The Political Economy of Canada-Korea Free Trade Agreement

The Political Economy of Canada-Korea Free Trade Agreement

Since the negotiation for Canada-Korea Free Trade Agreement was initiated in 2004, there have been 10 rounds of talks. We examine the economic and political background of Canada-Korea FTA, and its evolution in light of 20 years of macroeconomics of the two economies. We would like to assess some of the emerging issues. For instance, drawing upon the experiences from Canada-Chile FTA and the North American Free Trade Agreement, despite the upbeat prospect, we argue that the benefits of Canada-Korea FTA might not be as large as the Korean government’s CGE model suggests unless the FTA is accompanied with intra-industry economic integration, which in turn requires harmonization of economic system including investment environment and labor market mobility. We would cautiously examine an alleged regime change in the Canadian government’s political will for the FTA, and also about the Korean government’s faculty to bring necessary changes for the prerequisites of a successful FTA: it is strongly suggested that the Progressive Conservative Party has shifted foreign policy weight to the accommodation with the U.S. policies, and seems to see little benefits in trade diversification. In addition, the Korean government’s short-sightedness of focusing on the immediate economic benefits and ignoring socio-political impacts or responsibilities to bring necessary socio-economic changes may hinder the meaningful realization of the FTA. The optimistic view notes the fact that the ‘human bridge’ between Canada and Korea has been being built through interactions in the area of education, cultural exchanges and immigration. The Gravity Theory of international trade predicts that the bridging the gap between the two countries will lead to an increase in trades with an additional institutional boost from a FTA.