FTA, deregulation key to S. Korea's sustained economic growth: experts

SEOUL, Aug 20, 2008 (Asia Pulse Data Source via COMTEX) -- KOOKF | Quote | Chart | News | PowerRating -- Expanding commerce through free trade agreements (FTA) and pushing for deregulation is critical for South Korea's sustained economic growth, local experts said Tuesday.

In a seminar hosted by the state-run Korea Development Institute (KDI), economists Young Soo-gil and Ahn Choong-yong claimed that FTAs with the United States, the European Union (EU), Canada and Japan would buoy corporate investment here.

Young, chief of the National Strategy Institute (NSI), pointed out that South Korea has signed or is in the process of pushing for open trading regimes with 57 countries.

"If such efforts all bear fruit, the country can become the center of an 'FTA network' that can create new economic opportunities," he said.

He said that with advanced economies, it is imperative to establish a high degree of openness that can ensure the best possible effect.

The NSI chief, however, said that such a move may not be possible with Japan due to difference in views on non-tariff barriers and the agriculture and fisheries trade.

The expert then proposed the establishment of an East Asian FTA network encompassing South Korea, Japan and China, or a wider Asia-Pacific free trade area.

Seoul has opened talks with Tokyo and Beijing to establish an FTA, although no serious breakthroughs have been made so far.

It signed an FTA with the U.S. in June 2007, which is awaiting ratification, and is engaged in dialogue with the EU.

He said that in order for any open trade system to work, South Korea needs to drastically do away with red tape, enhance flexibility in the labor market and reduce anti-foreign capital sentiment.

This view was echoed by Ahn, an economics professor at Chung-Ang University.

The economist, who heads the state-run Korea Institute for International Economic Policy, said if key FTAs are ratified, there will be a noticeable boost in the gross domestic product and at least a US$4 billion increase in fresh foreign direct investment.

He said that there are about 8,500 regulations that need to be clarified so they cannot be used as obstacles to legitimate business activities.

"These regulations are in the 'grey zone' since they are open to different interpretations by policymakers and regulators that could affect corporate operations," the scholar said.

He then said that if the country's potential growth rate falls to the mid-4 percent level, South Korea could face serious challenges.

The Finance Ministry said the economy may grow in the upper half of the 4 percent level this year although some private think tanks and the Bank of Korea (BOK) are predicting that economic growth will dip to 4.6 percent on-year from 5 percent in 2007.

Despite general concurrence on the need to fuel trade, the economist warned against overt intervention in the foreign exchange market.

"Any foreign exchange intervention that conflicts with overall trade competitiveness must be refrained from," said Nam Sang-woo, a professor at KDI's graduate school.

Moves by the new Lee Myung-bak administration to allow the value of the Korea won to fall compared to the U.S. dollar have triggered inflationary concerns and have made it hard for Seoul to meet its consumer price target of around 3.5 percent for this year, versus 2.5 percent for 2007.

Other speakers, including Kim Kyung-soo, head of the BOK's Institute for Monetary and Economic Research Institute, said South Korea's financial sector remains vulnerable to the sub-prime mortgage crisis that is still rocking the U.S., as well as other external shocks.

"To overcome such problems, the country needs to set up an early warning system and foster a regime that encourages market discipline," Kim said.

The BOK deputy governor added that while illegal activities must be dealt with, any lingering discrimination against foreign investment must be corrected.

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