The Republic of Korea has signed Free Trade Agreements (FTA) with multiple nations. Thus, Korea has signed treaties with Chile (effective as of April 2004), Singapore (effective as of March 2006), and the European Free Trade Association (effective as of September 2006), and the Association of Southeast Asian Nations (ASEAN: effective as of June 2007). Agreements with the European Union, India, Canada, and Mexico are underway. The FTA with the United States had been under examination since 2003, when Korea finalized the “FTA Propulsion Roadmap.”
Some degree of examination was conducted intermittently before 2003. However, due to the unfavorable domestic and foreign situations at the time, progress was difficult.27
In 2004, Korea began to contact the US actively to establish bilateral discussions on the matter. In 2005, the US and Korea held working-level FTA discussions three times, and on the basis of these, both sides announced that official negotiations would be held in early 2006. The time taken for Korean-US free trade agreement (KORUS-FTA) negotiations was relatively brief compared to that needed for other FTAs. Thus given that such a comprehensive FTA contained rather many sensitive issues, many expect a considerable economic impact because of the KORUS-FTA due to its exemplary form of market access designs along with its advanced trade policies.
26-https://ar.tax-definition.org/77783-social-welfare 27- Same reference as before.
It is expected to have a great impact on Korea’s future FTA and trade policies.
Establishing an FTA with the world’s largest market, the USA allows amplified possibilities for Korean businesses to advance into the American market, which can ultimately support Korean businesses as they attempt to advance into other foreign markets. In fact, the records of actual exports to American distributors are known to be used as references when consulting about exports with other nations. The process of establishing the KORUS-FTA has been fraught with domestic resistance due to the sensitive topics it contains. Many opposing factions criticized the very nature of the FTA, the opening of markets, and the related deregulation plans.28 However, some opposed the KORUS-FTA regardless of the content of the agreement simply because the policy partner was the US. Meanwhile, the authority’s attempt to settle on the agreement before the expiration of the American TPA (Trade Promotion Act) resulted in tense public hearings. In addition, the authority’s leading the public to think that the processes were being rushed working against the gaining of public In 2003, when Korea officials contacted the US to review the FTA, Americans viewed the Korea’s will to push for the FTA to be low and considered the Korea-Chile FTA to be an ordinary trade agreement.
Furthermore, they considered the Korea’s trade policies to be overprotective. They underestimated the economic gains made by the US through the FTA. Later, when Korea successfully entered into agreements with Singapore, EFTA, ASEAN and promoted FTAs with Canada, Mexico, and India, the US finally began to view that Korea will be high. Meanwhile, the US most likely felt some degree of threat from the rise of China and the deterioration of Korea-US relations meaning that the KORUS-FTA would fulfill the need to strengthen the strategic alliance between the two nations 29
28Choi, M., (2007), KORUS FTA: What Is the Truly Desirable Direction of Resolution?Presentation at a session of the FTA Research Center.
29Jeffrey J. Schott (2018), Fixing the KORUS FTA-Without Firew, Peterson Institute for International Economics.
Since the United States – Korea Free Trade Agreement (KORUS) went into effect in 2012, the U.S. trade deficit in goods with Korea increased by 75 percent from $13.2 billion to $23.1 billion (2017), while the overall deficit increased by 57 percent from $6.3 billion to $9.8 billion (2017). Through negotiations to improve KORUS, the United States has secured changes that will reduce the trade deficit and ensure that KORUS is a good deal for American workers, farmers and businesses.30
I will review some of the economic implications of the free trade agreement between the two countries and view how it reflected economically on the United States of America:
1. The United States achieved important steps to improve the large trade deficit in industrial goods and to address KORUS implementation concerns that have hindered U.S. export growth.
2. U.S. Truck Tariffs: Korea will extend the phase out of the 25% U.S. tariff on trucks until 2041, or a total of 30 years following the implementation of the KORUS FTA in 2012. (Currently scheduled to phase out by 2021).
3. Growing U.S. Auto Exports: Exports of U.S. motor vehicles to Korea will be improved through the following steps
4. Greater Access for U.S. Exports: Korea will double the number of U.S.
automobile exports to 50,000 cars per manufacturer per year that can meet U.S.
safety standards (in lieu of Korean standards) and enter the Korean market without further modification.
5. Harmonization of Testing Requirements: U.S. gasoline vehicle exports will be able to show compliance with Korea’s emission standards using the same tests they conduct to show compliance with U.S. regulations without additional or duplicative testing for the Korean market.
30- https://ustr.gov/about-us/policy-offices/press-office/fact-sheets/2018/september/fact-sheet-us-korea
6. Recognition of U.S. Standards for Auto Parts: Korea will recognize U.S.
standards for auto parts necessary to service U.S. vehicles, and reduce labeling burdens for parts.
7. Improvements to CAFE Standards: Korea will expand the amount of “eco- credits” available to help meet fuel economy and greenhouse gas requirements under the regulations currently in force. Thus, ensuring that fuel economy targets in future regulations will be set considering U.S. regulations and continue to include lenient targets for manufacturers that sell small volumes of cars in Korea.
8. Customs Improvement: Korea will address long-standing concerns with onerous and costly verification procedures through agreement on principles for conducting verification of origin of exports under KORUS and establish a working group to monitor and address future issues that arise.
9. Pharmaceutical Reimbursements: Within 2018, Korea will amend its Premium Pricing Policy for Global Innovative Drugs to make it consistent with Korea’s commitments under KORUS to ensure non-discriminatory and fair treatment for U.S. pharmaceutical exports.31
On the other hand, we see that since the Free Trade Agreement between the United States and Korea came into force on March 15, 2012. On the day of implementation, nearly 80 percent of U.S. industrial goods exports to Korea became duty-free, including aerospace equipment, agricultural equipment, auto parts, construction products, chemicals, consumer goods, and electrical equipment. The environment is goods, travel, paper products, scientific equipment, shipping and transport equipment. Other benefits of the FTA include stronger protection, enforcement of intellectual property rights in Korea and increased access to the
$580 billion Korean service market for highly competitive U.S. companies.32
31- https://ustr.gov/about-us/policy-offices/press-office/fact-sheets/2018/september/fact-sheet-us-korea.
32Wong, A., (2012), Measuring trade barriers: an application to South Korea's domestic trade, University of Chicago.