| 技術と経済 | June,2007 | Outline of the Korea-U.S. FTA and its Ripple Effects |
Lee Jai Woong | |
| Lee Jai Woong Guest Professor, Myongji University, Korea The Korea-U.S. Free Trade Agreement (FTA) was concluded in April 2007. This would exert a great influence not only on Korea and the U. S. but also on the Asian economy and eventually on the world economy. In this paper, I would like to describe the basic characteristics of the Korea-U.S. FTA and its medium- and long-term effects on the economic sectors and the macro economy of Korea, and compare Korea and Japan in terms of the attitude toward the FTA. Table 1 compares KORUS (the Korea-U.S. Free Trade Agreement) and two other FTAs. These three are more or less the same with respect to the scales of economy and population, but as for the percentage of intra-regional trade in the total trade of each participating country, KORUS has the smallest percentage, the EU has the largest, and the percentage of NAFTA stands between these two. This is because the trade volume between the participating countries is inversely proportional to the distance between them and proportional to the homogeneity between the two economies. In the past, it was considered that the trade volume between the countries producing similar products tends to be small, and that between the countries producing different products tends to be large. However, an opposite phenomenon has been observed among the industrialized countries in recent years as the diversification of production and consumption has progressed in accordance with the development of economy and buyers now tend to seek diverse options. Once it was taken for granted that countries impose restrictions and/or tariffs on the import of like products so as to protect domestic producers, but today, it is recognized that trade liberalization and lowering of tariff barrier to respond to the consumer needs of own country meet the national interest of the country. In this respect, the intra-regional economy of the EU is the most homogeneous, and the intra-regional economy of the U. S., Canada and Mexico in NAFTA is not so homogeneous as that of the U. S. and Korea in KORUS. Therefore, it must be because the two countries are located too far from each other that the intra-regional trade volume of KORUS is small. Table 1 Comparison of the Characteristics of the FTAs
Table 2 indicates what will happen to the major industrial sectors of the two countries as a result of KORUS. Table 2 Impacts on Major Sectors 1) Automobiles: Local sales price will be reduced 2.5%. The U. S. will eliminate the tariff on automobiles (including parts) with an engine displacement of 3000cc or less. 2) Foodstuff: The U. S. will eliminate the tariff within three years. Korea will soon abolish the tariffs on 94 items. 3) Telecommunications: The maximum foreign equity of major telecommunications carriers will be maintained at 49%. 4) Pharmaceuticals: The minimum price of new drugs will not be guaranteed. Studies shall be made to ensure that no patent has been violated when an approval is issued on the sale of duplicate medication as an OTC drug. 5) Agriculture: The rice market will remain closed, while the beef market will be open. 6) Services: The legal service market will be open in three phases, while the accounting service market will be open in two phases. 7) Financial services: Although the markets of postal service, insurance and national policy banks will not be open, safeguard measures will be implemented to impose restrictions on money transfer. Table 3 has been prepared based on an estimate by the Korea International Economic Institute (KIEI) on the impacts of KORUS on the medium- and long-term economic development of Korea. The figures on textiles, human exchange (2006), investment (2000-2006), etc. have been quoted from a material of the Korea Trade Association. Table 3 Medium and Long-Term Impacts of the FTA on the Macro Economy of Korea 1) Real GDP : plus 7.2% (32.6 billion dollars) 2) Employment: plus 3.1% (510,000 people) 3) Export to the U. S. : plus 22.7% (8.2 billion dollars) 4) Import from the U. S.: plus 44.4% (8.2 billion dollars) 5) Trade balance with the U. S. : minus 4.7 billion dollars (decrease of surplus) 6) International trade environment: plus 7) Foreign direct investment: plus 4 billion dollars Table 4 compares the current situation of Korea and Japan concerning the conclusion of the free trade agreement. Table 4 Current Situation of Korea and Japan on the FTA 1) Korea: (Already concluded) Chile, EFTA, Singapore, U. S. (Under negotiation) Japan, India, Canada, Mexico, ASEAN (Under preparation) EAFTA, EU, China, Thailand, South Africa, Malaysia, New Zealand 2) Japan: (Already concluded) Malaysia, Mexico, Philippines, Singapore, Australia (Under negotiation) ASEAN, Brunei, Chile, Indonesia, Korea, Thailand, Vietnam (Under preparation) EAFTA, India, Canada, Switzerland, China *Note: