The Effect of Free Trade Agreement: South Korea, USA - Case Study Example

Name: Tutor: Course: Date: The effect of Free Trade Agreement: South Korea, USA The trade agreement between South Korea and the United States is an agreement signed on June 30th, 2007 and came into enforcement on March 15th, 2012. The agreement is also referred as to KORUS FTA. It is the first United States free trade treaty with a powerful Asian nation and the second largest treaty be made by South Korea The primary objective of the agreement was to promote trade among the two countries bearing in mind the significant advantages that come with the business. Such benefits include an increased economic growth in the countries involved, enlargement of the market for the participants and an increased profit for the traders which consequently lead to a rise in their standards. The agreement includes around 362 million customers from the two countries which clearly show how vast the market is for traders. The provision in the agreement allows an elimination of 95% of each state’s levy on traded goods for five years meaning traders are charged less thereby making more a higher profit. It also creates provisions for some multinational finance services. However, the effects of the treaty show otherwise as discussed in this paper; there are both some positive effects and adverse effects as well. A few areas in these two countries will be selected, and the effect of this free trade agreement be speculated. Four years after the agreement, the trade deficit which was there has swelled by 99% which is about 15.4 billion. This is quite an enormous effect on the business. Before the agreement, the trade between the two countries was restricted, and still business between the two countries was still doing well. One of the main provisions of the treaty was to provide a free trade among the two stations with few restrictions something different from what used to happen before. The expectations were that when there are few restrictions on trade across different nations, trade usually flourishes because people see it less tedious regarding having to follow many legal procedures and cheap since when there are certain procedures to follow, there must be payment for them. Many restrictions usually deter many potential entrepreneurs in many ways including lack of enough capital to pay for all legal procedures which they must adhere to. However, this high change of over 99% has shocked many and proper researches should be undertaken to ensure that the objectives of the treaty are met. In Korea, some agricultural products from America have flooded the markets reducing the demand for the local products. This has led to a lot of complaints from the Koreans who have lost their market in their land for their products. They are so bitter such that they are referring the U.S.A agricultural commodities as to ‘dirty cheap products’ and they are doing all they can to discourage the consumer from buying the American agricultural commodities. This is the effort of the treaty, and the Korean government should intervene and explain to the locals the importance of embracing others in the trade. They should let citizens understand the importance of free trade between two different nations and teach them how to accept a healthy competition. On the other hand, the U.S government should encourage its citizens to continue having a positive attitude and not be deterred by the Korean’s actions. This way, the objective set while signing the free trade agreement between the two nations will be achieved. Between a period of two years (2012- 2014), the United States domestic export of vehicles and spare parts to Korea increased by about $ 624 million. In the same period and sector, the imports of United States increased by $7.7 billion. This was all the effects of the treaty which came into force in the year 2012. Before then, both the import and export of vehicles and their spare parts between the two countries was quite small. Vehicles are a major item of trade between the two countries such that it contributed to around 72.5% of the total increase in the manufacturing trade that occurred after the treaty was signed. Korea is a major manufacturer of vehicles, and many United States consumers were ready to buy the high quality and then cheaper cars from Korea. On the other hand, the United States is a major producer of good and high quality of vehicles spare parts which were much needed in Korea. Many locals across the United States were able to buy the cars, and this led to an increased number of U.S.A owning vehicles. The number is expected to rise in the year 2021 when the treaty will take full effect since the U.S still have some tariffs which are meant to protect the local auto industry. In the field of Agriculture, after the signing of the treaty, the U.S export of agricultural products to Korea in the first four years have fallen by 19 percent while the imports have increased by 34 percent. In overall, the U.S trade balance with Korea in this field has reduced by 22 percent. This is a disturbing question, why trade is decreasing despite a provision in the treaty of a two-third of U.S agricultural products by value being exported to Korea duty-free. There can be three possible explanations behind this. To start with, the Korean traders can be more vibrant in the trade of Agricultural products than the U.S dealers. They took advantage of the treaty, and they were able to penetrate the U. S market more than the Koreans. The second reason behind this may be that Korea has a very high production of Agricultural products than the Americans. Another possible reason may be that many Korean’s are not willing to consume products from the U.S. Proper mechanisms need to be put in place through proper research to ensure a balance of trade between the two nations as this is one of the provisions of the treaty. On the same line, around 75,000 of the U.S jobs have been lost within a period of four years after the signing of the free trade