The free trade agreement (FTA) between Korea and China has helped sustain exports and promote investments despite the unfavorable surroundings for trade, data released by Ministry of Trade, Industry and Commerce showed Monday. However, the recent diplomatic conflict over the deployment of the U.S. missile defense system THAAD on Korean soil is clouding the outlook.
The ministry and KOTRA released analysis on the Korea-China FTA, with Dec. 20 marking one year since the pact took effect.
The two countries signed the deal to boost exports and investments, but it failed to make any notable improvement.
According to the ministry, exports to China dipped 21.5 percent in January from a year earlier, continuing a double digit fall in February and March due to a slowdown in the Chinese as well as the global economy. Korean companies were hit as Chinese manufacturers are increasingly obtaining components and material supplied by Chinese firms. Non-tariff barriers such as tough customs procedures are also diminishing the effect of the FTA.
Exports to China, however, edged down a mere 0.4 percent in November from a year ago, with the ratio of exports using the FTA soaring to 38.3 percent last month from 8.2 percent from December last year.
According to KOTRA, Korea’s exports to China dipped 10.1 percent in the first half of this year. Exports of the items that enjoyed tariff cut thanks to FTA, however, decreased a mere 6.7 percent, as the trade pact worked as buffer.
Imports from China decreased 4.8 percent from January to November this year.
The FTA also helped promote investment. China’s investment in Korea increased 8.5 percent as of September. Investment by other countries that seek to advance into China through the Korea-China FTA also rose 13.4 percent. The investors come from diverse industries, ranging from content and entertainment to electric cars and aerospace.
“Despite the tensions, the Korea-China FTA worked as an important tie between the two countries, becoming a sustaining pillar of exports,” an official at the trade ministry explained.
“Consumer goods and foods, which were cited as the biggest beneficiaries of the free trade pact, made notable achievement in exports to China. They also actively used the pact,” KOTRA noted in the report.
However, it added that the FTA should be used in more diverse dimensions, easing non-tariff barriers and seeking multi-dimensional cooperation instead of simply cutting tariffs.