According to a research institute, theoretically, the FTA between Korea and Japan is most likely to be concluded. However, the negotiation between the two countries has been stagnant due to political and geographical problems. Korea and Japan are located close to each other and the homogeneity between the two economies has been rapidly increasing. In this respect, they are comparable to the countries of the EU and NAFTA. Needless to say, Korea will be able to enjoy the greatest benefit if it can conclude the FTA with Japan, but it cannot be expected at present due to geopolitical reasons. Also, it is obvious that a multilateral agreement is more advantageous than a bilateral agreement, but a multilateral agreement is impossible for the same reasons. On the other hand, Korea is highly dependent on foreign trade, which is indicated by the fact that 88.3% of Korea’s GDP comes from import and export. In contrast, Japan’s import and export account for about 30% of its GDP. Therefore, Korea had no choice but to decide to enter into a bilateral agreement with the U. S. Comment Yoshihiro Kogane I first met Prof. Lee Jai Woong in 1959, when each of us had been studying at the Institute of Social Studies in Hague, the Netherlands, having been sent by the Economic Planning Agency and the Bank of Korea. The relationship between Korea and Japan in those days was very chilly, which is incomparable to that of today, but Lee was very friendly to the Japanese. Unlike other Korean students, he actively spoke Japanese. So two of us and Hisao Onoue, who later became president of Shiga University, often got together to enjoy drinking and chatting in Japanese. That was the best stress reliever for all of us. As we were reassigned to each of our workplaces after finishing the studies, we had not seen each other for some time. Shortly after I joined Nikko Research Center having left the Agency, however, he happened to read an article that I contributed to the Nikkei and came to visit me. Afterwards, he stayed in Japan for a long time to start up the Tokyo Branch of Coryo Securities Company. Upon my request, he often gave a presentation at a study meeting organized by the Economic Planning Agency or the Research Institute on Quality of Life, traveling from Korea or during his assignment in Japan. Although the recent conclusion of the free trade agreement between Korea and the U. S. is a very significant incident, it seems to have drawn little interest from the economic circle of Japan. Therefore, I have asked him to write a short article about it for my web. Personally, I do not have any opinion about this issue, but as a Japanese, I am concerned about the current situation that Japan is being left behind the worldwide spread of the FTA. I do not mean to say that Japan is losing the chance to make money or to develop its economy. I am worried because I believe the FTA that is most beneficial to both countries has not been formed primarily because of Japan’s political situation, which is mainly affected by the remnants of anachronistic nationalism, and this hampers the development of technological, economic and cultural potential of Japan. It is true that the FTA negotiations with Korea and China do not make progress due to the circumstances of these two countries. However, obstacles on the side of Japan can be removed only by the Japanese, and we must be able to do so. Once we accomplish it, Japan will truly be able to stand at the leading edge of the world. After all, humans are liable to err. Therefore, we do not need to feel blemished that our predecessors made such mistakes. Only if we realize that we owe greatly to these predecessors, we should be able to solve this problem without difficulty. The Origin of This Paper This paper is based on “FTA, the Change of Global Economic System and the Task of Asian Financial Integration” which was presented to about 100 finance and economic specialists including ex-Bank Superintendent and President of Citizens National Bank, the Largest Bank in Korea, General Directors of Ministry of Commerce and Industry, Deputy President of Industry Bank of Korea and CEOs of Business circles at Lotte Hotel,on 19th April 2007, sponsored by Chairman Mankey Jang of Human Development Top Managements Assembly. Brief Resume of the Author 1) Born in Seoul, 1933 and graduated College of Law, Seoul National University, obtained MBA in Long Island University, finished course work of DBS in American University and obtained Phd Chunang University. 2) Entered into Bank of Korea in 1956, General Director of Foreign Exchange Control Dept., Banking Supervision Department and retired as Assistant Bank Superintendent(RiJi),the Bank of Korea. 3) CEO, Coryo Economic Research Institute and Coryo Investment Advisory Company, first opened Coryo Securities Tokyo Branch and presently Guest Professor, Myongji University. |
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