Korea as a Global
Economic Partner

DPM Kwon to propose establishment of economic cooperative system in Asia

In a special written interview with NewsWorld, Deputy Prime Minister and Minister of Finance and Economy Kwon O-kyu welcomed the recent initiative taken up by the Asian Development Bank (ADB) to review its long-term strategies and reaffirmed Korea's commitment to promoting regional development.
Hailing the conclusion of KORUS FTA on April 1 (Korea time), DPM Kwon talked about the backdrop against the launch of KORUS FTA and significance and his expectations on the KORUS FTA and FTAs in general. DPM Kwon said that free trade is part and parcel of the economic life of Korea that has a high dependency ratio on trade.
DPM Kwon in his capacity as Korea's top economic policymaker also shared his vision for the Korean economy.
Following are excerpts from the interview:
Question: What are some of the major topics to be taken up at the 40th Annual Meeting of the Board of Governors of the Asian Development Bank to take place in Kyoto, Japan, May 4-7?
Answer: The 2007 ADB Annual Meeting is significant in at least three points.
First, ADB this year turns 40. According to Confucius, at 40 one finally becomes free from vacillation and knows where one stands. And even today it seems relevant. ADB is contemplating its relevance and added role in the new economic climate of the region and future strategies with the help of the Eminent Persons Group. However, this in no way should dilute the mission of ADB that is helping developing member countries reduce poverty and improve the quality of life of their citizens. I believe Korean can now play a bigger role in this regard. As you know very well, Korea was once war-beaten, poverty-stricken and has since grown into a donor country. Korea is the only country in the 20th century to make such a sweeping change. However, unprecedented rapid economic growth was not without problems. We faced environmental pollution, energy depletion, corruption, economic polarization and many more. But we coped with them in rather a short time period, added to our collection of assets.
I envisage Korea contributing more to the development of developing member countries in the region by sharing our development experiences and participating Co-Financing utilizing the Korea's Economic Development Cooperation Fund (EDCF). In particular, last year Korea set up the e-Asia/Knowledge Partnership Fund worth 20 million US dollars and I hope this will be used widely and wisely toward poverty reduction and sustainable development of developing member countries in the region.
In connection with poverty I would like to call on member countries to take a good look at our poverty-stricken neighbor in the region, North Korea. Poverty in any one neighbor means the region is not free from poverty yet. Though it is not yet a member of any of established international organizations, I believe we should look into what we can collectively take up to help North Korea reduce poverty in their country. North Korea is showing changes in their dealing with the world, particularly with the nuclear issue. With this positive development, I visualize the international community's cautious but significant debates gradually appearing. At the end of the day, if we turn a blind eye to North Korea's isolation and poverty, North Korea might again emerge as a risk to the global economy.
Before I wrap up my talk on ADB, I must also acknowledge the much valued role and support of ADB extended to Korea as well as other crisis hit countries in 1997. 10 years have passed since the financial crisis rattled the region in 1997. In the face of turbulence, 17,000 businesses went bankrupt in 1997 and 23,000 in 1998. And over one million workers lost jobs. But Korea overcame the crisis much earlier than expected with the support of the international community, including ADB. On this occasion, I would like to once again thank ADB for extending much valued support when most needed.
Question: Korea and the United States concluded just a little over a month ago concluded a free trade agreement, KORUS FTA. Please tell us why Korea chose to pursue a free trade agreement with the United States and what benefits, tangible and intangible, you see it will generate.
Answer: The most important reason we chose to enter into FTA with the United States is that we wanted to get a new growth momentum under the changing environment, i.e., globalization, informatization and aging population. By successful implementation of the Korea-US FTA, we hope to improve our competitiveness in the global market and also to expedite a paradigm shift of the Korean economy toward an advanced country.
World development history tells us that no country has lost out to opening so far.
For a country like Korea with very high dependence on trade, well over 70%, opening is part and parcel of the question of "how to live on what"
At the moment, the Korean economy is faced with some serious challenges to this question. First, rapidly falling birth rate and aging population will be detrimental to the economy by weakening growth potential. Second, BRICs are fast catching up. And the technology gap with advanced economies is still prevailing, remaining a challenge to the Korean economy. Third, FTAs in general bring in an increase of trade between the countries involved. Those not involved in FTAs will likely suffer from deteriorating terms of trade. For one thing, about 50% of the global trade occurs between countries involved in FTAs and regional trade agreements. In a nutshell, the world is in a silent FTA war.
