FTA Aftermath not as Gloomy for Farmers and Small Firms as Predicted

Positive prospects for the agricultural sector as well as small and medium-sized businesses over the free trade agreement with the U.S. are gradually emerging.

Experts point out that damages on the agricultural sector will be smaller than initially forecasted while small and medium-sized businesses that manufacture parts and materials or rely on exports to the U.S. will benefit from the deal.

“Although the agricultural sector is expected to be the hardest hit, the actual magnitude of damage will be less severe than initially predicted,” according to an article titled, “The Tasks Following the FTA Deal,” that was written and posted on the KREI website by Choi Se-gyun, a senior researcher at the Korea Rural Economic Institute.

“Now it is time to evaluate the effects based on the results of the negotiations. The damages on major agricultural items are expected to be smaller than previous calculations, which presumed that tariffs for major agricultural products would be eliminated for 10 years,” Choi said.

“This re-evaluation stems from the notion that the negotiations were concluded under more favorable conditions than presumed on a large number of items. Emergency suspension and seasonal suspension of tariff reductions will also help minimize the negative effects on the agricultural industry,” Choi added.

“When it comes to the agreement over product trade or the opening up of the service market, you should consider not only the damages of the producers, but also the surplus of the consumers. In this case, it will be difficult to conclude that the FTA between Korea and the U.S. will be a loss to our economy,” Choi argued.

The KREI estimated in 2006 that if tariffs for agricultural products are removed in stages over a 10-year span, the production of 26 major items, including beef and pork, will decrease by $915 million per year.

Meanwhile, experts point out that sales and profits of small and medium-sized businesses will considerably increase with the FTA deal.

“The Korea-U.S. FTA will be of great benefit for manufactures which account for 99.8 percent of domestic small and medium-sized businesses,” Lee Hyun-jae, administrator of Korea`s Small and Medium Business Administration (SMBA), said on Friday at an informal gathering with heads of small and medium-sized business-related associations.

The industries of textiles, clothing, leather and home goods are expected to enjoy great benefits as they heavily rely on exports to the U.S., and U.S. tariffs on those items have been high, the SMBA said.

In addition, small and medium-sized businesses that manufacture parts or materials for conglomerates’ major export items like automobiles are forecasted to enjoy increased sales.

However, experts say that business sectors such as general machinery, chemicals and metals, whose Korean tariffs are high and lacking technology and price competitiveness to the U.S., are expected to face difficulties. Therefore, experts say that measures must be immediately drawn up as they lag behind U.S. firms in terms of product quality, brand values and competitiveness in design.

“The Korean government must make efforts to push the products from Gaesong Industrial Complex to be recognized as South Korean made,” Kim stated at the gathering.

jarrett@donga.com sanhkim@donga.com