ASEAN-Korea Relations: Security, Trade, and Community Building

7. Regional Trade Arrangement between ASEAN and Korea: Korea’s Perspective

7 7 RegionalTradeArrangement betweenASEANandKorea:Korea’s Perspective Yul Kwon and Innwon Park INTRODUCTION Until the 1997 East Asian financial crisis, Korea had been achieving successful economic growth without any concrete economic co-operation agreements with neighbouring countries. Korea had also favoured multilateral trade liberalization and voiced strong concerns about the proliferation of regionalism and its discriminatory effects. However, responding to the worldwide movement towards regionalism in the 1990s and the necessity for regional economic co-operation after the financial crisis of 1997, Korea is now showing enthusiasm for regional trade arrangements (RTAs) and actively participating in multiple negotiations with both intra- and inter-regional countries for free trade agreements (FTAs). As a tangible example of enthusiasm for economic co-operation, Korea concluded an FTA with Chile, which went into effect in 2004. Korea signed an FTA with Singapore in August 2005 and agreed to an FTA with the European Free Trade Association (EFTA) in July 2005. Korea is independently discussing setting up bilateral FTAs with Japan, Canada, Mexico, India, and the Chap7.indd 85 Chap7.indd 85 1/24/07 2:09:28 PM 1/24/07 2:09:28 PM 86 Yul Kwon and Innwon Park United States and actively participating not only in the formation of a plurilateral FTA with China and Japan, but also the signing of a multilateral agreement with ASEAN, MERCOSUR, and ASEAN plus Three. In particular, Korea has proposed conducting a comprehensive study on closer economic relations between Korea and ASEAN and launching a meeting of experts. Over the past four decades, the relationship between ASEAN and Korea has been one of consistent growth. This success largely derives from complementary aspects on both sides. Bilateral trade and investment between Korea and ASEAN have been steadily increasing in recent decades. Even though trade volume decreased in 1998 due to the financial crisis, it recovered after 1999. Currently they are each other’s fifth largest trading partner and ASEAN is the third-largest destination for foreign direct investment (FDI) from Korea. In discussing the deepening interdependence between Korea and ASEAN, this chapter firstly deals with why Korea shifted its policy stance from supporting multilateralism to regionalism and why Korea chose ASEAN as an immediate partner to form an FTA with by carefully analysing the economic relations between the two economies in section two. In section three, we will focus on a possible FTA between ASEAN and Korea as a feasible framework for further integration. Concluding remarks follow in section four. REGIONAL TRADE ARRANGEMENT BETWEEN ASEAN AND KOREA Proliferating RTAs in Korea As shown in Table 7.1, RTA negotiations are proliferating in Korea. After the outbreak of the East Asian financial crisis in 1997, Korea’s commercial policy stance in favour of multilateral trade arrangements shifted to RTAs. The financial crisis spurred the demand for regional economic co-operation, which calls for more co-operation and policy co-ordination among neighbouring economies in the region. Interdependence among East Asian economies through regional trade has also increased. That is, the intra-East Asian trade share in 2000 was 48.5 per cent, compared to 46.5 per cent for intra-North American Free Trade Agreement (NAFTA) and 53.2 per cent for intra-European Union (EU). In addition, the slow progress of multilateral negotiations under the WorldTrade Organization (WTO) and the Asia-Pacific Economic Co-operation (APEC) encouragedtheshiftingpreferencetoregionalism.Korea’sregimechangetowards a more liberalized economic system can be counted as another important factor behind the strategic change in favour of regionalism. Chap7.indd 86 Chap7.indd 86 1/24/07 2:09:31 PM 1/24/07 2:09:31 PM 87 Regional Trade Arrangement between ASEAN and Korea: Korea’s Perspective From Table 7.1, we can identify several common characteristics in Korea’s effort to build RTAs. First, the proliferation of RTAs has led to a fear of being left out and has driven it to having its own RTAs, from a “bandwagon” or “domino” effect.1 Second, there has been some progress in implementing inter-regional RTAs, such as the Korea–Chile FTA and the Korea–EFTA FTA, but there has been no significant progress in forming intra-regional RTAs with the exception of the Korea–Singapore RTA. Most intra-regional RTAs involving Korea are still under negotiation or discussion. It means that Korea still has a long way to go before realizing the gains from freer...