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China, Aussies and SK eye boon from FTAs
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China’s free trade agreements with South Korea and Australia officially came into force yesterday, marking a tremendous boon for the three countries.
According to the Ministry of Commerce, a first round of tariff cuts was to take effect yesterday, and a second on January 1, 2016.
The hard-won FTAs will also provide an unrivalled opportunity for regional economic integration.
South Korea’s free trade accord with China has been widely anticipated by its major multinationals to help expand presence in the world’s largest consumer market and by the general public to boost political, economic and people-to-people exchanges.
As China has become South Korea’s largest trading partner, and the latter China’s third-biggest single-country trade partner, China has seen its exports to South Korea account for over a quarter of the total from January to November this year.
Negotiations on the China-South Korea FTA were first initiated in September 2004. The agreement, after 14 rounds of negotiations, began to pick up pace after President Xi Jinping and his South Korean counterpart, Park Geun-hye, agreed in July 2014 to step up efforts to finalize the talks.
The South Korean Parliament ratified the free trade pact on November 30, and the two sides reached a final agreement to implement the deal.
With the similar aim to boost bilateral economic and trade exchanges with China, the Australian Senate passed legislation surrounding the China-Australia Free Trade Agreement earlier last week, clearing the final hurdle to enact the agreement signed by representatives of both nations in Canberra.
The trade deal was reached after decade-long talks that began in 2005. The process was greatly accelerated after Xi paid a state visit to Australia in November last year.
Australian Trade Minister Andrew Robb said in October that the parliamentary ratification of the agreement will bring enticing prospect for the burgeoning Sino-Australian relationship.
“ChAFTA represents an agreement of outstanding quality between two highly complementary economies,” Robb said.
Once implemented, the China-South Korea FTA will witness tariff cuts on more than 90 percent of traded goods within the next 20 years. Seoul estimated that South Korean manufacturers are likely to see its exports to China grow by US$1.35 billion within a year.
South Korea expected the deal to raise its real gross domestic product by 0.96 percent, create 53,800 jobs and reap consumer benefits by US$14.6 billion.
Savings of US$5.4b on tariffs
If the liberalized trade reaches its goal 20 years later, South Korean companies are expected to reduce tariff costs by up to US$5.44 billion annually, much higher than tariff savings of US$930 million from the South Korea-US FTA and the US$1.38 billion from the South Korea-EU FTA.
China’s FTA with Australia will also result in the removal of a number of tariffs, such as those on Australian beef, dairy and wine, while Australians will also have access to cheaper Chinese goods such as electricals and homewares.
Australian Shadow Trade Minister Penny Wong also said that ChAFTA has the potential to deliver significant economic benefits to the resource-dependent country.
After being severely hit by slumping commodity prices and waning mining investment, the Australian economy has been tipped to slow further than the official estimates next year.
“Trade with China has been critical to Australia’s recent economic performance and it will be critical to Australia’s economic future,” Wong said, adding that China is already a major new market with hundreds of millions of affluent consumers increasingly demanding new goods and services.
South Korean experts said the FTA between Seoul and Beijing is an important milestone to boost economic integration in the region, as it will serve as a good starting point to speed up negotiations on the trilateral FTA with Japan and boost negotiations on the Regional Comprehensive Economic Partnership.
Meanwhile, China and the Association of Southeast Asian Nations have sealed a deal to upgrade their free trade area, and the negotiations on the RCEP, a free trade pact involving the 10-member ASEAN and six other countries, has also entered a crucial phase.
Despite these efforts, economic integration in the region still faces challenges such as the existing regional trade arrangements among countries, which may lead to the “spaghetti bowl” dilemma.
At a CEO summit of the Asia-Pacific Economic Cooperation forum in Manila last month, President Xi called for efforts to boost the openness of the Asia-Pacific economy and uphold the multilateral trade regime.
Citing the “historic step forward” APEC leaders took in Beijing last year by launching the Free Trade Area of the Asia-Pacific process and the worries about fragmentation that have been on the rise with various new regional free trade deals cropping up, Xi urged Asia-Pacific economies to “accelerate the realization of the FTAAP and take regional economic integration forward.”
Ken Waller, director of the Australian APEC Study Center at RMIT University, also said that for regional economic integration in the Asia-Pacific, it is important to push forward the establishment of the FTAAP.
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