Economic integration between Korea and ASEAN will bring mutual benefits to both economies. It will facilitate agricultural and industrial reformations that both economies have been thirsty for, and the strategic coalition between them will bring a new ...
Economic integration between Korea and ASEAN will bring mutual benefits to both economies. It will facilitate agricultural and industrial reformations that both economies have been thirsty for, and the strategic coalition between them will bring a new equilibrium point to skirt and mitigate the acute China-Japan rivalry of regionalism in the Southeast Asian region.
Notwithstanding these benefits, the current Korea-ASEAN FTA (KAFTA) initiative poses several challenges in terms of consistency with multilateral rules of trade. First, the KAFTA parties are required to eliminate barriers to trade in goods with respect to substantially all the trade among themselves. In on-going negotiations, Korea is attempting to maintain its trade barriers for its major agricultural products, and ASEAN countries are showing intentions to reciprocate by retaining trade barriers imposed on major exports of Korea. Such exclusions of major sectors from the coverage of the integration raises a question of inconsistency with WTO rules. Furthermore, without eliminating trade barriers with respect to substantially all the trade, both parties would lose the very purpose of economic integration. On the other hand, given that both parties can enjoy some flexibility in the ares of service integration, some sensitive sectors may be excluded from the coverage of the service integration under the KAFTA.
Second, in pursuing a regional economic integration with the ASEAN, Korea must be aware that WTO consistency of their integration in trade in goods is in peril because of non-WTO member status of several ASEAN countries. Thus, it is recommended to pursue integration in the goods area first with individual states of ASEAN that are WTO members, while proceeding with negotiations with the ASEAN as a whole, and then, Korea can gradually pursue integration with non-WTO members of ASEAN. Although WTO accession of such non-WTO members, prior to KAFTA’s entry into force, can guarantee WTO consistency, the KAFTA initiative needs to be approved by a two-third majority of the WTO members in accordance with paragraph 10 of GATT Article XXIV, if such accession is not feasible.
Third, the KAFTA is expected to include special rules of origin in regard to a South and North Korean economic cooperation project. In order to make the rules compatible with WTO jurisprudence, the KAFTA must ensure that the rules are used only for preferential tariff purposes. For the use of other purposes, a particular standard for the regional value content or change in tariff classifications must be specified under the KAFTA in a non-discriminatory manner.
During the integration processes under the KAFTA initiative, all the participating parties must be aware of these legal problems and their implications on WTO jurisprudence, and pursue the best policy option from an overall point of view.