Dependency Theory in Free Trade Agreements - Term Paper Example

Saniya Varkhandkar Academia Research Assignment 30 June 2007 Dependency theory in FTA - Singapore and South Korea Free Trade Agreements FTAs are mutual, bilateral agreements between countries that are intended to open markets and eliminate trade barriers on goods, services, and agricultural products. The United States has negotiated FTAs with countries around the world, which offer numerous benefits to companies taking advantage of these agreements. The primary objective of an FTA is reduction of trade barriers in the form of import duties, between the countries signing the FTAs. This reduction or elimination of import tariffs creates many benefits for U.S. businesses. The United States and Singapore signed a comprehensive free trade agreement (FTA) on May 6, 2003. The Agreement, which entered into force on January 1, 2004, is the United States' first FTA with an Asian nation and the first FTA signed by President Bush. The U.S.-Singapore FTA expands U.S. market access in goods, services, investment, government procurement, intellectual property, and also promotes labor rights and the environment. This FTA further develops an already well-built commercial relationship with American's 12th largest trading partner This FTA will serve as the foundation for other possible FTAs in Southeast Asia. Singapore hereby saves more than $115 million annually in tariff cuts since the United States is Singapore's second-largest export market. It also generates thousands of jobs in the service, support and manufacturing industries and induces more US companies and their investments to come to Singapore. It also has an economic offshoot to the other region besides Singapore as the US would be looking for similar deals with the rest of the Asian countries. It also helps Singapore garment exports compete more effectively against those made in China or Indonesia. One advantage of the restructuring of the local textile/apparel industry is the greater use of synthetic fibers. This is expected to generate by-product for the local chemical industry which produces synthetic fibers such as lycra and rayon. (Tony Sitathan) At the same time the producers of these products bring foreign investment into Singapore. Singapore is now the third largest recipient of U.S. foreign direct investment in the Asia-Pacific, after Australia and Japan. The FTA also has helped to add momentum to Singapore's initiatives to develop as a regional and global hub for medical technology, financial services, and transport and shipping. Similarly there are various benefits to the United States. (Statement as to how the united states-Singapore free trade agreement serves the interests of United States commerce). Singapore has committed to eliminating all outstanding tariffs on U.S to zero percent. Singapore's financial services sectors, such as banking and insurance are also accessible for U.S. businesses. The FTA also requires Singapore to lessen restrictions on U.S. law firms that plan to form joint law practices in Singapore. Further there are benefits for U.S. telecom service providers. At the same time world-class standards for protection are provided for various forms of intellectual property. Smooth and transparent access to Singapore's market is another benefit for the development of small and medium enterprises. Concrete obligations on customs procedures that will help U.S. cut down additional costs in exports market are also provided. Finally appropriate attention is also given to domestic laws providing for labor standards. At the same time a comprehensive FTA between the United States and Korea will bring about significant economic benefits for both sides. (United States-Korea free trade agreement:a win-win proposition) Korea is an important and attractive trade partner for the United States. It is the seventh largest trading partner and seventh largest export market, and sixth largest agricultural market for the United States. This promises a remarkable opportunity for U.S. businesses and workers. Second, there will be increased access to the Korean market for U.S. farmers, manufacturers, and service providers in various sectors.Third, this agreement will help establish further relations with Asia. Finally it will encourage market opening and economic policy reform in other Asian countries bringing about further growth and development. Korea is also expected to benefit substantially from this agreement. First, an FTA with the United will bring about economic benefits for the Korean economy and increase Korea's real GDP and also help create new jobs. Next, a reduction in prices of daily commodities will benefit Korean consumers. An FTA will contribute to Korea's goal to become an advanced service economy by contributing to economic reform and deregulation in essential services sectors. In addition, the tariff reductions will benefit key Korean export products. Third, an FTA with the United States will assist in moving Korea towards its goal of becoming an advanced developed nation. Fourth, an FTA will make it a more Korea desirable and stronger partner for other countries in the region. Thus it is seen that FTA with Asian countries provides many economic benefits to the United States. However there are certain political implications that explain the U.S. interest in Asian countries. The largest cluster of countries outside of the Americas with which Washington has been negotiating FTAs is in East Asia. (Jacques deLisle) FTAs often serve American national economic interests. As the world's largest economy and the developed world's most dynamic economy, the U.S. can expect to reap a large share of the gains from a more open international economy. Given the importance of East Asian economies in American trade, they make particularly promising FTA partners. The relative openness of many of the region's economies means there is less distance to be traveled between the status quo ante and an FTA. Given the size of the U.S. economy and trade sectors compared to those of its East Asian partners other than Japan and China, the U.S. is often in the position to enjoy the advantages of a favorable imbalance of power in negotiating FTAs. And given the U.S.'s importance as an export market for many East Asian states, regional governments have good reason to seek liberal trading relations with the U.S. Second, the U.S. maintains liberal foreign trade laws and regulations. This also means that trading partners limit their use of illiberal or mercantilist measures. However protectionist sentiment is very much evident in U.S. it is seen that competitively priced exports of the developing countries are blocked by U.S. protectionism while at the same time heavily subsidized U.S. exports flow into their domestic markets. Fourth, FTAs also serve to accomplish security goals that direct U.S. foreign policy, especially in the post-9/11 world and in the face of rising Chinese power. They can be means for strengthening economic relations and greater security cooperation or strategic alignment. Finally, they also can serve as a counter to China's mounting drive to establish FTAs with many of the same states, as well as China's political interests in the region, which threatens the United States. It is thus observed that there are potential benefits to the developed nations like the United States in signing FTAs with the developing nations. At the same time the dependent nations receive little benefits. This is most obvious in the FTA between Korea and US. Even though a free trade agreement might increase South Korea's gross domestic product by 2 percent, the majority of the benefits will go to large businesses. There will be no income for Korean working people and farmers. Free trade would also destabilize South Korea's labor laws, cut wages, eliminate jobs and increase unemployment. (Suk Min Yoon) However FTA for Asian countries still remains an advantageous offer as it brings about liberalization and also spurs economic development. For instance the main motivation for Singapore to sign FTA was not to do away with US trade barriers but rather to bring in foreign investors. Again for Singapore a legally binding agreement provides security for its trade and investments. The position of Singapore's ministry of trade and industry is that ftas accelerate the liberalization of world trade and are stepping stones to multilateral liberalization. Thus it is concluded that the future bilateral FTAs will prove beneficial to the dependent countries. However along with lowering impediments to trade they will also carry trade discrimination and protectionism. Works Cited Tony Sitathan FTA gives Singapore trans-Pacific benefits 21 May 2003. 29 June 2007 Statement as to how the United States -Singapore free trade agreement serves the interests of United States commerce 29 June 2007 United States-Korea free trade agreement:a win-win proposition march 7 2006. 29 June 2007 De Lisle, Jacques "Free Trade Areas: Legal Aspects and the Politics of U.S., PRC, and Taiwan Participation". January 2007. 29 June 2007 Suk Min Yoon "Free trade agreement between U.S. and South Korea is a lie" 2 March 2007. 29 Read More