By on October 6, 2010

When a country gets desperate, it closes its borders to imports. It’s a sign of surrender: We can’t compete anymore, so let’s close the doors. Closed borders rarely create jobs. In the contrary, they drive prices up, and everybody pays. Import restrictions are the most insidious tax a country can levy on its citizens. And they readily pay for it. Trade wars are an easy sell. Especially to people who cannot balance their checkbook. The price will be paid later.

While the U.S. is closing the door inch by inch, the rest of the world goes the totally opposite way.

Korea signed a free trade deal with the EU yesterday, reports NPR. If approved by the EU parliament (pretty much a done deal), the agreement will come into force on July 1, 2011.

EU president Herman Van Rompuy, said that the pact “sends a strong signal that trade liberalization is key to the recovery of the world economy.”

British Prime Minister David Cameron hopes that the deal will be “laying the ground for further free trade agreements between Europe and other countries, including India, in the future.”

There’s another country that can’t wait: Japan. Japan hopes to follow in South Korea’s footsteps by rapidly striking a free trade deal with the EU, a senior Japanese official told AFP. Japan competes with South Korea in a number of areas including auto production. They want the same preferential access to the European market, home to half a billion people.

It’s not that the Europeans are opening up their borders out of the kindness of their hearts. They have a lot to export: Cars, machinery, foodstuffs. They learned that a common market is good for business. The European Commission estimates the deal will eliminate $2.1b worth of industrial and agricultural duties for European exporters to South Korea. The EU will cut some $1.53b of duties for Korean importers. Hyundais will be cheaper in Europe. BMW’s, Mercedeses, and Audis will cost less in South Korea. Both win, and amazingly, the Europeans win a little more.

I guess the U.S. will have to learn the hard way that a closed market is bad for business.

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11 Comments on “Europe Tears Down Borders To South Korea. Will Japan Be Next?...”


  • avatar
    Cammy Corrigan

    ON the contrary. Not in it…
     
    Also, some people may posit that America became powerful because their borders were closed and it allowed their domestic companies to grow to the size they become. Not to mention they had a lot of domestic customers for their products. That’s why countries like Germany NEED FTA’s because they don’t have enough domestic customers to keep their companies at the size they are now.
     
    This is why China and India will be true powerhouses regardless of FTA’s. They have a huge amount of domestic customers which will keep domestic companies chugging along even if the governments kick out the foreign competitors. Again, it’s no coincidence why South Korea and Japan are pushing for an FTA with Europe. They NEED that volume of customers as they can’t keep their companies at the size they are with their domestic customers.

  • avatar
    zerofoo

    OR we could take a page from China’s playbook.
     
    Let companies produce the products they sell here by “partnering” with a domestic producer.  I’m no expert on China, but friends that work for companies that manufacture in China have all told me the same story.  Partnering with a local producer is the norm, not the exception.

    One friend works for the American division of a German sheet-metal goods manufacturer.  They choose not to manufacture in China, so the Chinese producers simply copied the products exactly – right down to a similar logo.

    They’ve tried to enforce their trademark/IP in China with little success since they do not partner with a domestic company.

    • 0 avatar

      This is another myth that won’t die. Actually, it’s two myths.
       
      1.) China requires joint ventures just in a few industries. One of them is cars. The other, quite funnily, bars. Your German buddies could open up a  WFOE (Wholly Owned Foreign Enterprise) in China and crank out sheet metal to their hearts’ content. Actually, the WFOE is the norm nowadays, the joint venture is going the way of the dodo.
      2.) In order to enforce your trademark/IP in China, you need to register it in China first. Forget to do that, no dice. Just because they trademarked their logo in Germany doesn’t mean that it is trademarked in China. They saved $1500, and paid for it. It’s their country, their laws, and if you want to prevail in their courts, you better learn something about their laws.

  • avatar
    tom

    It’s very obvious that closed boarders are counter productive:
    You bar yourself from competition. This is good in the short term, but terrible in the long run, because it removes the pressure to innovate which means stagnation. The economy doesn’t access its true potential and is less productive than it otherwise could have been resulting in a net loss despite the closed boarders.
    Look at it this way: You can buy an axe, chop down trees and build yourself a house. Or you can find a more productive job, pay a professional to build your house and end up with a better house and enough money left for other nice things.
    Closing your boarders is like not allowing the professional house-builder to build your house: You’ll create lots of house building jobs, but at the end of the day, you end up with inferior products at higher costs, meaning the economy as a whole suffers…

  • avatar
    mcs

    The US / Korea Free Trade Act is in the works. Here’s a link to it:
    http://www.ustr.gov/trade-agreements/free-trade-agreements/korus-fta

  • avatar
    Engineer

    I guess the U.S. will have to learn the hard way that a closed market is bad for business.
    Ever the optimist, eh Bertel? When was the last time any political leader in the US learned anything? Hint: most of them are lawyers. In the I-was-right-all-along world of law professionals, there is no fact out there that can’t be spin to prove that the original position was really (really!) the right one. The one thing both sides excel at.

    A bit depressing to watch, really…

  • avatar
    bd2

    W/ regard to the automotive industry, the free trade pact would benefit the European companies more than the Korean firms, since the bulk of Hyundais and Kias sold in Europe are manufactured in Europe while all of the European-branded autos sold in Korea are imported.

  • avatar
    bd2

    W/ regard to the auto industry, the free trade pact would benefit the European firms more so than the Korean companies since the bulk of Hyundais and Kias sold in Europe are manufactured in Europe while all of the European-branded autos sold in Korea are imported.

    • 0 avatar
      JJ

      You forget that a lot of Chevy’s and nowadays even some Opels and Ren0s are built in South Korea as well and sold in Europe.
       
      OT: What slightly worries me is foodstuffs though…I know the South Koreans are probably ranked #1 when it comes to genetic manipulation and such. Probably will be fine since the EU has closed the border for for instance US steroid infested meat as well in 1988 I think (I came across it in a case study about WTO disputes some years ago), but still. I’m all for open boarder and free market anything EXCEPT when it comes to health related stuff, cause collateral damage caused by free trade that is usually acceptable for the greater good in other areas is just not acceptable in the area of health and safety in my book.

  • avatar
    AaronH

    “Import restrictions are the most insidious tax a country can levy on its citizens”

    I would say Fiat Currency Inflation and Income taxes are worse.

    The USA is by FAR the most open market in the world! Almost all imports are subject to less than 3% duty.

  • avatar
    JJ

    I think when you compare a 1989 Trabant to a ’89 Veedub Golf that’s about all you need to know about protectionism in general.
     
    I think Ford would still be cranking out Crown Vics though if the US hadn’t opened up it’s market to foreign imports as much. They might even still have had bench seats…and maybe…carbs :)


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