December 2, 2009

The Expected Benefits of the Korea-U.S. Free Trade Agreement

After eight rounds of negotiations over a ten month period, the Republic of Korea and the United States signed the Korea-U.S. Free Trade Agreement (KORUS FTA) on June 30, 2007. Sponsored by The National Bureau of Asian Research, a Seattle-based nonprofit organization that conducts advanced independent research on strategic, political, economic, globalization, health, and energy issues affecting U.S. relations with Asia, Jong-hyun Choi, Minister for Economic Affairs at the Embassy of the Republic of Korea in the United States, gave a presentation, "KORUS FTA: Action or Inaction?" in Seattle about the benefits of the free trade agreement with Asia's 4th largest economy. (Photo of Korea President Lee Myung-bak and U.S. President Barack Obama courtesy of the Korean Ministry of Foreign Affairs and Trade)

Mr. Choi addressed the strong trade relationship between Korea and the United States. "Korea is already America's 7th largest trading partner and 6th largest importer of U.S. agriculture goods. Moreover, every U.S. state has a stake in the Korea-U.S. trade and investment relationship. A Free Trade Agreement with Korea will be America’s largest and commercially most significant FTA in more than a decade," explained Mr. Choi.

With respect to real economic benefits to both the United States and Korea, the United Sates International Trade Commission (USITC) issued a 2007 report, "U.S.-Korea Free Trade Agreement: Potential Economy-wide and Selected Sectoral Effects," saying if fully implemented, the KORUS FTA "is expected to affect the U.S.-Korea trade and investment relationship substantially, including bilateral trade in goods and services, procedures governing trade and investment, and the regulatory environment." Estimated benefits of the KORUS FTA include:
  • U.S. GDP would likely increase by $10.1–11.9 billion as a result of tariff and tariff-rate quota (TRQ) provisions related to goods market access;
  • Merchandise exports to Korea would likely increase by an estimated $9.7–10.9 billion as a result of tariff and TRQ provisions;
  • Merchandise imports from Korea would likely increase by an estimated $6.4–6.9 billion as a result of tariff and TRQ provisions;
  • U.S. services exports would likely increase as a result of the FTA, given the increase in levels of market access, national treatment, and regulatory transparency that would be afforded by the FTA in excess of the current General Agreement on Trade in Services (GATS) regime; and
  • Aggregate U.S. output and employment changes would likely be negligible, primarily because of the size of the U.S. economy relative to that of the Korean economy.

Realizing many Americans are concerned the FTA with Korea will result in a negative impact on the U.S. automotive sector, Mr. Choi says the agreement will actually "eliminate Korea's eight percent automotive tariff, the United States will immediately eliminate its 2.5 percent passenger tariff for vehicles with engines up to 3,000 cc and over three years for larger vehicles, and U.S. pick-up truck tariffs, currently at 25 percent, will be phased out over ten years."

Furthermore, explained Mr. Choi, "Korea will provide special treatment of U.S. automakers with regard to emission standards and Korea will grant U.S. automakers a two-year grace period to apply new safety standards." Mr. Choi added that the agreement provides a special expedited dispute process with 'snap-back' reinstatement of the pre-FTA tariff mechanism and the formation of an Auto Working Group to address future regulatory issues.

Addressing the U.S. auto trade deficit, Mr. Choi notes that Korea is not the main source of this deficit. "According to the U.S. Department of Commerce 2006 statistics," said Mr. Choi, "the United States recorded an automotive trade deficit of $43.2 billion with Japan, $25.1 billion with Canada, and $22.9 billion with the European Union, compared to $8.5 billion with Korea. Korean manufacturers are opening state-of-the-art automobile manufacturing plants in the United States. The Hyundai plant in Alabama is a $1.1 billion investment and has created 3,000 new jobs. The Kia plan in Georgia is a $1.2 billion investment that will generate around 2,500 new jobs."

Regarding the Pacific Northwest, Mr. Choi said the KORUS FTA will eliminate tariffs on Washington state wine currently imposed by the Korean government. (Chile and Australia have significantly increased their exports of wine to Korea.) He also explained that in 2006, Korean companies invested over $615 million in Washington enterprises and Washington agriculture exports to Korea in 2007 were valued at $2.6 billion, which supported 27,710 jobs.

The United States Congress and South Korean National Assembly have to separately ratify the KORUS FTA before it can be enter into force. Neither legislative body has yet to execute this action. Given the crowded U.S. domestic agenda on health care and stimulating the economy, and mid-term elections coming in November 2010, it is highly unlikely Congress will make any progress in approving the KORUS FTA in 2010. When I asked Mr. Choi about his strategy for the coming year, he responded that he will continue to talk with business and civic leaders around the United States, work with the Korean-American community to promote the KORUS FTA's benefits, and continue building relationships with Congressional leaders. "I have already received equal bipartisan support from several members of Congress," said Mr. Choi.

"The Proposed U.S.-South Korea Free Trade Agreement (KORUS FTA): Provisions and Implications," a report prepared by the Congressional Research Service, says, "The United States and South Korea entered into the KORUS FTA as a means to further solidify an already strong economic relationship by reducing barriers to trade and investment between them and to resolve long festering economic issues." For this and the reasons outlined above, I support the KORUS FTA and despite the pressing issues such as health care reform and international issues the U.S. faces in Afghanistan and Iraq, I encourage Congress to ratify this legislation, which will increase access of American goods and strengthen U.S.-Korean relations.

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