Optimism, pessimism over Korea-Chile FTA prove to be invalid

In 2003, the first year of the Roh Moo-hyun administration, farmers’ strikes wreaked havoc across the nation. After signing on the Korea-Chile Free Trade Agreement by the two countries in February that year, farmers took to the street, saying, “All Korean farmers will go bankrupt.”

The government scrambled to appease the negative sentiment toward the trade pact, by stressing economic benefits of the deal. The government also created a highly generous compensation package to provide assistance for liquidation for farmers with facilities (greenhouse) for growing grapes, peaches and kiwi in order to placate the farmers. It took one year for the Korea-Chile FTA to be ratified by the National Assembly.

The Korea-Chile FTA, the first free trade pact of Korea, will mark the 10th anniversary on April 1. Analysts give positive assessment on the deal, saying that it served as a cornerstone for Korea to emerge as a hub of free trade agreements (nine trade pacts effectuated, and negotiations over two deals concluded). Nevertheless, Korea had to pay huge social cost during the process of negotiation and parliamentary ratification.

The Dong-A Ilbo recently visited Gimcheon City in North Gyeongsang Province, and Okcheon County in North Chungcheong Province, the biggest grape producers in Korea. The visit was aimed at inspecting the current situation of grape farmers, who had been considered the biggest victims of the FTA. Farmers unanimously told Dong-A that “We took part in the demonstration against the FTA because we were told that all the farms would go out of business, but we had virtually no damage from the treaty.” The income per unit of grape farms in Korea doubled over the past 10 years.

Between 2004 and 2010, the government paid a total of 240 billion won (226 million U.S. dollars) in compensation to grape, peach and kiwi farmers for liquidation of farms. Though 160 billion won (151 million dollars) was paid as compensation for liquidation of peach farms, not a single peach has been imported from Chile due to quarantine issues. Most of the grape farmers who shut off their farms replanted grape trees as soon as a five-year restriction on them was lifted. The government thus ended up wasting money owing to exaggerated concern over damage.

Some of the government’s predictions also proved to be wrong. The government predicted that Korea’s trade balance with Chile would improve after the FTA, but Korea saw its trade deficit increase from 540 million dollars in 2003 to 2.2 billion dollars last year. It is attributable to the surge of Korea`s natural resources import from the Latin American country, which was higher than its consumer goods export.

Dong-A conducted a survey of 95 experts at nine state-run and private think tanks, including the Korea Development Institute, the Korea Institute for International Economic Policy, the Hyundai Economic Institute, and the LG Economic Research Institute. The experts singled out as positive factors "preparatory exercise for the Korea-U.S. Free Trade Agreement” (34.8 percent) and "the nation’s joining the trend of global free trade regime" (29.2 percent). They mentioned as negative factors "little economic effect" (42.0 percent) and "the incurrence of massive cost due to social conflict" (22.9 percent).