On June 2007, the foreign trade minister of south Korea known as Kim Hyung-chong and trade representative of united states Susan Schwab signed proposal of the U.S.-South Korean Free Trade Agreement (KORUS FTA) to their respective nations. This agreement has been approved and is the greatest FTA that South Korea has ever signed up to today is the second largest agreement apart from the North American Free Trade Agreement which united states participates in currently. South Korea is ranked in position seven among the greatest trading partners of U.S, and this KORUS FTA, is further expected to enlarge bilateral trade as well as investment flows as some studies have shown.
Final draft of this free trade agreement cover a diverse range of investment and trade issues and therefore this agreement has a broad economic implication in both South Korea and United States. These subjects include some of issues that the two nations had achieved in their earlier agreements such as elimination of tariffs in trade especially in most of the manufactured goods as well as liberalization of the service trade. The draft also include number of sensitive issues which their agreement was at during the last hours of this negotiations such as about trade remedies, agriculture, autos, among many others.
The congress has approved implementation legislation for this KORUS FTA in order to allow it to enter in force. Negotiations were then conducted under Trade Promotion Authority (TPA) which is also referred to as the fast-track trade authority which the Congress further granted the former President under Bipartisan Trade Promotion Act of the year 2002. This authority allows president to engage or enter into any trade agreements which receive expedited consideration of the congress which has no amendments and limited debates.TPA further does not set deadline to the president in doing so.
In South Korea, there was a debate on the need of having the national assembly voting this KORUS FTA before this agreement was submitted to the congress. The president of South Korea, Lee Myung-bak facilitated the national assembly of South Korea to pass this agreement. In February 2009, judiciary subcommittee of Foreign Affairs National Assembly, Trade and the Unification Committee report favored ratification bill of the KORUS FTA to parent committee. South Korea and United states entered into this agreement as a way of further solidifying the already firm economic relationship through barrier reduction of investment and trade between themselves as well as to resolve the long festering financial and economic issues.
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What the KORUS FTA covers
KORUS FTA was product of many compromises. As the negotiators of both the two nations stated, each nation was able to achieve some part of its own objectives, but no any of them got all of what it wanted. For example, United States further made the concessions on textiles and rice while South Korea as well made the concessions in services and agriculture. In addition, car manufacturers of United States felt that the nation of South Korea did not move far enough to address the barriers to the auto mobiles and also that South Korea should have liked to be having more concessions in the trade remedies of United States.
Provisions of this KORUS FTA AGREEMENT
Some of the major provisions include the agricultural and the automobile provision. Under the agricultural provision of KORUS FTA, South Korea is supposed to grant a duty-free status at about two-thirds of the agricultural exports of United States. Import quotas and tariffs on most of the agricultural products will be phased out in the next ten years. However, access of the seven United States products which include evaporated milk, potatoes, honey, identity-preserved soybeans, oranges and milk powders will expand slowly in perpetuity even though it will remain subject to the import quotas of South Korea. Under this agreement, South Korea agreed that they will eliminate its 40 percent tariff on the beef meet which will be imported from United States over duration of 15 years. The negotiations about the access of United States oranges and rice into the South Korean market as well were contentious. Rice was one among the major issue of concern in this agreement. Furthermore, the United States oranges were to be given special treatment and U.S is supposed to expand its exports of oranges to the Korean market overtime.
Trade auto parts and autos were among one of the hardest issues that was tackled by South Korea and United States negotiators. Under the KORUS FTA, this provision holds that most of the South Korean tariffs should be eliminated on the U.S. - built motor vehicles. South Korea is supposed to abolish its eight percent tariff on the U.S-made passenger cars as well as its ten percent tariff on the pickup trucks. It is also supposed to reduce the discriminatory impacts of engine displacement tax. Under this provision, both nations are supposed to harmonize standards as well as create automotive working team. This agreement provides self-certification on emission and safety standards for limited number of exported vehicles from United States. South Korea further agreed that they will not adopt the technical regulations which create barriers of trade that are unnecessary and also to cooperate in the harmonization of standards.
The United States is as well supposed to eliminate tariffs and further provide the snapback clause. The nation of United States is supposed to eliminate immediately its 2.5 percent duty that is imposed on the gasoline-fueled vehicles of passengers that has engine displacement of up to 3000cc. They as well supposed to phase out more than three years 2.5 percent duty the imports of South Korea on vehicles that have large engine capacity or the ones which are powered by diesel, and should further phase out for more than ten years, the 25 percent duty on the South Korean truck pick ups.
