At present, South Korea has concluded 8 FTAs with 45 countries, and negotiations are under way for 8 new FTAs with 13 additional countries including the FTA with China for which negotiations have just begun. South Korea is also preparing for a trilateral FTA with Japan and China. If such FTAs come into effect, South Korea will become an ‘FTA hub’, engaged in free trade with economies representing over 70 per cent of the global economy.

The enthusiasm that South Korea has hitherto shown toward FTA policies is rooted in limitations inherent in its own economy. As a country lacking natural resources and with only a small domestic market, South Korea can only sustain itself by purchasing raw materials from abroad at low prices, and processing them into high value-added products for sale in markets around the globe. This strategy has been paying great dividends for South Korea. Over the long term, it would be wise for South Korea to look beyond bilateral FTAs toward broad-ranging economic integration encompassing the entire Asia Pacific region. But for the time being South Korea is primarily interested in integration with East Asia.

Discussions on East Asian economic integration have been taking place since the 1990s, and regionalism is well established around ASEAN. ASEAN has concluded separate FTAs with South Korea, Japan and China, creating a foundation for future economic integration in the region. But there is also a realisation that without bolstering economic integration between South Korea, Japan and China — which collectively account for about 90 per cent of East Asian GDP — true economic integration in East Asia is impossible. There are also signs that Australia, New Zealand and India will play a greater role in the process, which dispels concerns that integration will be led by ASEAN alone. In such circumstances recent discussions about an FTA between South Korea, Japan and China could breathe new life into economic integration in East Asia.

Meanwhile, another vehicle for East Asian economic integration seems to be picking up speed. The US-led Trans-Pacific Partnership (TPP) deals not only with the elimination of customs duties and non-tariff barriers, but also with cross-cutting issues such as harmonisation of regulations, regional economic integration, promotion of small and medium enterprises and strengthening national competitiveness. At least in principle, the TPP aims to eliminate customs duties without exemptions, which represents an integrated economic community with a very high level of liberalisation. But since South Korea has already signed FTAs with most current TPP members and is engaged in FTA negotiations with those remaining, there is no immediate incentive for it to join the TPP. The case is, rather, that if South Korea joins the TPP at this juncture, most effects of the FTAs that it has worked hard to conclude would diminish significantly.

In spite of all this, South Korea may have to be prepared (or may need to) to join the TPP in the medium term. Given that the Asia Pacific is where the majority of the country’s economic activities take place, there is no reason why it should decline to take part in a framework that is likely to become an FTA for the entire region. South Korea’s decision to join the TPP will depend on careful consideration of factors such as regionalism with respect to China and Japan, progress in the trilateral FTA negotiations and participation by other countries in the Asia Pacific.

The negotiations for the Korea–Australia FTA currently in progress will also have a significant impact upon the integration process in East Asia and the TPP. South Korea and Australia are trading nations with mutually complementary economies; they are also influential middle powers that often work in concert with respect to various issues in the international community. Both South Korea and Australia have signed FTAs with the US and are actively pursuing economic integration in East Asia. The two countries share membership in such organisations as the WTO, the OECD and the G20, and are also working together to promote discussion within the region through APEC, the East Asia Summit, and the ASEAN Regional Forum. This is due in no small part to both countries adherence to democratic and free market principles.

South Korea has long shown its commitment to FTAs. The world will be watching closely to see whether South Korea can indeed become a ‘trade hub’ in the Asian century.

Wook Chae is President at the Korea Institute for International Economic Policy.

This post is part of the series on the Asian Century which feeds into the Australian government White Paper on Australia in the Asian Century.