How Does FTA Have an Influence in Korean Economy, Research Paper Example

Introduction

The signing of free trade agreements (FTAs) between South Korea and the U.S. and South Korea and the European Union (EU) presages dramatic and far-reaching economic impacts, which will touch both South Korea and its trading partners, respectively. Inasmuch as South Korea’s economic regime has been export-oriented, with the cardinal imperative of exporting at competitive prices such manufactured goods as automobiles, textiles, apparel, computers, semiconductors, and many others besides, South Korea will benefit precipitously from trade liberalization with these two major economies. But the reduction or elimination of tariffs by South Korea’s trading partners has come at a cost, in that South Korea too has had to reduce or even eliminate trade, and abolish some of its more discriminatory standards.

Surveyed ecumenically, the picture afforded by both KORUS-FTA and KOREU-FTA is remarkably similar. Both the European Union and the United States will benefit from improved access to South Korean markets for their automobiles, various other manufactured goods, and agricultural products, while South Korea will benefit from improved access to European and American markets for its automobiles, textiles and apparel, footwear, computers, semiconductors, etc. Moreover, Korean consumers will benefit from cheaper foreign products, as well as the effects of healthy competition: stronger and more competitive industries. The relationships are not without their sensitivities, shortcomings, and various opportunities for competition, but they are remarkably mutualistic and complementary, indicating that South Korea will benefit from both FTAs considerably.

Economic Impacts of KORUS-FTA

The free trade agreement between the United States and the Republic of Korea (South Korea), known as KORUS-FTA, has significant ramifications for South Korea’s economy, notably with regard to the automobile manufacturing sector. Overall, KORUS-FTA is expected to yield a value of up to US$7 billion for South Korea in exports to the United States, and a value of US$11 billion for the United States in its exports to South Korea.[1] To be sure, however, the implications are wide-ranging: in the agricultural sector, South Korea made a significant compromise for U.S. interests by agreeing to waive duties on nearly two-thirds of the U.S. agricultural goods it imports.[2] Over the course of the next ten years, South Korea will phase out most of the remaining tariffs and quotas; however, a few remaining tariffs and quotas will be phased out still more gradually, by the 23^rd year of the agreement.[3]

KORUS-FTA draws on a long history of economic partnership between the United States and South Korea. This relationship evolved from a donor-recipient relationship, in which the United States provided substantial assistance to South Korea in developing its economy in the wake of the Korean War.[4] The United States remains the largest and most important trading partner for South Korea, both for exports and for imports: in 1999, 20.5 percent of all Korean exports were to the United States, the single largest share, while the United States accounted for 21 percent of Korean imports.[5] A key point here, however, is that South Korea is not as important a trading partner to the United States as the United States is to South Korea, given that the U.S. economy is much larger. Nonetheless, South Korea ranks as the United States’ sixth-largest trading partner, an impressive ranking in its own right.[6]

And since Korea’s economy suffered a downturn in 1998, there has been a significant American trade deficit in the relationship, due to the fact that the downturn impacted U.S. exports to South Korea.[7] As early as 1999, the U.S. deficit stood at $9.4 billion in merchandise trade, with a mere $0.9 billion surplus “in bilateral services trade” to offset it.[8] Korea imports a great deal of U.S. services, notably “travel services, port services, royalties and license fees, education, and other business and professional services.”[9] And yet, in recent times it has been manufactured goods that dominated South Korea’s imports from the United States, at 60 percent; by comparison, South Korean imports of agriculture and raw materials stood at nearly 20 percent, and services with another approximately 20 percent.[10] This is of considerable significance to KORUS-FTA. By comparison, the United States’ imports from South Korea are overwhelmingly dominated by manufactured goods, at over 80%; imports of agricultural products are completely insignificant.[11]

In fact, there is good reason to believe that KORUS-FTA will produce a complementary relationship, rather than a competitive one. A closer look is instructive: U.S. exports to Korea are dominated by “agricultural and food products, chemicals, machinery products, and travel services”, which have between them consistently accounted for some two-thirds of all American exports since 1997.[12] Even more specifically, South Korea’s imports of American products are dominated by “computers, peripherals, and semiconductors… followed by industrial machinery, chemicals, civilian aircraft, and telecommunications equipment.”[13] The comparison and contrast with South Korea’s exports to American markets is very revealing: as with the United States’ exports to South Korea, computers, peripherals and semiconductors play a lead role; however, South Korean exports are dominated by “textiles and apparel, chemicals and plastic, metal products, machinery, and nonpassenger transportation services.”[14] And leading items apart from computers, peripherals and semiconductors include “automobiles; apparel; telecommunications equipment; household goods; and industrial machinery.”[15]

