Here is a detailed summary of the KORUS FTA (.pdf file), courtesy the Office of the United States Trade Representative. (HT to Gillian)
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Here is a detailed summary of the KORUS FTA (.pdf file), courtesy the Office of the United States Trade Representative. (HT to Gillian)
18 Comments
Except for few items like rice and beef, 95% of all trade tariffs in Korea will be phased out in 3 years. FTA will pass in Korea for sure, but in the US, I have my doubts. The two biggest reasons will be auto and beef.
US automakers do not think Korea’s tariff reduction from 8% to 0% and simplification of tax rules based on engine size, is enough. They want reciprocal trade where if Korea exports 700,000 cars to the US, then Korea will also have to buy 700,000 cars from the United States. Frankly, that defies logic to me. That’s not Free Trade, that’s managed trade. Considering the huge differences in the size and market conditions of the two countries, how in the world can Korea buy 700,000 cars from the US?
As for beef and rice, rice is off the table, but as for beef, come next month, I bet my last dollar the ban on the US beef will be lifted once the world organization declares US beef safe to eat. I think the Korean negotiators needed a face saving way out of this predicament when they have to face an angry mob of beef producers and farmers, and the US side gave them that leeway.
One reason to lament the FTA is that it has brough the dreaded “H-word” back into the headlines:
Korea a new free-trade hub?
Will the trade pact with the U.S. serve as a catalyst for Korea’s rebirth as a free trade hub? A senior Finance Ministry official said the conclusion of the FTA prodded some countries to try and clinch trade deals with Korea as well. Australia has also unofficially asked Korea to negotiate an FTA. (Digital Chosun)
When you look at the document it has great sweeping and inclusive language but lacks the specifics required to evaluate the deal properly.
The lifting on the ban of US beef won’t do much for the tariff on imported beef. Imported beef will still cost 90% of Korean beef and Korean farmers will still demonstrate downtown, fight the KNP and torch a taxi driver or two. They should have considered a fast track on finding southeast asian wives for these guys to keep them home on the weekend.
Vehicles with engines smaller than 3L will have a reduced tariff while the larger engines will still have tariffs. Hyundai and Kia are already making the auto section of the FTA moot. They have built plants in the US so thoses cars won’t be counted as imports and face quotas or tariffs.
Japan did the same thing; Toyota and Honda have built plants in the US and in countries where the US has free trade (Canada and Mexico). Cars produced in the US or those countries don’t count against the import cap of Japanese autos.
Maybe we should look to have US car companies place the US label on the Korean produced cars Hyindai/Kia make for them and import back to the US. The Daewoo Lemans from a few years ago was a Pontiac Lemans in the US.
I am wondering if this FTA with Korea was simply a way to kick-start Japan down the FTA road… That report a bit back regarding the US “getting it right” in Asia talks a whole bunch about the need for a FTA with Japan, but not much of anything is written about ties, free or otherwise, with Korea….
The Japanese papers are paying due dilligence to this FTA, and voices are being to be heard about the need for Japan to begin free trade talks….
Anyway, I am just wondering if there is no real substance in the KorUS FTA because trade with Korea was not the main agenda, getting Japan’s attention was………….. Just a thought……..
Making a bad deal with Korea isn’t likely to serve US interests in negotiating an FTA with Japan or China or anyone else - unless you think someone was clever and devious enough to go through all this bs for the purpose of having Congress torpedo it.
I think American automakers need to realise there is no future for them with or without FTAs, as they no longer have technological superiority and it’s highly unlikely they will get it back ever again. The only way to extend their business lives is to get into alliance with either Japanese or Korean automakers.
Sperwer, I think you hit it on the head. I think this whole BS was done so that the Congress can torpedo it, and get Japan’s attention. This deal is highly unlikely to get through congress, especially since no amendments can be attached (the reason for the deadline). And it HAS gotten Japan’s attention. And I think that was the whole idea. Time will tell….
Well, I guess there’s always hope…
Babarian–Are you a fan of Babar? Great series, even if it’s French.
I’d like to see this ratified, if only because open markets in your home country are better than closed regardless of what the rest of the world does. The FTA may be incremental and misnamed as “free,” but it goes in the right direction.
It’s telling that Roh was disappointed education and medical services weren’t on the USTR’s agenda. It’s much easier for a Korean politician to be seen as “forced” to open up under outside pressure than to actually fight against entrenched local interests (hagwon owners, hospitals) to pass legislation beneficial to the nation.
Wedge, if you think about that for a moment, you’ll realize it’s preposterous.
Since, as I think you’ll agree, we are not talking about free trade but managed trade here, the question comes down to whether it is advantageous to the US to countenance continuing to subsidize Korean producers (and US consumers) at the expense of US producers who are prevented from realizing the benefits of their comparative advantages until, possibly, such time as Korean producers have succeeded in eroding such advantages. One might, for other policy reasons, want to coddle a Korea, especially where allowing US firms to enjoy a competitive advantage in an utterly uncompetitive environment, i.e., one where the locals can’t compete, might slacken their zeal for innovation, but once those extra-economic policy considerations no longer apply (as I would argue is the case with Korea nowadays), it’s folly and economically inefficient (let alone grossly unfair to all but the most competitive firms in the most competitive US industries) for the US to keep leaving the tit out there for Korea Inc to feed.
