Korea's response to call for FTA amendment
By Kim Keuk-soo
Kim Keuk-soo
The move to amend the Korea-U.S. Free Trade Agreement (KORUS FTA) is proceeding faster than expected and it appears likely a special joint committee meeting will be convened soon ― at the earliest next month ― to discuss the deal. Both Korea and the United States will need to undergo domestic procedures over the next few months, but negotiations are expected to begin by the end of the year or early 2018. The three member countries of the North American Free Trade Agreement (NAFTA) have also agreed to kick off negotiations Aug. 16 and are aiming to close a deal by early next year.
The U.S. Trade Representative’s (USTR) key negotiating objective for NAFTA is to lower the U.S. trade deficit and improve market accessibility. Similarly, in its letter asking to open a special joint committee to modify the KORUS FTA, the USTR highlighted the importance of addressing the bilateral trade imbalance. In short, reducing the U.S. trade deficit is Washington’s main goal.
Trade deficits are a macroeconomic phenomenon. Experts agree they can be attributed to various factors including a country’s savings-investment gap and differences in economic cycles and industrial structures, which are irrelevant to FTAs. In fact, such agreements actually serve as tools to help trading partners overcome such differences.
According to a new working paper released by the U.S. Bureau of Economic Analysis, there is a possibility the U.S. trade deficit may have been exaggerated by almost double. If profit-shifting by multinational companies, such as Apple, are additionally taken into account, the U.S. trade deficit in 2012 is brought down from $537 billion to $257 billion, or 1.6 percent of gross domestic product. Naturally, these numbers cannot be applied to the Korea-U.S. trade imbalance, but it does show the possibility the trade imbalance between the two countries could also be overstated.
Unlike NAFTA, which is over 20 years old, the KORUS FTA is the highest standard trade deal the U.S. has signed onto to date. Since it already includes provisions on new areas of trade that are of critical interest to the U.S., it will be difficult to propose a new agenda that goes beyond the existing framework.
The U.S. is expected to seek three goals ― greater access to agricultural products including rice and beef, a revision of regulations on rules of origin and quarantine procedures, and lower environmental and safety standards.
U.S. negotiators may also express dissatisfaction over Korea’s opening of legal services and pricing of pharmaceuticals, as well as call for further transparency in competition policy, particularly in reference to Qualcomm’s antitrust penalties. Other topics can also include e-commerce and restrictions on subsidies for state-owned enterprises, which were emphasized by the U.S. during Trans-Pacific Partnership talks.
The U.S. is likely to initiate talks by making a request Korea will not be able to accommodate. Therefore, the Korean government must be thoroughly prepared.
First, Korea must expand its outreach, specifically to pro-trade and pro-Korea opinion leaders in the U.S. A good example of outreach work would be the Korean delegation led by the Korea International Trade Association (KITA) in June, where business representatives met with members of Congress in Washington to send a message about the positive impact of the KORUS FTA.
Second, it is crucial for Korea to pay close attention to the agenda during NAFTA negotiations, and the Canadian and Mexican governments’ responses. Trade organizations will need to carry out in-depth research as NAFTA talks unfold.
Third, the Korean government must keep the big picture in mind and propose constructive ideas on the future direction of the KORUS FTA, rather than focusing on individual issues raised by the U.S. Korea must promptly start gathering feedback through dialogue between the government and industry.
Amending the KORUS FTA will be an arduous task, even more so because the current situation in both Korea and the U.S. will not make negotiations easy. It is my hope that the Korean government and business community will work in close cooperation to skillfully overcome the challenges that lie ahead.
Kim Keuk-soo is executive managing director of the Korea International Trade Association (KITA).