2.2 Korea FTA Policy
The discussion about Korea’s FTA policy began in the late 1980s and become quite intensive in the late 1990s. In this period, as the movement toward economic integration in North America become evident due to the U.S. trade policy reversal towards regionalism. Korea reviewed the possibility of a Korea–U.S. FTA, however without any government commitment. But in November 1998, the Korean government formally announced that it would seek an FTA at first with Chile.9 Korea has always opted for preferred the multilateral framework to regional agreements and maintained its commitments to multilateral trade agreement because, due to it non-discriminatory and comprehensive coverage, it was considered to be the best way to achieve trade liberalization at the global level. However, the proliferation of regional trade arrangements and their successful performance have stimulated Korea to shift its trade policy toward FTAs.
Although the basic position of Korea’s trade policy is still focused on the strengthening the multilateral system, it now believes that regional trading arrangements (RTAs) could be complementary force to multilateral trade initiatives in achieving world free trade system.
There were several factors that caused Korea to renew its interest in FTA:
The increased importance of regional economic arrangements in world trade and changes in the international perception of regionalism.
Koreas own internal demand such as its high dependence on foreign trade and need for securing of export markets and accelerated opening and restructuring of the Korean economy.
Korea’s global FTA strategy was to maximize the benefits of trade and investment liberalization, secure export market and modernize its economic structure.
Korea has realized that FTAs can be essential and effective in achieving free trade, continued growth and prosperity. Korea views FTAs as one of the key ways to upgrade its economic system, for trade liberalization through FTAs can bring about greater competition and higher global standards.10 FTAs help Korea attain a higher level of efficiency, advanced economic structure and strengthened competitiveness. Korea’s FTA policy can be summarized as follows: a multi-track basis in terms of strategy; comprehensive high-level FTAs in terms of content; and broadly supported FTAs in terms of process.
Korea pursues several FTAs simultaneously, adopting a multi-track, rather than one-by-one, approach. Korea also seeks to conclude FTAs that are consistent with the WTO regulations and are also comprehensive in covering a wide range of areas, such as services, investment, government procurement and intellectual property rights.
In addition, the FTAs can play an important role in strengthening political and strategic alliances by promoting deeper economic integration between the parties bounded by the FTAs. It is necessary to achieve closer economic integration in order to ensure a stable and strong political and strategic alliance. Furthermore, certain new rules of a WTO-plus nature that are established through FTAs may also serve as a tested precursor to the multilateral disciplines, enhancing the economies’ competitiveness even further.11
Korea formulated an FTA Roadmap in September 2003 and then revised it in May 2004. Based on the Road map, Korea has been pursuing FTAs actively with over 20 countries.
The Korea–Chile FTA entered into force on April 1st, 2004, and, since then, has brought about a substantial increase (approximately 50%) in bilateral trade. Korea also signed an FTA with Singapore, the ASEAN, the EFTA and the United States.12
Korea views FTAs as an effective and expeditious trade policy tool for achieving trade liberalization in areas of a country’s choice, with trading partners of a country’s choice, and in a manner tailored to a country’s economic needs. In this manner, FTAs can bring about higher standards of living for the public through cheaper consumption of imported goods. In addition, the FTAs can play an important role in strengthening political and strategic alliances by promoting deeper economic integration between the parties bounded by the FTAs. It is necessary to achieve closer economic integration in order to ensure a stable and strong political and strategic alliance.
Korea’s FTA strategy had been detailed in the strategy roadmap, which was published in 2003. The Korean government declared that it is adopting two strategies in actively pursuing FTSs with its trading partners.
