South Korea passes free-trade bill with China | Business| Economy and finance news from a German perspective | DW | 30.11.2015
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South Korea passes free-trade bill with China

Korea's parliament has ratified a free-trade agreement with China, removing most tariffs between Asia's largest and fourth-largest economies, while leaving curbs on rice and automobiles in place.

The free trade agreement, formally adopted by lawmakers in Seoul on Monday, aims to gradually remove tariffs on more than 90 percent of traded goods within 20 years.

According to the South Korean trade ministry, the deal would allow especially the country's small and medium-sized firms greater access to China's vast consumer market and help create more than 50,000 jobs.

China is South Korea's top trading partner as well as the biggest export market, and two-way trade stood at around $235 billion (222 billion euros) in 2014. South Korea is also one of the biggest foreign investors in China, pumping in some $1.6 billion in the first quarter of this year.

South Korean President Park Geun-hye described the accord as a "historic milestone," that would further cement relations.

South Korea is one of the few developed countries that run a surplus with China - to the tune of $55.2 billion in 2014 - thanks to exports of smartphones, flat screen TVs, and semiconductors.

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Controversial trade pact

The pact, signed by the two countries in June and set to take effect as early as this year, will reduce barriers to commerce, but leaves in place curbs on rice and automobiles.

The agreement will remove tariffs on 71 percent of South Korean exports to China in 10 years and 91 percent in 20 years. Seoul will in return remove tariffs on 79 percent of Chinese imports in 10 years and 92 percent in 20 years.

"In particular, exports of consumer goods in fashion, cosmetics, home appliances and high-end food products will increase greatly," President Park Geun-hye said in a statement.

Negotiations for the agreement, which began in May 2012, have often been marred by angry protests by South Korean farmers who feared an influx of cheap Chinese imports. The final pact excluded many of South Korea's major farming and fisheries goods like rice, beef, pork, pepper and squid.

By the same token, China excluded or delayed the opening of its relatively less-developed manufacturing segments such as the auto sector and display panel production.

Kim Hyuung-Joo, an analyst at the LG Economic Research Institute, said the arrangement may eventually bring more harm than gain to the South.

"I don't think South Korea's well-protected agriculture sector will be able to improve competitiveness in 10 or 20 years," Kim told the news agency AFP. "But the sectors China managed to protect like LCD (liquid crystal display) panels or carmaking will surely improve their productivity and competitiveness."

North Korea to benefit

The removal of trade barriers will also benefits South Korea's neighbor, North Korea. The two Koreas remain technically at war after their 1950-53 war ended in a truce. But many businesses in the South have set up operations in North Korea's Kaesong industrial park to take advantage of cheap labor. Most of the products covered by the trade pact are clothing and electrical components.

Woo Tae-hee, South Korea's assistant minister for trade and chief free trade negotiator, said it was hoped the agreement with China would lead to more industrial zones like Kaesong along the border with North Korea.

"We think this can contribute to the peace of the Korean peninsula," Woo told reporters after the signing ceremony in June.

Seoul wasn't able to include products made at Kaesong in free trade agreements with the United States and the European Union.

uhe/cjc (Reuters, AFP)

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