Chances and Challenges

FTA will pave the way for Korea to become an advanced country

At last Korea and the United States have been able to hammer out the free trade agreement between them at the end of long and tough negotiations on April 2. Both countries have done their utmost and the result can be said to be good in general terms. But there naturally will be contentious arguments over the results as there are conflicts of interest over various sectors of the country and among individuals.
What I can stress is that the FTA is a wise selection as we contemplate our country's future down the road in this century a hundred years from now. The Korea-U.S. trade deal has opened a new horizon for Korea, just as it is looking for a kick start to becoming an advanced country.
Looking back at our history, we can see many examples of unpopular decisions made over strong oppositions turned out to be big help to the national economy. To cite some of them, the value-added tax made under the Park Chung-hee regime, the plan to build five modern cities under the Roh Tae-woo regime, the real-name financial system under the Kim Young-sam government, and the separation of the medical and pharmaceutical sectors under the Kim Dae-jung administration all made great contribution to the national well-being, although they were unpopular at the time when the decisions were made.
The Korea-U.S. FTA and the revised property tax on real estate would go down as huge achievements without a doubt for President Roh Moo-hyun government.
"If a weak country can conduct trade with a stronger neighbor, it can either be subjugated or taken advantage of,"which was a warning to small countries in the age of imperialism and no longer applies today. Small countries closed their exchanges with stronger countries and built high walls. But now the situation has changed. The world is borderless increasingly in terms of economic exchanges with the arrival of free trade era.
Some 30 countries in western Europe got together under the European Union removing their borders with a single currency. North America came under one roof under the NAFTA and countries in the Middle East, Africa, and South America have been moving toward free trade among themselves eliminating trade barriers. But in Asia, the same cannot be said due to differences in various areas including economic environment, and historic conflicts among China, Japan and Korea. Therefore, each country in Asia would have to conclude free trade pact with another country, which is why Japan, China and Singapore have been working to conclude free trade agreements by themselves with economic regions or countries individually such as EU, ASEAN and Singapore.
Korea looks forward to becoming an advanced country economically in the 21st century and what we have to recall is that like any other countries have experienced, Korea, too, is experiencing slowdown of its economic growth like Germany and Japan did in the early 1970s.
Korea needs new growth engines and the FTA with the United States is likely to provide the opportunities to find those new engines. Under a free trade regime, the two countries parties to the agreement would be able to produce good quality goods at a cheaper cost and the capable producers would take charge of supplying goods to consumers generating the following two results.
First, price will be stable spurring economic growth, upgrading living standards. Free trade will lower costs in trading goods and services, which will generate new areas of trade and growth, while bringing in outside region trades into the free trade region, expanding trade and economic growth.
Another is the impact on the industrial structure. A producer in one of the two partners who is competitive will take charge of producing the goods it can produce competitively.
When we look at the FTA with the U.S. and Korea can produce goods competitively and the U.S. has advantages in the agriculture. The FTA just concluded between the countries reflects such advantages. It left out rice, and many service areas including education, medicine, power, postal service, pharmacy, broadcasting and communication so that it could be called a low-level FTA. It has the benefits of having reduced the suffering for some part of our economy, but at the same time, it would undermine a full effect of free trade as critics would put it.
But the FTA should be lauded for the fact that it was concluded with the U.S., the largest free market country in the world, even before concluding similar pacts with neighboring countries with large economic scales, China and Japan. The fact is very significant in light of our country's image that it will fight for its target to become an advanced economy in fair competition in the age of limitless competition market and will be able to occupy a dominant position in the U.S. market ahead of any other Asian countries.
What we have to do from now is the following:
First, we have to extend FTA to other countries and regions including Japan, China, Asean, EU and South America. Concluding FTAs with those countries would not be so difficult since we already concluded one with the United States.
Second, the economic sectors that are likely to suffer from the FTA would have to be fully reimbursed for the damages including their restructuring and changing to other areas of industry.
Third, we have to spur efforts to make us stronger in international competitiveness and restructuring at this juncture. We should take advantage of the FTA as a base to search for new engines to sustain our economic growth.
Fourth, we have to shore up successfully incomplete matters left out of the FTA including those related to the Gaesung Industrial Complex in North Korea and others.
Lastly, all sectors of society including the political circles, should cooperate together to pass the FTA through the parliament because, failing to do so would be a disaster for our country in terms of national interest and international reputation. nw

By Dr. Park
Ex-Gov. of the Bank of Korea