KORUS FTA also covers other wide range of other fields. Most of the united states-south Korean trade especially in the industrial and consumer products is supposed to be duty-free within duration of three years after now. All the other remaining tariffs as well will be lifted in the next ten years. The two nations further agreed that they will liberalize their trade in the services through opening up markets far beyond what they are committed to perform in world trade organization (WTO). Almost 60 percent of their trade on apparel and textile is supposed to be duty-free the moment this agreement was put in force and this KORUS FTA has to provide a safeguard mechanism in order to reduce impact of apparel and textile import surges. Furthermore, both countries agreed that they should establish independent body that will be reviewing recommendation as well as determination in regard of the pricing of South Korea and the government reimbursement especially on the medical and pharmaceutical devices. They are supposed to make improvements of transparency in the process of making these determinations.
The objectives of south Korea and united states in this FTA
The policy makers of both nations shared common goal in launching as well as completing negotiations on KORUS FTA. The governments of both the two countries saw the need of extending the already existing important and necessary economic relationship which provides ways by which these two nations can address as well as resolve the fundamental issues, thereby raising their relationship to another higher level. For the case of United States, such issues include high tariffs as well as other restrictions on the agricultural imports. On the other hand, the difficult issues of South Korea were perceived United States discrimination towards the imports of South Korea in application of the trade remedies as well as treatment of commodities made at Kaesong Industrial Complex that is located at North Korea.
While they were sharing on certain broad objectives, the leaders of both nations approached this KORUS FTA from a different perspective. One of the primary objectives of united states was gaining access to the of the south Korean markets with their medical and pharmaceutical equipments, agricultural products, and other high-technology manufactured products and services especially the professional and financial services. These are areas in which producers of United States are competitive internationally but the areas which barriers of South Korea seem to be very high.
For the nation of South Korea, it was not much concerned about gaining a great increase to market access because the exporters of South Korea already have a quite significant presence in the areas which they have already proved that they are competitive such as in autos and consumer electrons field where they usually face a low or even zero tariffs from united states. However, the nation of South Korea was seeking to just preserve its market share in the United States markets in face of the increasing competition from the emerging Asian producers especially from Thailand, Vietnam and also china.
Launching the KORUS FTA negotiations was greatly at initiatives of the South Korea. Its major objectives were much broad than just gaining the reciprocal access to markets of United States. Entering into this agreement meshed some long-term economic relationships as well as other strategic goals. The policy makers and negotiators of this agreement were not focusing much on the increased United States markets but mostly on the medium as well as long-term gains which could stem from the increased allocation efficiency of South Korea economy especially in service industries. This will be brought about particularly by the influx of United States technology and investment into the nation of South Korea as well as by spur of the expanded competition with the U.S firms. The United States agreed that they will further help in addressing the expanding economic polarization of South Korea by spurring fields of job creation such as in medical, education as well as in accounting services in this trade agreement.
The importance of KORUS FTA for both nations
United States and South Korea today have more things in common than ever before due to success of this agreement. These relationships include the shared values in the open market, democratic principles as well as the respect of rule of law. With development of Korea into one among the most vibrating market-oriented democracies in Asia, its own economic relationship with United States is growing stronger steadily, and is now becoming an important pillar that supports alliance between these two nations. Reflecting that reality, KORUS FTA is aimed at cementing this relationship in order to promote great prosperity of people in both nations. Comprehensive trade benefits both of these two nations by injecting a new competition especially in their own economies , lowering the consumer prices and then shifting the production factors to more effective uses, as well as leveling playing field for the exporters.
This agreement makes sense for both nations when we make consideration of the existing fields of the economic convergence as well as complements together with the potential of even having other great gains in the near future. As it has been noticeable in the past, the experience of the South Korea with the free trade agreements has been good. Pursuing various free trade agreements has been an important pillar for trade policy of Korea in the current years and has made the nation to have good growth. The KORUS FTA is the Korea's most commercially significant and comprehensive accord for the United States in over 15 years, and it will scrap about 95 percent tariffs on the commodities within the next three years and will as well eliminate all tariffs on the traded commodities over time. This agreement is also expected to expand the current robust of the two nations by $78 billion in their bilateral trade annually which will be an additional 20 percent, and hence will create more other job opportunities.
