 days or 20 percent starting 1 July 2006 ("Screen Quota Cut Clears Way for Trade Deal with the US," The Chosun Ilbo, 26 January 2006. [Online, cited 5 December 2006]. Available from < http://english.chosun.com/ w21data/html/news/200601/200601260013.html >).
18. United States Trade Representative, "United States and Korea Conclude Historic Trade Agreement," 2 April 2007. [Online; cited 21 May 2007]. Available from .
19. For more details, see MOFAT, "FTA jeong-chaek hyun-hwang gwa hyang-hu gye-hoek" (paper prepared for a special lecture at Korea University, 18 August 2005).
20. Koo, "From Multilateralism, to Bilateralism," p. 143.
21. Paul Krugman and Mauiice Obstfeld, International Economics: Theory and Policy, 7th ed., (Boston: Addison-Wesley, 2006), pp. 24-49.
22. Krugman and Obstfeld, International Economics, pp. 121-31.
23. It should be noted, however, that neither neoclassical economics nor new trade theories of differentiated products offer first-hand explanations for why countries might prefer a bilateral FTA to other types of trading arrangements. The bottom line is that these theories are designed to predict the direction of trade, rather than a certain pattern of trade, between countries.
24. A typical gravity model assumes that trade between countries depends positively on their size and inversely on distance. The effect of distance on trade is directly associated with three categories of costs, including shipping costs, time-related costs and unfamiliarity costs. See Jeffrey Frankel, Ernesto Stein and Shang-Jin Wei, Regional Trading Blocs in the World Economic System (Washington DC: Institute for International Economics, 1997), pp. 49-76.
25. Paul Krugman, "The Move to Free Trade Zones" (paper presented at a symposium, sponsored by the Federal Reserve Bank of Kansas City, Policy Implications of Trade and Currency Zones, Jackson Hole, Wyoming, 22-24 August 1991).
26. Frankel, Stien and Wei, Regional Trading Blocs, pp. 149-53.
27. Koo, "From Multilateralism to Bilateralism," p. 144.
28. In the meantime, gravity model analyses indicate that South Korea would most likely be better off if it removed existing trade barriers by establishing FTAs with Japan and China. According to one study, South Korea's actual trade volumes with Japan and China, which in terms of economic size and geographic distance present greater advantages, seem to fall short of the theoretical trade intensity - 85 percent with Japan and 67 percent with China, as compared to the model's estimation (Chan-hyun Sohn and Jinna Noon, "Does the Gravity Model Fit Korea's Trade Patterns?" KIEP Working Paper 01-01 (Seoul: Korea Institute for International Economic Policy, 2001), p 29.
29. Eui-young Kang, "Joong-nam-mija-dong-cha shi-jang gong-ryak eui-hae FTA shi-geup," Yonhap New, 1 July 2002. [Online, cited 5 December 2006]. Available from .
30. The share of South Korea-Chile bilateral trade in South Korea total trade remains at less than 1 percent (IMF, Direction of Trade Statistics Yearbook [Washington DC: International Monetary Fund, various years).
31. Chile's additive regionalism is defined as "the process of sequentially negotiating bilateral free trade agreements with all significant trading partners" (Glenn W. Harrison, Thomas F. Rutherford and David G. Tarr, "Chile's Regional Arrangements: The Importance of Market Access and Lowering the Tariff to Six Percent," Working Papers, no. 239 [Santiago: Central Bank of Chile November 2003]).
32. Aside from "economic complementation agreements" with Bolivia, Peru, Argentina and Ecuador, as well as a partial agreement with Cuba, Chile has signed FTAs with its major trading partners: the EU (2002), EFTA (2003), the US (2003), South Korea (2003) and China (2005). In June 2005, it also finalized a four-way deal with Brunei, New Zealand and Singapore. Most recently, in June 2006, it signed an FTA with Panama. The Chilean government is presently seeking to negotiate further bilateral deals with Thailand, India and Malaysia. See "Chile," [Online, cited 8 September 2006]. Available from .
33. We thank an anonymous reviewer for this point.
34. Sohn, "Korea's FTA Developments," p. 7;
35. Chung, "The Korea-Chile FTA," p. 74.
36. For instance, one study estimated that economic gains for South Korea Erom an FTA with Chile would amount to approximately $950 million, or an additional GDP growth of 0.2 percent every year, and reported an estimated economic gain of approximately $10 million, or an additional GDP growth of yearly 0.02 percent for Chile (Cheong, "Han-Chile FTA" pp. 123-130).
37. Chung, "The Korea-Chile FTA," pp. 83-84.
38. Koo, "From Multilateralism to Bilateralism," p. 146-148.
39. See Sohn, "Korea's FTA Developments," pp. M;
40. and Choeng, "Han-Chile FTA," pp. 116-21.
