FTA Between Korea and U.S - Research Paper Example

FTA Between Korea and U.S. INTRODUCTION The FTA (Free Trade Agreement) between Korea and the United States (KORUS) was essential in President Obama’s attempts to widen opportunities for American and Korean companies, farmers, and employees. This FTA enhances the access to overseas markets by these companies, farmers, and employees. Both countries signed this agreement on June 30, 2007 and Congress approved it on October 12, 2011 while Korea’s National Assembly signed on it more than a month later (Export.gov 2012). This convention faced stiff opposition from the Korean and American civil institutions. Irrespective of this opposition, the agreements is the largest offshoring convention of its nature since NAFTA. The following paper discusses in depth the proposals of the FTA between South Korea and the United States, the challenges it faces today, and the positive and negative ways it affects South Korea and the United States. PROPOSALS The key proposal of this convention is to double America’s exports in five years under the president’s National Export Initiative. This initiative hopes to double these figures by lowering Korean prices and tariff-rate shares on merchandise only (USTR n.d.). According to United States International Trade Commission, this decrease alone would contribute between $10 and $12 billion dollars yearly to the American GDP. At the same time, this reduction would contribute $11 billion yearly in goods exports to South Korea. KORUS estimates that more than 95% of the two-sided trade in consumer and manufacturing goods would turn into tariff-free business within half a decade since its approval (Manyin 1). In addition, the agreement would get rid of outstanding duties within a decade. KORUS further proposes the instant removal or phasing out of duties and shares on a wide variety of merchandise. This proposal means that nearly 66%, in terms of value, of South Korea’s farm imports from the United States would turn into tariff-free goods. Other industries that benefit from this drastic reduction in tariffs on American exports are manufacturing, automobile, financial products, and ecological initiatives (TRADE.gov n.d.). The agreement also proposes the opening of South Korea’s $560 billion services market to very competitive American firms (Export.gov 2012). This proposition is geared towards offering employment opportunities for American employees in industries such as distribution, communications, education, and healthcare (Allen iii). A third key proposal of this agreement is to encourage the further incorporation of the American and Korean markets and improve their competitiveness of American companies in the globe’s 12th biggest economy. Congress also designed this agreement to propose the relocation of 159,000 American employment opportunities in the first seven years. This proposal means three agreement expects to create around 70,000 employment opportunities for Americans that improved merchandise exports solely will support (Manyin 1). CHALLENGES The FTA between the United States and South Korea faces a number of problems. Trade deficit was the leading challenge for this convention since its approval. Trade deficit is proof of the ineffectiveness of this agreement since its enactment in terms of the proposals made, and signs of progress recorded thus far (Williams, Manyin, Jurenas, and Platzer 14). In 2013, the United States recorded a trade shortfall between its exports to South Korea and vice versa. This shortfall came nearly a whole year following the approval of the FDA between both countries. This shortfall exceeded $20 billion, which is almost a 100% rise from shortfalls recorded before the enforcement of this convention (Cohen 2014). Trade shortfalls between the United States and South Korea pose a serious challenge. Opponents of this FTA condemn its adoption and question its effectiveness (Brinkley 2015). In addition, shortfalls are connected explicitly to employment opportunities. This relationship means more the United States will export more merchandise and services and create more employment opportunities. This increase will not be applicable when these exports an overflow of imports of almost the same merchandise and services from South Korea is dwarfing it. Rather than materializing the proposed 70,000 jobs, the United States lost 40,000 opportunities during the first year of this FTA (Williams, Manyin, Jurenas, and Platzer 14). Another major challenge that this convention faces is origin confirmation. Customs offices implement protocols to ascertain whether an import from an FTA member country meets the standards under which the regulations of origin requirements of the agreement, and is thereby eligible for privileged treatment. In this case, privileged treatment includes reduced tariffs or duty-free movement (Williams, Manyin, Jurenas, and Platzer 13). Since the implementation of this FTA, the United States has been facing negative decisions on American imports like frozen orange juice distillate, chemicals, and vehicles by the South Korean Customs Service. These decisions come about even after nearly five years after the enactment of the FTA between both countries. Third, KORUS faces the challenge of direct delivery goods. American representatives brought up worries that South Korea might not be complying with KORUS provisions that direct deliveries of goods with values below $200 are free of official access document provisions. As a result, shipments slow down and hinder their movement inland, and ultimately business operations (Williams, Manyin, Jurenas, and Platzer 14). Fourth, information transfers are another problem that this FTA faces. KORUS entails requirements that enable monetary services functional in South Korea to dispense information overseas and new policies in South Korea facilitate such operations. American firms have also brought up concerns with the preference afforded officials in finding out whether information offshoring operations are acceptable. The South Korean administration decided to analyze application quarterly of its dedications on information transfers. A fifth challenge is the nature of the proposals of vehicle regulations. The South Korean administration included in KORUS a new parameter on vehicle sales aimed at incentivizing buyers to procure vehicles that emit decreased greenhouse gasses. These vehicles relate closely to the sizes of their engines. On the other hand, American automobile firms are especially worried about a likely tax fine for consumers who buy vehicles that emit more greenhouse gasses. These firms say this fine could proficiently get rid of duty benefits they enjoy