[Exclusive] The Illusion of Voluntary Donations... 'FTA Fund' Compensation Donations Remain Zero for 17 Years

No Voluntary Donations Despite Mention of 'Non-Governmental Contributions or Donations'
Concerns Over Government Funding Procurement if Private Voluntary Participation Remains Weak

[Image source=Yonhap News]

[Asia Economy Reporter Jang Sehee] The government’s voluntary participation from the private sector in the Free Trade Agreement (FTA) fund, established 17 years ago with the expectation of private donations, has been nonexistent. President Moon Jae-in mentioned the creation of a fund for small business owners on the premise of voluntary participation by private companies, raising concerns that it could become a ‘second FTA fund.’

According to the Ministry of Economy and Finance on the 19th, the government established an FTA fund worth 160 billion won in 2004 to support farmers and others who were affected or expected to be affected by the Korea-Chile FTA. At that time, the government fully covered the fund with its budget while expecting voluntary participation from the private sector.

Back then, the government included related provisions in the legal basis for the fund, the “Special Act on Support for Farmers and Fishermen Affected by Free Trade Agreements (FTA Agriculture and Fisheries Act),” without mentioning private participation explicitly. Article 14 of this law states that “the government must establish a fund support plan totaling 1.2 trillion won over seven years,” and specifies government contributions as well as “contributions or donations from sources other than the government.” A Ministry of Economy and Finance official explained, “The phrase ‘other than the government’ refers to the private sector.”

However, contrary to expectations, there has been no private participation at all. Over 17 years, private donations have amounted to zero. The main sources of income for the fund have been government budgets, loan repayments, and bank interest. Looking at last year’s income sources, out of a total of 570.7 billion won, loan repayments accounted for 254.4 billion won, the largest share, followed by bank deposits and current transfers at 188.8 billion won. The government budget, specifically the Agricultural Special Account transfer, contributed 127.5 billion won.

A Ministry of Economy and Finance official said, “Since government contributions make up a large portion of the fund, reliance on private donations inevitably remains relatively low.”

The FTA fund case suggests that private sector response is not as strong as the government and political circles expect. At a New Year press conference held at the Blue House Press Hall on the 18th, President Moon said, “The government cannot institutionalize and enforce the fund,” adding, “It is desirable for the private and economic sectors to move voluntarily, and for the state to provide strong incentives to participating companies.” However, the likelihood of private companies responding to such expectations is low.

Similar cases can be seen in the Rural-Urban Win-Win Cooperation Fund and last year’s nationwide disaster relief fund donations. After the Korea-China FTA was signed, companies were urged to establish the Rural-Urban Win-Win Cooperation Fund, but it remained at about 30 billion won annually, falling short of the original target of 100 billion won. When 14 trillion won in disaster relief funds were distributed nationwide last year, donations from the wealthy were encouraged, but the collected amount remained at 280 billion won.

There is also concern that if private participation remains sluggish after establishing a fund for small business owners, the government will ultimately have to bear the burden. If the amount of damage support increases every year, the budget burden will inevitably rise as well. The compensation and closure support for farmers’ damages, which was only 3.3 billion won in 2017, increased 28-fold in three years to 98.8 billion won. The Agricultural Special Account transfer to the FTA fund increased from 110 billion won to 127.5 billion won during this period.

Experts agree that active participation from the private sector is unlikely. Professor Kim Sangbong of Hansung University’s Department of Economics said, “There are few cases of donations made for tax benefits, so there will be limits to compensating small business owners, self-employed, and vulnerable employment groups,” adding, “If donations are made, issues of breach of fiduciary duty to shareholders may also arise.” Professor Sung Taeyoon of Yonsei University’s Department of Economics said, “Rather than scrutinizing companies that made profits, it should be approached as a fundraising method for disasters and calamities,” and “Voluntary participation is expected to increase when effective incentives for donations are presented.” In this regard, a senior government official stated, “We will examine the necessity of the fund and the feasibility of actual implementation.”