Posted on 14 March 2012.
With the KORUS FTA set to come into effect, The Peninsula talked with Amy Jackson of the American Chamber of Commerce five questions about the benefits of the KORUS FTA, the politics around the agreement, and the future of U.S.-Korea economic relations:
1. With the KORUS FTA set to come into effect on March 15, what are some of the immediate benefits we should be looking for (U.S.)?
The KORUS FTA is a comprehensive agreement covering substantially all trade in goods, services and agriculture. Both nations will benefit significantly from an increase in trade and investment across all sectors through the elimination of tariffs and other trade barriers. 95% of tariffs on consumer and industrial products will be eliminated in the first five years of implementation, and most remaining tariffs will be eliminated within ten years (USTR). The U.S. International Trade Commission (USITC) estimated in 2007 that the KORUS FTA would increase U.S. exports to Korea by $10-11 billion annually as well as increase U.S. GDP by at least $10 billion.
Today’s Korean market is crucial as a ‘test bed’ for entering the Asian market. Consumers demand high tech and high quality, regardless of industry or sector, and Korea is now seen as a ‘trend setter’ nation among its neighboring countries. So winning over Korean consumers, is good for U.S. companies’ competitiveness elsewhere in Asia. Further, U.S. companies compete head-to-head with European companies in the Korean market in a variety of sectors. The Korea-EU FTA went into effect eight months ago, so one key immediate benefit of KORUS is that American companies can compete on a level playing field with EU companies in Korea.
Although KORUS covers virtually all sectors, a number of American industries will benefit in particular from the KORUS FTA, including the agricultural, auto, textile and apparel, manufacturing, pharmaceutical, medical devices, and financial and other service industries. Taking a look at the agricultural and food processing sectors, for example, on March 15, almost two-thirds of U.S. exports of agricultural products to Korea will become duty-free, including wheat, corn, cherries, almonds, orange juice and wine. The USITC estimated that sale of agricultural products would be from $1.9 billion to $3.8 billion (44% to 89%) higher than exports under a no-agreement scenario (Congressional Research Service paper, March 2011).
The KORUS FTA will also phase out Korea’s 40% tariff on U.S. beef over the next 15 years, which the USITC estimated could increase U.S. beef exports from about $600 million to almost $1.8 billion (58% to 165%) above what would be the case otherwise.
Small and medium-sized manufacturers of both nations are in particular expected to strongly benefit from the KORUS FTA. In a statement issued by the U.S. National Association of Manufacturers in February of 2012, nearly 19,000 small and medium-sized American companies export goods to Korea, representing 90 percent of total U.S. exporters that can benefit from trade liberalization.
The KORUS FTA will also lead to an increase in win-win partnerships between Korean and U.S. firms. GM already has a partnership with LG Chemical in battery supplies, and other U.S. companies—both large and small—can form fruitful partnerships with Korean companies, whose global competitiveness in technology, quality and managerial practices continues to grow.
Last, but not least, KORUS contains substantial obligations with regard to regulatory transparency, investment policies, intellectual property and services liberalization. These will help improve Korean economy’s transparency, consistency and predictability, thus improving the business environment and giving both domestic and foreign firms greater security in planning their business strategies and pursuing new investments.
2. With the Euro crisis limiting the impact of the EU FTA and China’s growth expected to slow, what opportunities does the KORUS FTA provide Korean businesses now that it looks like the U.S. economy might be showing signs of life?
Like their U.S. counterparts, Korean businesses, on the whole, view the KORUS FTA as an important business opportunity. Many Korean companies today are global leaders in the auto, shipbuilding and consumer electronics sectors, and Korean companies are increasingly willing and able to compete with foreign companies in their own market and globally. Korean companies that can compete well in America, have excellent chances of competing on a global scale.
Further, Korean policymakers have emphasized the need to boost the competitiveness of Korea’s service industries, and this is something many Korean businesses are eagerly anticipating. KORUS is expected to help mature Korea’s service industry and spur greater productivity and innovation through competition and partnerships with foreign firms. This will help drive down price of legal services, accounting and other services.
Korea also has an eye to promoting growth in other key sectors of its economy such as healthcare and financial services. KORUS will help new Korean exports gain access to the U.S. as well as preserve and consolidate Korean companies’ existing share of the U.S. market in the face of growing competition from emerging East Asian producers as the elimination of even low tariffs will give Korean exporters a price advantage.