From this, many of the expected economic impacts of KORUS-FTA on both countries are relatively easy to predict. For example, the reduction or elimination of South Korea’s tariffs and tariff-rate quotas (TRQs) is expected to produce a $9.7 to $10.9 billion increase in American exports to South Korea; by comparison, South Korean exports to the United States are expected to increase by about $6.4 billion to $6.9 billion.[16] Another economic impact of KORUS-FTA is expected to be an increase in U.S. services to South Korea, for the key reason that South Korea has agreed to enhance “levels of market access, national treatment, and regulatory transparency” with regard to the United States.[17]

Still another expected impact is an increase in South Korea’s importation of American agricultural products, especially “grains, oilseeds, animal feeds, fruit… vegetables… nuts, dairy products, meat products… seafood, and various processed foods and nonalcoholic beverages.”[18] Prior to KORUS-FTA, South Korea’s agricultural tariffs were exceptionally high: they stood at 52% on average, compared with 12% on average for the United States.[19] The ratification of KORUS-FTA makes “over 60% of US exports of agricultural products to Korea… duty-free immediately”, a list that includes: “wheat, feed corn, soybeans… hides and skins, cotton, almonds, pistachios, bourbon, whiskey, wine, raisings, grape juice, orange juice, fresh cherries, frozen French fries, frozen orange juice concentrate and pet food.”[20] Four agricultural products will be subject to two-year tariff phase-outs: “avocados, lemons, dried prunes and sunflower seeds.[21] Other agricultural products will be subject to a five-year tariff phase-out: “food preparations, chocolate and confectionary, sweet corn, sauces and preparations, other fodder and forage, breads and pastry, grapefruit and dried mushrooms.”[22]

In fact, as Schott explains, rice constitutes the only product of significance that is excluded from the liberalization of trade in KORUS-FTA.[23] This is especially significant because one of the major factors that delayed the implementation of KORUS-FTA was South Korea’s concerns regarding the incidence of bovine spongiform encephalopathy (BSE), also known as “mad cow” disease, in American beef cattle.[24] And South Korea is expected to benefit significantly in the textile and apparel sector, as well as the leather products and footwear sectors, because pre-KORUS-FTA, American tariffs on these items were relatively high.[25]

The automobile and automobile parts sector was one of the most difficult for the two countries to achieve an accord on.[26] In fact, the automobile provisions of KORUS FTA proved some of the most contentious: if concern about bovine spongiform encephalopathy in American beef cattle was South Korea’s cardinal concern about KORUS-FTA, then fears about the impact of South Korean imported automobiles on the United States’ own domestic manufacturers was America’s cardinal concern.[27] Ford, Chrysler, and the United Auto Workers union all spoke for the American automobile industry when they voiced their concerns, and by the time that U.S. President Obama took office the recession had made these concerns all the timelier.[28] The major reason for these concerns was that South Korea’s automobile industry is the more competitive of the two, and the government of South Korea was determined to increase Korean market share in the United States.[29]

For its part, the cardinal objective of the United States was to negotiate the removal of Korean “policies and practices that seemingly discriminate against U.S. auto imports.”[30] Accordingly, the provisions for this section of the agreement are particularly wide-ranging and complex. A key concession on South Korea’s part was the agreement to eliminate tariffs on passenger cars (at 8%) and pickup trucks (at 10%). South Korea has also agreed to modify its engine displacement taxes, with an eye towards reducing discrimination against U.S.-built vehicles: both the three-tier “Special Consumption Tax” and the five-tier “Annual Vehicle Tax” are covered by these provisions.[31]

Another important provision is the agreement to harmonize standards between the two countries.[32] With regards to safety and emissions standards, self-certification will apply to certain U.S.-made vehicles, and South Korea has agreed to adopt the State of California’s methodology for evaluating emissions.[33] For its part, the United States has agreed to waive or phase out its own tariffs. A 2.5% tariff on gasoline-fueled passenger automobiles “with engine displacement up to 3000 cc” will be waived immediately, and another 2.5% tariff on cars with engine displacement capacity greater than 3000 cc “or that are diesel-powered” will be phased out over three years.[34] A further benison for South Korea will be the phasing out of the U.S. 25% tariff on South Korean-manufactured pickup trucks, over the course of ten years.[35] Thus, with the exceptions of computers, peripherals, semiconductors and telecommunications equipment, which evince a competitive trade relationship, most of the South Korea-U.S. bilateral trade evinces a complementary trading pattern. Both countries export commodities from sectors in which their firms have a traditional comparative advantage.[36]

