An international system of rules for free trade has been championed by Chinese President Xi Jinping in recent months. Now questions about those globalization credentials are being raised by his country’s treatment of South Korean companies amid a missile-shield spat.

South Korea’s Vice Trade Minister Woo Tae-hee said in a statement that as China retaliates for its move to deploy a U.S. missile defence system, it could consider action via its bilateral free trade deal arrangements or at the World Trade Organization. As Chinese tourism in South Korea takes a hit, the ministry met with associations from 13 industries on Tuesday.

“A series of actions by China recently don’t comply with the idea that the bilateral FTA should be mutually beneficial, and we hope China swiftly moves to improve investment circumstances,” Woo said.

In response to the protectionism of U.S. President Donald Trump, the distance China may need to travel to convince other countries he is serious about supporting free trade and the WTO is highlighted by the dispute. China has been advocating for progress on a separate 16-country Asia deal with Trump withdrawing the U.S. from a 12-nation Pacific trade pact.

Likening protectionism to “locking yourself in a dark room”, Xi urged global business and political elites to reject trade wars in a speech in Davos in January. He added that a trade war only hurts both sides.

A free trade deal between China and South Korea took effect in late 2015 after both countries concluded talks in 2014. The nations were “shoulder-to-shoulder good neighbors and good partners,” Xi said on the sidelines of the Asia-Pacific Economic Cooperation forum in Beijing in 2014.

But the missile shield known as Thaad, supposed to help South Korea protect itself from a North Korean military attack, is seen by China as a threat that will break “the strategic equilibrium in the region” and the ties have since deteriorated over the issue.

“This behavior works against China’s own interests,” said Frank Lavin, a former U.S. undersecretary of commerce for international trade. “It is difficult in the Chinese system to show economic friendship, or even economic neutrality, during moments of political friction.”

To help it achieve its foreign policy goals, China has historically used trade. Asia’s fourth-largest economy — which ships a quarter of its exports to China — has slowly escalated its rhetoric against China even though Woo didn’t elaborate on what actions Seoul could take.

China may impose non-tariff barriers on Korean exporters, Finance Minister Yoo Il-ho told lawmakers in December.

Still, the sale of tour packages to Korea has now been banned by China. And for allegedly violating fire safety norms after the retail giant’s board agreed to provide golf course land to the Korean government for the Thaad site, China has also suspended the operations of four Lotte Mart stores for a month. Chinese curbs on visitors to South Korea could cut tourism revenue by about $5 billion, Goldman Sachs Group estimates.

“As long as their businesses abide by laws and regulations”, China welcomes foreign companies to operate there, including from South Korea, China Foreign Ministry spokesman Geng Shuang said at a regular briefing on Monday.

The government was deeply concerned about the measures taken in China, South Korean Trade Minister Joo Hyung-hwan said on Sunday. “Responses will be taken via international law should China violate WTO or Korea-China free trade agreement

(Adapted from Bloomberg)

Categories: Economy & Finance