South Korea will likely face a markedly changed business environment next year as it is poised to enforce a long-standing free trade agreement with the U.S. that would open up its market and eventually lead to gloves-off competition down the road.
The country signed the deal, known as the KORUS FTA, in 2007 but had to wait for years until late November for parliamentary approval due to objections from opposition lawmakers and civic groups. The U.S. Congress approved the pact in October, paving the way for them to enforce the deal early next year as planned.
The deal would lower most of tariff barriers between the two nations. South Korea hopes that it could provide a large and stable demand base for Korean products in one of the world’s largest markets.
Its implementation would mean yet another achievement for the Seoul government, which has been pushing for free trade deals for many years. In July, Seoul enforced a free trade deal with the European Union.
Preparations are currently underway to sign a similar agreement with neighboring Northeast Asian countries.
Recently, South Korea, Japan and China completed their joint study on the feasibility of their FTA, concluding that it would be a “win-win-win” action. Seoul said that it will craft its action plans for the three-way free trade deal by May.
All these efforts are intended to expand what the government calls the “economic territory” for the nation whose main growth engine comes from the sale of products in global markets.
According to industry estimates, if the FTA with the U.S. takes effect, South Korea would have free trade deals with countries whose combined gross domestic product accounts for 61 percent of the global total.
Given that South Korea depends heavily on exports for its growth, its economy inevitably remains in the grips of external market conditions. Prolonged eurozone debt problems and declining demand caused by a global slowdown are casting shadows on its growth outlook next year.
Against this backdrop, free trade with the U.S. could be a boon for South Korea, opening the door to one of the largest markets in the world.
“In times of an economic slowdown, in particular, an FTA with such a large country as the U.S. will help prop up our economy,” said Jeong In-gyo, an economics professor at Inha University.
A report jointly compiled by 10 local state-run think tanks showed that if the deal with the U.S. takes effect, South Korea would see its gross domestic product expand by an additional 5.66 percent in the long term.
Trade without tariffs and other cross-border barriers would lead to more exports of automobiles, auto parts, electronics and semiconductor products. More demand would stimulate business activity and stimulate employment and investment, thereby helping overall economic growth, they added.
That would in turn stimulate bilateral trade. Last year, two-way trade between South Korea and the United States reached an estimated US$90 billion, according to the Seoul government.
The intended benefit, however, could not be reaped if the nation fails to prepare for fierce competition from foreign rivals who would also rush to take up a larger slice of the expanded free trade market.
Without proper preparations and efforts, free trade could instead be a disaster. Local companies would be exposed to limitless competition from rivals, many of them equipped with better and cheaper products, experts noted.
“The prerequisite for an open economy (like South Korea) to succeed is to raise competition conditions and social systems to the levels of other advanced countries like the U.S. and Europe,” said Kim Hyung-joo, a researcher at LG Economic Research Institute.
“That is what the government, companies and academia all should think hard about and prepare for,” he added.
South Korea has been sharply divided over the FTA with the U.S.
Opposition parties and civic groups have long objected to the deal, saying that it favors the U.S. and would hurt the nation’s farming sector.
The ruling Grand National Party rammed the deal through parliament and that unilateral move spawned weeks-long street protests and many arrests of demonstrators.
Experts said it is important to take care of the social divide caused by the process of pushing through the FTA. The government also needs to care for those who could be sidelined by the envisioned benefit that free trade would generate.
“The nation should establish a pan-governmental round-the-clock monitoring system so that the government and the private sector can jointly react and cope with any shadow caused by FTAs,” said Kim Soo-dong, a researcher at the state-run Korea Development Institute.
“We should work hard to establish a system in which benefits from FTAs can be maximized and their side effects can be minimized,” he added.
(Yonhap News)