South Korea’s exports to the United States have been increasing steadily since 1996, growing at a compound annual rate of about 7 percent since that year.[37] KORUS-FTA is expected to contribute to this trend, and again, South Korea’s automobile industry will reap some of the greatest benefits. In 2006, gasoline-fueled passenger vehicles possessing engine displacement capacities from 1,500 to 3,000 cc were South Korea’s largest export to the United States, valued at $6.1 billion.[38] However, a key ramification of KORUS-FTA is expected to be an increase in South Korean imports of U.S.-manufactured passenger vehicles, due to the removal of the aforementioned discriminatory taxes and tariffs.[39]

In this vein, it is worthy of note that in 2006 South Korea’s own domestic automobile manufacturing industry accounted for over 95% of its own domestic market, with foreign manufacturers taking only 4.2%.[40] This very small share was in turn divided between European manufacturers, who accounted for 60% of South Korean imports, Japanese manufacturers, who accounted for 27% of Korean imports, and finally by American manufacturers, with just 7%.[41]

But inasmuch as the removal of South Korea’s tariffs is expected to increase South Korea’s imports from the United States, much the same logic applies with respect to South Korean exports to the United States: specifically, South Korea’s automobile and automobile parts sector is likely to gainsay an increase of $1.3-1.7 billion in the U.S. market.[42] With the U.S. reducing and waiving tariffs, South Korean vehicles are expected to be more competitive in the American vehicle market; over time, Korean-manufactured light trucks will enjoy preferential market access.[43] This is indeed very significant for South Korea’s export-oriented automobile sector, which already exports two-thirds of the vehicles it manufactures in South Korea to the American and European markets.[44] South Korea is the world’s sixth-largest automobile market, but the third-largest automobile exporter. And according to Domansky, 41% of South Korea’s total motor vehicle production (including overseas factories owned by South Korean companies) is exported, and the U.S. alone accounts for roughly 35% of South Korea’s exports.[45]

From this it follows that a key ramification of KORUS-FTA is likely to be better brand profiles for South Korean auto manufacturers. As Business Asia explains, Hyundai entered the American market in 1986 and Kia in 1994, and yet both companies lag behind such Japanese heavyweight champions of the American foreign import auto market as Toyota, Honda, and Nissan.[46] Collectively, Hyundai and Kia hold a mere 5% or so of the United States market for light vehicles. However, with the abolition of U.S. tariffs on South Korean vehicles over a five-year period, both companies’ vehicles will benefit from more competitive pricing, which is expected to translate to higher sales and better brand profiles.[47] This in turn is expected to increase their growth in other markets, notably the BRICS nations (Brazil, Russia, India, China and South Africa).[48]

The findings of Lee and Song cast further light on the economic impacts of KORUS-FTA. These authors produced quantitative estimates of the economic impacts, finding that Korea can expect to realize a GDP increase of 0.32 percent, and an overall welfare increase of US$ 170 million.[49] However, this estimate was arrived at using a static model. If a dynamic capital accumulation Global Trade Analysis Project (GTAP) model is used, however, the estimated GDP increase for South Korea is 1.28 percent.[50] However, this is scarcely the whole of the story: a well-recognized problem with these models is their tendency for under-prediction: increased competition and investment tend to yield productivity gains which the models simply do not take into account.[51] Accordingly, the authors ran a scenario wherein South Korea’s manufacturing sector experienced a 1.2-percent increase, and South Korea’s service sector a 1-percent increase. They found that in this scenario, with the dynamic effects of productivity accounted for, South Korea would experience a GDP increase of 5.97 percent and a welfare increase of US$ 2,086 million.[52]

With regards to trade volume, the findings of Lee and Song are again very instructive. These authors estimated an increase of US$ 1,387 million for South Korea’s manufacturing exports to the United States, and an increase of US$ 591 million for the United States’ manufacturing exports to South Korea. This produces an overall increase of US$ 796 million in South Korea’s manufacturing trade surplus with the United States.[53] Three of South Korea’s manufacturing exports to the United States stand out by virtue of their expected increases: transportation, at US$ 836 million; textiles, at US$ 194 million, and electrical products at US$ 160 million.[54]

By comparison, the three South Korean manufacturing imports from the United States anticipated to yield the greatest increases are: “chemicals (US$ 108 million), electrical products (US$ 126 million), and machinery (US$ 90 million).”[55] Furthermore, an important point has been raised: short-term impacts are not the same as long-term impacts, because of gains due to productivity. Lee and Song found the greatest short-term benefits to South Korea’s productivity “in the textile and clothes (16.58 percent) sector, and the food products (16.43 percent) sector.”[56] However, there will also be negative short-term impacts: crops are expected to be hit with a short-term impact of -32.33 percent; machinery with -4.5 percent, and metal and metal products with -3.56 percent.[57] Again, though, in the longer term, liberalization is likely to offset the vast majority of these losses, with significant gains in both the manufacturing and service sectors. Only the crop sector and meat products sector are likely to experience long-term losses, at -34.11 percent and -4.09 percent, respectively.[58]

