China-ROK FTA represents opportunities, challenges

A landmark free trade agreement (FTA) between China and the Republic of Korea (ROK) has nearly been reached with the new deal expected to boost bilateral trade and investment but also bring challenges to local industries, experts have said.

Chinese President Xi Jinping and his ROK counterpart Park Geun-hye confirmed on Monday the conclusion of substantive negotiations on the establishment of a free trade area, described by Xi as a milestone in promoting Asia-Pacific regional integration.

"Considering good relations of the two neighbors and the huge potential of the Chinese market, the deal will bring significant growth in bilateral economic cooperation and trade volume," said Song Zhiyong, a senior researcher in Asian studies with the Chinese Academy of International Trade and Economic Cooperation.

Song made the remarks during a business forum attended by executives of nearly 200 companies and scholars from the two countries. The FTA remained the most discussed topic at the event, which concluded in China's coastal city Qingdao on Thursday.

China is the ROK's largest trading partner and largest market for ROK exports, while the ROK is an important source of investment for China. Two-way trade totaled 274 billion U.S. dollars in 2013.

The FTA will cover 17 areas including trade in goods and services, investment and trade rules. Over 90 percent of goods traded between the two countries will enjoy zero tariffs, accounting for more than 85 percent of the bilateral trade value, according to the Chinese Commerce Ministry.

Song said the agreement will offer China opportunities to upgrade its industrial structure by utilizing its neighbor's capital, technologies and managerial experience. The ROK stands to see new opportunities to develop capital and technology-intensive industries.

Choi Nam-suk, a research fellow with the Seoul-based Korea Economic Research Institute, said the agreement is expected to slash procurement costs for both Chinese and ROK companies, encouraging competition among suppliers of the two countries. It should lead to more productivity and competitiveness.

"In the long term, the deal could help both sides bolster their international competitiveness," Song said.

The experience of the two countries' successful negotiations on "sensitive issues", such as tariffs, can be learned for talks on other FTAs in Asia, said Lin Guijun, vice president of the University of International Business and Economics in China.

Despite the benefits, Song Zhiyong warned that the slashing or elimination of tariffs and the growing market openness would post challenges to the countries' comparatively weak industries: the medical, electronics, steel and service industries of China and agriculture and the light industry of the ROK.

Song also predicts China's trade deficit with the ROK is very likely to expand due to increased trade following the launch of the FTA.

The value added of the ROK's exports to China, such as electromechanical equipment, chemical and electronic products, is much higher than that of Chinese produce and textiles sold in the ROK, according to Fan Jianping, chief economist at the State Information Center under the National Development and Reform Commission.

The difference has led to China's huge trade deficit with the ROK, which topped 90 billion U.S. dollars last year, Fan wrote on microblog Sina Weibo.

Sun Shuqiang, an official with Chinese Commerce Ministry, suggested the two countries beef up economic cooperation at local levels prior to the launch of the FTA.

He says establishing China-ROK industrial parks could be one way to explore solutions to difficulties brought by the deal.

The two countries officially started FTA talks in May 2012. The China-ROK FTA deal is the broadest of all agreements China currently has on the table. If established, it will be the largest FTA for bilateral trade volume.