• Kyodo


The agreement Friday between Japan and South Korea to study the possibility of a free-trade accord, along with the signing of an investment pact, are significant steps reflecting strenuous efforts to seek closer economic ties with their trading partners on a bilateral and regional basis.

Prime Minister Junichiro Koizumi and South Korean President Kim Dae Jung agreed to launch a government-led study into the feasibility of an FTA and hailed the signing the same day of the bilateral investment pact that facilitates cross-border investment by companies from both countries. Tokyo hopes to implement the pact by the end of the year.

They had previously focused only on multilateral trade liberalization measures via the World Trade Organization.

The proposed study team, which will involve the public, private and academic sectors of both countries, is expected to call for the establishment of an FTA, with the respective business communities having already agreed on the need for a broad FTA between the two nations, Japanese officials said.

With recommendations of this kind expected to be submitted within a year at the earliest, Tokyo and Seoul will likely begin formal negotiations toward establishing an FTA, the officials said.

Japan’s first FTA — signed in January with Singapore — may serve as a model, as this accord involves trade liberalization in goods and services, along with an investment pact and cooperation in information technology and other policy areas.

South Korea has not struck an FTA with any of its trading partners, although it is currently engaged in talks with Chile.

Japan has been conducting similar research with regard to Mexico since September.

In January, business organizations from Japan and South Korea urged the governments to sign a comprehensive FTA in order to spur trade and investment.

South Korea has persistently held a trade deficit with Japan, attributed mainly to weaknesses in its parts and material industries that force it to rely on Japanese imports.

South Korea’s deficits totaled $10.1 billion in 2001.

The FTA study could take longer than a year, however, as the two countries may experience domestic policy difficulties, such as resistance within Japan toward liberalizing its agricultural market, the officials said.

Difficulties of this nature could also arise in South Korea’s petrochemical and automobiles markets, they said.

In 1999, Japanese foreign direct investment into South Korea grew 109.3 million yen in 1999, while and Korean FDI into Japan grew 10.6 billion yen.

Japanese FDI slowed to 89.9 billion yen the following year, however, while South Korean FDI dipped to 5.3 billion yen.

The two countries have accordingly devised an investment pact designed to actively encourage the flow of FDI between the countries.

It is the second investment pact Japan has concluded with another member of the Organization for Economic Cooperation and Development, following its accord with Turkey.

The pact requires both nations to primarily allow companies from the other side to purchase local firms or set up subsidiaries under the same conditions as domestic companies and under the same conditions as firms from most-favored nations.

It also prohibits, in principle, either administration from ordering corporate investors to procure local parts or from indulging in any other investment-hindering measures.

It is Japan’s second investment pact featuring stringent provisions, following its FTA with Singapore, which embraces a similar investment accord, the officials said.

Tokyo and Seoul failed to include a provision to help settle labor disputes, however, with the pact’s preamble featuring a mere passing reference to the importance of labor-management relations.

South Korea initially called for the conclusion of a bilateral investment pact to help revive its economy after it was hit by the 1997 Asian financial crisis.

The labor-management issue has helped prolong the conclusion of such an agreement, the officials said.

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