Korea’s small and medium-sized enterprises (SMEs) are expected to strongly benefit from the KORUS FTA and, as in the U.S, this is important because supporting SMEs will help Korea create more jobs as well as address income inequality, something that the Korean government is very keen on. The Chairman of the Korea Federation of Small and Medium Business (Kbiz), Kim Ki-moon, stated that the KORUS FTA will not only increase Korean SME’s exports to the U.S, but also expand opportunities to form partnerships with U.S. companies, allowing technology transfer and more foreign direct investment (FDI) into the Korean economy.
3. The opposition in Korea has called for renegotiation of some of the KORUS FTA’s provisions. What impact do you see this having on the implementation and the agreement’s future?
The KORUS FTA went into effect at midnight this morning without a hitch. I think it is important for people outside of Korea to understand that the majority of the Korean people support the KORUS FTA and recognize that the agreement will benefit Korean workers and businesses as well as strengthen the important U.S.-Korea alliance. Once we begin to see tangible benefits from the FTA, I believe the tone of discussion here will change.
To the extent that policymakers on either side have concerns related to the agreement, there are mechanisms in place where issues can be addressed a cooperative and constructive manner. No free trade agreement can benefit every citizen in any country. Already the Korean government, like the U.S. government, has introduced various policies to help ameliorate the negative effects of its FTAs and to assist farmers and companies that could be disadvantaged by an FTA as the Korean market opens.
I think it is crucial to continue to raise public awareness about how KORUS benefits consumers of both sides, and educate companies how they can reap all the benefits of the KORUS FTA. We at AMCHAM are working in concert with our Korean business partners and the Korean government in such efforts.
4. Most of the attention on the KORUS FTA was focused on the negotiations. There is a tendency that once agreements are negotiated and go into effect to simply focus on the next deal. What do we need to work on to make sure that the KORUS FTA fulfills its promise?
The U.S. business community understands that it is crucial that we educate the public, workers, and government officials on both sides of the Pacific about: 1) what is in the FTA that can benefit them; and 2) concrete benefits that come out of the KORUS FTA. We are already focusing on #1 — AMCHAM will be co-hosting a day-long “KORUS FTA Utilization Seminar” with the Ministry of Strategy and Finance (MOSF) on Thursday, May 3rd. The seminar is aimed at helping both Korean and U.S. companies, large and small, better understand the provisions in the FTA and how they can best utilize them. We are expecting a significant turnout, and attendees will be able to hear directly from the KORUS FTA negotiators themselves among others. Issues to be discussed include customs procedures and rules of origin, intellectual property rights (IPR) protection, regulatory transparency, and how Korean small & medium sized enterprises (SMEs) can benefit from the FTA.
In addition, AMCHAM will be hosting visiting Congressional delegations as well as business and local government groups from over 22 U.S. states this year who are interested in forming partnerships and doing business in Korea. We will use these opportunities to help forge new U.S.-Korea business ties as well as to highlight early gains from the FTA.
5. There are two competing visions of trade in Asia, one that is trans-Pacific and one that is Asia centric. How does the KORUS FTA fit into these visions and what do you see as the future of U.S.-Korea economic relations?
Although there are many bilateral FTAs in effect within Asia, the KORUS FTA is considered the “gold standard” because of its comprehensive scope and detailed rights and obligations. It covers substantially all trade in goods, services and agriculture, as well as obligations with regard to regulatory transparency, investment policies, intellectual property and services liberalization. It is not surprising that when the EU and Korea began their bilateral talks in 2007, they used KORUS as their initial negotiating text. KORUS is also the model used in the development of U.S. proposals for the Transpacific Partnership agreement (TPP). As such, KORUS is already serving as an important model for economic integration in the Asia-Pacific region.
President Obama has signaled a strong interest in increasing U.S. ties to the Asia-Pacific region. The ratification of the KORUS FTA as well as the launch of TPP negotiations are one – but an important – element of the Administration’s heightened engagement in the region. Further, U.S. and Korean leaders recognized that the KORUS FTA would provide an important opportunity to strengthen the U.S.-Korea strategic alliance. As we like to put it, KORUS adds a third economic pillar to the already strong political and military relationship.
While Korea and China are contemplating a near-term launch of a bilateral FTA, we do not see this as a threat. Firstly, as currently envisioned, this FTA will not be as comprehensive as KORUS. Further, a Korea-China can offer new benefits to U.S. companies already operating in Korea. A Korea-China FTA can also become a part of an overall TPP framework in the future, with the U.S. as a key partner. More broadly, a Korea-China FTA can contribute to peace and stability in the region through deeper economic relations and commitments with China, a rising regional power. In this sense, American business community welcomes such initiatives.
Photo from Harris Walker’s photo stream on flickr Creative Commons.