First, Korea uses a multi-track strategy pursuing FTAs with many nations simultaneously. The reason for this strategy is that Korea needs to speed up in forming FTAs to catch up with the world trend, so that the opportunity costs can be reduced for the Korean economy. Besides, when FTA negotiations are pursued simultaneously, the disadvantages or negative effects of one FTA can be offset by another FTA, which will maximize the overall national benefits. Korea is also pursuing high-level and comprehensive FTAs. The abolition of tariffs on goods is not enough. An FTA should include tariffs reductions or their abolition in the services market, investment, government procurement, intellectual property rights and technical standards. Koreas FTA should be harmonized with WTO/GATT and GATS rules. Korea is of the opinion that sounds government policies and strategies and broad public support are critical for the successful implementation of an FTA. The Korean government ruled that all progress in FTA negotiations must be transparent and the terms must actively reflect the opinions of business, professional and trade organizations.
Korea has made earnest efforts to strengthen its capacity to pursue FTA negotiations in a multi-track approach by creating the Ministry of Trade (and the FTA Division) within the Ministry of Foreign Affairs and Trade and by recruiting and training negotiation experts in the Ministry. After finishing its FTA negotiations with the US, the Korean government decided to expand its organization, recognizing that more efficient use of staffs can lead to maximization of the results of each negotiating process. The FTA team has more than 80 government officials, supported by experts of lawyers, economists and others. 13
3. Korea’s legislative framework of free trade agreements
Under the Korean Constitution, the President has the authority to conclude free trade agreements with foreign nations and ratify the treaties.14
A free trade agreement concluded by the President is presented to the Korean National Assembly that consents to the proposed treaty’s ratification. Upon ratification by the President, the treaty is incorporated into the Korean legal system. The treaty has the same level of effectiveness as Korea’s national laws. Korea may adopt legislation to effectively implement the treaty, but a national implementing legislation is not required for a treaty to attain the force of legal status.
Under Korean laws, the power to plan, prepare and negotiate a free trade agreement lies in the executive branch of the Korean government. The decision to launch a FTA negotiation is made by the Minister’s Meeting for External Economic Affairs (MMEEA). The Meeting is composed of cabinet ministers of the ministries related to economic affairs. The MMEEA, which is formerly chaired by the Deputy Prime Minister for Economy and Finance, has the authority to decide on major international economic policy agendas including FTA policy.15 With the abolishment of the position of the Deputy Prime Minister for Economy and Finance in the administration of the President Lee Myung-Bak, the MMEEA effectively ceased to operate. Though the Minister of Strategy and Finance is responsible for the international economic policy, the Minister is no longer responsible for coordination and mediation of interministry conflicts over trade policy.
The MMEEA has the authority to launch FTA negotiations on the basis of the recommendation made by the Free Trade Agreement Steering Committee (FTASC) established under the Presidential Directive on Procedures for the Conclusion of Free Trade Agreements. (FTA Directive).16
The FTASC is chaired by the Minister of Trade and is composed of the Assistant Ministers from all related ministries. The FTASC deliberates on the future course of FTA policy, the feasibility of concluding an FTA with a given trading partner, the negotiating strategy of an FTA, the effects on the related domestic industry, and the public relations aspects of each FTA.17 The FTAC is the key inter-governmental organization that coordinates conflicting policy inputs from different ministries during the entire FTA negotiation process. The FTASC may also form a Private Advisory Committee that is composed of experts with extensive experience in international economic relations.18 The FTA Directive further lays out detailed procedures for the entire process of the FTA: the procedures for formulating FTA policy, the negotiation procedures, and the post-negotiation procedures.
The MMEEA has the deciding authority as to whether to launch a FTA negotiation.
Before convening the MMEEA meeting and deciding to launch a FTA negotiation, the FTA Directive requires that a public hearing on the proposed FTA negotiation must be held, and the result of the public hearing must be submitted to the MMEEA for deliberation.19
In all Korean FTAs launched after the enactment of the FTA Directive, the government held public hearings prior to making the decision to launch a FTA negotiation. The public hearing requirement in the FTA Directive is intended to enhance transparency and democratic participation in the FTA policy making. The public hearing procedure has yet to evolve into a quasi-judicial process where the opinions of all stakeholders can be heard and channeled into the policy making process. In addition to the public hearing, the FTA Committee may commission an economic effects study of a prospective FTA.