41. Koo, "From Multilateralism to Bilateralism,". p. 147. As Solis and Katada note in their lead article, countries undergoing the process of economic adjustment often use FTAs for the purpose of locking in their reform agendas in a softer way than multilateral or unilateral liberalization, controlling the extent of new competition by choosing suitable partner(s). Mexico's participation in the North American Free Trade Agreement (NAFTA) is an oft-cited example. In the context of East Asia, Japan decided to conclude an FTA with Singapore in order to lock in reform policies while protecting vested interests at the same time.
42. See also T.J. Pempel and Shujiro Urata, "Japan: A New Move toward Bilateral Agreement," in Aggarwal and Urata, eds., Bilateral Trade Agreements in the Asia-Pacific, pp. 84-88.
43. For a discussion of South Korea's bureaucratic realignment in the post-financial crisis period, see Joo-Youn Jung, "Inside the State in Transition: Restructuring Economic Bureaucracies in Korea, China and Japan" (paper presented the Research Workshop Series, Center for International Studies, University of Southern California, Los Angeles CA, 19 October 2005).
44. Koo, "From Multilateralism to Bilateralism," p. 146-148.
45. Seungjoo Lee and Min Gyo Koo, "South Korea's Multi-Track FTA Strategy: Moving from Reactive to Proactive" (paper presented at the 2006 Annual Meeting of the American Political Science Association, Philadelphia PA, 31 August -3 September 2006).
46. See MOFAT, "u-ri-na-ra FTA chu-jin: Han-Chile FTA," [Online, cited 1 December 2005]. Available from .
47. Chung, "The Korea-Chile FTA," pp. 74-79.
48. Dong-hyuk Lee, "Han-Chile FTA Seo-myung," Chosun Ilbo, 17 February 2003. [Online, cited 5 December 2006]. Available from .
49. With regard to trade in goods, both parties agreed that (1) the tariffs for 2,300 items that constitute 66 percent of items exported to Chile by South Korea, such as passenger vehicles, trucks, computer and mobile phones, would be abolished immediately with the implementation of the agreement; (2) tariffs on South Korean petrochemical products and auto components would also be removed gradually over the next five years; (3) South Korea would immediately abolish the tariffs for all imported industrial products excluding items such as electric copper and would get rid of the tariffs for 224 items, including breeding cows and breeding pigs, within the first year after the agreement becomes effective; and (4) South Korea would gradually remove tariffs on Chilean peaches, kiwis, persimmons and pork over the next ten years and on Chilean grapes between the months of November and April for ten years, after which these tariffs would also be completely removed (Woo-seok Choi and In-jung Huh, "Han-Chile FTA 3 nyun-man-eh ta-gyul," Chosun Ilbo, 25 October 2002. [Online, cited 5 December 2006]. Available from < http://srchdbl.chosun.com/pdf/i_service/ read_body.jsp?Y=2002&M=10&D=25&ID=O210250101>).
50. See Inkyo Cheong, "Korea's FTA Policy: Focusing on Bilateral FTAs with Chile and Japan," KIEP Discussion Paper 02-02 (Seoul: Korea Institute for International Economic Policy, September 2002), pp. 24-32.
51. Interview with South Korea's FTA negotiating team, Seoul, July 2006.
52. Byong-kuk Kim, "Reservations on Korea-Chile Free Trade Agreement," The Korea Times, 21 November 2002.
53. The share of agriculture, forestry and fisheries in South Korea's total employment decreased continuously, from 17.9 percent in 1990 to 8.1 percent in 2004. The three sectors' share in South Korea's GDP was less than 4 percent in 2003 (Ministry of Finance and Economy of Korea, Economic Bulletin, vol. 27, no. 11 [22 November 2005]). Yet the relatively short history of South Korea's industrialization since the 1970s means that many South Koreans still have family roots and ties in rural areas despite large-scale migration to urban areas. Before the Uruguay Round (UR), agriculture had been excluded from the free trade debate, allowing South Korean agriculture to enjoy market protection. But South Korea had to agree to open its agricultural market under the UR agreement, thereby jeopardizing uncompetitive South Korean agricultural products. A significant portion of South Korean farmers suffered varying degrees of losses. South Korean farmers saw their government's promotion of FTAs as yet another blow to the agricultural sector and, as a result, opposed the FTA with Chile.
54. By contrast, the South Korea-Chile FTA has enhanced public awareness of FTAs and rallied public support in South Korea. According to a Gallup poll, 80 percent of the opinion leaders in South Korea supported South Korea's FTA policy in general and the signing of the South Korea-Chile FTA in particular, despite growing concerns of South Korean farmers (Chung, "The Korea-Chile FTA," p. 83).
55. In a similar vein, according to a survey conducted by the Korea Rural Economic Institute in early 2004, 76.3 percent of South Korean consumers responded that they would be willing to buy Chilean grapes and wines if they were better than South Korean products in terms of quality and price (Bum-gu Lee, "Han-guk nong-up i-gut-i sal-gil-i-da (2): gyung-jaeng-ryuk hwak-bo ga-neung-hada," Hankook Ilbo, 27 December 2004. [Online, cited 5 December 2006]. Available from ).
