Benefits of Korea-China FTA

By Jeffrey I. Kim

Recently, President Park Keun-hye made a three day trip to China andbrought back enormous economic and political benefits to Korea. Upon herarrival in Beijing, President Park and President Xi held a summit meeting andcame to the following agreements:

(1) Oppose any action that causes tension on the Korean peninsula. The twoleaders urged the resumption of six-party talks to curb North Korea's nuclearambition;

(2) Seek ways to promote the Eurasia Initiative, which aims to construct theworld's longest railway connecting Europe, China, Russia, Mongolia, NorthKorea, and South Korea. This project was first proposed by President Park inOctober 2013. AIIB (Asia Infra Investment Bank) is expected to play a pivotalrole in this project. Korea is the AIIB's 5th largest shareholder out of 57;

(3) Hold a tri-lateral summit meeting with Japan. President Park is expected toplay a catalytic role in this meeting as mediator between China and Japan.

President Park also had separate talks with Chinese Prime Minister Li Keqiang.They agreed to work closely to have the Korea-China FTA go into effect as soonas possible. The mutual benefits from trade and investment are enormous. Chinacan have the China-Korea FTA take effect at any time. For Korea, however, itmay take a while for the National Assembly to ratify it. If the majority of theAssembly members are fully convinced of the net benefit of the China-Korea FTA,they may ratify it within this year.

China is the world's second largest economy in GDP. In 2014, China recorded aGDP of 0.4 trillion and a trade surplus of $380 billion. China's imports fromKorea were 45 billion. China's investment in Korea in 2013 was $0.5 billionand substantially increased to .2 billion last year. In contrast Korea'sinvestment in China last year was $3.1 billion. If the FTA takes effect, theeconomic relations between the two will deepen more in the future. 

Korea has signed FTAs with 52 countries, including the EU, USA, and China.Korea's free trade network is the third largest in the world, covering 73.5% ofthe global economy in terms of GDP. The establishment of a bilateral FTAbetween two countries may seem easy, but it is very difficult in reality. Themost difficult part in establishing an FTA is to complete the ratificationprocess. Even if the two governments have signed the free trade agreement, eachgovernment must get an approval from its parliament. When there is asignificant discrepancy in the assessment of net benefit of the FTA between thegovernment and its parliament, the ratification process can be rough andrattling.

For example, Korea had a bitter experience when getting the Korea-US FTAratified. When the two governments signed the FTA in April 2007, the USCongress did not welcome it, but the Korean National Assembly did. Later on,the two parliaments reversed positions. The US Congress passed a final FTAversion in October 2011, and the Korean National Assembly barely ratified thefinal FTA in the following month. It took more than four years before the FTAwas able to go into effect.

The ISDS (Investor-State Dispute Settlement) issue caused the delay inratification. ISDS is an instrument of public international law that grants aninvestor the right to use dispute settlement proceedings against a host state.If the host state violates the rights granted to the investor under publicinternational law, then that investor may bring the matter before aninternational arbitral tribunal.

Opposition party members and civic groups repeatedly demanded that the Koreangovernment renegotiate with the US to remove the ISDS from the FTA. To preventsimilar political confrontation between the ruling party and oppositionparties, Korea and China agreed to include an additional clause in the FTA thatwill reduce the chances of the ISDS clause being abused. Article 12.9 of theKorea-China FTA stipulates that each party designates contact points in eachterritory, such as the foreign investment ombudsman, to help resolve thegrievances of foreign investors before things get out of hand and need to bebrought before an international court. Enormous economic benefits lie ahead forus. Why not actively explore them together?

Jeffrey I. Kim is the foreign investment ombudsman, a presidentially appointedtroubleshooter for investors and entrepreneurs from overseas.

Link : http://www.koreatimes.co.kr/www/news/opinon/2015/09/197_186772.html