Employees of Lotte Mart sort imported U.S. beef at an outlet in Seoul early this month. The discount store began selling U.S. beef first among local retailers following the lift of the ban in the wake of the agreement on the free trade talks. U.S. beef retail prices are about 50 percent cheaper than Korean beef and 15-25 percent cheaper than Australian beef. / Korea Times

By Chang Se-moon
Professor of South Alabama University

Do you know what is going on with the Korea-U.S. Free Trade Agreement? Many people call it KORUS FTA. We all heard about it, and will hear more about it. However, not too many people know exactly where it stands. Would it not be interesting to speculate what will happen to the FTA?

On June 30, the United States and South Korea signed the free-trade agreement. The signing does not mean that we now have an FTA between the two countries. The signed FTA will have to be approved by the National Assembly in Korea and the U.S. Congress to actually take effect.

You may find it interesting that the signing date, June 30, was not a coincidence. It was predictable. To understand why it was predictable, we need to look back about five years to 2002.

On August 6, 2002, President Bush signed the Trade Act of 2002. This Act contained the President's Trade Promotion Authority (TPA), under which future international trade agreements would be subject to an up-or-down vote in Congress. What this means is that members of the U.S. Congress cannot propose any changes to the agreement. All they can do is to accept it or reject it as proposed by the President.

What normally happens is that even if the majority of congressmen or women favor the agreement, a small number who represent areas that are directly and adversely affected by the agreement can kill the agreement by insisting amendments or changes to it.

By requiring members of the U.S. Congress to simply accept it or reject it without amendments, chances are much greater that these agreements, including the KORUS FTA, will be approved.

The President Trade Promotion Authority expired on July 1. To take advantage of the TPA, the KORUS FTA had to be signed by June 30. And it was. If any of you remember reading my articles on FTA in this column, you may recall that I emphasized the importance of concluding the negotiation on KORUS FTA before the end of June.

The reason was TPA. In fact, Korea is not alone. The U.S. also concluded free trade deals with Colombia, Panama and Peru ahead of June 30 deadline. My guess is that the Peru agreement is likely to come to a vote first, with Congressional action expected this summer.

Some of you may ask why the U.S. Congress does not simply renew the Authority beyond July 1. This is where all the ugly stuff is coming in. Ever since the war in Iraq turned from bad to worse, President Bush lost not only his popularity, but his political influence as well.

When the President Bush's Republican Party lost its congressional election last year and the Democrats took over control of the U.S. Congress, a red flag was raised on the future of the President's Trade Promotion Authority. Sure enough, the Democrats stated that the Trade Promotion Authority would not be renewed. It is not renewed.

Without TPA, the probability of the KORUS FTA being approved in the U.S. Congress is rather low. The current version of the KORUS FTA, however, is still covered by the TPA because it was signed before July 1 although it was only one day before July 1. Both Korea and the U.S. will have to make concessions to make sure that the FTA be approved without new negotiation. I think both countries will make it work because many good and competent people have been working on the agreement in both countries.

No Turning Back

I am aware of some in Korea who are strongly opposed to Korea's efforts to globalize its economy. Let me first tell you that free trade agreements are not the only trend of global economic cooperation these days. There are also economic partnership agreements (EPAs), which are less formal and less binding than FTAs.

The number of FTAs and EPAs was only 6 in 1970, but increased to 186 by the end of 2005. It is now more than 200. Korea's economic prosperity, and economic prosperity of any other country for that matter, would not have happened without participation in the economic globalization. You can imagine how China's economy will look if they cannot export their products.

There is no turning back from globalization. It is not just movement of goods and services crossing borders. People have been moving all over the places, also. According to Professor Richard B. Freeman of the Harvard University, no less than 23 percent of people in Australia are immigrants, while the percentage is also high at 18 percent in Canada and 12.4 percent in the United States.

In terms of absolute numbers, the United States has accepted the largest number of immigrants in recent years, followed by Russia because of the collapse of the Soviet empire that induced many people of Russian ancestry to move back to Russia. Kuwait has 49 percent foreign-born, while Israel has 37 percent foreign-born. Countries with the largest number of nationals living in other countries in recent years are China, India, and the Philippines.

Lately, economists have also found macroeconomic benefits from globalization. Globalization led to a more stable growth in real GDP, a lower rate of inflation, and higher labor productivity in many trading countries. Reasons cited for contributing toward these benefits are numerous. Globalization led to lower communication and transportation costs.

Rivalrous Consumption

Many of you make international calls as it is not a big deal. Many years back, people could not make international calls because they were too expensive. You all cannot live without cell phones, but you are not likely to have cell phones now without global competition and cooperation.

Globalization led to stronger competition that lowered prices and forced improvements in production technology. Globalization led to knowledge spillovers toward less developed countries. Globalization also spread non-rivalrous consumption in such products as television programs, movies, Internet, and more. Non-rivalrous consumption means that when you surf the websites on the Internet, you are not preventing others from surfing the same websites.

In other words, you are not a rival in surfing the websites. If you eat a watermelon, on the other hand, others cannot eat the same watermelon. You and others are rivals in eating the same watermelon. The iPhone that Apple introduced to the market only weeks ago is another example of rivalrous consumption.

To tell you the truth, I am not using any of the Blackberrys or iPhones because I think marginal benefits that I derive from these cute instruments are smaller than marginal costs of using them. In plain English, I am not crazy about making the monthly payment.

Regarding the future of the TPA, it will be renewed sooner or later. Like Korea, the U.S. cannot allow the rest of the world to pass by because that is what could happen if the U.S. does not renew it.

However, it may not be renewed until next year when a new president is elected in the United States.

schang@usouthal.eduschang@usouthal.edu