agreement. This is mostly in the field of manufacturing where local manufacturing industries are declining due to the import of much cheaper goods from Korea. As a result, those who were working in these local industries lose their jobs. Before signing the treaty, the fact that tariffs were too high for any imports from Korea discouraged traders from importing products from there since they could end up making too little profit of even losses. With the signing of the treaty which significantly reduced the amount of tax levied on goods from Korea, traders can make some reasonably high profits something which motivates them to import more and more manufactured goods from Korea. Many have seen the business to be very lucrative because many consumers are ready to purchase products from Korea since they are of good quality and much cheaper as compared to the manufactured goods from the local industry. The government should take note of this worsening trend and make good well researched and informed decisions. Recently, due to the signing of the treaty and a consequent influx of many U.S entrepreneurs into Korea, the American customs have greatly spread among many Korean locals who are discerning their customs and embracing the new American traditions. This, however, has not been taken lightly with many arguing that this will hamper the Korean’s traditional culture. People have come out to claim that the treaty should provide for the provision of lifestyle protection something which is hard to be achieved. Many are in fact arguing that the discussion on customs can not be worth having before even the agreement start achieving its set goals which make sense. The focus on things such as customs ought to come long after many objectives and targets have been met. Moreover, this is a subject which can be left to the people to make their decisions since people’s culture and customs should be one's preference and should not under any circumstances be dictated. The question of whether the treaty is strictly adhering to environmental standards has been on the rise. This is after people noted that the project had a large effect on the environment especially during the trade of the agricultural products. Any form of commerce agreements ought to consider the consequences that the activities of the people would have to the environment. However, the treaty has still some positive outcomes such as an increased foreign direct investment (FDI) in the two countries. FDI in a country is very beneficial for several reasons. First, it promotes the exchange of ideas among different people. Mainly, foreign investors come with new ideas which most probably never existed before among the locals. Locals get to know those ideas and can borrow from them and set similar businesses something which promotes their lives economically and the economy of their country in general. On the other hand, foreign investors get to learn of new ideas in their new countries which most probably they have never thought of before. Second, foreign investment creates some employment opportunities for the locals. When foreigners come and set up new businesses, they engage the locals as the employees in the firm. Third, FDI increases the income of a country as immigrants bring in capital to their businesses, capital which they could have used in their motherland and benefit their country. This is usually a critical aspect which many governments, yearn for. In fact, many countries across the world have put in place many policies for protecting foreign investors so as to attract more FDI into their countries. The treaty has significantly improved the transparency levels of the Korea’s regulatory authorities and has also played a great role in protecting intellectual property among the citizens of both countries. Before the Treaty, the activities of the Korea’s regulatory authority were unknown to many. There were many procedures put in place by the authorities to protect foreign traders from freely trading in the country. Many U.S operators were unfamiliar with these trading requirements, and many became disinterested. With the signing of the treaty, these many complex laws came to limelight with most of them being abolished. Traders from the U.S better understood the clear legislation of the Koreas regulatory authority and became more interested in doing business in Korea. The treaty helped many citizens in the two countries learn how to protect their intellectual property. Before the treaty, many never knew how to protect their intellectual property. Many could come up with great innovative ideas, but they end up losing them because they lacked the knowledge of intellectual property. These are remarkable improvements brought about by the free trade agreement between the two countries. The government of U.S has however established that it is factored wish are not related in any way to KORUS that contributed to what can be termed as the downfall of the agreement. Between the years 2012 and 2013, there was a slowdown in the economic growth of Korea something which hampered the U.S exports to the country. Exports which were significantly affected by the downfall include mineral fuel, coal. Another explanation behind, these downfall of KORUS at first is the 2012 severe drought in the U.S which led to a decrease of some famous U.S export such as corn. As the economy of Korea continues to recover, the trade between the two countries is becoming better reason as to why the two countries must keep the treaty. In conclusion, although the treaty had adverse effects at first, these two countries ought to follow all the provisions of the agreement. Apart from this, they ought to be undertaking a regular research to establish the effects of the treaty. For all adverse effects, the two governments should make well-informed decisions to handle the situation accordingly. Work cited Subhasisswain. Has the KORUS free trade agreement lived up to its expectations? US-KOREA free trade agreement: pros, cons, and effects. Word Press, 2014. Read More