South Korean President Park Geun-hye’s June 27-30th visit to China and summit meeting with Chinese President Xi Jinping has attracted worldwide attention beyond that normally afforded to a meeting of two heads of state. The visit was of particular significance firstly because of its departure from routine—traditionally, newly elected South Korean presidents have visited the U.S. and Japan first, but after entering office Park Geun-hye visited China right after a visit to the U.S.. Additionally, her visit was timed to coincide with the 21st anniversary of the establishment of diplomatic relations between China and South Korea. During her visit, the two countries signed a series of bilateral documents covering multiple areas to strengthen their strategic partnership. Park’s visit also drew attention because of her echoing, for the first time, Chinese President Xi Jinping’s call to rejuvenate the “Chinese Dream” when she raised the “South Korean Dream” in a speech at Tsinghua University. That both of these heads of state have mentioned “dreams” is not a coincidence; they both bear strong goal-oriented initiatives for their respective nation’s development. 

 

China-South Korea FTA: from dream to reality

China and South Korea have over 20 years of diplomatic relations. Although economic, political and cultural exchange between the two countries has born remarkable achievements, a free trade agreement between China and South Korea has yet to come into being. An FTA will be an institutional framework for cooperation; it will be complex in content and difficult in the process of implementation not only because it will involve the interactions between interest groups in the two countries included in the FTA, but also because it will also be intimately related to regional and international powers.

 

At present, the conditions for establishing the China-South Korean FTA are ripe. Increasingly deep economic interaction between the two countries has laid a foundation for the FTA. In 1992 when two countries had just established diplomatic relations, bilateral trade volume was only six billion U.S. dollars; by 2012, it had increased to 215.1 billion U.S. dollars—30 times higher than in 1992. Globally, this is very rare. The bilateral trade volume between China and South Korea has exceeded bilateral trade volume of between both the U.S. and South Korea and Japan and South Korea combined. Currently, China is South Korea’s largest trade partner, and South Korea is China’s third largest trade partner.

 

In the area of financial investment, the potential for Chinese-South Korean cooperation is huge. Currently, South Korea is China’s fourth largest source of FDI, while reciprocally. Chinese enterprises have continuously increased their investment in South Korea under China’s “Going-out” policy. Additionally, China’s vast foreign currency reserves are the foundation to safeguard the stability of regional financial markets and foreign investment. After the Asian financial crisis, China and South Korea began to swap currencies under the framework of the Chiang Mai Initiative. The countries have further expanded the scale of the currency swap since the global financial crisis, increasing it to 360 billion RMB/6.4 billion KRW in October 2011.

 

Indeed, to develop an FTA will not be a smooth journey. Certain barriers still exist, the biggest of which is China and South Korea’s competitive rather than complementary relationship in some sectors. In particular, negotiations regarding some sensitive sectors such as agriculture are beset with difficulties. Compared with China, South Korea has more advantage in high-end manufacturing, such as the automotive, electronics and petrochemical industries. At the moment, exports of these sectors account for the forefront of South Korea’s exports to China. If the FTA is agreed upon and enacted, tariffs on imports in these industries will be reduced, meaning China’s domestic industries will face more competitive pressure. On the other hand, South Korea’s agricultural sector lags behind that of China. Eliminating the import tariff on agricultural commodities and products will bring challenges to the South Korean agricultural industry. Farmers’ associations and other related organizations have substantial lobbying power and play an important role in South Korean politics. These organizations had several massive demonstrations against the U.S.-South Korean FTA after its signing in 2007. The agreement did not officially take effect until 2012. Chinese and South Korean negotiations on an FTA will face the similar difficulty.

 

Park Geun-hye’s visit has facilitated the China-South Korea FTA going forward from a dream to reality. The two leaders agreed to increase bilateral trade volume to 300 billion U.S. dollars by 2015, a further impetus to realize the FTA. They also reached consensus on signing a high-level and comprehensive FTA and clearly expressed their determination to speed up the progress of talks.

 

The sixth round of negotiations on the China-South Korea FTA held in Pusan on July 2nd-4th, a result of the summit meeting, was a good sign. The establishment of a China-South Korea FTA will substantially benefit consumers in both countries and will also be conducive to forming an efficient supply chain for allocating primary and intermediary goods in the manufacturing industry and increasing employment. Furthermore, it will facilitate the realization of South Korea’s strategy to become the center of the Northeast Asian economic axis.

 

Channel for Peninsula peace

Park Geun-hye’s visit to China has brought renewed hopes for overall peace and cooperation in Northeast Asia. During the meeting, the situation on the Korea Peninsula was also an important item of discussion.

 

Since the 1960s, both the political and academic communities have advocated for cooperation between countries in Northeast Asia. The Greater Tumen Initiative (GTI), initiated by the United Nations Development Program in the 1990s, was also aimed at promoting regional cooperation. However, after 20 years, regional cooperation in Northeast Asia remains stagnant. Even worse, the regional peace is threatened. North Korea’s nuclear program, territorial disputes and the return of the U.S. to Asia have all exacerbated regional tension.

 

Upon being sworn into office, Park Geun-hye proposed the “Peninsula confidence-building process”. She elaborated on this concept during her visit to China. The key to the “Peninsula confidence-building process” is to contain DPRK’s nuclear exploration and simultaneously to promote dialogue and cooperation between North and South Korea. It aims to build trustful relations between the two countries by adopting a balancing strategy. South Korea expressed their willingness to work with China in order to create conditions for re-initiating Six-Party talks. North Korea also sent an envoy to China prior to Park Geun-hye’s visit and one to Russia afterwards, both of which conveyed interest in restarting six-party talks. On the whole, the tension on the Korean Peninsula that had escalated since the beginning of this year has relaxed somewhat.

 

Pressure on Japan

In regard to the regional economy, deepening cooperation between China and South Korea will undoubtedly cause a “domino effect”, further facilitating the establishment of a China-Japan-South Korea FTA. As early as the China-Japan-South Korea trilateral summit in 2002, a proposal for the three-way FTA was put forward. Once the FTA has been signed, it will forge a giant market with a population of 1.5 billion, in turn increasing the total economic revenue of each participating country. In October 2009, the leaders of the three countries reached a consensus on government-industry-academia joint research on an FTA; a second ministerial level meeting between the three countries held in August 2012 also initiated the preparation for the negotiations. However, after Prime Minister Shinzo Abe came to power, the rapid growth of rightwing forces in Japan cast a shadow on the proceeding of negotiations.

 

Park Geun-hye’s visit to China achieved fruitful results regarding Chinese-South Korean cooperation, especially on the establishment of an FTA. It may put pressure on Japan to seek the development of a trilateral FTA. Similar cases have occurred in the past. In 2001, China and ASEAN announced the establishment of an FTA that impacted Japan’s regional strategy, eventually pushing it to sign FTAs with several ASEAN countries and conclude an FTA with ASEAN itself in 2008. Regardless of whether Japan, motivated by Chinese and South Korean cooperation, reaches agreement with China or South Korea—or all three can reach an agreement on an FTA—it will be a tremendous step forward for regional cooperation in Northeast Asia.

 

Translated by Feng Daimei

Revised by Charles Horne

 

The Chinese version appeared in Chinese Social Sciences Today, No. 473, July 10, 2013

 

Liu Junsheng is from the National Institute of International Strategy at the Chinese Academy of Social Sciences.

 

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