In recent years, there has been a lot of discussion on the possibility of a free trade agreement between Korea and Japan. Proponents of this idea argue that both Korea and Japan may benefit from such an agreement and in fact, suggest that this should help transform their economies to a higher level making them more competitive in international markets. Skeptics, however, warn that Koreas economic dependence on Japan may deepen as a result of a free trade agreement, and moreover this may worsen the trade imbalance between the two countries as well. These opposing views notwithstanding, this book analyses the future prospects of the Korean business sector and how it should prepare in the event that a free trade agreement between Korea and Japan should come into effect.

By analyzing trade structures and industrial competitiveness between Korea and Japan at the HS 6 digits level, this book effectively distinguishes between sectors that should benefit and those that may be harmed by a free trade agreement between the two nations. In general, although both countries are likely to gain in terms of GDP growth and an external trade surplus with the rest of the world, Koreas trade deficit with Japan is expected to widen especially in the electronic machinery, automobile, and steel industries. Not all sectors will suffer, as textile and clothing, wood and furniture, and ship building industries are likely to see some gains. However, the analysis and discussions in the book generally conform to our worries that a free trade agreement will most probably lead to a sub-contract site for Japanese industries.

Throughout the book, we emphasize that a free trade agreement is not for unilateral but mutual gain and as such both Korea and Japan should continually consult each other to device appropriate ways to share the benefits derived from such an agreement. With regards to this, we investigate areas in which both countries may work together to establish an optimal agreement. For example, this book presents product groups at the HS 6 digit level for which Korean goods show extremely poor performance in the Japanese market compare to other advanced countries. Also, on the same level, we further identify various product groups where mutual reduction in production capacity, strategic alliance, technical cooperation, or direct investment is required.