U.S. President Trump will be paying a state visit to Korea on Nov. 7 and 8. The time is ripe for the two countries to discuss several important issues, most particularly how to ensure a strong and united response in the face of national security threats; and it is also likely that the Korea-U.S. Free Trade Agreement (KORUS FTA) will be an important issue on the agenda for this visit.
As officially recognized by the WTO, free trade agreements serve as instruments to provide preferential treatment to partner countries in order to promote trade between member nations. Being the largest market in the world, the U.S. is a particularly attractive field in which many countries compete fiercely to improve their market position. Canada and Mexico benefit from the North America Free Trade Agreement (NAFTA) with the U.S., and the European Union (EU) has been negotiating the Transatlantic Trade and Investment Partnership (TTIP) with the U.S. since February 2013. It was around this point that Japan joined negotiations for the U.S.-led Trans-Pacific Partnership (TPP) as well.
The KORUS FTA has allowed Korea to establish relatively favorable conditions within the U.S. market, seen by Korea's growth in share there, from 2.6 percent in 2012 to 3.1 percent in the first half of 2017. Korea continues to increase its exports of FTA-beneficiary products to the U.S., including medical and drug, electronics, and chemical products.
Meanwhile, the U.S. has increased its share within the Korean market as well, accounting for 8.3 percent in 2012 to 11.1 percent in the first half of 2017. U.S. exports of automobiles, medical and drug products, beef and other agricultural items have sharply increased.
In particular, the U.S. has utilized the FTA as an opportunity to advance into the Korean services market. Korean imports of U.S. services, which totaled $14.3 billion before the KORUS FTA, increased by 41.3 percent following the conclusion of the FTA, recording an annual average of $20.2 billion during the last 5 years.
The FTA has led to Korean businesses investing more in the U.S. and creating more jobs within the States. Korea's average annual investment in the U.S. climbed 2.6 times, from $2.18 billion to $5.72 billion, during the four years following the FTA establishment. This investment from Korea has created quality jobs for American workers, generating a total of 45,100 jobs as of 2014, of which around 10,000 were created following the KORUS FTA.
The KORUS FTA, however, is being threatened by President Trump's perception of trade, which is centered on bilateral trade relations, leading to the view of trade as a zero-sum game in which trade deficits are the result of unfair trade practices. President Trump has even mentioned withdrawal from the KORUS FTA.
In fact, labeling the KORUS FTA as the reason for a trade deficit is far from true. The U.S. trade deficit with Korea stems from a tightly focused collection of high-profile products, in particular, automobiles, steel and IT products among others. The majority of these products already enjoyed a zero tariff rate before the KORUS FTA. In addition, various U.S. reports, including a National Trade Estimate (NTE) report published in March 31, 2017, view the KORUS FTA in a positive light.
As agreed in the second special session of the U.S.-Korea FTA Joint Committee held Oct. 4 this year, the two sides have agreed to discuss amendments of the agreement. It is the right direction that both sides aim for "amendment," not "renegotiation," which implies discussion of a wide and unspecified agenda. It is very important that Korea and the U.S. prioritize the issues and focus negotiations on high priority ones.
Considering the political aspects, we need to make efforts to reduce the trade imbalance. Korea's surplus in its trade with the U.S. has already begun to decrease. Korea has recorded an $11.2 billion surplus in the first half of 2017, showing a year-on-year drop of 32.1 percent from last year's $16.5 billion. Meanwhile, it will be necessary to consider expanding Korea's imports of U.S. energy products and aircraft, provided that doing so remains feasible from an economic perspective.
The KORUS FTA has served as the stimulus for KOR-US relations to evolve from a military alliance into a comprehensive strategic partnership, and possesses an important significance from the standpoint of the ROK-US alliance. Therefore, it is crucial that both nations do all they can to conduct fruitful talks regarding the recent call for an improved KORUS FTA.
Hyun Jung-taik is president of Korea Institute for International Economic Policy (KIEP).
Source : http://www.koreatimes.co.kr/www/common/vpage-pt.asp?categorycode=367&newsidx=238603