Heated controversy rages within and beyond Korea due to the advent of negotiations on a Korea-U.S. (KORUS) free trade agreement (FTA). The Yeungnam Observer (YNO) investigated the impact of a potential FTA and looked for solutions to potential problems.
An FTA is a kind of regional economic union usually affecting trade barriers such as the price of customs taxes for importing certain goods. The countries which accept FTAs usually deregulate or repeal tax barriers in order to promote 'free trade'. After the settling of terms and implementing of an FTA, we should be able to expect more efficient distribution of resources and an increase in profit through market expansion of our nationally produced goods in the new partner country.
The establishment of the European Fair Trade Association (EFTA) saw the beginning of FTAs in 1960. With the loss of power from European markets to America, the USA has become the central country of influence. Different countries produce different goods for trade, and accordingly are primarily interested in marketing those particular goods in their partner country's markets. Traditionally, FTA has focused on tariff reduction or free trade in commodities.
Recently, however, the application of FTA has expanded with the World Trade Organization (WTO) system (1995). These days FTAs are about not only removing tariffs but promoting services, and liberalization of investment conditions. Also, intellectual property rights, procurement by governments, competition policies and relief trade systems are included in agreements.
Due to multilateral negotiation, general tariff levels are lower than before. This is the reason why FTAs are seeing the number of terms of negotiation expanded. The United States of America is an important partner for trade for Korea because exports to the States have increased to 70% of Korea's total trade in the latter half of the 1990s, and so now this nation sees a level of dependancy on that market. The Korean government sees the goal of the KORUS FTA is to obtain a safe level of access to this huge market. Korea particularly pursues export of nationally produced goods considered points of strength within the Korean labor market, such as electronic products, to complement weak points like the agricultural goods sector. The Korean government said that if Korea refuses the KORUS FTA, it will bring a dangerous situation with a risk of decline of Foreign Direct Investment (FDI), high tariff barriers, and a decrease in price competitiveness.
Despite these reasons for promoting an FTA, the recent conference did not see favorable progress. When the KORUS FTA second round of negotiations opened, Korea and the USA confirmed their positions with regard to several areas. The tug of war first started with negotiations in the medical supplies and equipment sector. The Korean government presented its New Drug Pricing Policy on July 11th. Representatives from the USA expressed regret because there was no negotiation about the New Drug Pricing Policy on the FTA table. Soon thereafter the USA concluded the medical supplies and instruments sector conference. Furthermore, representatives from the USA purposely did not attend the Trade Relief and Service Sector conference. Thereupon, Korea canceled the last-day's conference related with the Product and Environment sectors on July 14th. Now, we can only sit back and watch the development of the third negotiations in Washington D.C.
The New Drug Pricing Policy, the primary cause of the current failure to negotiate an FTA, discusses a maxim reduction in the cost of medicine. The Positive System, which will start in September, applies health insurance only to high quality medicinal products, comparing them with the price of other products regardless of efficacy. Representatives from the USA consider that if the New Drug Pricing Policy takes effect, medicinal products from the USA will not be able to compete with those produced in Korea.
There is another huge problem, involving agricultural products. Representatives from the USA asserted that if both countries agree to the contract, no exception should be made for agricultural products. This is effectively the same thing as the USA requiring Korea to remove taxes on things crucial to Korean agricultural producers' and consumers' lives, including for example rice, pepper, garlic, onion, and sesame. The Korean government couldn't accept these terms, particularly with regard to the rice, because if the Korean government accepts the proposal, rice from the USA will be four times cheaper than that from Korea.
It is certain, therefore, that should an FTA be concluded, the Korean agricultural industry will meet failure and go to ruin. Korean farmers are expected to strike against the KORUS FTA. Therefore, the Korean government wanted to implement a Special Safe Guard (SSG) for prevention of serious damage and market disturbance in advance. A mere Safe Guard (SG) needs to see the other country's agreement, however, an SSG doesn't require a separate discussion, but can be implemented merely as a result of obvious damage. It can protect one's own country's agricultural industry when losing one's own country's competitiveness because of the other partner's excessive levels of exports. The USA has adopted an SSG in relation to Australia to protect weak areas within their own market, including beef, onion, garlic, and tomato.
Representatives from the USA, however, stated that they do not want to see the use of SSG anymore, particularly within the KORUS FTA. Thus, the terms of negotiation for an FTA have become stricter, narrower, and more difficult to establish. In addition, amendments with regard to intellectual property rights, Korean Gyeseong products, post office-insurance, and private automobile tax didn't see agreements reached.
Despite the tough conditions for establishing the KORUS FTA, we cannot afford to just sit back and wait for favourable terms of negotiation. Korea has too little territory and too few resources. We should seek ways to live and thrive internationally, and this includes trade with other nations. As the international market becomes more competitive, increases in exports become more important. To be an advanced country trading within a competitive global society, finding safe markets and coping with the regionalism of the world economy is a necessity. In this era, Korea can't avoid the wave of FTAs. It may be the nation's greatest challenge.
However, FTAs are not always good. There are definitely negative aspects, for instance, Korea has to protect companies from the USA and to expose points of weakness in the national economy - such as farming - to likely failure. If we achieve gains, we should offer benefits. We ought not to focus simply on agreement, but also on creating positive outcomes for both parties to the agreement in order to stimulate growth in both nations' industries. How can we meet all these challenges?
We can only guess that an FTA will much affect the future of Korea. We can be sure that mutual and positive encouragement of growth needs to continue because we can't live alone in a global village. Keep an eye on the third conference of the KORUS FTA negotiations in Washington D.C.
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