The China-Korea FTA negotiations were launched in May 2012, and it is the FTA with the widest coverage and the largest trade volume involving any country that China has ever negotiated. At present, the scale of bilateral trade between China and South Korea has reached 300 billion U.S. dollars. The establishment of the China-Korea FTA will greatly stimulate bilateral trade, which experts expect to exceed 400 billion U.S. dollars within five years.
In addition, the construction of China-South Korea FTA will also promote the pace of negotiations on other FTAs in the region, such as the China-Japan-South Korea FTA and the "upgraded" version of the China-ASEAN FTA.
The cooperation between China and South Korea provides a reference path for Asia-Pacific trade at the "crossroads". As the first FTAAP agreement reached since China put forward the idea of FTAAP, the China-Korea FTA, which follows the criteria of "broadly balanced interests, comprehensiveness and high level," may become a "testing ground" for the creation of FTAAP.
The China-Korea FTA is the FTA that covers the widest area and involves the largest trade volume in the FTA negotiations currently underway in China. China is South Korea's largest trading partner, top export destination and largest source of imports. According to Korea Customs statistics, bilateral trade between China and South Korea amounted to 228.92 billion U.S. dollars in 2013. Of that, South Korea exported 145.87 billion U.S. dollars to China and imported 83.05 billion U.S. dollars from China.
South Korea has maintained a trade surplus with China since 1993, and that surplus surpassed $50 billion in 2013, reaching $62.82 billion. As two complementary economies, an FTA between China and South Korea would have a significant "catalytic effect" on boosting trade between the two countries.
According to the FTA principle, and South Korea's tariff preference agreement for its FTA partner countries, the two countries signing the FTA should grant each other the most favorable national tax exemptions. After the signing of the FTA, the ratio of trade liberalization between the two sides will be more than "90% of the tax items, 85% of the trade volume". According to the FTA reached by China and South Korea, once the agreement comes into effect, 91 percent of South Korea's exports to China will have their tariffs removed within 20 years, amounting to 141.7 billion U.S. dollars.
The China-Korea FTA will accelerate the competitiveness of Korean companies, especially Korean small and medium-sized enterprises (SMEs), to enter the Chinese market. It is predicted that among the small and medium-sized enterprises (SMEs), the industries that gain from the signing of the China-Korea FTA will be mainly concentrated in the fields of medical equipment, clothing, small home appliances and other products. As South Korea's large enterprises, Samsung, Hyundai, etc. has long realized the localization of production in China, so the preferential treatment in the tax rate will not appear a substantial change, but the good atmosphere of the FTA reached between China and South Korea, as well as China's policy inclination towards South Korean enterprises is likely to contribute to more South Korean enterprises to further increase their investment in China, to strengthen their localization strategy in China.
In addition to expanding the breadth of trade, the conclusion of the FTA will also provide room for deepening the depth of bilateral trade. Following the launch of direct yuan-to-won trading between China and South Korea this summer, South Korean Deputy Finance Minister Jung Eunbo revealed on Nov. 11 that the two countries will discuss the feasibility of establishing an offshore yuan center in South Korea. South Korea has appointed the Bank of Communications as the RMB clearing bank, which will be responsible for RMB deposits and settlement operations. China has also allowed South Korean institutional investors to buy up to 80 billion yuan of stocks and bonds, Jung said, adding that he hoped China and South Korea could sign a formal agreement in 2015 on the establishment of an offshore yuan center. The signing of the agreement will further facilitate the expansion of trade between China and South Korea.
On the same day that the FTA was reached, Korea's composite stock index rose 0.95 percent compared with the previous day out of optimistic expectations for the FTA. Shares of the three major Korean companies that published congratulations on Park's visit to China all rose sharply, with Samsung Electronics up 5.14 percent.
Some forecasts point out that once the China-Korea FTA is completed, it is expected to contribute 1-2 percentage points to China's GDP growth, while South Korea's GDP will increase by 2-3%, and by then, what will be formed between China and South Korea will be a population of up to 1.35 billion people, with a GDP of up to $11 trillion **** the same market.