China, South Korea Start Talks on Free-Trade Pact

China and South Korea are starting discussions toward reaching a free-trade agreement and want to establish the accord as early as possible, Chinese Commerce Minister Chen Deming said.

The first round of talks will take place this month, Chen said at a briefing in Beijing today with South Korean Trade Minister Bark Tae Ho. The two countries’ goal is to lift trade to $300 billion in 2016, Chen said.

Asia’s biggest and fourth-biggest economies would form a market with annual trade that rose 19 percent in 2011 to $246 billion, according to China’s customs data. A free trade accord is strategic from both economic and political standpoints, given the proximity to North Korea, said Kwon Hyuk Jae, research fellow at Samsung Economic Research Institute in Seoul.

“Both can gain much for economic growth and closer ties will help beef up regional security,” Kwon said.

Officials have previously signaled interest in a trade accord. South Korean Foreign Minister Kim Sung Hwan said in January that “both sides basically share the view that a free trade agreement between South Korea and China is needed.”

Chen said the world economic recovery is sluggish as the global financial crisis endures. Trade protectionism is rising, he said.

Exports to China, South Korea’s largest market, increased 14.9 percent to $134.2 billion in 2011 from a year ago, which accounted for 24.1 percent of South Korea’s total exports last year, according to a Korea Customs Service report on Jan. 15.

Biggest Exporter

China has free-trade agreements with 10 partners including New Zealand and Singapore, according to the commerce ministry’s website. The nation, the world’s biggest exporter, was already in FTA talks with five trading partners including Iceland and Norway, the ministry said.

China, South Korea and Japan are also studying the establishment of a free trade pact among the three nations. Formal talks have not started yet. Chen said today that a bilateral accord with South Korea doesn’t contradict a three-way agreement and could be the foundation for such an accord.

South Korea’s free trade agreement with the U.S., the world’s largest economy, took effect March 15, after the countries’ legislatures approved a pact first signed in 2007. The biggest U.S. trade accord in almost two decades will cut about 80 percent of tariffs between the nations.

The U.S. is South Korea’s third-largest trading partner and bilateral trade totaled $101 billion in 2011, according to data compiled by the Korea Customs Service.

Closer Ties

“South Korea can gain more access to the vast and fast- growing market and use closer ties with China as leverage against North Korea,” Kwon at Samsung said. “For its part, China can boost its industrial competitiveness and increase its influence in Asia vis-a-vis the U.S.”

South Korea said today that North Korea may be jamming the global positioning systems of airliners flying into South Korea. A total of 252 planes flying in and out of Incheon International and Gimpo airports since April 28 have had signals jammed as of 10:40 a.m., the Land Ministry said in a statement on its website.

North Korea threatened last month to turn South Korean President Lee Myung Bak and his government “to ashes in three or four minutes” using “unprecedented peculiar means and methods.” The regime’s heightened rhetoric over the past month and its botched April 13 rocket launch has prompted speculation it will soon detonate a nuclear device.

Trade Benefits

For South Korea, makers of cars, electronics, chemicals and petrochemical products will benefit most from a trade pact while farmers and small manufacturers will be hit hard, Kwon said.

China buys mostly cars and electronics from South Korea while selling mainly mineral products and electronic parts to South Korea, according to data compiled by the Korea Customs Service.

A free trade deal with China would boost South Korea’s economic growth by as much as 3 percentage points and create as many as 330,000 jobs over a decade, South Korea’s finance ministry said in a statement today.

South Korea’s Finance Minister Bahk Jae Wan said in a ministerial meeting on April 16 that the nation should take advantage of China’s efforts to generate more growth from domestic demand.

Trade with China has increased 35-fold since 1992, when the two countries established diplomatic ties, and the nation became South Korea’s biggest trading partner in 2004, Bahk said.

--Zheng Lifei, Eunkyung Seo. With assistance from Victoria Ruan in Beijing and Sarina Yoo in Seoul. Editors: Scott Lanman, Paul Panckhurst

To contact Bloomberg News staff for this story: Zheng Lifei in Beijing at lzheng32@bloomberg.net; Eunkyung Seo in Seoul at eseo3@bloomberg.net.

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net

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