56. See Koo, "From Multilateralism to Bilateralism," p. 146.
57. Korea Institute of Public Finance, "Chile, Argentina-Brazil ja-dong-cha moo-gwan-se-hyung-jung pal-hyo," [Online, cited 5 December 2006]. Available from .
58. Euo-dal Song, "FTA che-gyul ahn-hae han-guk ki-eop keun pi-hae," Chosun Ilbo, 24 October 2003. [Online, cited 5 December 2006]. Available from < http://srchdbl.chosun.com/pdf/ i_service/read_body.jsp?Y=2003&M=10&D=24&ID= 0310243501>.
59. Doo-shik Park and Jong-se Park, "Han-Chile FTA ne-beon-man-eh guk-hoe tong-gwa," Chosun Ilbo, 17 February 2004. [Online, cited 5 December 2006]. Available from < http://srchdb1.chosun.com/ pdf/i_service/yead_body.jsp?Y=2004&M=02&D=17&ID= 0402170101>
60. See MOFAT, "Ja-yoo-moo-yuk-hyup-jeong che-gyul-eh dda-reun nong-eo-eop-in deung-eui ji-won-eh gwan-han teuk-byul-beop," [Online, cited 8 September 2006]. Available from http://www.fta.go.kr/ inc/html/down.php?board_id=81&file_id=1.
61. Trade Research Institute, "Korea's Exports to Chile Surge 58.7% After FTA," TRI Research Paper. [Online, cited 1 December 2005]. Available from .
62. Trade Research Institute, "One Year After Implementation of Korea-Chile FTA - Appraisal and Tasks," TRI Research Paper. [Online, cited 1 December 2005). Available from .
63. Jongryn Mo, "The Politics of Economic Reform," in Carnegie Economic Reform Network, The Politics of the Economic Crisis in Asia: Consensus and Controversies (Washington DC: Carnegie Endowment for International Peace, 1999), p. 53.
64. Richard Stubbs, "ASEAN Plus Three: Emerging East Asian Regionalism?" Asian Survey, vol. 42 no. 3 (2002), pp. 440-55.
65. Lee and Koo, "South Korea's Multi-Track FTA Strategy," pp. 27-28.
66. Presidential Committee on Northeast Asian Cooperation, Toward a Peaceful and Prosperous Northeast Asia (Seoul: Government of Republic of Korea, 2004).
67. Lee and Koo, "South Korea's Multi-Track FTA Strategy, pp. 11-12.
68. United States Trade Representative, 2006 National Trade Estimate Report on Foreign Trade Barriers: Korea (Washington DC: USTR 2006), pp. 393-417. [Online, cited 5 December 2006]. Available from .
69. United States Trade Representative, "United States and Korea Conclude Historic Trade Agreement."
70. The OMT's neoliberal policy orientation has been further highlighted by the appointment of its third trade minister, Kim Hyun-chong, in July 2004 as well as the promotion of its first trade minister Han Duk-soo (1998-2004) to deputy prime minister and minister of finance, and economy. The OMT's authority has been expanded as indicated by the abolition of the Foreign Economic Council under the Presidential Committee for National Economy in early 2006 after its operation as a monitoring body for the past two years. In addition, a presidential committee to facilitate a KORUS FTA and to win over its opponents was set up in August 2006 under the leadership of the former OMT minister and the former deputy prime minister Han Duk-soo, who is most likely to shield the OMT from its critics. For more details, see Lee and Koo, "South Korea's Multi-Track FTA Strategy," pp. 25-26.
71. Lee and Koo, "South Korea's Multi-Track FTA Strategy," p. 16;
72. "Chinese Premier Hopes for FTA with Korea 'Soon'," Chosun Ilbo, 6 April 2007. [Online, cited 21 May 20071. Available from .
73. As noted above, South Korea-Japan FTA negotiations have been stalled since November 2004. Meanwhile, the feasibility of a South Korea-China FTA has been studied by private/semi-private research institutions in both countries. The opinion about a South Korea-China FTA is divided in South Korea. From one perspective, a bilateral FTA with China will enhance South Korea's economic presence with its largest trading partner. From other perspective, potential adverse effects on agricultural and some low-end manufacturing sectors would be much greater than those of prospective FTAs with the US and Japan.
74. Vinod K. Aggarwal and Min Gyo Koo, "Beyond Network Power? The Dynamics of Formal Economic Integration in Northeast Asia," The Pacific Review, vol. 18 no. 2 (2005), pp. 205-06.
75. Pempel and Urata, "Japan: A New Move toward Bilateral Agreement," p. 78;
76. Aggarwal and Koo, "Beyond Network Power," pp. 212-13.
77. It should be noted that the South Korea-ASEAN agreement is not yet complete. Thailand backed out of the deal because of South Korea's persistent demand to exclude rice from the list of items for market liberalization.