South Korea and China may start talks on a free trade agreement to increase the export of goods and services between the two countries, South Korean Trade Minister Kim Jong-hoon said.

“This can be a win-win,” Kim said Aug. 13 in Manado, Indonesia, where he attended a meeting of Association of Southeast Asian Nations trade ministers. “Certainly there are sensitivities on the part of Korea and on the part of China. Now we are talking about how we can take care of these sensitivities mutually. Then, we can expedite going into negotiations.” 

Asian nations are seeking to increase trade among themselves and with the rest of the world to lessen their reliance on the U.S., where growth is faltering. An agreement between South Korea and China will help the world’s second- largest economy import Korean goods more cheaply, boosting sales of products ranging from Samsung Electronics Co. chips to Hyundai Motor Co. cars.

“If you look at the structure of trade between China and Korea, it’s more of a supplementary relationship than a competing one,” Lee Sang Jae, a senior economist at Hyundai Securities Co. in Seoul, said by telephone. “China’s reliance on Korea for imports could grow, and Korea’s trade surplus against China could further expand.”

Officials at the Chinese commerce ministry weren’t immediately available to comment.

South Korea’s main exports to China include automobiles, electronics components, mechanical goods and oil products, while China sells cheap consumer goods and agricultural products to South Korea, Lee said. China is South Korea’s largest trading partner with total volume between the two nations reaching $180 billion in 2010, Kim said in an interview. Korea’s trade surplus against China amounted to $52.84 billion in 2010, a 39.5 percent increase from a year earlier, according to the Bank of Korea.

Chen Deming, China’s commerce minister, yesterday called on the Association of Southeast Asian Nations and its six dialog partners to lower trade barriers and push the Doha round of trade talks as financial markets face fresh uncertainties and challenges, Xinhua reported. He made the comments in Indonesia, according to the report.

China isn’t alone in pushing free-trade accords. Malaysia expects to conclude trade agreements with Turkey this year and with the European Union and Australia in 2012, International Trade and Industry Minister Mustapa Mohamed said this week.

Still, any discussions on removing tariffs on Korean goods for Chinese consumers may be hampered by concern that a deal could increase the country’s reliance on Korea for supplies of key components and hinder the growth of its own industry, Hyundai’s Lee said.

“It’s questionable whether it’ll be easily accepted in China,” he said. “Korea must want to push it, but it may not materialize quickly.”

An FTA between South Korea and the U.S. has been on hold as the Asian country awaits the ratification of the accord by the U.S. Congress before its own lawmakers approve the deal, Kim said.

South Korea is still “very close” to finalizing the agreement with the U.S. and is negotiating free trade arrangements with other countries including Australia, Turkey, Colombia, and Canada, he said. The agreement will benefit South Korea’s chemical, petroleum products and electronics manufacturers including LG Electronics Inc. and Samsung Electronics Co., while hurting pork, milk, cheese and cattle producers, Kim said. 

(Bloomberg)