South Korea free trade deal faces hurdles

Two-year target unlikely to be met as talks stumble over key sectors

It is unlikely that a free trade agreement between China and South Korea will be signed within two years, due to disagreements over key sectors, a source close to the talks said.

"Negotiations have progressed much more slowly than anticipated," the source told China Daily on condition of anonymity. "The target of wrapping up the talks in two years is too optimistic. I believe a much longer period is needed," he said.

His comment came as officials from both countries meet in Weihai, Shandong province, for the third round of negotiations.

The talks, covering intellectual property rights, electronic commerce and government procurement, among other topics, started on Wednesday and will end on Friday.

Commerce Minister Chen Deming and South Korean Trade Minister Bark Tae-ho announced in May that they would launch formal negotiations for an agreement following seven years of preliminary talks.

Two rounds of negotiations have been held since then.

Trade experts urged Seoul to be more active in pushing forward talks as a trade pact will help weather global economic storms.

"China and South Korea have their own concerns, which raises doubts on whether the talks will end successfully," said Zhang Yunling, director of the division of international studies at the Chinese Academy of Social Sciences.

The biggest issues for Seoul concern its agriculture, services and manufacturing sectors. The sensitive areas for China are chemicals, electronics and cars, Zhang said.

Agriculture remains a key issue in the trade talks. South Korea and the United States signed their FTA in 2007 but the pact didn't take effect until this year and sparked a number of protests in Seoul.

"The Chinese government is more active in pushing forward the FTA," said Huo Jianguo, president of the Chinese Academy of International Trade and Economic Cooperation, a think tank linked to the Ministry of Commerce.

The FTA is of strategic significance to both nations and the whole Northeast Asian region, he said.

FTA: 'Trade deal will lead to mutual benefits'

China has long been the largest export market for South Korean goods and also the largest overseas manufacturing base for South Korean companies.

China accounted for 25 percent of South Korean exports by the end of 2010 and South Korean companies have been active in investing in China.

According to the Ministry of Commerce, South Korean companies invested $4.87 billion in China, accounting for 10 percent of the nation's outbound direct investment in 2010, making China the second-largest destination for South Korea's ODI.

"The bilateral trade pact would create more commercial benefits for South Korea," given the nation's heavy reliance on China's imports, Huo said.

The Korean Economic Research Institute lowered its forecast for economic growth for this year to 2.6 percent from 3.2 percent.

A stimulus

Territorial disputes regarding islands have flared up between South Korea and Japan recently and that could have consequences for other potential trade pacts involving China, Japan and South Korea, the source said.

Japan is also falsely claiming the Diaoyu Islands that belong to China.

Trade deals with Tokyo will be difficult for Seoul to complete, which makes a trade deal with China more attractive, said Zhang.

Tokyo's ties with Seoul have frayed since South Korean President Lee Myung-bak visited an uninhabited island claimed by both countries. And the Japanese Finance Minister Jun Azumi said recently that he would postpone a planned visit to South Korea this month.

In early August, the Chinese mainland and Taiwan signed an investment protection pact and a customs cooperation agreement after the eighth round of bilateral talks.

"Taiwan and South Korea compete in many industries and enhanced cross-Straits ties will put South Korean exports into a disadvantageous position in the Chinese mainland and increases pressure on South Korea to bring an end to FTA talks with China," Zhang said.

China, Japan and South Korea had reached an agreement in May to launch negotiations for a three-way trade pact this year. Reports said talks are expected to start in November during the East Asia Summit.

The trilateral FTA will probably be delayed, said experts.