That is the argument quite persuasively made by Tim Harford in his book, “The Undercover Economist”.
I have been, and now still am, ambivalent about the word “Free” being used in the title of this agreement. It connotes an “opening” of sorts for the two markets to each other but it also seems to solidify the control of governments over what consumers are allowed to have access to. Yet, it doesn’t seem to broach the real problem of “unfair” markets being government subsidies - the main impeteus behind tariffs. Do the tariffs get phased out at the same rate as industry-targeted subsidies or are industries expected to compete in the face of continued government support? Free is hardly the way to describe such a situation. The US agricultural industry and the Korean steel industry are two of the worst offenders in this regard and I don’t see anything in this FTA to resolve that problem. Furthermore, the very idea that governments even have the right to delineate what can or can’t be imported/exported beyond a-bombs and dope renders the word “free” as completely impotent. FTA’s are merely a mutually manipulative attempt to reinforce government control over consumers. This does precious little to create any increase in competition across the board. It merely trades competition in one area for protection in another. A real FTA = end to all subsidies and all tariffs - a fictional possibility I know since that would necessitate both governments laying down power.
Nevertheless, I don’t think this will make much of a change in the short term for the simple fact that this agreement will never contain all of the specific legal legal language necessary to make both sides accountable and willing to enforce it of each’s own accord.
In fact I would rather the FTA have left everything else out and only addressed US agriculture and Korean steel. Completely end the subsidies and tariffs for both of those and that would give some credibility to the word “Free.” Right now its just the crap trade agreement (CTA).
Sperwer–I learned in Econ 101 (or some such) that you’re better off with an open market. Using openings in your own market to force someone else to open his is like saying, “I’ll drink this beer, but only if you do too. Otherwise I won’t.” That’s why the whole global trade system is loony.
Let’s look at a couple of cases. Bush decides it’s a good idea to protect steel jobs in Pennsylvania and slaps a tariff on steel from elsewhere, including real allies like the UK. Yes, the Keystone State keeps jobs otherwise lost, but more jobs are lost in the auto industry, which relies on steel big time. Also, steel companies in the U.S. are given a breather from having to innovate and/or consolidate, thereby putting off the enhancement of their own competitiveness.
Then you have sugar. Somehow, sugar beet farmers in the U.S. have amassed a huge amount of political clout. This has kept tariffs high on imported sugar. Who gets hurt by that? Well, how about candy makers? But guess what, Canada has no sugar tariff, so it makes sense to move your American factories to Canada, where they can enjoy much cheaper inputs, then sell such tariff-free candy back to the U.S. Result: Rich Beet Farmers 1, American Public 0.
I think it is likely the US lawmakers will approve the deal. If they don’t, America will lose out to Canadians who have already been in talks and the Europeans who’ll get into talks shortly, and Aussies and Kiwis are keen to get in too.
No, I’m not a fan of Babar.
There is really only one thing that is traded in FTAs, and that is jobs. Yes, in the normal course of international relations and domestic politics trade barriers and sanctions are implemented as tools of internal or external diplomacy (Wedge’s steel example), but when it comes to full-on trade agreements, the only thing the negotiators are really haggling over is jobs.
Proofs: (1)rice was off the table. Korea has 700,000 citizens with non-transferable job skills in this industry. But they’re all over 50, so the problem will eventually resolve itself. (2) the 25% tariffs on pickup trucks remain - the last source of jobs for America’s anemic auto sector. (3)Beef allowed to open gradually - where Korea has fewer workers, but the timeline for tariff reduction fits those workers’ life expectancy.(4) consumer goods - the area where both sides, but especially Korea, have the most to gain, were opened up. I’m sure there’s more, but I haven’t done my homework.
Whether this deal passes in America or not will be a matter of individual Representatives calculating the impact on employment in their respective districts. Whatever they say to the press, this will be their only consideration.
Regarding education, it’s not the hakwon owners that make up the domestic lobby, it’s the teacher’s union. Consider: Korea tops the OECD 30 in TOTAL education spending, but ranks second last, ahead of Turkey, in government spending on education (per capita basis). What does this mean economically? It means that the bulk of money spent on education is spent in a ‘free market’, where parents can choose among hakwons, private tutors, online courses. It is natural that the best teachers will be attracted to this market. Here they will make money, bad teachers won’t, and will withdraw from the market. Let the pot stew for 30 years, and there will a steady accumulation of untalented teachers in the public sector (the teacher’s union), and talented teachers in the market system. You must realize that the union is aware its members would never make it on the market - they’re just not good enough. They fight like hell against even the most basic government proposals to allow occasional classroom monitoring. They will, figuratively speaking, set themselves on fire before they will consent to market opening, or even any objective evaluation of their performance.
That’s not quite correct.
1) It’s not the sugar beet growers, it’s the sugar _cane_ growers, many of whom are politically-connected Cuban emigres. Not only do they benefit from subsidies, high prices, they achieve their goal of denying U.S. sugar users from purchasing Cuban sugar.
Just google “Fanjul” to see what I’m talking about.
2) You are completely wrong about American candy makers moving to Canada and importing candy into the U.S. Just look at the ingredient label of any sweet, candy bar, or cola sold in the U.S. 99% will contain no sugar — they’re all sweetened with high fructose corn syrup. Disgusting. It’s been a boon for the corn producers, though.