The economic effects study provides an important economic rationale for launching a FTA negotiation. In addition to the official economic effect study commissioned by the FTA Committee, there might be also other economic effects study conducted by private as well as government funded think-tanks. In order to bolster the authority of the official economic effects study, the FTA Committee may commission a joint economic effects study with the government of the FTA partner country.
The joint study must include, among other features, the economic effect of the FTA and the scope of the FTA, the principles and strategies guiding the negotiations, the study of a prospective FTA partner’s institutions. The FTA Directive requires that the joint feasibility study shall be authorized by the MMEEA, because the initiation of the joint study with a prospective FTA partner is a significant step towards launching FTA negotiations. Under the Law on Appointment of Special Government Representatives and Ambassador Extraordinaire, the representative for negotiating a FTA is appointed by the Minister of Foreign Affairs and Trade.20 As the head of the FTA Committee, the Minister of Trade appoints the delegates for the FTA negotiation and its chief negotiator. In addition, the Minister of Trade may form negotiating groups and appoint their lead negotiators.21
The FTA Directive also mandates the Minister of Trade to report to the National Assembly on the important progress of FTA negotiations.22 The Minister of Trade must also inform the public through appropriate medium on the progress of the ongoing FTA negotiations through an appropriate medium.
The National Assembly can also establish a special committee to monitor the ongoing FTA negotiations. During the KORUS FTA23 negotiations, after every negotiating round the negotiating delegation reported to the Special Committee monitoring KORUS FTA established in the National Assembly. Though the National Assembly does not have the Constitutional authority to direct FTA negotiations, it can exercise regulatory oversight over the course of the negotiation.
The substantive negotiation of a FTA is initially concluded as the heads of the respective delegations initial the text of the FTA. The agreed text undergoes legal scrubbing before they are submitted to the Cabinet meeting for deliberation and presented to the President for the approval of the text. Then, the Minister of Trade or other competent high-level official is authorized to sign the text of the agreement.
Before the President ratifies the signed FTA, the National Assembly’s consent to the proposed bill is required. Under Article 60 (1) of the Korean Constitution, the National Assembly has the right to consent to the conclusion and ratification of treaties of friendship, trade and navigation. As the FTA is deemed to be a trade treaty that falls under Article 60(1),it requires National Assembly’s consent.24
The domestic procedures are completed when the National Assembly consents to the ratification and the President ratifies the treaty. The President’s power to conclude and ratify the treaty is checked by the National Assembly’s right to consent to the conclusion and ratification of treaties. The FTA becomes effective when it is published in the official gazette.
As an effort to address the burden of market liberalization on some domestic industries through FTAs, the Korean government established the Presidential Commission on Domestic Preparation for Free Trade Agreement (Commission).25
As an advisory arm of the President, the Commission’s responsibility is to successfully facilitate the ratification of the concluded FTAs. The Presidential FTA Commission mainly deals with domestic policy measures, including policy measures to counter the effects of rapid market liberalization through the enactment of FTAs.
The Export-Import Bank of Korea (KEXIM) was established in 1976 as a special governmental financial institution pursuant to the Export-Import Bank of Korea Act to promote the sound development of the Korean economy and economic cooperation with foreign countries by extending the financial aid required for export and import transactions, overseas investment and the development of natural resources abroad. Investments of KEXIM in Poland are estimated at 1.3 billion USD. The Export-Import Bank of Korea (KEXIM) has concluded MoU with the Bank Gospodarstwa Krajowego and the Polish Information and Foreign Investment Agency.
2 Rodríguez E. V.: “The European Union Free Trade Agreements: Implications for Developing Countries”, 11/2/2009 Working Paper 8/2009.
