How Does Free Trade Agreements Affect the Relationship Between the USA and South Korea - Essay Example

and Section # of How does FTAs (Free Trade Agreements) affect between U.S and South Korea South Korea got independence in 1948 and the same year the Korea was divided into two countries, South Korea and North Korea. The extraordinary relations between United States and South Korea were witnessed from the beginning. Either it be political, military and economical. South Korea is one of the biggest markets for American goods. But this is one sided, not the same for United States. The same was felt by South Koreans after some time. And due to this reason, the talks for Free Trade between United States and South Korea started. And now they are finally reached an agreement for free trade between two countries. And South Koreans are quiet happy over it, because South Koreans economic analysts felt that as a unilateral threat. It was announced on 2nd February, 2007 and was finalized on 2nd April 2007. It is believed to be the second biggest Free Trade agreement by United States. South Korea is one of the largest exporters in auto market and also electronics market, so there is a lot of scope for Korean goods in United States. Now the ninety percent tariff would be eliminated on goods being imported from these countries. After Free Trade agreement they can easily export their goods in United States, which was a major concern of Koreans. They used to think that United States is taking more benefits from their country, as Korea is one of the biggest markets for US goods, so it was the reason that they consider economic ties between United States and Korea as unilateral instead of bilateral. The Free Trade Agreement or Treaty between United States and South Korea is beneficial and profitable for not only the governments who will definitely gain a lot of profit but mainly for the people of two countries, who will likely to be the major winners in this situation. They will have access to the new products on a reasonable price and also they will get new jobs, which is a result of new industries and investments. The trade relations between United States of America and Korea ultimately started in 1882. Although the western countries tried to establish their trade relations with Korea but their doors were closed for them. US helped in Korean independence and also played a major role in dividing two Koreas after World War II and like this two Koreas were formed, North Korea and South Korea. The relations between United States and South Korea are widespread from the beginning, since its independence in 1948. They shared great ties in political, economical and military grounds. US troops have been deployed in South Korea, as accordingly South Korea faces a serious military threat by its not-so-friendly neighbor, North Korea, but there comes a tragic incident of death of two girls by US troops in an accident during their training. The rage of nationalism hits South Korean at that point and now US is withdrawing its troops. Although they got internal pressure from their own country regarding this, as there are voices heard for that how economically expensive it is to deploy their troops in South Korea and that is also just for the threat by some other country. Although President Bush accused North Korea, along with Iran and Iraq as the "Axis of Evil", in his early days of president ship but now with the recent peace developments between North and South Korea, there is little need for US troops. The first reason for this is the insecurity felt by South Koreans regarding their trade relations with United States. South Korea is included in ten biggest markets of United States goods, which means that United States is earning a lot of revenue from South Korean market. But it is not the same with South Korea. They were not earning much from United States and this was what makes South Koreans insecure about this relationship. The analysts used to call it "unilateral relation"1. I think that with the background of this reason, it is the best that United States did. United States already have strong ties with South Korea, whether it is political, military or economical. So there is no harm that now we got a proper Free Trade agreement between two countries. And South Korea is one of the biggest importers of auto goods and electronic equipments, so United States will surely take advantage of South Korean goods that will definitely a good turn in the relationship with the country. South Koreans even made a protest for the delays in this treaty. The Free Trade agreement made headlines in Korea, but US media did not gave it proper coverage, may be that according to them it was not a big deal. Korea is now the eleventh largest economy in the world, so there is no chance that United States is wasting its time and resources over this deal. This deal is beneficial for both of the countries. Although many people in United States does not count South Korea as a sophisticated economy, but policy makers are determined to change this view2. As discussed earlier that United States' public and investors are quiet reluctant this deal, though South Korea is an emerging economic power in the region, they got a stable economy, but still general public in US do not think of South Korea as a partner in Free Trade. There are few fears regarding this. They decided in the beginning of the agreement about the things that United States don't want to import in the country. They would not like to import goods from Kaesong Industrial Region, which is at the border of North and South Korea. There are few political reasons behind this, as United States is not on a friendly terms with North Korea, so because of these security reasons they decided not to buy any good from that area. And we know that after peace talks with North Korea, South Korean companies and governments started employing people from North Korea as well. But they are limited to the non military zone that is the border between the two Koreas. According to Professor Robert M. Stern, United States and South Korea both have their interests in this treaty. In his words, United States' interests are "myriad" but South Korea's interests are limited and for short term. He gave his analysis based on the Global Trade Analysis Project and also on the base of General Equilibrium Model. He said that "show that multilateral free trade . . . may increase U.S. economic welfare . . . by 3.5 percent . . . and Korea's . . . by . . . 