Thursday, April 2, 2009

Pending Ratification of the Korea-US FTA (KORUS FTA) and calls for renegotiation

by M. Ulric Killion

In early March 2009, South Korean lawmakers (i.e., both ruling and opposition party members of the South Korea National Assembly—Gukhoe [or 국회])) tentatively agreed to postpone, until April 2009, the ratification of the Korea – US free trade agreement, which was earlier concluded in 2007.  

The Korea - US Free Trade Agreement, or the Republic of Korea-United States Free Trade Agreement (Han-Mi jayu muyeok hyeopjeong, KORUS FTA), would mark the first US Free Trade Agreement with a major Asian economy and its largest trade agreement, since the one signed with Canada and Mexico in 1993, or simply, the North America Free Trade Agreement (NAFTA) or Tratado de Libre Comercio de América del Norte (TLCAN). The NAFTA or TLCAN is the North America trilateral trade bloc between the US, Canada, and Mexico, which superseded the earlier 1984 Canada – US Free Trade Agreement. 

Moreover, the significance for South Korea (or the Republic of Korea) is that the Korea – US FTA would have been by far its largest free trade agreement. To-date, South Korea has formed free trade agreements, which are with Chile in 2002, Singapore in 2005, and the European Free Trade Association (EFTA) and its member states (i.e., Iceland, Norway, Liechtenstein, and Switzerland) in 2006. According to Arirang News, “Ratification has been delayed by the National Assembly as opposition lawmakers are mindful of protests from farmers who fear losing valuable market share.”

However, in March 2009, since the earlier postponement of the ratification of the KORUS FTA, there have been new developments. As of mid-March 2009, in the seemingly endless negotiations to finalize the KORUS FTA, the US government is demanding renegotiations.

In response to US demands for renegotiation, there is the recent suggestion by Lee-Hae-young of Hanshin University, who is a professor of international trade at Hanshin University.  Professor Lee Hae-young proposed that the South Korean government should renegotiate the terms of the KORUS FTA. Prompting his urging for renegotiations of the KORUS FTA, as Professor Lee Hae-young explained, is the need for the South Korean government to “embrace repeated requests for renegotiation from the United States” as an opportunity to review provisions of the free trade agreement that many in South Korea deem to be unfair.
On March 18, 2009, Professor Lee … said the U.S. demand for renegotiation has presented a new challenge for those opposed to the South Korea-U.S. free trade agreement. “If we oppose the U.S. demand for renegotiation, we face the possibility of supporting the wrong negotiation process and fighting for the wrong agreement,” Lee said. Responding to the suggestion by conservative media outlets that South Korea to accept the U.S. demand for renegotiation, Lee said that doing so would be like “accepting another unfair provision.” He urged civic organizations that are critical of the South Korea-U.S. FTA to “demand their government renegotiate the deal and go beyond its defensive rhetoric.” …. Lee also called on the South Korean government to swiftly legislate a Trade Procedure Act, which would require the government to get approval from the National Assembly before signing any free trade agreements. In addition, Lee said that if the South Korean government wants to prevent the United States from demanding that the deal be renegotiated, it will have to be the first to request renegotiation, rather than calling for the National Assembly to ratify it before the U.S. Congress does. South Korea and the United States signed the free trade pact in 2007, but it still must be ratified by the legislatures of both countries (The Hankyoreh).
 Moreover, and presenting other potential problems, the pending postponement of the ratification of the KORUS FTA and the call by Professor Lee Hae-young for a renegotiation of the KORUS FTA have to be considered in light of the upcoming ratification of the Korea-EU FTA. In April 2009, most observers anticipate the ratification by the South Korean government of the Korea-EU FTA.

The significance of the Korea-EU FTA is that following ratification, the Korea-EU FTA will establish theworld’s second-largest free trade agreement (or zone), which is second only to NAFTA. Following ratification, the projections are that the Korea-EU FTA, as the second-largest free trade zone, will be worth more than US$15 trillion in gross domestic product, as it follows behinds NAFTA, which is worth about US$16 trillion. In addition, the EU is the world’s largest single trading bloc, while Korea is the world’s 13th-largest economy.

As many rightly anticipate, the consequence of the Korea-EU FTA creating the second-largest FTA will, ultimately, serve as an external force compelling the ratification of the KORUS FTA. Depending on one’s political perspective, it is arguably an external force either more so compelling the US government, or more so compelling the South Korea government to ratify the KORUS FTA.

There are, admittedly, different views on the influence of the pending ratification of the Korea-EU FTA and its attendant influence on the pending ratification of the KORUS FTA. As reported in The Dong-a Ilbo, “The conclusion of the agreement is also expected to give momentum in ratifying Korea’s free trade deal with the United States. Jeong In-gyo, an economics professor at Inha University in Incheon, said, ‘If the Korea-EU free trade deal is sealed and its implementation picks up speed, the U.S. government, which has complained about elements of the Korea-U.S. deal, will feel burdened and be forced to reverse course.’”

As earlier as November 2008, there were calls to conclude the Korea-EU FTA as soon as possible because of its potential in pressuring the US government to ratify the KORUS FTA as it is. For instance, in November 2008, “Suh Jin-kyo, Director of trade and investment policy at the Korea Institute for International Economic Policy, said, “Seoul should complete a free trade agreement with the European Union as soon as it can to pressure the U.S. Congress to ratify the KORUS FTA as it is” (Kang).

However, what deserves further consideration is that in the context of what South Korea stands to gain from ratification of the KORUS FAT as it is, ultimately, is a boost to its gross domestic product. This is because some economists project that following the ratification of the KORUS FTA the South Korean economy will experience a boost from about 3 to 6 percentage points in its gross domestic product.

As such, what many in South Korea may deem to their advantage a new and unleveled playing field is in realty a combination of external forces (i.e., the Korea-EU FTA ratification, a potential boost in GNP by ratifying the KORUS FTA, key strategic alliance considerations, etc.), actually, presenting external influences compelling ratification that are operating on the governments of both South Korea and the United States. 

South Korea/US: FTA jumps major hurdles, faces others, Oxford Analytica, International Herald Tribune, April 2, 2007.
NAFTA Secretariat website
Lawmakers Postpone Korea-U.S. FTA Bill, Chosun Ilbo  (Arirang News), March 5, 2009. 
Korea-Singapore Trade Doubles Since 2005 FTA, Chosun Ilbo  (Arirang News), March 2, 2009. 
Dan Griswold, NAFTA at 10: An Economic and Foreign Policy Success, Cato Institute, Free Trade Bulletin, No. 1: December 17, 2002, >> Read full article - PDF version of Free Trade Bulletin No. 1.
Chung Hae-kwan, The Korea-Chile FTA: Significance and Implications, East Asia Review, Vol. 15, No. 1, Spring 2003, pp. 71-86, >> Read full article – PDF version.
Free Trade Agreement between EFTA and South Korea,(European Free Trade Association), European Reports, September 4, 2006. 
Renowned professor calls for KORUS FTA renegotiation, The Hankyoreh, March 19, 2009.
Korea-EU FTA to Be Concluded Next Month, Dong-a Ilbo, March 16, 2009. 

Copyright © Protected - All Rights Reserved M. Ulric Killion, 2009.

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