The Tiger Meets the Dragon:The Political Economy of Korea-China FTA

Abstract

Korea and China are currently at the center of trade talks with the on-going Korea-China FTA negotiations. However, both countries` approach to negotiations is somewhat divergent in that the former chooses comprehensive and deep FTAs including non-traditional issues, while the latter focuses on a limited scope with a gradual and phased approach to negotiations. This paper tries to present five asymmetries that need to be tackled: (1) the internal consensus cultivating process; (2) the pay-off matrix in the time horizon to realize FTA gains; (3) the preferred negotiation approach; (4) the depth and scope of FTA; and (5) the existence of NTBs. The abovementioned asymmetries with the growing bilateral trade pattern between the two countries call for a sensible approach to the FTA negotiations. Based on the SWOT analysis, we find that a serious industrial restructuring especially in politically sensitive sectors such as agriculture, fisheries, electronics, and general machinery is inevitable in Korea. Moreover, Korean government should not veer away from its single undertaking strategy as it has been proven effective from its previous FTAs with the US and EU. This strategy allows for a more realistic and practical approach covering goods, services, investments and other complex areas that may be out of the scope of the WTO, thus, resulting in more concessions across areas making big deals possible with the elimination of tariffs and nontariff barriers alike. Nonetheless, opposition from losing sectors should not holdback both governments in pursuing substantial liberalization.