China-ROK FTA benefits commerce, influences regional politics

As APEC stories wane in Chinese media, Du Lei is still looking for "sweet" opportunities hiding between the lines of news reports.

"My company will probably sell more glucose to the Republic of Korea (ROK) after a free trade area is established," said Du, who is in charge of overseas sales at Shandong Shengtai Medicine Co. Ltd.

The company sold glucose worth 5.6 million U.S. dollars to the ROK from May to October, more than doubling year on year. Du has read news about the proposed area on the Internet and said he is quite eager to learn more.

On the sidelines of the APEC meetings in Beijing, China and the ROK jointly announced the conclusion of substantive negotiations on a free trade agreement (FTA) after 30 months of talks.

The agreement will cover 17 areas, including trade in goods and services, investment and trade rules, and topics such as e-commerce and government procurement.

Over 90 percent of goods traded between China and the ROK will be tariff-free, accounting for more than 85 percent of bilateral trade value.

Zhang Yansheng, secretary-general of the academic committee at the National Development and Reform Commission, said there exists a high degree of interdependence between the Chinese economy and the ROK economy, and cross-border trade and investment between the two are huge.

Therefore, the conditions for the free trade area are highly favorable, he said.

Analysts said the free trade area will bolster business activities between the two countries and lead to peace and regional integration in the Asia-Pacific.

BOON FOR BOTH

Once the FTA goes into force, China will remove tariffs on merchandise worth 8.7 billion U.S. dollars imported from the ROK every year, HSBC predicted in a research note.

"The estimated long-term boost to the ROK's GDP from the bilateral FTA will be between 2.4 percent and 3.3 percent," said Ronald Man, an HSBC economist specializing in ROK studies.

The agreement will likely raise China's GDP by between 0.4 percent and 0.6 percent, according to a joint study by experts of the two countries.

China is the world's second-largest economy, and the ROK is also a major economy is East Asia. Given the size of the two, the free trade area will unlock great potential, said Li Wen, a senior researcher on Asia-Pacific and global strategy under the Chinese Academy of Social Sciences.

"Although there are no details available, I expect the FTA will streamline the declaration process at customs and cut tariffs on a wide range of products," said Du.

He said glucose produced by his company now has one-third of the market share in the ROK, and he is optimistic about the future.

Shandong Province, where Du's company is based, and other provinces near China's Bohai Bay, are reportedly vying for preferential policies to test the waters for the free trade area.

BROADER INFLUENCE

China, the ROK and Japan planned to set up a trilateral free trade area in 2002, but negotiations have been delayed largely by rows between China and Japan.

The Chinese Foreign Ministry on Friday urged Japan to show sincerity and make concrete efforts to create a favorable atmosphere for the development of trilateral cooperation.

"A closer economic and trade relationship between China and the ROK will put pressure on Japan and likely push it to mend souring ties with China," said Li.

More significantly, robust business activities in East Asia will contribute to peace, development and harmony in the whole region, according the researcher.

"The China-ROK FTA will help create a sound environment in China's neighborhood and ease tensions in the Asia-Pacific," said Li.

WHEN TO IMPLEMENT

According to minutes signed by China and the ROK earlier this week, negotiators from both sides will wrap up talks on "remaining technical issues" by the end of this year.

The agreement will then be subject to parliamentary approval and other procedures in both countries before taking effect.

The ROK's bilateral FTAs with the European Union and the United States took 21 months and 15 months, respectively, between signing and implementation.

"We think the Korea-China FTA will be implemented in mid-2015 at the earliest," HSBC predicted.