SEOUL, March 22 (UPI) -- South Korea took a long-awaited step toward emerging from isolation in regional trade arrangements as it agreed to launch a joint study on a bilateral free trade agreement with neighboring Japan.
South Korea, the 13th biggest economy in the world, is the only country, other than China and Taiwan, among the 144-member World Trade Organization that is not in any form of free trade agreements. And concerns are growing that is way behind the global trend.
But South Korea seems to have a long way still to go to embrace the agreements with its trading partners because the Kim Dae-jung government is walking a political tightrope, seeking to find the balance of protectionism and free trade.
Business leaders and liberal academics are calling for an early conclusion of free trade agreements, citing potential economic benefits, but farmers and other protected businesses armed with "collective actions" strongly oppose trade liberalization that they fear would destroy their livelihoods through cheap imports.
Local politicians also have urged the government to go slow, fearing a backlash from farmers and labor as the country is facing two key votes -- local government elections in June and the presidential poll in December.
"Ministries also remain divided over the FTA issue," a government official told United Press International on condition of anonymity.
Indicating the government's lukewarm position, Commerce, Industry and Energy Minister Shin Kook-hwan ruled out a greater role of the government in promoting FTAs. "The government will wait until the businesses and academics develop a broad national consensus before pushing for FTAs," Shin told a news conference hosted by Seoul Foreign Correspondents' Club Thursday.
But Shin and other government officials said a new treaty with Japan on direct investment would be a major momentum to pursue an FTA. They said President Kim Dae-jung and Prime Minister Junichiro Koizumi would sign a bilateral agreement designed to boost investment in each other's country during their summit on Friday. Their talks would focus on forming stronger economic ties, they said.
"The investment agreement, a crucial part of bilateral economic cooperation, will expedite a free trade agreement between the two neighbors," said an official at the Foreign Affairs and Trade Ministry.
The official added the two governments would begin full-fledged talks as early as next year to liberalize trade between them.
Business leaders and many economists urged the government to use the investment pact to speed up FTA negotiations with Japan. If the two key Asian economies sign the agreement, it would create a market with 170 million people and gross domestic product totaling some $5 trillion, they said.
Japan is South Korea's second-largest investor after the United States, with a total of $11.2 billion invested until 2001. South Korea is Japan's third-largest trading partner after the United States and China. Two-way trade reached $43.1 billion in 2001.
The Korea Institute for International Economic Policy, a government-run think tank, estimates that an FTA with Japan would boost South Korea's gross domestic product by 0.42 percent in the short-term and 3.58 percent in the long-term, with short-term economic profits totaling $424 million and long-term $1.03 billion.
"The formation of an FTA with Tokyo is an irreversible option, in the face of global trends of internationalization and bloc economies, said Jung In-kyo, a KIEP research.
Park Yong-sung, chairman of the Korea Chamber of Commerce and Industry, said the South Korean economy, if left "isolated" on the rapidly expanding global trade arrangements, may slip back into an economic crisis.
"The free trade pacts are vital for the export-dependent Korean economy," said Han Young-soo, a trade promotion chief at the Korea International Trade Association. The pacts aim to promote the exchange of goods, services, people, capital and information, and bring down the economic border between the two countries, he said.
Some optimistic economists have already begun to consider a three-way FTA with Japan and China.
"The benefits of such a relationship are obvious," said Lee Su-hee, an economist at the Korea Economic Research Institute.
The accord would help the three Asian nations to develop into a single market to rival Europe and North America.
But the voices opposing free-trade overtures are still very loud in South Korea. An FTA with Japan will eventually result in a surge in imports of Japanese automobiles, specialty steels, machinery, electronics and high-end petrochemical goods into Korea, because of the gap in tariffs, critics say.
The free trade agreement calls for removal of tariff barriers on a phased basis over 10 years. Currently, South Korea's average tariffs on Japanese imports are 7.9 percent, compared with Japanese import duties of 1.5 percent on South Korean products. The main imports from Japan include electronics and chemical products used as industrial raw materials. South Korea exports machinery and electronics devices, followed by products in the petroleum, metal, agricultural and marine sectors.
The imports from Japan would be a threat to South Korean manufacturers, said Sagong Mok, an economist of the Institute for Industrial Economics and Trade. Free trade would further deepen South Korea's dependence on Japan in key industrial sectors, he said.
"Benefiting from the abolition of tariffs, Japanese automobiles are expected to replace European and U.S. cars in the nation's high-end vehicle market. The trend will in turn accelerate restructuring of domestic auto industry," he added.
Agricultural products have always been a stumbling block to FTAs because they are heavily protected in the country. South Korea launched FTA talks in 1998 with Chile, but has made little headway because farmers opposed to opening their agricultural markets to competition.
Hundreds of protestors staged a rally near Japan's embassy in Seoul Thursday to oppose Koizumi's visit and the proposed free trade arrangements. "Oppose the Korea-Japan investment pact!" they shouted.
Many analysts said the two countries share a common goal of expanding ties through trade, but there were still high hurdles to clear. Any free trade pacts could not be a "win-win game" without sufficient preparatory works, said Choi Se-kyun, a researcher at the Korea Rural Economic Institute.
