Speech by Minister for trade on the Korea-US FTA talks
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It is a great pleasure for me to meet with you today. Thank you for offering me this opportunity to speak with you about the Korea-US free trade agreement which will have a significant impact on the future of the Korean economy.
Since the US Trade Representative Rob Portman and I announced the launch of free trade agreement negotiations between Korea and the United States last February, there has been a growing interest on either side of the Pacific with respect to this negotiation. You must have a number of questions about this negotiation. I will try to answer some of those questions in my speech and if any questions are left unanswered, I will address those questions afterwards during the Q&A session.
Let me first talk about why we are pursuing a vigorous multi-track FTA policy. When I started working for this administration as the Deputy Minister for Trade in 2003, I noticed that there were only two countries among the WTO members which did not concluded a single free trade agreement, namely Mongolia and Korea. Considering the fact that there are currently 180 free trade agreements which comprise more than 50% of global trade and 70% of our GDP depends on trade, Korea's bilateral trade policy needed reevaluation and revamping.
If Korea does not continue its effort to reform and liberalize, Korea cannot maintain its competitiveness and its status as the eleventh largest economy (sixth if the EU is counted as one economy) in the world. While developed countries continue to stay a step ahead of Korea, emerging economies like China and India are catching up very fast. Technological gap between the two countries is, on the average, two and half years. This poses serious challenges to our trade policy. We currently have a trade surplus with China in the amount of $100 million per day, but a research by the Korea International Trade Association predicts that the surplus will turn into deficit by 2011.
A year and half ago, Kumho Tire had to turn its ship around in the middle of the Pacific and bring back 13 containers loaded with tires to be exported to Mexico because Mexico doubled its tariff on tires imported from non-FTA partners, from 25% to 50%, so the price went up from $200 to $250. The Kumho Tire experience illustrates the importance of trade for Korea.
Against this backdrop, Korea has completed three FTA negotiations so far with Chile, Singapore and EFTA (European Free Trade Association) and we are currently negotiating free trade agreements with ASEAN, Canada, Mexico and India.
Now let me turn to the question of why we launched the FTA negotiations with the United States. The United States is the largest economy in the world with an import market worth $1.7 trillion which is larger than China, Japan and ASEAN combined. If the market share of Korean products in the United Sates increased by 1%, Korea's export to the U.S. would expand by 5.9% and the GDP would increase by 1.4%. While China's share in the U.S. market has grown from 6.1% to 14.6% during the last ten years, Korea's share has decreased from 3.3% to 2.6%. Furthermore, this year's first quarter figures show that Korea's trade surplus with the U.S. declined by 13.8%, from $2.54 billion to $2.19 billion while other Asian countries' trade surplus increased.
Bearing this background in mind, we came to the conclusion that we needed a new strategy in our trade policy to regain our competitiveness in the United States and globally.
Let's explore for a moment what we can expect from the Korea-US free trade agreement. The most important benefit will be improved consumer welfare. Feasibility studies suggest that there can be as much as $300 increase in yearly income per person which translates into additional annual income of $1,200 for a family of four. With this increased income, Korean consumers will be able to afford better goods and services by having a broader selection of goods at lower prices.
Next, the Korea-US free trade agreement will offer improved access to the biggest market in the world. We had a trade surplus of $15 billion with the U.S. in 2004, and it was $10 billion last year. The numbers may vary a little depending on the analysis methodologies, but every study predicts that the Korea-US free trade agreement would boost Korea's exports to the U.S. With this free trade agreement, U.S. investment in Korea is also expected to increase by between $17.8 and $22.3 billion. This increased investment would have a positive impact on the Korean economy as it would induce technology transfer and create more than 100,000 new jobs in Korea.
You may want to ask: are these statistical figures for real? Can they really be achieved?
We need to turn to the experience of those countries that signed free trade agreements with the United States to get an idea of the potential benefits.
Mexico witnessed its average annual trade surplus with the U.S. skyrocket from $100 million in the pre-NAFTA years (1982 to 1993) to $25.3 billion after NAFTA (1994 to 2005). Average U.S. investment in Mexico grew from $2.7 billion pre-NAFTA to $8.5 billion after NAFTA.
During the first year since the conclusion of negotiations, the Chile-US FTA increased Chile's trade surplus with the U.S. from $1 billion to $1.1 billion, boosted U.S. investment in Chile from $300 million to $1 billion, and raised Chile's GDP growth rate from 3% to 6%. Fitch upgraded Chile's rating from A- to A which probably helped to attract investment and reduce interest payments on its debt.
Other FTA partners of the U.S. also witnessed growth in trade surplus, foreign direct investment and employment, including Canada and Israel.
The U.S. market is very open and extremely competitive market where various products from all around the world wage fierce competition against each other. In such a competitive market, elimination or reduction of tariffs will enhance price competitiveness which will significantly improve the overall competitiveness of our goods and businesses. In particular, substantial increase is expected in exports of our industrial goods, including textile, apparels, and footwear on which the U.S. currently imposes high tariffs.
