Korea to become an FTA hub country
Dec 02, 2011
The National Assembly ratified the Free Trade Agreement with the U.S. (KORUS FTA) and a package of 14 bills related to its implementation on November 22. With President Lee Myung-bak’s signing of the bills into law, Korea has become the first Asian country to have signed FTAs with both the EU and the U.S.
“The Korean government will actively and continuously prepare measures for agricultural industries and small- and medium-sized firms for them to reinforce their competitiveness,” said an official from the government. “In the economic difficulties expected next year, we’ll try our best to make this FTA a driving force that improves Korea’s economy and creates more jobs for young people.”
Since the establishment of the World Trade Organization (WTO) in 1995, countries all over the world have been actively signing FTAs. Based on data collected by the WTO, the number of Regional Trade Agreements (RTA) as of October 2011 was 310. Before the establishment of WTO, there were only 43.
Korea also has been actively pursuing FTAs with other countries, starting with the Korea-Chile FTA. As a result of its active endeavors, Korea has signed FTAs with 45 countries including Chile, India, and Peru, and is currently waiting for the KORUS FTA to go into effect.
Since the ratification of the Korea-Chile FTA, the Korean government has established an FTA roadmap in August 2008 to make a breakthrough in the worsening economic environment with its decreasing of exports and the potential growth rate. Korea has pursued FTAs with countries selected for their economic validity, political importance, and economic zones.
Cho Byeong-je from the Ministry of Foreign Affairs said, “After inspecting factors needed for making the KORUS FTA go into effect, we’ll try our best to have it active on January 1 next year as planned.” According to Article 24.5.1 of the KORUS FTA, the FTA becomes effective 60 days after the exchanging of notification documents certifying that both countries have met all the legal conditions and procedures, or a day agreed on by both countries.
Thanks to the KORUS FTA, the economic territory of Korea is broadening, as it will conduct trade with 61% of the world’s economy without tariff.
One of the reasons that Korea has carried forward the KORUS FTA was because the government decided that opening the country is important to the future of Korea. Because of Korea’s high level of dependence on overseas trade, the government saw that growth can be fuelled by expanding trade. The KORUS FTA is especially expected to expand the exports of automobiles, electronics, and fabrics and reinforce Korea’s service industry which could become a key industry for Korea’s development.
According to a report published by the Korea Institute for International Economic Policy (KIEP), the expected effects of the KORUS FTA are much greater than they seem. In the long term, Korea’s GDP is expected to grow by 5.66%, while 350,000 jobs are expected to be created. Benefits for consumers are also expected to improve. More various products made in the U.S. will be imported at lower prices. Researchers forecast the FTA will create 32.1 billion U.S. dollars worth of consumer benefits.
|The KORUS FTA is expected to contribute to a trade increase between the two coutries (Photo: Weekly Gonggam).|
The economic effects of the KORUS FTA also can be predicted through the results of FTAs with other countries. After the Korea-Chile FTA went into effect, exports to Chile have increased by 462% and imports by 218%. Korea’s exports to Singapore also have increased by 106% after the Korea-ASEAN FTA went into effect.
Meanwhile, since the livestock, fishing, and farming industries of Korea will be hit by the KORUS FTA unavoidably, the Korean government also has prepared measures for them. In 2007, it announced measures to support domestic industries, followed by general measures for those industries to reinforce their competitiveness in a free-trade environment.
The Korean government will also provide tax benefits in order to help the stability of those industries, by expanding the credit guarantee for those industries to 3 billion won from 1 billion won, as well as the scope of accident insurance coverage for those industries.
The period for supplying tax-free oil has also been extended to the end of 2015, and additional tax breaks on agricultural and fishery equipment will be applied.
For the next ten years, other industries including the cosmetics and medical equipment industries will receive a total of two trillion and 170 billion won to reinforce their competitiveness. With a development fund of 2.1 trillion won for the livestock industry combined with various other funds, the government will invest around 27 trillion won in total to support the industries expecting damage from the FTA.
By Jessica Seoyoung Choi
Korea.net Staff Writer
Department Global Communication and Contents Division