The Political Economy of FTA Formation between Korea and Japan : From the Korean Perspective

In pursuing FTAs, each country has to consider both political and economic factors to achieve goals at both domestic and international levels. There are at least four conte-nding theories in providing selection criteria for FTA partners in economics and political science. Based upon these four theories and collected data, Japan possess both positive and negative factors as a potential FTA partner from the Korean perspective. For example, geographical location and big Japanese markets are attractive factors for FTA formation from the Korean perspective. However, lower existing average tariff rates of Japan and increasing Korean trade deficits imply that FTA may not do good to the Korean economy. Besides these factors, some current issues between Korea and Japan are in the way of FTA formation between the two countries. They include Dokdo-related issues, historical textbook, and Japanese top officials’ visit to the Yasukuni shrine. To facilitate FTA between Korea and Japan, several policies and strategies may be recommended. They include institutional change, cultural change, use of exclusion and phase-in options for sensitive sectors, and separation of economic issues from political ones.