Yonhap 2007/09/21
U.S. report predicts more export increase than import from Korea FTA
By Lee Dong-min
WASHINGTON, Sept. 20 (Yonhap) -- An independent U.S. agency report on the South Korea-U.S. free trade agreement (KORUS FTA) predicts increases of up to US$11.9 billion in America's gross domestic product (GDP) and as much as $10.9 billion in merchandise exports to the Asian nation.
The report, released by the International Trade Commission (ITC) on Thursday and submitted to the president and the Congress, said imports from South Korea are estimated to increase between $6.4 billion to $6.9 billion as a result of the FTA.
The commission's study gives rosy predictions of the free trade deal as one that benefits the U.S. more than South Korea.
"If fully implemented, the U.S.-Korea free trade agreement is expected to affect the U.S.-Korea trade and investment relationship substantially, including bilateral trade in goods and services, procedures governing trade and investment, and the regulatory environment," the report said.
In specific terms, the report forecast a $10.1 billion-$11.9 billion increase in the U.S. GDP and a $9.7 billion-$10.9 billion increase in exports to South Korea.
Changes in U.S. output and employment would be negligible, the report said, given the much bigger size of the U.S. economy relative to that of South Korea.
Seoul and Washington signed the FTA in June and are pushing for legislative ratification. For the U.S. side, it is the first free trade deal with an Asian country and the largest FTA since the North American trade agreement of 1994.
U.S. Trade Representative Susan Schwab welcomed the commission's findings, saying it "reinforces the fact that the KORUS FTA is the most commercially significant trade agreement the United States has concluded in over 15 years -- and that Congress should act to approve it."
Despite the positive picture, the estimated export increase for the U.S. is not enough to overturn the trade and services deficit with South Korea, which last year well exceeded $12 billion.
The Congress, now controlled by Democrats who traditionally champion labor rights rather than open trade, has not been enthusiastic about the KORUS FTA. Some senior members publicly oppose it, citing what they see as a lack of guarantees toward opening up South Korea's auto market.
The commission was reserved in auto-sector predictions, saying U.S. exports "could experience a large percentage increase" but that the increase would be small in value, given the current small U.S. market share and regulatory environment issues.
"The long-term impact on U.S. exports of passenger vehicles to Korea depends on the implementation of FTA provisions addressing NTMs (non-tariff measures), for example, burdensome standards and certification requirements, taxes, and the opaque regulatory environment," it said.
U.S. imports of South Korean vehicles would be large in value terms, but small in percentage, it predicted, mainly because of low U.S. tariffs.
"Approximately 55-57 percent of this estimated increase in U.S. imports from Korea would be diverted from other import sources," it said.
The ITC report is required under the Trade Act of 2002 on FTAs the U.S. enters into with a foreign country, and it provides a primary basis in congressional deliberations.
"The U.S.-Korea FTA would likely increase U.S. exports to Korea substantially for specific products, particularly in the agricultural sector, where Korea maintains relatively high tariffs and TRQ (tariff rate quotas)," the report said.
But the export increases would occur gradually, it said, with much of the impact back-loaded from interim TRQs and safeguard measures.
"In general, no significant changes in total U.S. output or employment are likely, given the small size of Korea's market relative to that of the United States," it said. South Korean GDP is less than 10 percent of that of the U.S.
On the reverse side, given already-low U.S. tariff rates, "it is not expected that substantial increases in imports to the United States would occur for more than a few products," the report said.
Agricultural exports would increase for grains, animal feeds, fruits, meat products, processed foods and non-alcoholic beverages as such items, and the output and employment could rise as much as 2 percent for the meat sector, the report said.
Exports of machinery, electronics, transportation equipment and passenger vehicles and parts would also experience a relatively large increase, resulting from tariff changes, it said.
High technology products, such as pharmaceuticals and medical devices, would also benefit, said the report.
Import of South Korean textiles and apparel could increase between 85-90 percent, and passenger vehicles between 55-57 percent, the report predicted. But much of that increase is likely to be diverted from other import sources, making output or employment changes negligible at less than 1 percent, it said.
In services, a key benefit is the introduction of "negative list" approach, under which all service industries would automatically be covered by the FTA except for those specifically exempted, according to the report.
"Although increases in market access would vary by industry, the FTA would expand access to Korea's services market and would provide substantial opportunities for financial, telecommunications, professional and audiovisual services," it said.
A South Korean official called the ITC report "balanced" and hoped it will help appease criticism in both Seoul and Washington.
"It rebuts opponents' arguments in both countries. It says while there are benefits for the U.S., it is not unilateral, not at a great cost to South Korea," he said, speaking on customary condition of anonymity.
"For the opponents in the U.S., the report clearly states that the impact on output and employment is minimal."
The Congress has recently moved to vote on an FTA with Peru, expected to pass around Oct. 10. The Panama and Colombia FTAs were signed before the deal with South Korea, and they would by practice be handled in the order they were signed.
But the official cautiously suggested a change in the order, possibly to put the KORUS FTA after the Peru deal. The Panama agreement has been jeopardized by its new head of parliament, Pedro Miguel Gonzalez, who is accused of having killed a U.S. soldier. The passage of the FTA has been linked to his resignation.
For Colombia, despite the push by the White House, which values joint efforts in the war against drug trafficking, the country's oppression of labor activists and unions has become an issue for the Congress.
"We don't expect the KORUS FTA to be voted on this year. We believe the first opportunity would come in spring next year, after the U.S. primaries," the official said.
