The United States
and the Republic of Korea (ROK) took an important step forward last
week to strengthen their ties and promote prosperity in the two
nations. The successful completion of the first round of
negotiations for the US-ROK Free Trade Agreement (FTA) marks the
beginning of a process that could culminate in the largest U.S.
trade deal since the North American Free Trade Agreement (NAFTA).
If completed, the agreement would be one of the most significant
developments in U.S.-South Korean relations since the two countries
entered into a military alliance in 1953. Based on last week's
negotiations, there is every reason to be optimistic about the
prospects of the U.S.-ROK FTA.
The greatest achievement of the first round is the establishment of
a strong momentum that will be critical for completing the
negotiations within the ambitious time-frame established. Both
sides hope to sign a deal by early next year, before President
Bush's Trade Promotion Authority expires on July 1, 2007. The next
round of negotiations will begin in Seoul on July 10, with
additional rounds tentatively scheduled for early September,
October, and early December.
Although both sides were careful to emphasize that difficult issues
remain to be resolved, significant progress was made last week. The
goal of the first round was to reach a general consensus on the
FTA, and last week's progress included drawing up language for 11
of the 15 areas addressed, including e-commerce,
telecommunications, financial services, trademark protection, trade
competition, and labor. Among the remaining topics, however, are
agriculture, textiles, and automotives-all highly sensitive and
While the first round exceeded both sides' expectations, challenges
lie ahead in the mechanics of the negotiations and the economic and
political stakes involved. Each negotiating team is made up of
nearly 150 officials, divided into groups for 17 sectors. In
addition, two working groups are dedicated solely to the automotive
and pharmaceutical and medical devices sectors, a unique feature of
this FTA process. These arrangements are intended to ease dialogue
over very difficult issues-a smart move given that both sides are
among the toughest trade negotiators in the world.
Both governments are committed to the belief that tearing down
barriers to trade and investment is good for economic growth and
prosperity. The economic fruits of an FTA would be significant for
both the United States and Korea. For American consumers, a free
trade deal would lower U.S. tariffs and thus lead to cheaper prices
on a wide array of goods, including high-tech products. Moreover,
U.S. producers would benefit from being able to compete in the
Korean economy on an even playing field with domestic firms.
South Korean consumers will benefit from the accelerated
restructuring of domestic financial markets. The FTA would also
strengthen corporate and financial transparency in Korea, which
will greatly increase the level of economic freedom in the economy.
Koreans will also benefit from greatly reduced tariffs. On average,
the South Korean market is currently more protected than the U.S
market. South Korean tariffs for industrial and consumer goods
average 11.2 percent, compared to 3.7 in the United States. The
difference is even greater in the agricultural sector, where South
Korean tariffs average 52 percent, more than four times the U.S.
level of 12 percent. The FTA would reduce bilateral duties on both
sides to zero.
By achieving an agreement of such economic magnitude, the two
countries would serve as an example to two economic giants in the
region, Japan and China. A U.S.-ROK FTA would not only raise the
level of competitive standards in the region, but also put pressure
on these countries to follow suit. An FTA could also create
momentum for the troubled Doha round of the World Trade
The geo-political ramifications of a successful FTA may be less
tangible, but they may be more profound. As the U.S. Ambassador to
the Republic of Korea, Alexander Vershbow, has observed, the
U.S.-ROK relationship has been lacking an institutional framework
for bilateral ties. An FTA would increase the responsibilities and
mutual obligations of both sides in a manner similar to how the
Mutual Defense Treaty influences their security relationship. The
FTA would also allow the United States to extend its long-term
presence and leadership role in Northeast Asia beyond the realm of
security and into the economic arena.
Following the conclusion of the first round of talks between the
U.S. and South Korea, the Assistant U.S. Trade Representative
leading the negotiations on the American side, Wendy Cutler, said
that she "remains optimistic about our ability to conclude a
high-quality, comprehensive agreement." To be sure, serious
challenges await both sides the next rounds, but the positive
momentum established already will make reaching agreement easier.
Both sides should be commended for this achievement.
Y. Hwang, Ph.D., is Senior Policy Analyst for Northeast
Asia in the Asian Studies Center at The Heritage Foundation.