Why did Korea negotiate its first FTA with Chile?
Inkyo Cheong provides an explanation in this 1999 paper Korea's FTA Policy Consistent with APEC Goals. Dr. Cheong, an FTA expert from Inha University, has been involved in Korea FTA policy making.
Korea trade policy had traditionally been committed to the multilateral GATT and WTO processes. However, the rise of regional and bilateral arrangments in the 90s faced Korea with the prospect of losses through trade diversion. The financial crisis in 1997 and 1998 paradoxically made the public more receptive to trade openings.
Further, the recent economic crisis has shown the average Korean the folly of adhering to a view that its economy culd grow in its semi-closed state. This growing acceptance of a more economically liberal approach has allowed Korean policy makers to embrace trade initiatives that were previously only possible if the weight of the world (i.e. the WTO) was pushing for such trade opening.
Koreans also accepted the argument that bilateral or regional efforts might complement broader initiatives.
But who would be a good partner for that first agreement? The Koreans settled on Chile in 1998. Why?
...the Korean government is currently pursuing the establihsment of FTAs with smaller strategic countries as a precursor to establishing trade agreements with its larger trade partners. Chile was chosen as the candidate through which Korea would begin its pursuit of RTAs.
- Chile's exports of primary goods such as copper and wood...will be highly complementary to Korea's manufactured goods exports of automobile and electronic products.
- Moreover, Chile is one of the most active countries in terms of liberalizing trade and establishing FTAs...
- Chile's rather open and likely nonconfrontational approach will likely allow Korea to sign a relatively comprehensive FTA agreement that is unencumbered by numerous side agreements. Thus the agreement would set a favorable precended for Korea signing FTAs with other countries.
- Chile's experience with free trade and operating a relatively liberalized economic market will likely provide Korea valuable experience as it attempts to further liberalize its own economy and pursues FTAs with larger economies.
- Aside from the economic aspects, political realities are also behind the choice of Chile as Korea's first potential partner in a free trade agreement... While current opinions are certainly more favorable than in the past, Korea abandoning its insistence that free trade be pursued in an open an multilateral approach is a major policy reversal. However, the economic size of Chile is relatively small and the trade volume between the two countries amounts to a small percentage of Korea's total trade. Any adjustment costs, such as workers being displaced, will be relativley low.
- Further, international response to Korea's aboutface will be muted due to the nonthreatening size of the agreement.
(I've cut some of the text, and introduced the bulleted points)
This article was written in 1999, about the time negotiations actually started. Agreement was reached in February 2003, and the FTA became effective in April 2004. (Korea-Chile Free Trade Agreement(KCFTA), Korea.net, June 17, 2007)
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