Clearly, the KORUS-FTA holds much promise for mutual benefit to both South Korea and the United States. South Korea will benefit from increased exports of not only automobiles, but also textiles, apparel, leather, shoes, and other manufactured goods and services. The United States will benefit from increased exports of agricultural and food products, some manufactured goods, including automobiles, and services. The main detriment that South Korea is likely to experience will be felt by the agricultural sector: both crops and meat products are not likely to recover. However, South Korea’s automobile industry will be one of the major beneficiaries: the elimination of American tariffs will lead to increased sales in the United States, leading to better brand profiles for Hyundai and Kia in particular.

The truly interesting thing is the degree to which KORUS-FTA highlights the complementarity of the two countries’ economic interests and strengths. To be sure, there is some competition, notably with regard to computers, semiconductors and telecommunications equipment, and South Korea’s agricultural sector is predicted to experience long-term losses, but overall both countries stand to benefit from an increased ability to export goods and services in industries in which they have a competitive advantage. Both parties have made many compromises, but both can expect to reap considerable benefits.

Economic Impacts of KOREU-FTA

The bilateral FTA between the 27 nations of the European Union (EU) and South Korea, known as KOREU-FTA, is similar in many respects to KORUS-FTA. As with KORUS-FTA, KOREU-FTA builds upon a history of economic interchanges in the form of trade and investment flows between the two parties, albeit a more recent one than in the case of KORUS-FTA, as this relationship goes back only about a decade.[59] Like KORUS-FTA, KOREU-FTA is extremely comprehensive: tariffs on most goods and services were abolished as soon as it came into effect in 2011.[60]

South Korea has estimated that KOREU-FTA will gainsay it an annual average increase of 0.56% in real GDP, and some 253,000 jobs.[61] Using a different model, another estimate arrived at was an increase of some 5 percent, at least.[62] Indeed, the agreement is expected to double trade between the two partners. Another impressive milestone: it is the second largest FTA ever, “eclipsed only by the $1 trillion North American Free Trade Agreement among the U.S., Canada and Mexico that began in 1994.”[63] To give an idea of the volume of trade entailed in this agreement: “in 2008 and 2009, bilateral trade between EU and South Korea topped $98.4 billion and $78.8 billion respectively”, and a conservative estimate of the growth in trade is at least 20 percent.[64]

As with the U.S., the EU is a much larger market than South Korea: 492 million people and a GDP of about $14.4 trillion, compared to 48.6 million in South Korea, and a GDP of $1.4 trillion.[65] This imbalance is reflected in the relative importance of each party to the other: 2% of EU merchandise exports in 2009 were to South Korea, making it the EU’s 12^th-largest export market; South Korea accounted for 3% of EU imports in that same year, making it the 9^th-largest source of EU imports.[66] By way of comparison, in that same year the EU’s 13% share of South Korea’s merchandise export market was second only to China with 24%.[67]

In the year 2011, the EU exported some €32.4 billion of goods to South Korea, while South Korea exported some €36.1 billion to the EU.[68] Of these items, both countries exported many of the same kinds of things to each other: “power/non-electrical machinery, chemicals, transport equipment, optical and photo equipment and base metals.”[69] Clearly the ramifications of KOREU-FTA upon these industries will be profound.

The export of South Korean automobiles proved a major sticking point in the negotiation of KOREU-FTA, as with KORUS-FTA. As with KORUS-FTA, South Korea’s objective was to capture more market share through reduced tariffs.[70] Like the United States, however, Europe was concerned about the economic impacts of increased South Korean imports: EU policymakers feared that European automakers would suffer from competition with South Korean automakers. Also as with American policymakers, EU policymakers sought to abolish South Korea’s tariffs and discriminatory safety and emissions regulations.[71]

KOREU FTA also includes a duty drawback mechanism, an expedient that has proven especially controversial: as Cooper et al. explained, this mechanism “allows an exporter to receive a rebate of any customs duties paid on imports that were integrated into the exported product.”[72] This is likely to be of especial relevance for automotive exports. For example, South Korean automobile manufacturers could purchase parts manufactured in “low-cost countries such as China,” use them to manufacture their vehicles in South Korea, and then reclaim the duties upon shipping the cars to the European Union.[73] Thus, a Chinese radio that would cost an EU importer a 14% tariff can now enter the EU as a part in a South Korean vehicle, where it will be subject to duty drawback.[74]

