Korea-Chile FTA: Background, Economic Effects and Policy Implications Inkyo Cheong and Kyounghee Lee
Though Korea achieved economic growth under the multilateral system of the GATT/WTO, its reaction to a widening spread and deepening of regional trading blocs has been lukewarm, due to domestic opposition to market opening under regional trading agreements. However, since the financial crisis began, the Korean government has been reevaluating the potential gains to be made by removing trade barriers on a preferential basis, and has decided to pursue the establishment of preferential trading blocs.

Regionalism is one of the most dominant trends in the world economy today. In line with this increasing trend towards regional integration, Korea has altered its past position opposing regional trade blocs and is now cautiously investigating the establishment of FTAs with major trading countries. Koreas new trade policy is aimed at promptly adapting to the changing economic environment, as well as resolving the countrys economic difficulties.

Consequently, an ultimate goal of this policy is to transform Korea into an open trading country, which makes a meaningful contribution to opening up the world economy at the international level, while at the national level the government remains committed to opening its market through parallel development of democracy and a market economy.
In addition, it is recognized that the supplier-oriented trade policy of the past must be changed into a consumer-oriented policy that maximizes the convenience and benefits of the general public. In terms of cost-efficiency, the publics well-being is better served when the majority of consumers can be supplied with low-cost and high-quality goods rather than defending the interests of a minority of producers. Therefore, the government must perform the role of opening up the domestic market, so that its people can enjoy an abundance of low-cost and high-quality goods and services.

This liberalization has been viewed as beneficial by most Koreans, and there is a growing perception that the establishment of FTAs with major trading partners will bring greater welfare gains. Moreover, Korea has recognized the importance of stable export markets; it is thought that the current account deficit that preceded the financial crisis resulted in worsening international confidence in the Korean economy. Another important background factor in the current trend towards regionalism can be found in trade policy makers recognition of the necessity of upgrading Koreas economic system to meet international standards.

Korea chose Chile as its first FTA partner because of high complementarity in trade structure and learning effects from Chiles plentiful experience in regional trading agreements, while Chile chose Korea because Chile highly valued Koreas close linkage with neighboring Asian countries (Chile can take advantage of Koreas trade linkage for widening Chiles market access to other Asian countries), as well as Koreas growth potential through performing strong reforms in several sectors including financial sector.

Cheong (1999) analyzed the economic effect of the potential FTA between Chile and Korea by using a CGE model. The CGE model is a general equilibrium model that has the advantage of determining the re-allocation effects of the resources caused by the cross-sectoral reallocation of production factors, which the partial equilibrium is not able to deal with.
Korea is expected to gain more benefit from the tariff elimination between the two countries. For example, preferential tariffs imposed by Chile on Canadian and Mexican exports through the FTA between two countries are now acting as main barriers for Koreas export products such as automobiles and tire that are highly competitive with those products. In this regard, the conclusion of a Korea-Chile FTA will provide Korean products with price competitiveness, enabling them to better compete with other countries in Chilean market. This inference can be supported in the Mexicos case, which has an industrial structure similar to Korea, taking as an example of the MexicoChile FTA.

Mexican exports to Chile were jumped from 180 million dollars in 1992 to 930 million dollars in 1996. Korea is also expected to enjoy similar level of export expansion effect, if Korea establishes an FTA with Chile. According to authors calculation, the FTA seems to result in Koreas welfare improvement of 960 million dollars. This result, however, does not consider service trade effect and market expansion effect. The actual improvement is expected to be even greater if we include them.

Among Koreas export sectors, some competitive sectors with greater market share in Chile will be particularly benefited from a Korea-Chile FTA. They are automobiles (occupying 18% in Chilean import market), refrigerator (31%), microwave oven (69%), washing machine (65%), tire and automobile battery, textile, elevator and PVC.

As for Korea, among the manufacturing sectors, the copper processing industry will be mostly affected as imports of copper and related products from Chile will increase with the establishment of a Korea-Chile FTA. This is because Chilean copper is leading the first position in the world in terms of exploitable reserves, production and exports volume. The mining sector is the most important and competitive sector in Chilean economy, accounting for more than one half of global exports.

