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Sharing Fruits of the KORUS FTA
As the Korea-U.S. Free Trade Agreement (KORUS FTA) went into effect on March 15, the news media gave it more attention than Korea`s FTAs with the European Union and ASEAN. Products from the world`s largest market have a major influence on the Korean market, and news reports predicted that importers and retailers would lower their prices on U.S. goods. But the price changes, if any, apparently fell short of consumers` expectations. They complained and the Fair Trade Commission, Korea`s antitrust watchdog, and other government offices threatened to probe for structural barriers in the distribution industry.
The KORUS FTA was signed in 2007 and modified in 2010. It immediately removed tariffs on 82.1 percent of the U.S. imports into Korea and 80.5 percent of Korean products exported to the United States. The trade pact especially affected products that had high tariffs. Their import prices fell by as much as 20 percent. But if the cost saving is not passed on to consumers, it will be politically difficult for the government to push ahead with additional free trade deals.
On the day after the KORUS FTA went into effect, the minister of strategy and finance and heads of other related government agencies discussed measures to ensure consumers get full benefits from the trade agreement. They vowed to rationalize distribution industry practices and establish fair trade order to prevent importers and retailers from becoming the sole beneficiaries of the KORUS FTA.
The government`s emphasis on consumer interests derives from its view that public support for the KORUS FTA is paramount. The government has to widen public support for free trade deals by taking strategic advantage of Korea`s eight FTAs already enforced. The government has to fully utilize each of the free trade deals and strive to promote economic growth and job creation by inducing foreign direct investments on the basis of its FTA hub strategy. It is necessary to inform multinational companies of the fact that goods produced by their affiliates in Korea can be exported overseas through the nation`s FTA networks.
The KORUS FTA was first proposed in 2005 to help upgrade the Korean economy. At that time, a high-standard, comprehensive free trade agreement with the United States was hailed as the most effective way to remove unreasonable regulations, advance the service industry and improve the local investment climate. The advantages as an FTA hub state would be further highlighted, if Korea makes sustained efforts to get rid of unreasonable and unnecessary regulations and improve its investment environment. Through such efforts, economic benefits from the KORUS FTA could further increase.
But a dispute still remains unresolved, as Korea and the United States agreed to address the clause regarding investor-state dispute (ISD) settlement through the KORUS FTA Committee on Services and Investment within 90 days of the effective date of the free trade deal. The ISD clause is taken for granted as a global standard, as it is included in the world`s 1,800-odd treaties to protect investors. The clause should be maintained as a means to protect Korean enterprises. I hope the ISD dispute would be settled after the two sides partially revise the scope of ISD application and arbitration procedures in accordance with the request from Korean opposition parties.
The KORUS FTA is expected to give momentum to Seoul`s free trade talks with Beijing. There is a growing need for an FTA between Korea and China. But the negotiations won`t be easy, as Korea`s agricultural sector would be at risk due to the two nation`s geographical proximity, climate and soil similarity, and China`s competitive food production capacity. Seoul and Beijing must first resolve sensitive issues before anything else. A two-stage approach will help minimize harm to Korea`s agricultural sector. At the same time, Korean negotiators will have to seek ways to help domestic companies fully capitalize on China`s domestic market.