Free trade agreements take on many forms

Prof. Chun Chang-hwan, Hanshin University

U.S. model often gives home court advantage

By Prof. Chun Chang-hwan, Hanshin University

Though there are similarities in the form and content of every free trade agreement (FTA), the nature of such agreements can vary greatly depending on which countries pursue them. Korea and other Eastern Asian countries should take note of the differences between the FTAs pursued by the U.S., Japan and China.

First, the FTAs pursued by the U.S.--such as the one with Australia, which it has concluded, or the one with Korea, which it is working on--are essentially asymmetrical. While the U.S. demands of its counterpart comprehensive market access--not just to the agrarian market, but also the financial service, medical, cultural, and telecommunications markets--and also demands changes to environmental and labor codes, the U.S. usually offers the signatory country time-paced, selective access to American industries and production lines it deems "sensitive."

Second, the U.S. FTA model introduces neoliberalist structural reforms to the partner country. Under the Australia-U.S. Free Trade Agreement, U.S. demands for comprehensive market access broke Australia's core institutions, such as the Pharmaceutical Benefits Scheme, the quarantine of agrarian and meat products, the protection of intellectual property, and Australian management of overseas direct investment.

And finally, in contrast to free trade arrangements by Japan or China, the U.S.-led FTAs show little interest in economic support for or cooperation with the other country, which is usually in a relatively lower stage of scientific, technological, or human resources development. This is why the U.S. FTA model typifies a neoliberalist, asymmetrical negotiation model.

Contrary to the U.S. model, FTAs pursued by Japan place value on growth-oriented cooperation, pursuing economic and technological development within the other country. In negotiating an FTA, Japan simultaneously puts emphasis on trade liberalization as well as economic and technological cooperation. Korea and Singapore, which have both experienced large-scale national development, appear to rate the Japanese FTA model highly.

We should also note the standout characteristics of the FTA pursued by China. When it proposes an FTA, China stresses the importance of close economic ties with the other country and its region. China has to date concluded Closer Economic Partnership Agreements with Hong Kong, Macao, and others, lifting tariffs. China plans to conclude an FTA with each Association of South East Asian (ASEAN) member country by 2010 and to ink an FTA affecting the entire East Asian region in the long term. Along the way, China will not only lift tariffs but build comprehensive regional cooperation.

An attempt to bring out advantageous results from negotiations with the U.S. over the U.S.-style FTA, the harshest of its kind, is doomed. The South Korean government has hired new negotiators to beef up their bargaining team. Inexperienced or unskilled, however, the new recruits fall short of reinforcing negotiation capability. Given South Korea’s lack of economic preparedness, negotiations alone cannot stop the tidal wave of the U.S. drive. In the worst case scenario, the Korea-U.S. FTA will be a repeat of the Switzerland-U.S. Free Trade Agreement.

It may sounds like wishful thinking for now, but I'd like to stress again that the best and most rational way to respond to the U.S. FTA model is to strengthen regional cooperation in East Asia.