Bilateral trade agreements
South Korea and China Reach Trade Agreement
China and South Korea agreed to remove taxes on more than 90% of the goods traded between the two countries. This article appears on the New York Times dated 10th November 2014. This deal was signed by trade ministers of the two countries on 9 November 11, 2014 though it still needs to be passed at the parliament to make it a law. This is an important deal to both countries since China is South Korea’s biggest trading partner. Therefore, removal of these taxes will increase the amount of trade taking place between the two countries. It is worth noting that the economy of South Korea relies heavily on exports, which has led to the government of the country signing a number of agreements with many countries to create a market for its goods.
This agreement has effects on international trade due to a number of reasons. The first reason is that the amount of goods sold to China by South Korea will increase tremendously. This is because the market for her goods will be higher due to their low prices. These low prices are a result of no taxes imposed on the goods, which will give South Korea competitive advantage over other countries. China is the biggest consumer market in the world and provides an ideal business partner for any country that can have unlimited access to this population. Therefore, the access provided by this agreement will heavily impact on other countries that supply similar goods to those supplied by South Korea. This is because her prices will be the lowest in the market something which other supplies will not be able to compete with due to taxes imposed on their goods.
This implies that other suppliers will have either to scale down their production or find alternative markets for their goods. On the other hand, countries that compete with China in the South Korean market are also disadvantaged. This arises from the exemption from taxes on goods supplied by China to South Korea. This enables China to dominate this market bearing in mind most suppliers struggle to compete with her due to the low prices of her goods. Therefore, production in China will have to increase to fill the void created by a higher demand for her products due to their low prices. Consequently, there will be an influx of Chinese products into the Korean market with even new companies selling their products here.
The second likely outcome of this deal is that other countries are likely to sign bilateral trade agreements with both countries. The main target will be China due to its huge population, which provides a perfect market for any product. President Obama has already jetted to China to hold trade talks with Chinese president. This is already an indicator that other countries are aware of the potential and importance of the Chinese market and will do anything to safe guard and increase their market share. China is also an important location for most multinational companies due to cheap labor and power. This implies that government is willing to establish trade relations, which will ensure their companies are not disadvantaged. On top of that, China is an important trade partner for most governments due to its blossoming economy, which has created a constant supply of billions of dollars in income for the government. This has resulted in the country emerging as a major donor and lender of money to many struggling economies. Consequently, other bilateral agreements are likely to be signed soon with other countries to ensure they do not lose their most important trade partner.
In conclusion, a single bilateral trade agreement with an important trade partner like China has a ripple effect on the world. This is evident from this case of China and South Korea. Trade agreements are an important aspect of international trade and always affect the scales of business between the involved parties.