12.8 percent. . . .3" South Korea lies in a politically important area. It is neighbored by China, Japan and North Korea. All these countries are strategically important for United States. And from the strategic and military point of view, it is the best option for United States to have good and strong ties with South Korea. It will help the United States to have a firm place in that area and also from the strategic point; United States can make its presence easily. United States is deploying its troops in South Korea from decades and the main objective was to protect South Korea from North Korea. But like this United States was able to keep an eye on North Korean activities. Which is allegedly involved in creating the Weapons of Mass Destruction, which is not only against United States interest but also against the world's peace It will destroy the balance of power in the region. So having strong ties, whether economical, military or social, with South Korea is very much in interest of United States of America. In the same conference, Professor Robert M. Stern pointed the welfare effects of this treaty on both countries, which is the last column in the treaty. There are a lot of welfare advantages on South Korea, United States and also on the other countries of the world, who are indirectly affected to it4. The welfare effects of this treaty are extensive. The first welfare effect would be on the South Korean. The middle class society of both countries would be benefited by this treaty. The goods will be available on lower prices and they can purchase it easily. Competition will be increased in the market between different companies. Because of this the price will fall and things will come to a reasonable price that will be reachable by majority of people in the country, specially the middle and lower middle class. They can buy the luxury items on an affordable price. Korean auto market is one of the largest in the world, so Americans can buy good cars and bikes from Korean side. And Koreans will be benefited, as new jobs will be produced in result of industrial growth. Although their industry is quiet well even now, but still it will be extended after this treaty. New investors will invest in Korea specially the Americans and European investors, which will boom the Korean industry and will surely help them in future. According to Professor Anne Krueger, Untied States had great benefits due to its trade with South Korea, and she thinks that all of them are "on the macro side". And she says that there is a dramatic change in South Korea's economic position. It was the third poorest economy of Asia in 1960's but now it is one of the most glowing one in the world5. Professor Anne Krueger gave a valid reason for joining Free Trade with South Korea. South Korea got the potential to become the world's important economy, and then if United States is getting a chance then why shouldn't they take advantage of it. She said that in 1960's it was the Asia's third poor economy and now it is the best one in the world, although she thinks that the major contribution was from the export side not from the import side. If United States can have Free Trade treaties with Mexico, Canada and in future they can have it with Japan or may be India, then South Korea is a good option in this regard. She told about the "positive list" and "negative list" of South Korea's imports and exports. Till 1960's South Korea got two lists, one was for the items that could be imported and negative list includes the list of items that could not be imported due to some environmental reasons. She supported the view of Mr. Hufbauer's that in "1960's eighty percent of South Korea's exports were primary commodities" and "there were no manufacturing exports" and she regarded that the major factor involved in it was the change in the trade strategy. Trade strategy of South Korea changes and it let the economy of the country boost, like this we can see the new South Korea, emerged as a great economic power in the region and also in the world. US farmers will gain access to Korean markets. It is a new hope and a strong advantage of this treaty. Whereas Korean's wont import their agricultural goods in US market. "This is a strong deal for America's farmers and ranchers, who will gain substantial new access to Korea's large and prosperous market of 48 million people," Karan Bhatia, the deputy U.S. trade representative, said in Seoul6. A positive that goes for United States is that the agricultural goods will be imported to South Korea. And United States agricultural goods export will be increased by two hundred percent. It means that United States farmers will gain access to South Korean markets and we can well imagine what effect it will do on United States agricultural markets and production. It will be good for farmers to export their goods. Not just for farmers, it will be beneficial for the government as well. So the effect of it would be on micro level as well as macro level economy. Korea is a prosperous market of forty eight million people and exporting the agricultural goods for such a large market means that farmers and ranchers will gain a lot of profit for this. According to the Herald Tribune Business, "American officials hope that the deal will placate angry American cattle farmers, who are struggling to recapture global market share following a localized outbreak of mad cow disease in late 2003. Before the import ban, South Korea was the world's third-largest consumer of American beef, importing $800 million of beef a year." Meanwhile, South Korean farmers are not allowed to export their agricultural goods in United States markets. Although South Koreans are not quiet happy over it but it is the condition imposed by United States along with the other condition of not importing the goods that are being manufactured in the border area between South and North Korea, as per the security reasons could be the point. The other reason for this is that having a Free Trade between United States and South Korea, the United States companies can have access to Asian markets more freely, they can have a stronghold in Asia. They can have an easy access to Japanese and Chinese markets and also to the Malaysian and Indonesian markets7. China is an emerging new market and not to mention that people call it an emerging super power that can compete United States. So in order to deal with China, United States need