Recently the US Congressmen and other trade policy makers were agitated of the trade deficit of US that has been growing slowly. The latest data reignited criticism of the free-trade pact in the U.S. “Government data, congressional voices, and economic studies confirm that the US-Korea Free Trade Agreement has failed us,” United Steelworkers President Leo Gerard said in a statement posted on his union’s website. “It has failed to produce goods jobs and the evidence on exports is clear.”
In my point of view I feel the KORUS FTA has produced lot of goods outweighing the bads. In my analysis I provide the Pros and Cons of this trade agreement and the impending problems associated with it.
The U.S.-Korea Free Trade Agreement, often referred to as KORUS FTA, was signed on March 15, 2012. Tariffs on almost 80 percent of two-way traded consumer, industrial and manufacturing products were eliminated as of that date, and as proposed by January 1, 2016 15% of the two way traded goods would become duty free. A few tariffs will still remain in place until 2021, with some being phased out annually or in the five to ten year time horizon. Still very few tariffs on certain products remain to protect the domestic industries particularly the heritage and handicraft industries of the participating countries.
“For the past two years since the implementation of the FTA, [South Korean] exports to the U.S. grew much faster than those to the entire world,” Seoul’s trade ministry said in a press release. South Korean exports to the U.S. increased 1.6% on-year for the first year after the pact took effect and rose 5.4% for the second year. South Korean shipments to the world fell 2.0% and rose 2.6% during the same periods respectively, according to Seoul’s trade ministry data
Over the course of two years after the implementation of KORUS FTA, the bilateral trade between Korea and USA has risen phenomenally by 4.1%. Korea’s Trade surplus has been growing drastically. A recent study has also proved that after the deal in course of two years South Korea’s trade Surplus with U.S has risen from $12 billion to $20 billion.
Economic Growth and Employment Stability-Firstly broadly speaking the agreement has led to more employment and economic growth in private and public sectors in both the economies. Trade beneficiaries from the agreement include US pumping machine manufacturers, pesticide producers and fruit growers and South Korean auto-parts suppliers, petroleum goods producers and processed food maker
Due to zero tariffs and quotas there is effective trade possible in all possible products meaning more choices for the customers, and more customer satisfaction as they bargain for the best available price for the product in the market.
Liberalization of the Korean Markets– The trade agreement has led to step-by-step effective liberalization of the domestic markets, leading to immense competition of these Korean industries with the imported goods. The transfer of technical know-how, resources and workforce have equipped the Korean industries to be competitive in the global scale, that was not even in the sights before the trade agreement was signed.
Foreign Direct Investments- The KORUS FTA due to the transparent economic system and liberalization has led to massive Foreign Direct investment inflows from USA and Japan. In 2012 alone there was a record high performance of inbound foreign direct investment (FDI) amounting to US$10.4 billion. Huge foreign direct investments have led to infrastructure, technological and industrial growth for the economies.
Gold Standard for Trade Agreements with other Countries-When formulating trade agreements with other countries, many experts view the KORUS FTA as a gold standard that could be applied to other trade deals. Some of the trade agreements such as NAFTA and Trans-Atlantic Trade and Partnership draw numerous clauses from the phenomenally successful KORUS FTA.
But on the other side the US Congressmen and other trade policy makers are agitated of the trade deficit of US that has been growing slowly. The latest data reignited criticism of the free-trade pact in the U.S. “Government data, congressional voices, and economic studies confirm that the US-Korea Free Trade Agreement has failed us,” United Steelworkers President Leo Gerard said in a statement posted on his union’s website. “It has failed to produce goods jobs and the evidence on exports is clear.”
Firstly In Korea’s case, dirt-cheap American agricultural products, most importantly California rice flooded the Korean market, thereby putting the nail in the coffin for the Korean agricultural sector. There has been a huge decrease in demand for Korean rice, Korean beef, Korean soybeans, Korean vegetables and fruits and even Korean canned products. Agriculture that has been the mainstay of South Korea would make the agricultural lands barren due to lack of demand and in the broader sense there would be influx of labors from neighboring countries that would have devastating effects on the life of the domestic workers.
Secondly, though KORUS FTA has been really advantageous for the global traders, recently American customs officials have ramped up the KORUS free trade agreement verifications and increased its frequency causing widespread among the Korean traders.
So the question now arises how long would they try to negotiate with the customs terms before yielding? And whether this trade agreement is strictly adhering to the environmental standards.