[Column] FTA a Profound Change in Strategy?
By Prof. Yi Il-yeong, Hanshin University(Economics)
The Korean government’s official position on the proposed free trade agreement (FTA) with the United States is that it will keep at its abacus throughout the course of the negotiations, and give up on the agreement if the numbers don’t work out. However, the rumor that is spreading is that it is more interested in quickly signing an agreement than in insisting on specific conditions during the negotiations.
The rumor is circulating even among groups that support the FTA with the U.S., and not just among those opposed to it. Free trade agreements, particularly the one that would be signed with the U.S., involve extremely strategic decisions that include political and military issues. The Korean peninsula is entering a situation where it will have to choose between either a “38th Parallel” with China or a “Yalu River” of the United States. Furthermore, Korea is supposedly undergoing an enormous transformation from a foreign policy strategy centered on Northeast Asia to one centered on the U.S.-Korea alliance.
That explanation, however, does not objectively reflect the situation. The conclusion that stronger relations between China and North Korea would be very unfavorable for the reunification of the Korean peninsula is an important factor in the discussion about whether Korea is undergoing changes in strategy or whether it should. (This is the Korean version of the “China threat.”)
However, it is too much of an exaggeration to say that North Korea is becoming a satellite state of China because of expanded economic relations between those two countries. If you look at China, dependency on trade has increased from 29.8 percent in 1990 to 89.8 percent in 2004. It is experiencing an ever-serious shortage of natural resources and an excess of cash as a result of its continued high growth and the influx of foreign investment. Though to a limited degree, marketization has continued in North Korea since the measures implemented on July 7, 2002. Given the limits the nuclear issue creates for the North’s ability to develop relations with countries other than China, it is not especially unnatural for trade between China and the North to exceed trade between the two Koreas.
Taking a broader view, the U.S. has a tendency to see China as a potential competitor, but it would be hard to say that China will have the ability or desire to challenge the U.S. for some time to come. To begin with, the U.S. occupies far too important a place in Chinese trade. The reason China accounts for so much of the North’s trade with the world is because the North trades so little to begin with. Chinese state banks have continued to supply the cash needed for growth, but excessive investment and bubble growth now require austerity measures. It has a serious problem with the inefficient use of resources and energy, and it is becoming too dependent on oil. Other unavoidable problems include the economic disparity between its rich and poor and between regions, environmental and disease issues, a shortage of water, and its undemocratic political system.
On the other hand, the U.S.’s position is gradually falling. In 2005 alone, its trade deficit was US$805 billion, and for every one dollar product it imports it only earns 53 cents in exports. The U.S. has to pay quite a debt for consuming more than what it earns. In an April 25 column in the New York Times, Paul Krugman argued that the situation is far worse than it appears, and that the day is coming when the U.S. will have to pay the price for its deficit.
The U.S. is becoming weaker, and China has difficult problems. Clearly there are going to be changes and confusion. If you’re looking for the “correct answer” here, it is that no one knows exactly what is going to happen. And so the explanation that a massive transformation is suddenly about to be attempted goes against common sense and is not objective.
Whether it’s fortunate or not, the current government does not seem to be systematically pursuing an FTA with the U.S. out of a desire to implement major changes in strategy. There could of course be unintended results, and the government might not be being logical about its approach. For Korea’s sake, I’m going to hope that it stands by its position that the negations are just negotiations.
Registrated at : 2006-05-03 AM 08:46:50
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