With its export-oriented economic model, South Korea relies heavily on trade, and the EU was already a major trading partner. Korea’s major exports to the EU include “automobiles, semiconductors, computers, ships and wireless telecommunications devices.”[75] For its part, the EU exports such commodities as “machinery, semiconductors, jewelry and a range of chemicals.”[76] Indeed, manufactured goods constitute 94% of South Korea’s exports to the EU, and over 80% of the EU’s exports to South Korea. As with the trading relationship between South Korea and the US, the trading relationship between South Korea and the EU is characterized by a great deal of intra-industrial trade.[77]

Bilateral trade in services is certainly significant, but it is smaller than the trade in merchandise. Both partners export the same offering of services to each other: “transportation, business services, travel and receipts and royalties from the use of intellectual property.”[78] The only exception of any significance is financial services, which the EU exports to South Korea, but South Korea does not export to the EU to any significant degree.[79] The EU’s exports of services to South Korea have been growing precipitously in recent years: they grew by 42 percent from 2004-2008. By comparison, South Korea’s exports of services to the EU grew by 36 percent over the course of this same period.[80]

Thus, as with the U.S., there is a great deal of complementarity between the EU and South Korea in terms of trade: while South Korea has held a surplus vis-à-vis the EU with regard to manufactured goods, the EU has held a surplus vis-à-vis South Korea in the services sector.[81] In 2010, EU exports of services to South Korea were valued at €7.5 billion, while South Korean exports of services to the EU were valued at €4.5 billion.[82] Services, then, will be affected substantially and significantly by KOREU-FTA, and the value of these exported from Europe to South Korea is likely to increase. However, the same could be true in reverse as well: with more liberalization of the services sector, South Korean service providers will be better positioned to enter the European market and/or expand market share.

For Europe, the automobile sector was the most contentious and sensitive part of KOREU-FTA, precisely because European policymakers feared that an influx of South Korean automobiles would cripple the European automobile industry.[83] However, South Korea had concerns of its own, and they included many more sectors: “services, machinery, chemicals, agriculture and processed foods.”[84] South Korea secured a key concession from Europe with regard to barley and rice, which were given special treatment. Overall, the agricultural sector was given an adjustment period, in order for South Korea to make the necessary transitions preparatory to trade liberalization.[85]

Indeed, with regards to agriculture, KOREU-FTA is very similar to KORUS-FTA. In 2009, the European Union exported some $1.4 billion of agricultural products to South Korea, accounting for some 5% of “total EU merchandise exports to that country.”[86] Of these, the leading five agricultural products were “pork, whiskies, corn, wine, and chocolate,” which accounted for 42% of the total.[87] By contrast, South Korea is not a major exporter of agricultural products to the EU. Over the course of 20 years, KOREU-FTA will eliminate South Korea’s duties on European agricultural products.[88] Thus, the agricultural provisions of KOREU-FTA will benefit the EU with improved access to Korean markets, and will benefit Korean customers with regards to options and cost.

In addition to automobiles, pharmaceuticals and electronics were key concerns for Europe, and key areas in which South Korea displayed a great deal of flexibility and compromise.[89] As the European Trade Commission explained, KOREU-FTA includes “far-reaching provisions to address non-tariff barriers which have been perceived by EU industry as the most significant obstacles to export to Korea”, especially with regard to the automobile industry.[90] South Korea’s reduction or elimination of tariffs on EU goods, including industrial, fishery and agricultural products, is expected to net a savings that will eventually reach €1.6 billion. And of course, this savings will be felt by Korean customers.[91]

South Korea agreed to eliminate the tariffs placed upon many pharmaceutical products, which had previously stood at 8%; tariffs on other pharmaceutical products will be phased out over the course of some three years.[92] As for medical device exports, the tariffs once exacted of these will also be removed: as with the pharmaceutical dues, many were removed at once, whilst others will be phased out over the course of three years, or longer in the case of some select products, few in number.[93] These were indeed significant concessions, the more since the South Korean authorities have also given assent to bringing South Korea’s practices in line with those of international standards.[94]

Of the sectors and products that will appreciate savings, both machinery and appliances will constitute the largest share, with gains approaching even €450 million.[95] And some 70% of said duties were waived entire, the very day that KOREU-FTA entered into actuation.[96] Consumer electronics will benefit: KOREU-FTA addresses Korea’s lack of recognition of international standards.[97] And concerning textiles and apparel, KOREU-FTA abolished 92% of all tariffs at once, and the remaining 8% of tariffs will be duly eliminated over the course of the next successive five years.[98]

If machinery and appliances are the sector to benefit most, then the chemical sector will benefit second-to-most: it will be unburdened from some €175 million in duties, and some €143 of duties have been summarily removed already.[99] Of the duties pertaining to European Union textile exports to South Korea, some 93% of these will be waived at once. The same figure is 85% for glass, 84% for leathers and furs, 95% for footwear, 93% for iron and steel, and 91% for optical instruments.[100] European companies will be able to sell more of their products in South Korea, to be sure, and South Korean customers will be able to buy them the more.

