Korea-China FTA must be supplemented by opening up China’s service sector

The National Assembly of Korea has passed the ratification bill over the Free Trade Agreement with China on Sunday. It is good news that allowing the bilateral trade pact to take effect within the year will help cut tariffs worth 1.5 trillion won (1.29 billion U.S. dollars) this year alone. However, it is hard to understand why the bipartisan consultative body of the National Assembly has agreed to raise funds to support farmers and fisherman on the condition of passing the ratification bill.

The ruling and opposition parties wasted 170 days after the government submitted the bill to the parliament on June 4 to enter the negotiation merely 10 days before the opening of the regular session. During the bipartisan negotiation on Nov. 27, Rep. Kim Jong-hoon, chairman of Policy Committee of the Saenuri Party, pushed the opposition party, saying “President Park will meet with Chinese President Xi Jinping in Paris, and if the bill is not ratified, it would put her in an awkward position.” In fact, the ruling party practically allowed the opposition to make outsized demands by equating the ratification of the trade deal with presidential pride.

The so-called “mutual prosperity fund” designed to compensate for the potential damage on farming and fishing industries is not appropriate in terms of the amount of money, the way of raising funds, and in its purpose. While the plan is to raise 1 trillion won (863.55 million dollars) through voluntary donations from private companies and state-run corporations such as the National Agricultural Cooperative Federation, the imposition is highly likely to be semi-mandatory. Admittedly, the government has become a second mover to the TPP, a multilateral trade pact led by the U.S. and joined by 12 Asian-Pacific countries after putting in too much time on the bilateral trade deal with China. There is no telling how much funds will be raised additionally for “mutual prosperity” when the nation enters the TPP regime whose market openness is very high.

Furthermore, there is much concern that the FTA with China is a one-legged deal that has failed to induce enough market openness or trade benefit. In particular, most sensitive trade items for Korea in the agricultural sector, including the rice, cattle, pigs, apples, and pears, have been excluded from the trade deal, so the scale of potential damage is expected to be smaller. “Raising subsidy funds for farmers and fishermen is no more than pork barrel politics. And it will eventually erode public mentality,” said Rep. Kim Jong-hoon who led the Korea-U.S. free trade agreement negotiation in 2006. Indeed, subsidies worth 200 trillion won (17.23 billion dollars) have been funneled into farming industry since the Uruguay Round in 1994, but the average annual income of farming families is hovering around only 30 million won (25,906 dollars). In an era where agriculture is emerging as the sixth industry of the future, pampering the agriculture sector may well lead to undermining its competitiveness.

Once the Sino-Korea FTA takes effect, 92.2 percent and 90.7 percent of products from Korea and China, respectively, will be stripped of tariffs over the next 20 years in terms of the number of trade items. It is vital that economic players including companies and farmers increase their competitiveness by promoting quality and productivity. At the same time, the government must boost the economic effect of the trade pact by removing non-tariff barriers such as food hygiene standards. The National Assembly has filed a resolution to supplement the Korea-China FTA, arguing that we should induce market openness from China additionally through a two-tier negotiation process in the service investments sector, which indicates that the FTA with China is rather incomplete.