Advantages and disadvantages of the China – South Korea Free Trade Agreement
To obtain political, economic, and social benefits to both countries, on the 10th of November of 2014, China and South Korea came to an official agreement to start the “China – South Korea Free Trade Agreement”. Then on the 1st of June, 2015, signed that agreement.
China is the largest trading partner of South Korea. Although South Korea is not the largest trading partner of China, South Korea is one of its major trading partners
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This can be considered as a bilateral trade agreement. Because making a free trade agreement without Japan was beneficial to both China and South Korea. It is really helpful for the establishment of the political power of China. Because by wakening the economic power of Japan, China can improve its force within the Asian region. Both South Korea and Japan are competitors in the Chinese market. So, because of this Free Trade agreement, South Korea can obtain a competitive advantage in the Chinese market.
Recently, in the COVID 19 pandemic also Chin and South Korea have approved the ‘fast-track’ entry system to strengthen the supply chain between the two countries with the intention of minimizing the bad effect of the COVID 19 pandemic on the bilateral trade between two parties. (World Economy News, 2021).
Advantages of the “China – South Korea Free Trade Agreement”.
the China – South Korea Free Trade Agreement has given benefits for two countries in major seventeen areas. As examples, we can say of goods trade, service trade, e-commerce, investment and rules, competition policy, environment, government procurement, and so on. Both countries removed many protectionism practices that they have previously applied and increased the investment level.
Increase the quantity of transacted goods between countries and decrease the tariff was implemented.
Under this FTA, South Korea has increased the quantity of imports from China. As examples, we can say, Korea has permission to import more Puffer, Malt, Soya beans, Sesamum seeds, Loaches, and so on. (FREE TRADE AGREEMENT BETWEEN THE GOVERNMENT OF THE PEOPLE’S REPUBLIC OF CHINA AND THE GOVERNMENT OF THE REPUBLIC OF KOREA, n.d.). Also, as announced by two sides in December 2017, under the second phase of this FTA, they have reduced seven tariffs and implemented zero tariffs on some goods to increase the trade volume by more than 55 percent. (World Economy News, 2021). So, both countries could get the benefits of FTA within a shorter period.
According to the Korea International Trade Association (KITA), in the year 2018, 24.8 percent of total Korean exports were taken by China. Because of this, standards of living of peoples have been increased. Especially, when we consider South Korea, the GDP level of the country has shown an increase when compared with the before the China- South Korea FTA.
Also China mainly exports electrical and electronic equipment, furniture, steel, plastics and so on to South Korea. After this FTA, China’s exports to South Korea have been gradually increased.
In the year 2017, China’s 4th export destination was South Korea.
Improve the technology
Because of the China – South Korea FTA, there is a bilateral technical cooperation between the two countries. Because of this, the technology of China has been improved. As examples we can say, recently in the COVID 19 pandemic also Chin and South Korea have approved the ‘fast-track’ entry system to strengthen the supply chain between the two countries. (World Economy News, 2021). ‘Fast-track’ entry system means a system that can improve the speed of producing, construction and processing components of the economies.
So, because of the technological improvement, productivity (ratio between input volume and output volume) of the countries has been improved.
Disadvantages of the “China – South Korea Free Trade Agreement”.
Badly effect to the SMEs
Because of this FTA, in both countries, trade volume has been increased. So, large-sized business organizations had benefited from it. But small and medium-sized business organizations could not take the benefit from the trade and they had to compete with large corporations. So, most SMEs have been threatened by this FTA. (Kim, 2016). As an example, we can say the textile industry of South Korea which comprises more than 40,000 textile companies. Most of these textile companies are SMEs and they are badly affected by international trade. So, as a result of it, unemployment in South Korea has increased. Because people who employ in SMEs lost their jobs.
Because of the removal of tariff, there is also tendency for imports to increase
With this FTA, China has imported more from South Korea. In the year 2017, China’s major import source was the South Korea.
Because of this, current account balance of the China has badly affected. Also, there is a tendency of Chinese Yuan depreciate relate to South Korean Won.
Environment pollution has been increased in China
Because of the China – South Korea FTA, industrialization of the China has been increased. Because they produced more electrical and electronic equipment, plastics and so on to export South Korea. As a result of it, environmental pollution of the country has been increased.
Reference list
China – Trade. (2019). In: Encyclopædia Britannica. [online] Available at: https://www.britannica.com/place/China/Trade.
Chunding, L. (2021). An upgraded China-ROK free trade deal good news for regional integration, growth – Global Times. [online] www.globaltimes.cn. Available at: https://www.globaltimes.cn/page/202101/1214283.shtml#:~:text=Since%20China%2DSouth%20Korea%20Free.
FREE TRADE AGREEMENT BETWEEN THE GOVERNMENT OF THE PEOPLE’S REPUBLIC OF CHINA AND THE GOVERNMENT OF THE REPUBLIC OF KOREA. (n.d.). [online] Available at: http://fta.mofcom.gov.cn/korea/annex/xdzw_en.pdf [Accessed 5 Sep. 2021].
Herald, K. (2014). [Editorial] FTA with China. [online] The Korea Herald. Available at: http://www.koreaherald.com/view.php?ud=20140930000477 [Accessed 4 Sep. 2021].
Kim, D.-J. (2016). Impact of Korea-China Free Trade Agreement (FTA) on Domestic Small and Medium Enterprises (SMEs). [online] papers.ssrn.com. Available at: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2953334 [Accessed 15 Jun. 2021].
tradingeconomics.com. (2021). South Korea Productivity | 2000-2021 Data | 2022-2023 Forecast | Historical | Chart. [online] Available at: https://tradingeconomics.com/south-korea/productivity#:~:text=Productivity%20in%20South%20Korea%20is [Accessed 5 Sep. 2021].
World Bank (2021a). GDP (current US$) – Korea, Rep. [online] data.worldbank.org. Available at: https://data.worldbank.org/indicator/NY.GDP.MKTP.CD?end=2020&locations=KR&start=1960&view=chart [Accessed 5 Sep. 2021].
World Bank (2021b). GDP per capita, PPP (current international $) – Korea, Rep. [online] data.worldbank.org. Available at: https://data.worldbank.org/indicator/NY.GDP.PCAP.PP.CD?end=2020&locations=KR&start=2006 [Accessed 5 Sep. 2021].
World Bank (2021c). Unemployment, total (% of total labor force) (national estimate) – Korea, Rep. | Data. [online] data.worldbank.org. Available at: https://data.worldbank.org/indicator/SL.UEM.TOTL.NE.ZS?end=2020&locations=KR&start=2006 [Accessed 5 Sep. 2021].
World Economy News (2021). China, S.Korea actively promoting 2nd phase FTA negotiations shows increasing mutual political trust: expert | Hellenic Shipping News Worldwide. [online] www.hellenicshippingnews.com. Available at: https://www.hellenicshippingnews.com/china-s-korea-actively-promoting-2nd-phase-fta-negotiations-shows-increasing-mutual-political-trust-expert/ [Accessed 4 Sep. 2021].