to have a stronghold in Asia, that can help them in getting near to its rival China. Apart from strategically point, if we talk about the economical scene then also United States needs to compete with China's and Japan's industry. China and Japan got a strong hold in European and Asian markets. The markets of Asia and Europe are filled with the goods made by China and Japan. So it's necessary for United States to find its place in these markets as well. And it can be done by this treaty. As investors will already be getting familiar with Asian markets, their people and the trend of these markets, then it will be easy for them to have access to other markets too. Business community of United States has shown their full support for the biggest FTA ever of this time. It is a dream of United States companies and they were looking for this opportunity for a long time and now it is there. It means that they can get an easy access to Asian markets and can get their products there for sale and also with some percentage of tariffs eliminated. The people of both countries will be getting the benefit from this treaty. They can get the goods like automobiles and agricultural products on a cheaper price. It is a true example of Globalization8. The people on the both sides will get the benefit along with the governments. If we look at the facts and figures regarding this it is clear that how much difference in prices this will make for people when they will buy this. It is obvious that both of them need to have commodities and goods that are unavailable in their own countries but will be exported from the other one. This accord will add twenty billion dollars in bilateral trade compare to the seventy eight billion dollars last year. And according to Usha Haley, who is a director at Global Business Center, University of New Haven that United States economy will gain from seventeen billion dollars to forty three billion dollars. So we can see that it is the most beneficial and fruitful deal ever done by President Bush. At one side it is good for South Korean car manufacturers to have access to United States markets; they already sold eight hundred thousand vehicles last year in U.S. On the other hand United States sold only five thousand vehicles in South Korea. So we can clearly see that who is getting the real and major benefit. So when United States will gain access to South Korean markets, they will definitely increase their sales and will take measures that can reduce this difference between the vehicles sales to the South Korean vehicles. Now people in United States can have the television, the flat-panel television from Samsung on a reasonable price that will of course be tariff free or may be on fewer tariffs. The United States' Ford and Toyota can sell their cars to South Koreans and they can compete with South Korea's Hyundai. At this time, both countries are facing some problems in their homelands, regarding the acceptance of this treaty. But if we see in a long run, these both will get a benefit from this. United States and South Korea have always been allies with each other, since the beginning. Here beginning means that since the independence of South Korea. United States need to have its presence in the region because of few political and strategic reasons. And South Korea needed someone who can protect them from the North Korea's threat against their country. So the presence of United States was a blessing for Koreans and also beneficial for the Americans. United States needed to be in the region to cope with the threat of North Korea and also Chinese Imperialism, which is alarming for United States. Politically and strategically it was in United States interest to stay there and with the passage of time they developed the good economic ties and South Korea becomes a good market for United States goods and products. Now it's a good chance for American companies to set their foot in Asia by establishing their offices in Seoul. American television channels were also looking for this opportunity and they can capture the Asian market by their media too. North Korea used to be the third poorest economy in Asia during 1960's, but we can see the country emerging as the eleventh strongest economy of the world. This shows that the South Korea got the potential to be the world's prominent economy; it means that having a Free Trade Agreement with South Korea is a good thing and must be done by the United States government. Although the South Korea, from the beginning was a major market for United States' companies, with the population of forty eight million people, but still there was something missing in this economic relationship. Now they can have access to the South Korean's market and can export their goods there. The farmers in United States are usually depressed, but with this Free Trade agreement, they will be able to export their goods to South Korea, where there is a great market for their goods. But this point goes against the farmers of South Korea, who will have to work hard to compete the United States' goods. The auto industry of South Korea is the biggest in the world and the automobile companies like Hyundai are the major exporters to United States. Now there products will be sold in United States in a more reasonable price. The Samsung is a prominent electronics company in the world, they can sell their goods to Americans and Americans will enjoy the flat-screen televisions on a cheaper price. So in the end we can simply conclude that both countries did the best thing that will be beneficial for their economic policies and also United States got its strategic interest in the region and they will be fulfilled best by this treaty. It will help United States to stay in the region and will also help American companies to look for other markets in the same region to expand their business. Works Cited Jeffrey J. Schott. Free Trade Agreements: US Strategies and Priorities. Peterson Institute, 2004. Nicholas R. Lardy, Daniel H. Rosen. Prospects for a US-Taiwan Free Trade Agreement. Peterson Institute, 2004. Tae-Hwan Kwak, Seung-Ho Joo. The United States and the Korean Peninsula in the 21st Century. Ashgate Publishing, Ltd., 2006. http://www.heritage.org/Research/AsiaandthePacific/wm964.cfm http://www.iht.com/articles/2007/04/02/asia/fta.phppage=2 http://www.nautilus.org/fora/security/0593Oberdorfer.html#top http://seattlepi.nwsource.com http://seoul.usembassy.gov/413_101607.html#top Read More