The KOREU-FTA is expected to benefit automobile manufacturers in both the EU and South Korea. The agreement will eliminate all tariffs on automobiles over the course of three to five years.[101] South Korea stands to gain the most from this part of the agreement, given the export orientation of its automobile industry. However, European automobile manufacturers will also gain, since the elimination of tariffs and the abolition of discriminatory taxes and regulations will make their vehicles more competitive in the South Korean market.[102] Moreover, there is a great deal of complementarity in the KOREU-FTA’s liberalization of the services sector, which will make European services the more competitive in South Korea. Thus, South Korea will probably benefit more from liberalization in the automobile sector, while the EU is expected to benefit more from liberalization in the services sector.[103]

And to be sure, South Korean automobile manufacturers already perform very well in Europe’s automobile market. South Korea has some very substantial revealed comparative advantages (RCAs) with respect to the European market for cars, trucks, and buses.[104] Concerning cars and trucks, South Korea improved its RCA position compared with 1995; however, the trend for buses inclines towards the negative. And KOREU-FTA is likely to reify and strengthen these trends, due to the far-reaching effects of trade liberalization.[105]

The above notwithstanding, it is already very clear that one impact of KOREU-FTA on South Korea is a dramatic increase in imported European automobiles. Within nine months of the signing of the agreement, South Korea’s imports of European vehicles rose by 27.4%.[106] In fact, South Korean imports of European vehicles may surpass 100,000 units, a historic first. Again, the driving factor is KOREU-FTA: liberalization of trade is already having pronounced impacts on both partners. Of the automobile brands that have experienced the most salutary and notable growth, the German brands have performed the best: growth of 28.4% for the quarter.[107] They are in turn followed by British brands, such as Jaguar and Land Rover. These British brands have experienced an increase in sales of 27%. The French brands, last of all, have also experienced substantial growth: up 26.3%, not much behind the performance of the British and German brands.[108]

KOREU-FTA is certainly expected to have a major impact on South Korea’s automobile industry: particularly in light of the recent economic meltdown, South Korean automakers are looking to recover in order to expand sales.[109] Despite the precipitous collapse of demand in 2008, as early as 2010 the market began to rebound. Now, with the approval of KOREU-FTA by both parties, South Korean automobile manufacturers are looking to expand considerably into the EU. In their favor is the fact that their vehicles are relatively inexpensive, giving them a potential competitive edge, the more since cheaper and smaller vehicles are also more fuel-efficient.[110]

Concerning those further provisions of the agreement applying specifically to automobiles, the EU is making a significant concession to South Korea as well: the elimination of the 10% tariff on small cars with engine displacement capacities smaller than 1,500 cc.[111] This will certainly be beneficial to Korean automakers, such as Kia and Hyundai. As for South Korea’s own tariffs, the 8% tariff on EU imports will be phased out over the course of some three to five years, “depending on engine displacement size.”[112] Again, as with KORUS-FTA, both parties stand to benefit from the liberalization of their trade in automobiles, and so do the customers of both parties, not the businesses alone.

Discussion and Conclusion: What, then, to make of KORUS-FTA and KOREU-FTA? This much may be readily ascertained: both Agreements bring significant economic consequences for South Korea, the vast majority of which will be very beneficial. South Korean consumers will gain more choice in foreign goods, while South Korean companies will be able to increase their market shares in the EU and the U.S. The impact will be somewhat less dramatic and precipitous in both the EU and the United States, inasmuch as these parties are much larger and have vastly larger economies, but it will be notable and will also generally be quite beneficial: American and European consumers will gain options in some Korean products, notably cars, and automobile manufacturers in both Europe and the United States will gain some market share amongst South Korean consumers.

