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What is the status of free trade negotiations between South Korea and the US?: 

What is the status of free trade negotiations between South Korea and the US ?

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Beginnings 2000 South Korea’s then Trade Minister Han Duk -Soo recognized that the South Korean economy needed a “wake up” call FTA – An opportunity to Transfer knowledge and skills Provide greater policy predictability Give both domestic and foreign firms greater security

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Beginnings 2000 2006 2007 South Korea’s then Trade Minister Han Duk -Soo recognized that the South Korean economy needed a “wake up” call 2 February: Negotiations for the KORUS FTA were first announced 1 April: Negotiations were concluded 30 June: Treaty was signed The KORUS will provide: Reductions in tariffs on industrial and agricultural products Commitments in intellectual property rights, investment, transparency, competition policy, e-commerce, and services.

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$100 billion in two-way trade US’s GDP by $10.1-11.9 billion Korea’s GDP by appx 6% KORUS (2007) General Benefits

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Eliminate 95% of each nation's tariffs within 5 years 250,000 new jobs Protections for multinational financial services US: First FTA with a major Asian economy Largest trade deal since NAFTA South Korea: Largest venture Second largest FTA KORUS (2010) General Benefits

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Proposed Revisions US allowed to keep its 2.5% tariff on cars for 5 years SK immediately cut tariff on cars from 8% to 4% Lower standard of current Korean emissions limit for US imports SK ease safety and environmental standards Automobiles:

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Implications Automobiles US Increase US auto exports Higher export threshold More flexibility in safety and gas emission standards Support from Ford, GM, and Chrysler Greater benefits to producers

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Implications Automobiles South Korea Reduced overall tax burden Increase in auto imports More variety Decreased consumption Perfect competition Greater benefits to consumers

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Proposed Revisions Immediate grant of duty-free status to almost two-thirds of current US exports Tariffs on others would be phased out within 10 years 2 year extension for 25% tariff phase-out on US frozen pork Agriculture

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Implications Agriculture US Tariff reductions  H elp the US remain competitive with other countries Substantial increase in exports and jobs

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Implications Agriculture South Korea Most adversely affected sector Compromise on domestic agricultural production in exchange for electronics and car exports Change in agricultural infrastructure However , $119 billion aid for farmers

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Political Implications Benefits: Deepen the US-South Korean alliance Generate mutual interests on critical issues involving N. Korea Obstacles faced by the Obama Administration: Divided Congressional Republicans and the President Resistance from Republicans regarding bill for worker assistance

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Trend of PTAs in Recent Years

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Trend of PTAs in Recent Years Year Number of New RTAs In Force 2000 11 2001 11 2002 11 2003 10 2004 11 2005 13 2006 16 2007 10 2008 16 2009 15 2010 10 2011 (As of 1 st Aug) 9

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Trend of PTAs in Recent Years Aug 2011: 310 PTAs in force Rapid increase in the number of PTAs signed, especially in the Asian economies

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Trend of PTAs in Recent Years The Domino Effect Greater pressure and necessity Ensure competitiveness Unwilling to be left behind

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The Spaghetti Bowl Effect Implications: Proposed by Jagdish Bhagwati Different tariffs and rules of origin in multiple FTAs have resulted in the problem of criss-crossing agreements, which are characterized by excessive exclusions and special treatment. (Baldwin 2008 ) “Rules of origin”: Criteria used to define where a product was made. (WTO)

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Economic Disparity PTAs: Inherently biased against developing countries Excessive trade concessions, minor gains Concessions: Difficult to sustain in the long-term Consequences: Greater income inequality Increased need and demand for aid Implications:

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Economic Disparity However , developing countries are still actively seeking to sign such agreements, even with the developed countries. Why!? PTAs: Means to enter the international capital market and economy, and gain global recognition Benefits of free trade outweigh the costs Implications:

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PTA does not complement the multilateral trading system Concern for WTO - main principle of non-discrimination Lose enthusiasm to participate in MTA – failure global economic cooperation. Spaghetti bowl effect Costly for businesses to operate Further trade diversion. PTA &MTA: non-complementary

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Growing frustration with the multilateral trading system. Large number of countries - rigidity in system. Differences in economic interests of the members of the WTO have made it difficult to enact policies. Increase in PTAs, Decline in MTAs Future:

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Doha Development Round – WTO in shaping global trade. Easier for countries to deal with modern trade barriers issues on a regional level. Multiple countries with different interests in MTAs Easier for countries to come to an agreement in PTAs. Increase in PTAs, Decline in MTAs Future:

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Not securing much increase in market access in key areas where they have comparative advantage Liberalization of trade - Primary interest to developed countries. Concluding PTAs among themselves Less dependence on developed countries’ markets. Forge stronger alliances at the multilateral trade negotiations PTAs between developing countries Forecast:

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Negotiating free trade agreements is a process. Not objectives in and of themselves but the means to accomplishing a purpose. Conclusion For better or for worse, the dismissal or indefinite delay of the KORUS FTA challenges its viability as a major tool to strengthen economic ties between US and South Korea.