Effect of FTAs
Consumers should benefit from lowered tariffs
There has been intensifying debate in Korea on the pros and cons of free trade agreements (FTA) over the last few years. Proponents claim that free trade deals will enable Korean businesses to explore overseas markets more actively thanks to lowered tariffs. Opponents say FTAs will only benefit large family-run conglomerates and the rich at the expense of farmers and small- and medium-sized businesses.
It’s difficult to say which side is right because our FTA history with major trading partners has been relatively short. More recently, however, there have been reports showing positive results from our free trade pacts.
Data released by the Korea Customs Service Sunday showed that Korea’s exports to the United States rose 11.3 percent during the first two months after the landmark free trade agreement went into force. Exports to the United States amounted to $11.18 billion from March 15, when the pact was implemented, to May 14, while imports from the United States rose a meager 2 percent to $7.73 billion for the two-month period.
During the same period, Korea’s total shipments fell 4 percent from a year ago to $93.4 billion, hit by falling demand amid Europe’s deepening debt crisis and China’s economic slowdown.
Drawing our particular attention is that exports to the United States were led by products whose tariffs were lowered due to the FTA ― petroleum products were up 42 percent, followed by automobiles (31 percent) and auto components (15 percent). This means that without the Korea-U.S. FTA, Korea would have been hit hard in its exports and trade balance.
The effect of the free trade accord was also evident in Europe. According to the Ministry of Strategy and Finance, shipments of Korean products to Europe whose tariffs were lowered due to the FTA jumped 27.1 percent in the second half of last year, although Korea’s total exports to Europe fell 7.9 percent. The Korea-EU free trade pact took effect on July 1 last year.
Of course, it’s too early to paint a rosy picture for FTAs with the short-term results but we are positive about the impact they will have on our economy, given that Korea relies on exports for nearly 70 percent of its economic growth.
Nevertheless, there are two points to be heeded. First of all, the government should not be in a hurry to conclude subsequent deals with China and Japan. Our trade negotiators will have to be more careful in talks with China, taking into account that a good number of farmers and fishermen will be affected negatively.
The government also needs to take concrete measures to let Korean consumers benefit from lowered tariffs in the wake of FTA implementation. So far, import prices of some products such as beer and orange juice remain high despite cuts in import duties as importers and distributors make illicit gains.