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FTA and Structural Changes : Experiences and Implications

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  • 저자 차문중, 편(車文中) , Alejandro de la Pena, Chong-Sup Kim, George A. Dyer, Antonio Yunez-Naude, Larry A. Sjaastad, Claudio Bravo-Ortega, Alejandro Jara, Roberto Abusada Salah, Esther L. Aristy, Rahul Sen
  • 발행일 2006/12/31
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요약 It is my great pleasure to welcome all of you to the international conference on “FTA and Structural Changes.” I would like to express my deep appreciation to all distinguished speakers, who have made the effort to join the conference organized by both KDI and KORUS FTA Industry Alliance, to share their insight and knowledge with us. In particular, I deeply appreciate and welcome those participants who have traveled such a long journey to Seoul despite their busy schedules. I would also like to thank the staffs who have successfully organized this important conference.

The progress in multilateral talks has not met our expectation, and DDA was officially suspended last July. Without any promise of resuming the talks in the near future, many economies are more actively seeking bilateral and regional free-trade talks. As a newcomer in the arena of FTA, Korea has successfully accomplished FTAs with Chile, Singapore, EFTA, and is currently negotiating an FTA with the US. In fact, the third official meeting with the US-FTA delegation just ended last Saturday and we are actively pursuing to bring a successful conclusion. I think that the signing of FTA with the US will be a big leap forward for Korea's economic history.

The most visible effects of FTA with the US are the abolishment of trade barriers and enhanced mobility of commodities and service. Furthermore, there will be an improvement in the country's credit, providing greater leverage for Korea when promoting investments from the US and other countries. Recent studies show that FDI substantially contributes to higher employment in Korea, as more than 99% of employees in foreign-owned firms are local workers. Inflow of foreign capital is also accompanied by new technology and managerial skills. Economists point out that the spin-off of these technology and managerial skills are substantial contribution to the domestic economy.

The US-Korea FTA offers great opportunities and expectations. However, unless Korea has the underlying foundation to accept these opportunities, what may come in the future might be not what we have been expecting. The “openness” that is accompanied by the FTA will bring much more freedom and convenience in the economy, while at the same time present challenges in adapting to the new environment. Removing barriers to free mobility of goods, services and investment imply that competition among producers will intensify. Each sector will see more competition due to the presence of foreign companies equipped with better efficiency and productivity. However, I believe performance improves with tighter competition.

Stronger and robust competitiveness can be always created through sound competition and innovation. For example, in Korea there were no mega-sized super discount stores in the early 1990s. Severe competition in the sector between mega-sized foreign leading companies and domestic companies was unavoidable. But as of 2005, there are 304 discount stores, where domestic companies like E-Mart and Lotte Mart are dominating. They are now successfully penetrating into foreign markets.

In retrospect, Korea has consistently put efforts in restructuring for the past four decades indeed. During the dramatic economic development process led by labor-intensive industry such as textile and wigs, to semiconductor and information and communications industries, Korea has seen a number of start-up companies as well as collapse of some. Restructuring is a process that must be continued to further strengthen the foundation of the Korean economy and also make it more efficient. We should not fear or “turn a blind eye” on restructuring, but we must wisely use it to build up measures that will maximize the utility of available resources and workforce left behind during the restructuring process. Imagine what the world would be like now, if the Luddite movement of the Industrial Revolution succeeded? Without the restructuring and machinery that the movement rejected, would it be possible for human beings to enjoy such comfort and convenience as we do today?

The FTA can be seen as a promise between countries to work together to create a larger market and pursue economic prosperity. Therefore, the concerted efforts and preparedness will determine how smoothly the Korean economy will deal with the external impacts and sustain its growth through restructuring. The government must put efforts in making the economy more flexible, and at the same time cooperate with both companies and the workforce so a smooth transition can be made to the new changes. In this vein, more counseling and education must be provided so that workers will not feel alienated during the process of rooting FTA. This is why internal preparedness is as important as external negotiation with the counterpart.

Growing concerns from some parts of the Korean economy are complicatedly entangled with constructive critics, misunderstanding based on incorrect information, and pessimism on future benefits arising from openness. Some opponents claim that the US-Korea FTA will make the Korean economy a subordinate to the US economy, leading to a collapse of Korean manufacturers and worsen the income disparity.

Surely, the signing of FTA with the US will not bring prosperity to every sector of the economy. It is naive to think that FTA would improve the welfare of everyone in the society?instead, we must accept the fact that in the free market system, particularly in the realm of FTA, there will always be winners and losers. However, in general, it should be understood that FTA will yield more total welfare gain than welfare loss therefore, a thoughtfully designed compensation scheme will improve the overall quality of welfare of everyone.

Globalization has often been criticized as a main culprit in deteriorating the income conditions. Anti-free traders often refer to NAFTA as an example to demonstrate that the FTA with the US will worsen income conditions. However, there are many other studies that show the opposite and that income disparity rose not from free trade alone but also from technology development.

For the conference, we have invited experts from countries with more FTA experiences than Korea. For example, the US already has concluded FTAs with about 16 countries such as Canada, Mexico (NAFTA), Singapore, Chile, Australia, and other Central American countries. Mexico has FTAs with over 30 countries while Chile has FTAs with the US, Mexico, Korea and some European countries and, Peru has the FTA with the US. In the context of far east regions, Singapore is the most active FTA suitor among Asian countries signing agreements with the US, New Zealand, and Australia.

In today’s conference, we hope to exchange ideas with experts from abroad on their countries' experiences on implementing FTAs and related programs.

The most difficult process of FTA, I believe, is attaining political support and public understanding. Through this conference, participants can share how their countries have dealt in raising political support and building public consensus so that FTA can be firmly established in their countries. Specifically, countries’ know-how on methodologies and measures that were used to create an FTA-friendly environment and some of the comprehensive programs used to bring restructuring in the affected sectors and assistance programs to help those disadvantaged by FTA will be shared. These invaluable knowledge and information will greatly help Korea with its future FTAs.

In closing, I would like to once again thank the participants from overseas for joining us and hope that your stay in Korea is enjoyable. Lastly, this conference will be marked as an important event for Korea and I hope that it will be beneficial and insightful for each and every one of you.
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※문의사항 미디어운영팀 윤정애 전문연구원 044-550-4450 yoon0511@kdi.re.kr

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