Taking full advantage

When the Korea-U.S. free trade agreement takes effect March 15, Korea’s economic territory could be expanded into the U.S. market. Once tariffs between the two countries are lifted, Korean exports will regain price competitiveness that has undermined by China. As a closer economic partner of the U.S., Korea’s security risk will be reduced and its credit standing will be improved globally. Therefore, Korea should fully utilize the first-mover advantage in the U.S. market given its conclusion of the trade deal with the U.S. ahead of Japan or China.

Korea could have the opportunity to move forward by restructuring industries one the agreement takes effect. If foreign investment in the Korean service sector can lead to qualitative improvement, Korean consumers will return to their domestic market. If exports in clothing, textile and shoes grow thanks to price competitiveness, Korea`s heavy dependence on semiconductors and mobile phone devices for driving growth will be relieved. Foreign investment will also expand job opportunities for young Koreans.

The benefits will not come without pain, however. Efforts to improve economic fundamentals should be followed. For example, Mexico, which signed the North America Free Trade Agreement with the U.S. and Canada in 1994, saw its economy grow and exports and foreign investment increase until 2000. After failing to reform itself, however, Mexico saw its dependence on the U.S. economy increase. Korea should restructure its sectors to improve fundamentals while increasing the transparency of the domestic market and finding new growth engines.

The government should inform exporters that they should prepare for evidencing the place of origin to help them benefit from tariff removal over the short term. Regulations must also be refined to prevent raising doubts on the investor-state dispute clause. Continued lobbying of the U.S. is needed so that products from the Kaesong industrial complex in North Korea can be recognized as South Korean products. As the free trade deal with the U.S. comes into effect following those with the E.U., India and the Association of Southeast Asian Nations, South Korea will become the global hub of free trade agreements. This will be a good opportunity for Korean businesses to set up a global management system.

The main opposition Democratic United Party and the minor United Progressive Party, which want the abolition or renegotiation of the agreement with the U.S., should listen to what companies say. The auto industry says the renegotiation in 2009 was quite balanced and getting the deal to take effect as soon as possible will bring more national benefits. If the Korean government and businesses hesitate to take full advantage of the accord, the losses will be suffered by the Korean people.