One of the main reasons why Korea selected Chile as its first FTA partner is that the negative economic effect will not be so great on Korea agricultural sector. Agricultural imports from Chile was only 26 million dollars in 1997, 6 million dollars in 1998 and 15 million dollars in 1999, accounting for only 0.09% and 0.22% of Koreas total agricultural imports, respectively.

In Korea, main agricultural imports from Chile are confined to some fruits such as fresh grape, kiwi and tomato paste. As for grapes, however, Chiles marketing season is very different from Koreas due to the reverse geographical location (South and North Hemisphere).

Korean government, in any way, should take a deliberate stance against the potential industrial damage on sensitive sectors by carefully examining economic effect of a Korea-Chile FTA. To minimize severe restructuring cost, Korea can also consider the partial exclusion of the most affected sectors from the FTA or demand the provision of transition period for the sensitive sectors.

The government officially decided to negotiate an FTA with Chile in December 1999 and currently, the two economies finished the 4th round of negotiations December 2000. The successful conclusion of the first FTA will be of special importance for Korea because other potential FTAs will heavily depend on the first model. Most likely, negotiations will last one to two years. However, talks regarding sensitive areas of trade could potentially prolong the conclusion of the negotiations. Korea's manufacturing sector favors a Korea-Chile FTA, as most of Korea's exports to Chile consist of such manufactured goods as automobiles and electronic goods, while the agricultural sector, fearing an increase of such Chilean exports as grapes and kiwi, and the fisheries industry are deeply concerned about a Korea-Chile FTA.
Beyond the sensitive nature of various trade items, there are a number of other issues of concern surrounding Korea's FTA policy. The first issue to be considered is the need for public awareness for the potential benefits of preferential FTAs. One of main obstacles to gaining consensus for pursuing FTAs is the lack of public knowledge or a negative attitude towards trade liberalization. Most people think that trade liberalization will only contribute to the growth of imports. Some fear that the complete elimination of tariffs will be applied as soon as an FTA comes into effect, thereby requiring huge adjustment costs in some sensitive sectors in the short-term.

The drawbacks of trade liberalization are usually exaggerated, while the benefits are often underestimated. Some even consider that an FTA with large economies will be a form of economic subordination. Therefore, the government should strengthen the publicity activities on the pros and cons of preferential trade liberalization.

The second issue is the harmonization of multilateralism and regionalism. As discussed earlier, Korea has been one of the most active supporters of the GATT/WTO system. Developing countries such as Korea, Taiwan, and Singapore, have benefited from the more liberalized global trading environment under the present multilateral system. The significance of free trade under the multilateral system will not be diminished, even Korea pursues the conclusion of FTAs. The government should continue to take full advantage of the WTO, with actively participating in the framework-building processes of international trade organizations, including the WTO and the OECD, to ensure that trade rules are fair and favorable to weaker countries.

서언
국문요약

제1장 서론
1. 연구의 배경 및 목적
2. 연구의 범위 및 방법

제2장 자유무역협정(FTA)과 한국의 FTA정책 추진 배경
1. 자유무역협정(FTA)의 개관
2. 한국의 FTA정책 추진 배경

제3장 韓-칠레 FTA 추진의 배경
1. 한국의 첫 FTA체결국으로서의 '칠레' 선정 이유
2. 칠레의 통상정책과 지역무역협정 추진 현황
3. 칠레의 경제개황 및 산업/무역 구조
4. 한국-칠레간 경제관계

제4장 韓-칠레 FTA의 경제적 효과
1. 전반적인 효과
2. 제조업에 대한 영향
3. 농림수산업에 대한 영향
4. 기타 부분에 대한 영향

제5장 칠레의 주요 FTA 양허내용과 韓-칠레 FIA에 대한 시사점
1, 칠레가 체결한 주요 자유무역협정(FTA)의 양허내용
2. 韓-칠레 FTA에 대한 시사점

제6장 연구결과 요약 및 정책시사점
1, 연구결과 요약
2. 정책시사점

참고문헌