We are mindful of the fact that the average U.S. tariff rate is as low as 2.5% but, in terms of tariff lines, more than 2,900 products are subject to tariff rates higher than 5% in the United States. Of the high tariff products, 681 are subject to tariff rates between 10% and 20% and 159 are subject to tariff rates higher than 20%. For example, the United States applies a weighted average tariff of 13.1% to textile and apparels, which is higher than Korea's 9.3%. 540 products out of around 1,400 textile and apparels are subject to tariff rates that are higher than 10%. If those high tariffs were eliminated through the Korea-US free trade agreement, the Korean products would be able to better compete with other low-priced products in the U.S. market. Furthermore, if the current tariff rates of 2.5% to 3% on our other major exports are either eliminated or reduced, their price would be lowered by significant amount and the Korean products would have competitive advantage over similar competing goods.
Some would argue that the United States stands to gain much more from this free trade agreement than Korea because Korea's tariff rate is higher than the U.S. rate. However, this is a misleading argument based on an over-simplified comparison of the tariff rates in the two countries. It is true that Korea's average tariff rate is three times as high as that of the U.S. But, the size of the U.S. market is 17 times as large as the Korean market, and 89% of the bilateral trade consists of manufacturing goods in which we have competitive advantage. That means we have a lot to gain from the free trade agreement with the United States.
At the same time, the free trade agreement with the United States will provide the much needed stimulus to accelerate the ongoing economic reform drive and upgrade Korea's economic and social systems. It will not only promote bilateral economic relations but also further strengthen overall bilateral relations. Korea and the United States have been allies for more than five decades and are bound by common values such as democracy, market economy, and respect for human rights. The Korea-US free trade agreement will reinforce these shared values and upgrade the already existing friendly bilateral relationship to a new, more comprehensive partnership.
In response to the comment that the Korea-US free trade agreement negotiations were launched in haste and without enough preparations, I must point out that the Korean government's decision to pursue a free trade agreement with the United States was based on careful strategic review.
The feasibility of the Korea-US free trade agreement has been thoroughly studied and reviewed since we created an FTA roadmap in 2003, and 14 governmental and private researches were carried out on the overall as well as sectoral economic effects that the Korea-US free trade agreement would bring about. The Korean business community recommended the pursuit of the Korea-US FTA to the Korean government in 2000, and the 2004 Gallup survey showed that 80.4% of the Korean people supported the Korea-US FTA.
The two governments held preliminary discussions three times in the first half of 2005 in order to identify interests and concerns that both sides would expect from the bilateral FTA. I met with the USTR Rob Portman 6 times in 2005 to discuss the Korea-US free trade agreement. The Committee on External Economic Affairs presided by the President Roh, cabinet ministers and experts from the private sector had six sessions to discuss the Korea-US free trade agreement since August 2004.
We are pretty much aware of major issues which will be raised in the upcoming negotiations. With fourteen sessions of the Quarterly Trade Meeting where bilateral trade issues were discussed in depth for last five years, both sides are very well aware of what to expect from each other during the negotiations.
Key negotiation sectors in any given free trade agreements are tariff elimination, services and investment, and intellectual property rights. Our negotiators are well prepared to address those issues with their U.S. counterparts because we have had comprehensive discussion on bilateral IPR issues since mid-eighties. Major issues related to services and investment were also discussed during the bilateral investment treaty negotiations between 1998 and 2000 and at the WTO/DDA services negotiations since 2002. We have become experienced with negotiations on tariff elimination due largely to the previous FTA negotiations with Chile, ASEAN and Canada.
Both governments will endeavor to achieve a comprehensive, high quality free trade agreement which strikes a balance of interests between the two countries and is acceptable to both sides. This does not mean, however, that we will ignore sensitivities in various areas. Indeed, both countries have sensitive areas to be addressed with caution.
The two governments will make good and sincere efforts to sign the free trade agreement before the U.S. Trade Promotion Authority expires on July 1, 2007. It is plausible to complete negotiations within a year, taking into account our previous experience in concluding our negotiations with Singapore in 10 months, EFTA in 6 months and ASEAN in 9 months. Nevertheless, I cannot sign an agreement which does not meet our negotiating objectives simply because time is ticking. Needless to say, what we agree on is far more important than when we agree.
Upon signing of the free trade agreement, the agreement must be approved by the legislative branches of both nations. Unless the overall package achieves a balance of interests which considers the concerns of the two countries, it will be very difficult for either country to receive the necessary domestic approval. I will do everything in my capacity to achieve an agreement that creates a win-win situation for both countries so that the agreement will be able to garner enough public support for ratification at the Korean national assembly. The Korean government will also prepare support programs to assist the sectors that bear a heavier burden due to the result of the Korea-US free trade agreement.
The Korean government welcomes opinions on the Korea-US FTA and is currently in the process of engaging various interest groups encompassing all sectors of the economy. We asked everyone concerned to submit written comments on the Korea-US free trade agreement negotiations by April 28. There are both concerns and support on this FTA and I understand where those support and concerns come from. I will take them into account and make the utmost effort to address these concerns during the negotiations.
Thank you very much for your attention.
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2008년 10월 6일 16:30
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2008년 8월 6일 17:21