The essential complementarity of the trade is a great asset for both parties in both agreements. Even the automobile industry, which was a sensitive issue for both Europe and the U.S., demonstrates this: South Korea is far more export-dependent, both in general and with respect to its automobile industry in particular, than either the U.S. or the EU. Trade liberalization will likely benefit companies in both parties in both agreements, in that their foreign market share will have a chance to grow—even as they will have to watch for competition in their respective domestic markets. Beyond the automobile industry, the effects are more obviously complementary: South Korean consumers will gain access to many American agricultural products at much cheaper prices; although this will harm the agricultural and meat sector even in the long run, it will also be an impetus to competition. And any losses in this sector will be recouped in other sectors.

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Lee, Hongshik, and Backhoon Song. “Quantitative Estimates of the Economic Impacts of a Korea-United States Free Trade Agreement,” Asian Economic Papers 7, no. 2 (2008): 52-73, http://search.ebscohost.com/login.aspx?direct=true&db=eoah&AN=14475640&site=ehost-live

Platzer, Michaela D. Pending U.S. and EU Free Trade Agreements with South Korea: Possible Implications for Automobile and Other Manufacturing Industries. Washington, D.C.: DIANE Publishing, 2010.

Schott, Jeffrey J. “Why the Korea-United States Free Trade Agreement is a Big Deal.” SERI Quarterly 4, no. 3 (2011): 22-29, http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=63193000&site=ehost-live

U.S. International Trade Commission. U.S.-Korea Free Trade Agreement: Potential Economy-wide and Selected Sectoral Effects. Washington, D.C.: DIANE Publishing, 2007.

[1] Business Asia, “KORUS of approval,” Business Asia 43, no. 22 (2011): 7-8, http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=69936831&site=ehost-live

[2] William H. Cooper et al., The Proposed U.S.-South Korea Free Trade Agreement (KORUS FTA): Provisions and Implications (Washington, D.C.: DIANE Publishing, 2010), 4.

[3] Ibid.

[4] Inbom Choi and Jeffrey J. Schott, Free Trade Between Korea and the United States? (Washington, D.C.: Institute for International Economics, 2001), 11.

[5] Ibid.

[6] Ibid, 11-12.

[7] Choi and Schott, Free Trade Between Korea and the United States?, 12.

[8] Ibid, 13.

[9] Ibid.

[10] Ibid, 20.

[11] Ibid.

[12] Choi and Schott, Free Trade Between Korea and the United States?, 20.

[13] Ibid.

[14] Ibid.

[15] Ibid.

[16] International Debates, “Potential Economic Impact of KORUS FTA”, International Debates 9, no. 8 (2011): 20-21, http://search.ebscohost.com/login.aspx?direct=true&db=a9h&AN=67062892&site=ehost-live

[17] International Debates, “Potential Economic Impact of KORUS FTA”, 20-21.

[18] International Debates, “Potential Economic Impact of KORUS FTA”, 20-21.

[19] Don Clark, “Intraindustry Specialization and the Proposed Korea-United States Free Trade Agreement,” International Economic Journal 23, no. 2 (2009): 183, http://search.ebscohost.com/login.aspx?direct=true&db=eoah&AN=19029637&site=ehost-live

[20] Ibid.

[21] Ibid, 183-184.

[22] Ibid.

[23] Jeffrey J. Schott, “Why the Korea-United States Free Trade Agreement is a Big Deal,” SERI Quarterly 4, no. 3 (2011): 24, http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=63193000&site=ehost-live

[24] Ibid, 26.

[25] International Debates, “Potential Economic Impact of KORUS FTA”, 20-21.

[26] Cooper et al., The Proposed U.S.-South Korea Free Trade Agreement, 5.

[27] Schott, “Why the Korea-United States Free Trade Agreement is a Big Deal,” 26-27.

[28] Ibid.

[29] Cooper et al., The Proposed U.S.-South Korea Free Trade Agreement, 5.

[30] Cooper et al., The Proposed U.S.-South Korea Free Trade Agreement, 5.

[31] Ibid.

[32] Cooper et al., The Proposed U.S.-South Korea Free Trade Agreement, 5.

[33] Ibid.

[34] Ibid.

[35] Ibid.

[36] Ibid, 21-23.

[37] U.S. International Trade Commission, U.S.-Korea Free Trade Agreement: Potential Economy-wide and Selected Sectoral Effects (Washington, D.C.: DIANE Publishing, 2007), 1-6.

[38] Ibid.

[39] Ibid, 3-74.

[40] U.S. International Trade Commission, U.S.-Korea Free Trade Agreement, 3-74.

[41] Ibid.

[42] U.S. International Trade Commission, U.S.-Korea Free Trade Agreement, 3-82.

[43] Ibid.

[44] Michaela D. Platzer, Pending U.S. and EU Free Trade Agreements with South Korea: Possible Implications for Automobile and Other Manufacturing Industries (Washington, D.C.: DIANE Publishing, 2010), 8.

