Scholars Urge Korea to Upgrade System for US FTA

By Yoon Won-sup and Kim Sue-young
Staff Reporters Korea Times

Trade Minister Kim Hyun-chong, right, and Kim Jong-hoon, chief South Korean negotiator for a free trade agreement (FTA) with the United States, look pensive during a National Assembly session, Wednesday. /Yonhap
Economic and political experts said that a free trade agreement (FTA) between South Korea and the United States, once concluded, will bring great opportunities for South Korea to enter the world’s biggest market.
But they warned that the FTA may also pose critical challenges to Korea if it fails to upgrade its economic systems to the level of the United States.

Lee Hong-shik, head of the FTA Research Team at the Korea Institute for International Economic Policy (KIEP), said, “The most important point of the FTA is that Korea will enter the U.S. market earlier than other nations.’’

Lee said that Korea will have advantage in bilateral trade with the United States once the FTA takes effect since its competitors, Japan and Taiwan, are still struggling to sign an FTA with the U.S.

Kim Yong-ok, head of the FTA Bureau of the Federation of Koran Industries, echoed this view by saying the agreement will help Korean businesses sell their products and services with basically no tariffs.

Young Soo-gil, president of the National Strategy Institute, said, “It will be reassuring, both psychologically and in terms of market access, for Koreans to have an FTA with the largest economy in the world.’’

Young went on to say that international confidence in Korea as a partner for diplomatic cooperation and as a place for investment will be greatly enhanced, as will the stature of the country as a hub in Northeast Asia.

However, a former U.S. government official said that the FTA will not solve all the problems between the two countries, particularly as related to the military alliance.

Tong Kim, a former senior Korean-language interpreter at the U.S. State Department, said people should not look at the FTA as a remedy to the beleaguered military alliance between Korea and the United States because it has more to do with the economy and business.

“Whatever the final agreement may be, it will provide difficult challenges to Korea, as tougher competition will begin with the world’s strongest and most developed economy,’’ Kim continued. “Yet I support this competition because this is the only way South Korea can truly become a global economic power.’’

Impact of FTA, Positive & Negative

Experts consider the impact of the FTA to be positive in a wide rage of areas as long as Korea succeeds in adapting to the new economic environment with the U.S.

Kim said the FTA would have a big impact on the economic and social life of Koreans as the negotiations have covered 19 business sectors including agriculture, pharmaceuticals, automobiles and services.

“In view of what has been revealed from the negotiations so far, it is not clear whether Korea would in fact benefit significantly from the export of automobiles and textile products,’’ he added.

He thought that complete elimination of U.S. trade measures such as anti-dumping and countervailing tariffs would be difficult from the perspective of U.S. politics.

Kim Yong-ok said that Korean companies with weak competitiveness will likely have to go through a restructuring process.

“More competitive companies will gain more profits but some companies will suffer from the highly competitive environment,’’ he said. “Overall, it is inevitable for the Korean economy to experience a restructuring process because it is a step toward becoming an advanced economy.’’
Young said that Korea will adopt more FTAs with other countries such as Canada, Japan, China, Mexico and the European Union once it successfully signs the FTA with the United States.

“Say, by 2015 or beyond, Korea will have made an economic and social change for the better,’’ Young said. “Politics will have become much more different than now, more efficiency-oriented and more internationalized.’’

Meanwhile, Lee worried that Korea may fail to follow new and advanced rules, brought by the FTA.

One good example was Korea’s financial crisis in 1997. When Korea joined the Organization for Economic Cooperation and Development (OECD) in 1996, some economists noted the entry was too early for Korea to adopt the new rules of the OECD.

“Some areas where Korea is less competitive than the United States such as the agricultural area should undergo restructuring,’’ Lee said. “In short, if there are not internal efforts to adapt to the new environment, the negative impact of the FTA will immediately be apparent.’’

Young shared this view by saying that there will be damage to the agricultural sector if opening is resisted up to the last minute.

He meant that the current situation keeps farmers engaged in protected high-expense farming and suffering from a consequent low and unstable farming income.

Remaining Tasks for Korea

Experts say that the Korean government should take measures to stop the widening gap between the rich and poor and reasonably implement programs supporting companies for better competitiveness in order to prevent negative effects from the FTA.

“A law to support companies which are expected to suffer from the agreement will soon be passed by the National Assembly, and the proper operation of the law will be crucial with regard to whether the FTA will remain successful or not for Korea,’’ Lee said. “The government will financially support Korean companies, but the most important thing is that the money should be used for the right purposes.’’

For example, the funds need to be used in restructuring, according to Lee.

Lee also said that the Korean government should develop a social safety net for people who will be vulnerable to the tight competition from their U.S. counterparts.

In the private sector, companies need to upgrade their tax and audit systems to keep pace with the U.S., Lee added.

Young expected Korea to be an FTA hub in Asia if Korea concludes the FTA with the U.S.

“Korea will soon become the hub of a network of major bilateral FTAs and the single most important thing to do is to prepare to take advantage of this emerging arrangement in order to attract and encourage investment in Korea,’’ Young said.

To that end, the government should promote domestic economic reforms to welcome foreign investment as well as encourage national investment, removing such things as labor market rigidity, which could offset the expected benefits of the FTAs, he added.

However, Tong Kim sees a dark future for Korean farmers once the FTA is launched.

“I don’t see any way for Korean farmers, especially those raising cattle, to effectively compete with American farmers who have a distinct comparative advantage in terms of economies of scale, technology, capital and financial support,’’ Kim said. “There will be other sectors that will suffer in the short term but may become competitive in the long term.’’

Kim Yong-ok urged the Korean government to prepare measures for companies and industries likely to be damaged by the FTA.

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SeanHayes@ipglegal.com