US-Korea FTA To Boost US Economy

by Mike Godfrey, Tax-News.com, Washington

21 September 2007

US Trade Representative Susan Schwab has welcomed a report by the US International Trade Commission which predicts that the free trade agreement between the United States and South Korea would add between $10 billion and $12 billion to the US economy, but critics of the FTA contend that US business stands to gain little from the deal.

"The ITC’s independent and comprehensive analysis reinforces the fact that the KORUS FTA is the most commercially significant free trade agreement the United States has concluded in over 15 years – and that Congress should act to approve it,” Schwab commented on Thursday.

“This agreement to open up trade with Korea – the world’s tenth largest economy – will support thousands of American jobs and higher American incomes. Farmers, ranchers, manufacturers, and service providers in every state will benefit from deeper and stronger trade and investment ties with this key Asian ally," she added.

The ITC, an independent and non-partisan agency, is required under the Trade Act 2002 to submit to the President and the Congress a report assessing the likely impact of a trade agreement within 90 days of the date the President enters into the agreement. The report highlighted however, that in the context of the entire US economy, which is worth about $13 trillion, the impact of the KORUS FTA will be negligible on US employment and the overall economy.

The KORUS FTA was concluded on April 1, 2007, and signed on June 30 after eight formal rounds of negotiations that took place over ten months. As the world’s tenth largest economy, with a GDP of nearly $1 trillion, South Korea is the United States’ seventh largest goods trading partner, with two-way goods trade in 2006 valued at approximately $78 billion. When implemented, the KORUS FTA will expand trade and investment flows between the two countries.

In agriculture, the KORUS FTA will create new export opportunities for American farmers and ranchers by eliminating and phasing out tariffs and quotas on a broad range of products. Under the agreement, roughly $1.91 billion, or 64%, of Korea’s agriculture imports from the United States will be immediately duty-free. Most remaining tariffs and quotas will be phased out over the first ten years that the agreement is in force.

In industrial goods, nearly 95% of bilateral trade in consumer and industrial products will be duty-free within three years of entry into force of the Agreement, with virtually all remaining tariffs eliminated within 10 years.

Specifically with regard to automobiles, the KORUS FTA marks an unprecedented step in eliminating the tariffs and non-tariff barriers that US auto makers have identified as the impediments to their success in Korea’s large market.

Critics of the FTA, including several Congressional Democrats, contend that the agreement would benefit Korean businesses and manufacturers far more than their American counterparts, particularly in the automotive sector.

Commenting on the report, Sen. Sander Levin, who chairs a House of Representatives trade subcommittee, welcomed the ITC's acknowledgement that South Korea has a bad track record in honoring its past commitments to lifting tariff barriers.

"Critically, the report confirms that, in the Korean auto market, where Korean automakers control more than 95% of the market, the effect of Korea’s commitment to remove these barriers is likely to be 'minimal,'" he observed.

“The US enters into free trade agreements to open a foreign country’s markets to US goods and services, and this FTA fails to accomplish that goal. By failing to remove the economic iron curtain around the Korean market, the FTA locks in one way trade at the expense of US businesses and workers. It sends a terrible message to our trading partners," Levin added.

Levin stated that until the free trade agreement is renegotiated to guarantee that all American businesses will see real benefits from the agreement, he would continue to "vigorously oppose it”.

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