Speaking of benefits expected, first, KORUS FTA will provide a vast market for trade and investment, a market 15 times larger than the Korean economy alone. The most visible effects will appear in trade. Exports will increase by a large margin, driven by increased exports to the United States. Tariff reductions, less transaction costs and trade remedy measures will improve accessibility of Korean products and services to the United States. Particularly, cars, textiles and digital TVs with comparative advantage and some high tariff products such as leather and rubber products and shoes will benefit most from the FTA.
According to Korea Institute for Industrial Economics and Trade (KIET)'s research findings released on April 9, the manufacturing sector is estimated to see a substantial growth in exports to the US and surplus therefrom. In the next 10 years, Korea's exports to the US are projected to increase by 1.3 billion US dollars a year and the surplus to grow by three quarter billion US dollars. Once the KORUS FTA is ratified, I am sure FDI inflows will grow. Because, for instance, exports of textiles and apparels from Korea to the US will be tariff-free. In this context, it is not so hard to imagine more companies wanting to undertake production in Korea and export their products from Korea. I think it would be reasonable to expect more FDI inflows not just from the US but also from other countries.
Wrapping up, the KORUS FTA will help a paradigm shift of the Korean economy and transform it into an advanced economy. Of course, how much we can change is up to our efforts. Fierce competition by market opening and institutional change in line with global standards will help us increase efficiency, transparency and predictability of the system.
FTA negotiations with India and Canada are under way. We will also start free trade negotiations with the EU in May. We plan to complete four rounds of of joint government-academia-industry research studies with China and completed the first round in March. The study findings will help us decide whether or not to initiate trade talks with China and vice versa.
Question: Lastly, what are your vision and strategy for future development of the Korean economy?
Answer: No economy is free from challenges in making a leap forward to the next level. Likewise, the Korean economy is also faced with long-term, structural challenges. Of them, as I already mentioned, the biggest challenges are globalization, informatization and population ageing. If we fail to cope with them timely, we may see low growth and worsening income distribution becoming part of our economic life. Our preemptive response to counter these challenges about 10 to 15 years before the population starts to fall is crucial in determining the future course of the Korean economy.
Vision 2030 is our answer to this. It is a strategy to ensure growth as well as welfare. I believe it will help us overcome the limits of the existing paradigm and cope with new challenges. There are specific goals under the Vision 2030 strategy.
The first is expanding growth engine. There are different stages in economic development. As for the Korean economy, it has already graduated from the first two stages. They are the stages led by labor input increase and the stage led by capital-intensive industry development. Now it is crossing over the third stage that will be driven by innovation. That's why we should focus on expanding innovation capacity. In this regard, expanding R&D expenditure and innovating universities are essential in producing more competent human resources. Accumulating social capital to enhance transparency and credibility of the society at large by expediting legal reform and improving corporate governance is also very important to increase innovation capacity.
The second goal is proactive globalization which is closely linked to our talk today. With this goal in mind, we are making all-out efforts to strengthen international competitiveness by promoting multi-track FTA negotiations and to become a truly open and globalized economy. As you know, we have just concluded a free trade agreement with the US. We plan to start FTA talks with the EU in May and with China during this year. Korea's Free Economic Zone is another important vehicle in this respect.
The third is about advancing the social welfare system. For better social welfare, there have to be appropriate institutional reforms and improved mechanisms to meet the basic needs of the people largely in four areas. They are pension, health care, unemployment and conventional welfare. At the same time, expanding conventional welfare programs pertaining to child care, women, the disabled and the aged is very important, too.
In a nutshell, all these efforts boil down to establishing a virtuous cycle of growth and welfare and ultimately making a nation of hope and opportunity for all. nw

Deputy Prime Minister and Minister of Finance and Economy Kwon O-kyu