Up until very recently, Korea had maintained a steadfast support of trade liberalization realized only through multilateral means, such as through the WTO and APEC. However, as countries of almost all regions except East Asia have embraced regionalism, Korea has been forced to question its adherence to a view that would see it lose out to the substantial trade diversion of these growing agreements, even though Korea still remains a strong supporter of the WTO. This paper begins with a more detailed analysis of the factors that led to Korea's more open approach to FTAs, culminating in the officially stated intention of exploring a bilateral FTA with Chile. Korea and Chile have concluded preliminary talks and working-level negotiations are expected to begin in 1999. Looking beyond the FTA with Chile, Korea has stated that it is pondering establishing FTAs with Thailand, South Africa, and Turkey. The choice of these countries is part of Korea's strategy to establish an FTA with a country in each continent in order to increase market access around the world. However, this paper takes the position that if Korea seeks for future free trade partners after the establishment of a Korea-Chile FTA, Korea needs to look a new regional trading bloc within APEC. Through extending preferential bilateral FTAs to other APEC economies, Korea's FTA may not only accelerate the trade and investment liberalization of APEC, but also help Korea play a leading role in APEC in the future.

This paper then proceeds to support a view that Korea's next move needs to be the consideration of bilateral FTAs with Australia, New Zealand and Canada or a multilateral FTA encompassing all four countries. While trade with all of these countries would be highly complementary for both sides, the most compelling reason for such a FTA would be its potential for spreading free trade throughout the Asia Pacific region. Along with Chile, Australia, New Zealand and Canada are all APEC members. Such a free trade area would demonstrate the benefits of free trade to regional economies and possibly exert the pressure needed to restart the currently stalled free trade talks of APEC. Such progression would move Korea to the forefront of international trade talks.

Korea's overall position remains one of the pursuit of widening free trade through multilateral agreement. APEC is one potential vehicle through which Korea's goal may be realized. However, currently, efforts to expand APEC trade liberalization appear stalled. This paper takes the stance that one possible approach to reinvigorating free trade under APEC free trade talks is for a group of member economies to spur intra-APEC trade.

The paper evaluates the economic impact of Korea's bilateral and multilateral FTAs with Australia, Canada, and New Zealand. While individual bilateral trade agreements with each country would increase the welfare of Korea, they would also result in an overall increase in Korea's trade deficit. Meanwhile, Korea would likely realize a trade surplus if a multilateral agreement includes all four countries. Furthermore, this four-way multilateral agreement increases Korea's welfare the most. Therefore, this paper concludes that pursuing a multilateral FTA covering all four countries is more in Korea's interest than pursuing bilateral FTAs with each country individually.

Dr. Inkyo Cheong, a Research Fellow of KIEP, earned his Ph.D. in Economics from Michigan State University. He specializes in Korea's FTA policy, economic cooperation in the Asia-Pacific region, international trade policy, and building multi-region, multi-sector computational general equilibrium model (CGE). He wrote several books about Korea's FTA policy and published academic articles on APEC economic cooperation in leading international journals. Corresponding address: 300-4 Yomgok-Dong, Socho-Ku, Seoul 137-800, Korea. Ph. (822) 3460-1208; Fax. (822) 3460-1077; E-mail: ikcheong@kiep.kiep.go.kr

Ⅰ. Introduction

Ⅱ. Korea's New Embrace of Regionalism

Ⅲ. Korea's Trade Relations with Australia, Canada, and New Zealand
1. Economies of Australia, Canada, and New Zealand
2. Korea's Trade Structure with Australia, Canada, and New Zealand

Ⅳ. Simulation Results
1. Bilateral Tariff Removal
2. Multilateral Tariff Removal in the Subregionalism

Ⅴ. Summary and Policy Implications

References
Appendix
Korean Abstract