FTA Creates Largest Economic Bloc in Asia
South Korea and China agreed on a bilateral free trade agreement (FTA) on Monday that is expected to create the largest economic bloc in Asia. Once implemented, the Korea-China FTA will significantly boost bilateral trade between China, the world's second-largest economy, and South Korea, the fourth-largest in Asia.
According to the latest customs data, China is South Korea's largest trading partner, accounting for 26.05 percent of South Korea's overall exports in 2013. That’s more than double the U.S. which accounted for 11.09 percent of South Korea's total exports. (South Korea implemented its bilateral FTA with the U.S. in March 2012.)
"The reason an FTA with China will be more significant than the one with the United States is China's physical proximity to South Korea, which means the countries' bilateral trade has so much more potential to grow following the implementation of the FTA," Yonhap news agency reports an official from the Ministry of Trade, Industry and Energy as saying.
Due to be implemented next year, the FTA could boost the countries' annual bilateral trade to US$300 billion, 40 percent more than 2012 figures.
Under the FTA, South Korea will eliminate its tariffs on 92 percent of all goods, or 11,272 products, from China, with China eliminating import duties on 91 percent, or 7,428 products, from South Korea. The changes will take effect within 20 years.
"It is not a matter of which side will benefit more from the FTA because I believe the agreement will have a political impact on the entire Northeast Asian region and the Korean Peninsula. I believe the FTA will also help secure peace and stability in the Northeast Asian region," Woo Tae-hee, South Korea’s deputy trade minister told a press briefing.
"The Korea-China FTA is expected to become a chance for the country to act as a linchpin between countries in the region as they move to boost their economic cooperation and form an economic bloc in the Asia-Pacific region."
Under the China deal, South Korea will eliminate import tariffs on 40 percent of agricultural and fishery products shipped from China, while 30 percent of all agricultural and fishery products have been permanently excluded from the agreement. Other fisheries items, often caught illegally, were also excluded, a move thought to be aimed at curbing illegal fishing by Chinese boats in waters shared by the two countries. This is the first and only FTA in the world that specifically states that any catch from illegal fishing will not be subject to preferential tax rates, reports Yonhap.
The FTA needs to be formally signed before it can be sent to the countries' respective legislatures for ratification.
South Korea and China are currently involved in three-way negotiations with Japan for a trilateral FTA. The three are also taking part in negotiations for a regional free trade agreement known as the Regional Comprehensive Economic Partnership (RCEP) which involves 13 other countries including Australia, New Zealand and India.