[45] Leon R. Domansky, ed., Automobile Industry: Current Issues (New York: Nova Science Publishers, 2006), 10.

[46] Business Asia, “Trading Places,” Business Asia 44, no. 1 (2012): 5, http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=70836317&site=ehost-live

[47] Ibid.

[48] Ibid.

[49] Hongshik Lee and Backhoon Song, “Quantitative Estimates of the Economic Impacts of a Korea-United States Free Trade Agreement,” Asian Economic Papers 7, no. 2 (2008): 69, http://search.ebscohost.com/login.aspx?direct=true&db=eoah&AN=14475640&site=ehost-live

[50] Ibid.

[51] Ibid.

[52] Ibid, 70.

[53] Lee and Song, “Quantitative Estimates of the Economic Impacts of a Korea-United States Free Trade Agreement,” 70.

[54] Ibid.

[55] Lee and Song, “Quantitative Estimates of the Economic Impacts of a Korea-United States Free Trade Agreement,” 71.

[56] Ibid.

[57] Ibid.

[58] Ibid, 71-72.

[59] William H. Cooper et al., The EU-South Korea Free Trade Agreement and Its Implications for the United States (Washington, D.C.: DIANE Publishing, 2011), Summary.

[60] Ibid.

[61] Country Report, “Economic policy,” Country Report: South Korea 11 (2010): 12-13, http://search.ebscohost.com/login.aspx?direct=true&db=mth&AN=55257295&site=ehost-live

[62] Surojit Chatterjee, “EU, South Korea ink historic FTA to strengthen ties, double bilateral trade,” IBTimes.com, last modified Oct. 6, 2010, http://www.ibtimes.com/articles/69211/20101006/eu-south-korea-ink-historic-fta-to-strengthen-ties-double-bilateral-trade.htm

[63] Ibid.

[64] Ibid.

[65] Cooper et al., The EU-South Korea Free Trade Agreement, 2.

[66] Ibid.

[67] Ibid.

[68] European Commission, “Trade: Countries: South Korea,” Ec.Europa.eu, last modified Jun. 18 2012, http://ec.europa.eu/trade/creating-opportunities/bilateral-relations/countries/korea/

[69] Ibid.

[70] Cooper et al., The EU-South Korea Free Trade Agreement, 7.

[71] Ibid.

[72] Cooper et al., The EU-South Korea Free Trade Agreement, 12.

[73] Ibid.

[74] Ibid.

[75] Dilip K. Das, “The EU-Korea Free Trade Agreement: Making of a ‘Deep’ Free Trade Agreement,” Global Economy Journal 12, no. 1 (2012): 2.

[76] Ibid.

[77] Ibid.

[78] Das, “The EU-Korea Free Trade Agreement,” 2.

[79] Ibid.

[80] Ibid.

[81] Ibid.

[82] European Commission, “Trade: Countries: South Korea.”

[83] Das, “The EU-Korea Free Trade Agreement,” 7.

[84] Ibid.

[85] Ibid.

[86] Cooper et al., EU-South Korea Free Trade Agreement,

[87] Ibid.

[88] Ibid.

[89] European Trade Commission, The EU-Korea Free Trade Agreement in Practice (Belgium: European Union, 2011), 3.

[90] Ibid.

[91] Ibid.

[92] Cooper et al., EU-South Korea Free Trade Agreement, 11.

[93] Ibid.

[94] Ibid.

[95] European Trade Commission, The EU-Korea Free Trade Agreement in Practice, 4.

[96] Ibid.

[97] Cooper et al., EU-South Korea Free Trade Agreement, 12.

[98] Ibid.

[99] European Trade Commission, The EU-Korea Free Trade Agreement in Practice, 4.

[100] Ibid.

[101] Das, “The EU-Korea Free Trade Agreement,” 5.

[102] Ibid.

[103] Ibid.

[104] Oliver Heneric, Georg Licht, and Wolfgang Sofka, eds., Europe’s Automotive Industry on the Move (Heidelberg, Germany: Physica-Verlag, 2005), 55.

[105] Ibid.

[106] France Autos Report, “Regional Overview,” France Autos Report: Q2 2012 2, (2012), 17-18, http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=73502152&site=ehost-live

[107] Ibid.

[108] Ibid.

[109] Automotive Industry Report, “Automotive Report: South Korea,” Automotive Industry Report 3, no. 1 (2011): 10, http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=62525181&site=ehost-live

[110] Ibid.

[111] Platzer, “Pending U.S. and EU Free Trade Agreements with South Korea,” 13.

[112] Ibid.