3 Page: http://ec.europa.eu/trade/issues/sectoral/competitiveness/global_ europe_en.htm.
4 Marc Maes, “The EU’s Global Europe Strategy. Where is that strategy today?” Introductory presentation made at the informal meeting “Building of A Common Platform Between Developing Countries” organized by South Center in Brussels on 4–5 December 2008. “Global Europe: EU Performance in the Global Economy”, Report by the European Commission released on 27 October 2008, http://trade.ec.europa.eu/ doclib/docs/2008/october/tradoc_141196.pdf. See also “New Commission report assesses European trade strengths in a changing global economy”, http://ec.europa.eu/ trade/issues/sectoral/competitiveness/pr271008 _en.htm.
5 Razeen S.: Looking East: The European Union’s New FTA Negotiations in Asia, Jan Tumlir: Policy Essays No. 3 October 2007 p. 7, European Center For International Political Economy.
6 General Affairs and External Relations Council of 23–24 April 2007 see: http://www.consilium.europa.eu/ueDocs/cms_Data/docs/pressData/ en/gena/93798.pdf; the mandates themselves are restricted documents.
7 For the texts of these agreements see: http://trade.ec.europa.eu/doclib/ docs/2005/february/tradoc_111835.pdf, http://ec.europa.eu/trade/issues/ bilateral/countries/korea/coop_maac.htm.
8 European Commission: A Qualitative Analysis of a Potential Free Trade Agreement between the European Union and South Korea, November 2007 Center for European Policy Studies.
9 Sohn, C.H. (2001): Korea’s FTA Developments: Experiences and Perspectives with Chile, Japan, and the U.S., Trade Policy Forum Bangkok.
10 Kim Hyun-chong, Korea Policy Review July 2005.
11 Kim Han-soo, Korea’s FTA Policy: Present Situation and Future Prospects, “2005 Korea–US Policy Forum”.
12 The negotiations of the FTA between Korea and US were concluded on April 2, 2007, but the agreement is not yet ratified. For the detailed analysis of this agreement see: Y.S. Lee, The beginning of Economic Integration between East Asia and North America? Forming the Third largest Free Trade Area Between the United States and the Republic of Korea.
13 European Commission, A Qualitative Analysis of a Potential Free Trade Agreement between the European Union and South Korea, November 2007 Center for European Policy Studies. p. 107.
14 Article 73 of the Constitution provides: “The President concludes and ratifies treaties; accredits, receives, or dispatches diplomatic envoys; and declares war and concludes peace.” The most comprehensive analysis of Korean institutional and legal FTA framework is contained in: Jong Bum KIM: “Korea’s Institutional Framework for FTA Negotiations and Administration: Tariffs and Rules of Origin”, KDI School Working Paper Series, August 2008 Working Paper 08–11
15 Article 1 of Directive on Minister’s Meeting for External Economic Affairs (MMEEA), Presidential Directive No. 17354, Enacted on September 12, 2001.
16 See Article 16, Presidential Directive on FTA Conclusion Procedure (FTA Directive), No. 121, Enacted on June 8, 2004. The FTA Directive is enacted in order to effectively conclude FTAs with trading partners and encourage participation of the public during the course of FTA conclusions.
17 Ibid., Article 5.
18 Ibid., Article 9.
19 See Article 12, See FTA Directive.
20 Law on Appointment of Special Government Representative and Ambassador Extraordinary, Law No. 3758, Enacted December 31, 1984.
21 Article 18, FTA Directive.
22 Article 21, FTA Directive.
23 The free trade agreement between the United States and Korea is named the KORUS FTA.
24 A treaty in simplified form can be concluded without the consent of the national assembly. These treaties should not fall under Article 60(1) of the Constitution. The treaties become effective upon signing by the official vested with the full power to sign the treaty on behalf of the Government of the Republic of Korea.
25 See Presidential Directive on Assisting the Conclusion of the KORUS FTA, No. 20066, Enacted on May 25, 2007. The Commission succeeds the Presidential Commission on Assisting the Conclusion of the KORUS FTA established in 2006 after the launching the KORUS FTA negotiations.
