[Viewpoint] The big picture for the U.S. FTA

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[Viewpoint] The big picture for the U.S. FTA

The local response to the modified free trade agreement between Korea and the U.S. has been ambivalent. The government and ruling party are relieved that the bilateral trade deal is finally out of its three-year limbo, even though the breakthrough came at the cost of concessions in the automobile sector. But the opposition party rejects the deal outright, saying it required more giving than taking.

Most trade negotiations bring mixed responses. The ruling party usually takes sides with the government and evaluates the results based on the negotiating party’s perspective and the broader context. The opposition party usually keeps score on points won and lost and neglects the painstaking political realities of the negotiating process.

The newly sealed agreement should be compared with the original deal signed in 2007. The initial package, hailed by the two countries as a “win-win” landmark deal, was, in truth, largely favorable for the comparatively small Korean market. Despite an additional deregulatory step for U.S. auto imports, a free trade pact with the world’s largest economy at the earliest date possible will help our economy and country.

We have made concessions in the auto sector, but we did not walk away empty-handed. We scored a two-year delay in eliminating tariffs on U.S. pork and waivers in the pharmaceutical patent area. As in the 2007 version, tariffs on automobile parts exports will be lifted as soon as the trade pact takes effect - good news for our car parts industry.

The Korea-U.S. breakthrough could accelerate the implementation of a free trade agreement we signed with the European Union. Some fear the EU may demand revisions and force Seoul to lift an intricate set of safety standards on car imports as the U.S. did.

But it will be too trying and risky for the EU to reopen talks and get a quid pro quo as Washington did. The EU will probably be pressured to expedite the deal before the U.S. ratifies the similar pact.

Our automobile industry won’t get much of a dent even after we lower import tariffs ahead of the U.S. In 2009, Korea exported 450,000 vehicles to the U.S. while importing 6,500 units. Import barriers cannot entirely explain the staggering imbalance in the bilateral automobile trade.

International competitiveness of Korean cars has shot up while American cars are even unpopular among domestic consumers. The cut in the tariff for American imports by half from the current 8 percent won’t likely lead to sharp demand for American-made vehicles.

The U.S. government has earned political points from Korea’s concessions in the car trade, removing the major sticking point for legislative ratification.

The Obama government had a hard time pitching a trade deal with Korea amid pressure from struggling Detroit-based automakers and unions as well as opposition from its own Democratic Party.

But the concessions on autos will now become an issue in the Korean legislature. Opposition parties - who vehemently opposed the 2007 deal’s agricultural provisions - are poised to attack the automobile issue, which had been described as Korea’s biggest gain in the trade agreement.

In four years, Korean car and other exporters will be able to capitalize on the lowered or removed tariffs. The benefits may not be as great as hoped for, but they are nevertheless huge.

The U.S. legislature no longer has a strong excuse to oppose the trade deal with Korea after we gave in on some modifications to the 2007 agreement. What would best help both countries’ interests is to ratify a deal and put it into motion as soon as possible.

If both countries stuck to the original terms, the standoff would have gone on for many more years. Instead of criticism and knee-jerk opposition, we should address the new trade deal in a broader light to help both our and the U.S. economy.

*The writer is a professor of economics at Inha University.


By Cheong In-kyo
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