through the KORUS FTA (Kirk 2014). EFFECTS OF THE UNITED STATES-SOUTH KOREA FTA Positive. KORUS got the attention of neighboring Asia-Pacific nations in the sense that they wanted to discuss FTAs with the United States shortly after the adoption of this convention. For instance, the pan and third into the TPP negotiations. Japan and South Korea exchange the same goods with the United States. With KORUS, South Korea enjoys a competitive edge in the American market that involves largely reduced American import duties (Williams, Manyin, Jurenas, and Platzer 15). Japan seeks to enjoy the same benefits by entering into an FTA with the United States. This interest was sparked by South Korea’s trade involvement with the United States. Proponents of this FTA argue that this interest is bound to spread to other TPP members wanting to meet the high criteria of a Transpacific Partnership. Under the TPP, the FTA between United States and Korea is a credential that safeguards investors. This action means transnational firms in the invest more in the respective countries. KORUS allowed companies to relocate more employment opportunities overseas to nations such as Vietnam and Malaysia (Williams, Manyin, Jurenas, and Platzer 14). This relocation receives additional security as a form of investment under KORUS. This protection entails the provision of an extended capacity by respective companies to file litigations concerning any regulations or policies against governments that could hurt their anticipated future returns. Other factors that can inhibit these companies’ returns are ecological criteria, public health requirements, and food safety criteria. The third positive effect is the expanding of the institutionalization of the United States economic manifestation within the Asia-Pacific region. The Asia-Pacific region is popular for its economic drive. America is making an effort to prioritize its foreign policy here. The KORUS convention, together with the TPP, are major constituents of the United States approach towards rebalancing the country’s strategic direction toward the Asia-Pacific region. The Obama administration plans to assist in molding the economic regulations that will regulate the region’s economic activity in the next several decades (Williams, Manyin, Jurenas, and Platzer 9). The best way of assisting in this endeavor is through KORUS. KORUS further allows South Korea to be a contributor to RCEP (Regional Comprehensive Economic Partnership) talks. South Korea’s move to discuss and enforce a comprehensive FTA with the United States affects the Asia-Pacific region’s trade policies. As a contributor of RCEP, South Korea figures out the organization and fields involved in the economy of the Asia-Pacific region (Allen iii). Lastly, KORUS emphasizes the pursuit of optional routes to trade freedom after the WTO Doha Round discussions and a multifaceted trading framework. United States and South Korea are key international commerce nations with their two-sided FTA’s playing major roles in the formation and enactment of their trade policies (Williams, Manyin, Jurenas, and Platzer 12). Negative. Adverse effects of KORUS have been limited to future trade conventions between the United States and South Korea. Extensive research about KORUS reveals that its economic effect affects the potential of impending trade alliances or agreements between Asia-pacific nations and developed ones such as the United States and certain EU members. Negotiations over impending trade conventions will certainly have to consider the requirements, elements, parties, benefits, demerits, and progresses made by KORUS to make any crucial decisions about moving forward (Williams, Manyin, Jurenas, and Platzer 15). Currently, KORUS echoes the most recent American commerce and investment regulation urgencies of any present FTA and its requirements possibly act as a basis for existing American trade talks. The conventional also echoes both American and South Korean application of two-sided trade conventions, optional contributions to the WTO, and the multifaceted trading framework, to accomplish commerce and investment freedom. In effect, KORUS affects the trade urgencies of other countries as they take into account involvement in continuing mutual and regional trade freedom negotiations (Manyin 1). CONCLUSION The FTA between the United States and South Korea is known as KORUS, and has an integral role in expanding both countries’ opportunities for investment and improve existing ones. Proposals of this agreement include doubling America’s exports in five years, instantly removing or phasing out duties and shares on a wide variety of merchandise, encouraging the further incorporation of the American and Korean markets, improving the competitiveness of American companies in South Korea, and opening South Korea’s $560 billion services market. Problems that this agreement faces include radically increased trade deficits, origin confirmation, direct delivery goods, information transfers, and proposals of vehicle regulations. This convention has recorded more positive than negative effects. KORUS got Asia-Pacific nations to discuss FTAs with the United States, it serves as a credential for safeguarding American and South Korean investors, expands the institutionalization of the United States economic manifestation within the Asia-Pacific region, and South Korea is now a contributor to RCEP. The single negative effect of this convention is the limitation of future agreements. Works Cited Allen, Brian. U. S. -Korea Free Trade Agreement: Passenger Vehicle Sector Update. New York: DIANE Publishing, 2011. Brinkley, John. Protectionists Disingenuously Attack US-Korea Free Trade Agreement. 2015. Forbes. Web. 29 Apr. 2015. Cohen, Larry. Korea-US Free Trade Agreement Two Years Out: Promise vs. Reality. 2014. Huffington Post. Web. 29 Apr. 2015. Export.gov. The U.S.—Korea Free Trade Agreement (KORUS). 2012. Export.gov. Web. 29 Apr. 2015. Kirk, Donald. U.S. Warns Seoul Of Exporters' Concerns About Free Trade Deal -- The Ball's In South Korea's Court. 2014. Forbes. Web. 29 Apr. 2015. Manyin, Mark E. U.S.South Korea Relations. New York: DIANE Publishing, 2014. TRADE.gov. Why a U.S.-Korea Trade Agreement? n.d. International Trade Administration. Web. 29 Apr. 2015. USTR. U.S. - Korea Free Trade Agreement: New Opportunities for U.S. Exporters Under the U.S.-Korea Trade Agreement. n.d. Office Of The United States Trade Representative. Web. 29 Apr. 2015. Williams, Brock R., Mark E. Manyin, Remy Jurenas, and Michaela D. Platzer. The U.S.-South Korea Free Trade Agreement (KORUS FTA): Provisions and Implementation. 2014. Congressional Research Service. Print. 29 Apr. 2015. Read More