Five Years of the Korea–U.S. FTA: An Assessment

The Korea-U.S. Free Trade Agreement (FTA), which marked its fifth year in force in 2017, faces an uncertain future amid the Trump administration’s protectionist foreign economic policy stance. Negotiations began in June 2006 and, after numerous twists and turns, were dramatically concluded in early April 2007. However, due to delays in the domestic ratification procedures in both Korea and the United States, the agreement did not enter into force until March 2012.

Since the KORUS FTA entered into force, trade performance between the two countries has been clearly positive, and businesses have generally given favorable evaluations to the agreement, which included a high level of liberalization within a short period and broad institutional improvements. According to a survey by the Institute for International Trade (2017), 79.5% of responding firms said that by utilizing the KORUS FTA they had been able to expand exports and strengthen the soundness of their business operations. According to studies in both the United States and Korea, the KORUS FTA is regarded as an agreement that benefits both countries. During the five years after it entered into force, global trade and Korea’s trade with the world fell by annual averages of –2.0% and –3.5%, respectively, yet trade between Korea and the United States increased by an annual average of 1.7%, a result that is difficult to deny was due to the KORUS FTA. Over the five years after entry into force, Korea’s exports to the United States increased evenly across both FTA beneficiary and non-beneficiary items, aided by such factors as the U.S. economic recovery.

It should also be recognized that the KORUS FTA served as a turning point that enabled Korea’s FTA policy to develop in earnest into a strategy of pursuing “multiple FTAs simultaneously.” Simply put, this became possible because, as the first Asian country to pursue a high-level, “comprehensive” agreement with the United States, Korea’s “FTA value” rose. As of October 2017, Korea had brought a total of 16 FTAs into force, and—alongside countries such as Chile and Mexico—was able to develop into one of the countries with the world’s broadest FTA networks. This, too, was possible because Korea concluded the KORUS FTA.

Although the overall assessment of the KORUS FTA has been positive, there have also been disappointing aspects. Even during the Obama administration, the U.S. side pointed out problems in the implementation of the KORUS FTA—namely, that the agreement’s provisions were not being properly carried out. Korea should address U.S. dissatisfaction with the KORUS FTA by reasonably resolving the issues raised in the course of implementation. Domestically, it should also improve Korean firms’ utilization of FTAs by training specialized FTA personnel, providing trade information, and strengthening responses to rules-of-origin verification.

The Trump administration, which took office in early 2017, has a strongly negative view of trade agreements and called for renegotiation (revision) of the KORUS FTA at the bilateral summit held at the end of June 2017. In October 2017, at the 2nd meeting of the KORUS FTA Joint Committee, Korea and the United States effectively agreed to revise the bilateral agreement. Although the Trump administration has been pressuring Korea by even mentioning “FTA termination,” Korea’s level of preparedness in responding to the U.S. revision demands remains insufficient. The Office of the Minister for Trade was revived at the end of July 2017, but in terms of organization and manpower it remains weaker than it was at the time of the original KORUS FTA negotiations more than a decade earlier.

Because KORUS FTA revision negotiations must follow each country’s procedures for commencing negotiations, talks will likely only be able to begin in 2018. In early September 2017, President Trump mentioned terminating the KORUS FTA, heightening tension among the trade authorities and business communities of both countries. Some view President Trump’s remarks on FTA termination as a “real threat,” but they can also be seen as deliberate strategic statements intended to pressure Korea’s trade authorities. Within the United States as well, Congress, chambers of commerce, and others have reacted against the mention of terminating the KORUS FTA.

At this point, revision negotiations over the KORUS FTA have become a fait accompli. Because President Trump’s primary concern regarding FTA revision is reducing trade imbalances, a multifaceted response should be explored to normalize Korea-U.S. relations while minimizing trade risk. First, the staffing of the revived Office of the Minister for Trade should be strengthened, and a nationwide negotiating system should be established through a framework of cooperation among relevant ministries. From the standpoint of negotiation strategy, the United States may raise a wide range of issues, including the sensitive agricultural sector and service liberalization, so Korea should prepare a reasonable negotiating proposal through the provision of information to the National Assembly and stakeholders and by gathering their views in accordance with domestic trade procedure law. In the United States, Congress holds very strong authority over trade policy under the Constitution, so lobbying directed at Congress should be strengthened. Because the KORUS FTA has facilitated a variety of business transactions, and because its termination could have a major impact on U.S. industry as well, Korea’s industrial and business sectors should strengthen trade lobbying directed at Congress and other targets through cooperation with relevant institutions in the United States.

I. Looking Back on the KORUS FTA

II. Ripple Effects of the KORUS FTA

1. Overall Assessment of the KORUS FTA

2. Trade Relations with the United States

3. Impact on Employment and Small and Medium-Sized Enterprises

III. The FTA Network and the KORUS FTA

1. The FTA Promotion Roadmap and the KORUS FTA

2. Quantitative and Qualitative Improvement of FTAs

IV. Conclusion and Implications

References

Wiki:

https://www.cfe.org/w/bbsDetail.php?&idx=25

Original title: 한미 FTA 5년 평가

Author: In-gyo Jeong, Gyeong-seo Hong

Date: 2017-11-03

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=report&pn=3&idx=10762