The Korean exporters and importers will now gain a competitive edge over the other nations to the U.S markets. Korean consumers as well will benefit much from this agreement. This is because they will benefit from low prices that will be available in a diverse range of selection and choices as well as a great access to the services of United States. Apart from those economic benefits, KORUS FTA is supposed to reinforce mutual and strong relationship between United States and South Korea and will ultimately pave way to great as well as mature partnership in the near future. The policy makers of United States have realized that South Korea has moved from a long way and it has now become a democratic powerhouse that deserves to be respected. They have also realized that South Korea has desired closer and strong economic relationship with United States as dynamic and competitive partners, but not relationship of protégé and patron. This unique opportunities and desire within the two nations is the one that brought about the need of this agreement referred to as KORUS FTA. They decided to come up with this agreement in order to advance their economies, and also to show other nations a way of having mature partnership. This agreement is as well intended to promote peace, stability and freedom in the Asian region by a strong strategic and economic alliance.
The consequences U.S would have faced for not reaching the deal of KORUS FTA
One of the impacts will be about the continued declining United States nation as economic factor especially in Korean Peninsula. In the last decade, china and European Union have surpassed United States as far as trade is concerned with the South Korea (The Washington Times, 2009). Since European Union trade agreement with South Korea is being expected to come in force in the next year and Korea is also expected to engage in some free trade negotiations with the nation of china in the year 2012, these are likely to continue eroding the position of United States as economic player especially in Korean Peninsula. On the regional level, it would have impacted economic position of United States. U.S would have lost its credibility as negotiating partner in most important issues in the Asia, economic growth and trade. The partners of America would be much concerned about ability of United States to follow its commitment. On strategic and political side, nature of this outcome would have created disappointment which would have politically impacted South Korea. These would have weakened the desire of the persons in Korea who may want to trade with United States. Policy divergence would also have occurred in other fields such as in economics, climate change, trade and nuclear proliferation. In absence of this close relationship with United States, current decisions by the South Korea to further impose other sanctions on the nation of Iran would have been very different. In a quite a less friendly political condition and environment, it would have been hard for the government of south Korea which wanted to be working with united states.
The future outcomes of KORUS FTA
This agreement has enabled the two nations to become more intertwined and compatible. The two nations were seeking a high quality and comprehensive agreement, and this KORUS FTA will further bring a far reaching advantages and benefits for both nations. For the United States, this agreement will mean expansion of their market as well as strategic bridge especially in Asia. KORUS FTA will be the number one commercially meaningful trade agreement since the NAFTA, and will expand economic growth as well as opportunities of job in the field of industrial goods and in agriculture. South Korea is one of the important import markets for the United States products and this FTA will now provide the South Korea to have a significant increase in the market share of United States (The Washington Times, 2009). All the fifty states of United States will enjoy trade relationship robust with South Korea. All these states will as well gain from the increased market access and also the newly opportunities that will be created. Furthermore, this trade agreement will serve as catalyst for the expanded trade especially on the dynamic economic region across the world and the trade and economic interests of United States will be as well anchored.
For the South Korea, this agreement will mean a further economic growth as well as restructuring system. This agreement will as well generate jobs and more growth through the expanded investment and trade. It will upgrade dramatically the overall social and economic system of South Korea, and pave a way for the nation to be a true competitive economy. KORUS FTA will as well make the economy of South Korea to be more efficient, competitive and productive. While economic gains will be immense for both the two nations, strategic and political gains also will be important equally. This agreement will also reinforce the security alliances that have already been in existence. It will further ensure the engagement of United States in the northeast Asian region is wider, deeper as well as more durable. Under the KORUS FTA, both United States and South Korea will be expected to be committed in enforcing environmental agreements in order to ease the environmental standards and allow their firms within their territory to gain more trading advantage.
This KORUS FTA is very important for both United States and South Korea since it will boost their mutual trade relationships by abolishing or reducing trade tariffs in order to maximize their trade. There several sectors that will benefit much from this agreement in both nations. Some of these industries include the textile industry since South Korea will be able to access a wide market from the U.S market and it will be able to achieve it a lower price than before. In the field of pharmaceuticals, South Korea will now be able to ensure that transparency has been maintained in the pricing of drugs and this will make it to have a good National Health Insurance Program. The trade remedies laws and rules have been improved and this has enabled both the two nations to have fairness in their trading relations.
Furthermore, this agreement has enabled both the two nations to have mutual cooperation and freedom in their trade. It will as well create more job opportunities because of the expansion of markets in various fields. It will further enable United States to continue having competitive edge in trade across many nations across the world. Therefore, United States and South Korea came up with a very important agreement which will promote economic growth in both nations.