Europe in the World

Economic integration in Asia and free trade with the EU

25 September 2012


“South Korea has fared relatively well since the crisis by taking drastic fiscal reform measures and liberalising trade, rather than pursuing protectionism,” said Ambassador Sihyung Lee, Deputy Minister for Trade of the Republic of Korea.

“Since 2008 Korea’s trade liberalisation policy has mostly been based on bilateral FTAs (free trade agreements), including the FTA with the EU. The EU FTA was Korea’s big one, but the Korea-USA FTA entered into force shortly afterwards,” Lee said.

“This is unchartered waters for the Korean people and government. We’re the first country to have concluded FTAs with both the EU and the USA,” the minister said.

“Our economies are inter-dependent. Now trade is free, so you’d better make sure that you have an idea what’s going on,” he said.

“We’re all planning to develop regional comprehensive economic partnerships (RCEP) bilaterally with ASEAN. It’s likely that negotiations will be launched this November,” Lee said.

“RCEP will eventually be 16 countries with a total population of 3.4 billion, collectively responsible for 30% of global GDP and global trade. RCEP is potentially a very ambitious arrangement,” he said.

“Korea, China and Japan will separately launch a trilateral FTA in November. We launched bilateral negotiations with Japan in 2004, but they were stopped a year later. We launched bilateral negotiations with China last year. We’re trying to revive the bilateral talks with Japan, without much success,” Lee said.

“Korea currently has eight bilateral FTAs in force. As well as the negotiations with China, we’re negotiating upgrades with some ASEAN countries, including Cambodia and Vietnam. Canada, Colombia, Mexico, Australia and New Zealand are also in the negotiating pipeline,” he said.

“RCEP has the potential to become a Trans-Pacific Partnership (TPP) led by the US and including Mexico and Canada. Some describe the TPP and RCEP as rival plans pushed by the US and China respectively. But they are just two of many initiatives being taken in the region,” Lee said.

“There’s also FTAP (an Asia-Pacific FTA). That’s highly ambitious, but a bit idealistic,” he admitted.

“Some TPP and RCEP countries overlap, so it’s hard to imagine these arrangements competing with one another as rivals. Maybe they’ll merge together by 2025, which would have a huge impact on the world economy,” Lee said.

“All these initiatives are supposed to complement, not compete with, the WTO (World Trade Organisation), but they are being taken because the WTO process has been so disappointing recently,” he said.

“Trade is obviously good for growth. There are few things that economists agree so strongly about. But it’s nevertheless difficult, because you have to surrender some of your regulatory autonomy. And there will always be some losers, despite the overall gains,” said Marc Vanheukelen, Head of Cabinet for EU Trade Commissioner Karel De Gucht.

“The EU sees its FTA with South Korea as a state-of-the-art model, benchmark and reference point to emulate. It is comprehensive, and has structures that allow the words of the FTA to become a reality, for example annual gatherings and on-going working groups,” Vanheukelen said.

“Some FTAs aren’t worth talking about, because they are so shallow, but the EU-South Korea FTA is so comprehensive that the vast majority of EU-South Korea trade will be duty free, including services,” the Commission official explained.

“The South Korea FTA is seen as a model to follow with others. The EU isn’t the main show in town for growth. It’s Asia, so we need to be active there – obviously with reciprocity,” Vanheukelen said.

“Korea is our first FTA with Asia in the modern sense. We hope to conclude one with the first ASEAN country by the end of the year. We’d like to conclude an EU-ASEAN FTA. But it’s not feasible at the moment, because the economic development of countries like Singapore and Laos is so different,” the Commission official explained.

“We’ve almost finished negotiations with Singapore. We’ve started talks with Vietnam, which will be very interesting as a micro-case with similarities to China,” he predicted.

“We hope to progress with Japan. The question is whether Japan will live up to its commitments regarding non-tariff barriers. There aren’t really any tariff barriers, but nevertheless some European countries have been trying to invest in Japan for 50 or 60 years with no success,” he said.

“We don’t think the time is right for an EU-China FTA, but we think we can move ahead in areas like an investment agreement. The problem is that China’s interests are too narrow. China isn’t interested in market access,” Vanheukelen said.

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