Industrial and Employment Effect of China-Korea FTA: Negotiation Strategy and Institutional Preparation for Countries Seeking for FTA with China

Abstract

China is not only one of the biggest countries, but the second economic giant in the world. For this reason, many countries preparing for a FTA with China, including the EU, express concerns about the domestic industry downfall, in particular, that of the labor-intensive such as agriculture industry. This study empirically assesses the impact of the China-Korea FTA on the industrial competitiveness and labor market of both countries. An econometric analysis was conducted on the impact of the China-Korea FTA, and the Fuzzy-Delphi analysis was performed on a panel of experts in order to complement the quantitative analysis. Further, the Fuzzy Decision-Making method was primarily used in the opinion survey. The method takes into consideration the uncertainties in the judgment of the panel of experts in the Delphi-Survey, which predicts the qualitative effect of the China-Korea FTA. Overall, our results reveal that the China-Korea FTA would have a positive impact on the industrial competitiveness or employment situation of China and Korea. If the Korea-China FTA is concluded, Korea will have the upper hand in the automobile, auto parts, and textile and clothing industries in terms of industrial production. However, there exits an underlying possibility that a production increase may not lead to effective job creation as production facilities may relocate to China where there is a relatively lower labor cost. Industries found to be in a weaker position based on the conclusion of the Korea-China FTA were agriculture, forestry, & fishery, mining, wooden furniture and processed foods; such industries were found to unlikely see the creation of jobs. This study also suggests negotiation strategies which can ensure a win-win for both parties. Further, it also discusses various institutional improvements for industries or workers impacted by the trade adjustment, which is required to maximize the effect of the China-Korea FTA.

DOI: http://dx.doi.org/10.5755/j01.ee.24.2.2836