Domestic Compensation Measures in Light of the Conclusion of KORUS FTA
April 2, 2007, Korea
Delivered by Okyu Kwon
Deputy Prime Minister and Minister of Finance and Economy
On behalf of
Ministry of Finance and Economy
Ministry of Agriculture and Forestry
Ministry of Maritime Affairs and Fisheries
Ministry of Commerce, Industry and Energy
Ministry of Labor
Ministry of Planning and Budget
1. Introductory remarks
Fellow Koreans,
Korea and the United States reached a free trade agreement as announced by chief negotiators of the two countries just a while ago this afternoon. It was indeed a great long journey of 14 months since it was launched on February 3rd of last year. It was a strenuous effort and struggle to the last minute.
Both Korea and the United States negotiated in their best interest with strong will to conclude a free trade agreement.
Taking this opportunity, we would like to convey our heartfelt congratulations on the toil of the negotiating teams and the staff who became used to cross-Pacific flights and many sleepless nights during the course. We would also like to extend our sincere appreciation to our fellow Koreans who have shown support throughout the negotiation.
But it is only a fresh start. We are at a new beginning to build our economy on new growth engines.
From now on, we have to make each and every strategy concrete to optimize the new challenges to and opportunities for the Korean economy across a wide range of sectors dealt with in the negotiation.
There are many more procedures and tasks ahead before the negotiated substance is integrated into the agreement, and before it comes into effect including the signing and ratification by the National Assembly.
As the first step in this direction, today we would like to examine the impact of the agreement on the Korean economy and share with you, particularly the trade adjustment and compensation measures for the sectors that are expected to be negatively affected.
2. Economic impact
Fellow Koreans,
The agreement is paving the way for Korean goods and services to enjoy more access to the Unites States market, the world’s largest market.
When many countries in the world were pursuing reciprocal interest by concluding competitive free trade agreements, we had to suffer from declining share of the Korean products in the United States market.
We expect that the KORUS FTA will help us reclaim the lost market share and challenge a new opportunity by boosting competitiveness of the Korean products and services.
In view of the depth and the extent of opening as the negotiated outcome, we assess the agreement is above the mid-level.
According to the agreement, trade volume of products subject to immediate withdrawal of tariff or non-tariffication within three years amounts to over 90 percent. It applies to both Korea and the United States. Also, the scope of this agreement ranges from industrial goods to services, government procurement and trade remedy.
But there are sectors sensitive to both Korea and the United States such as agriculture and textiles. In these sectors, we tried our best to include the permissible in the agreement to the extent possible with careful and sensible consideration.
From the macroeconomic perspective, the KORUS FTA is expected to contribute to reframing the Korean economy to be able to grow and reproduce by bolstering trade and making resource allocation more efficient. We expect in the next 10 years bilateral trade between Korea and the United States to increase sharply.
Our response and endeavor will determine whether or not the KORUS FTA can visibly increase domestic investment and productivity.
Korean consumers can now have more selections and services at cheaper prices. Welfare of Korean consumers will be dramatically improved.
Let us dissect the KORUS FTA and see it from the perspective of its positive impact on various sectors of the Korean economy.
In the manufacturing sector, tariffs on automobiles and textiles, Korea’s major export items, will be eliminated. It means they will enjoy higher price competitiveness in the United States market and have an opportunity to pre-occupy the world’s largest United States market in a stable fashion.
In services, more foreign financial institutions and law firms will enter the Korean market and the quality of financial, legal and other business support services will be upgraded. It will spur the competitiveness of businesses and create decent jobs for professional and skilled workforce.
With advanced foreign technologies introduced and in more competition, competitiveness of Korea’s service industry will be elevated as well.
Albeit positive effects on a wide spectrum of the economy, some sectors may experience difficulties in the short run.
Rice was negotiated to be excluded from opening, so no damage is expected.
Tariffs on beef and pork will be withdrawn throughout a long period of time. We project the short-term damage will remain within a manageable range as imports from the United States are likely to replace the imports from other countries.
Korea’s loss in mandarin oranges is forecast to be limited given the seasonal duties and Korean consumer preference for mandarin oranges.
In fisheries, damage is likely in pollacks and croakers. However, positive effect is expected such as export increase of Korean processed marine products.
We call on all our fellow Koreans to maximize the effects of the KORUS FTA and utilize it as an opportunity, while minimizing the damage and the loss. To do so, we must put our collective social wisdom together.
In this light, the government has consulted the related ministries and parties in interest and prepared in earnest trade adjustment and compensation measures for the sectors where losses are expected.
We were firmly convinced that an FTA with the United States would be needed as it would upgrade Korea’s competitiveness and serve as an opportunity to consolidate national cohesion.
3. Basic direction
Based on the sector-based impact analysis, the domestic adjustment and compensation measures will be designed according to the following purport.
First, it is to sufficiently compensate the losses in agriculture and fisheries expected from the conclusion of the KORUS FTA and strengthen their competitiveness.
Second, it is to extend support businesses and workers in manufacturing and services doomed to suffer from temporary and partial business difficulties, although more gains are expected from the FTA in overall terms.
Third, it is to help utilize the opportunity to advance to the United States market secured through the KORUS FTA.
4. Adjustment and compensation measures in agriculture and fisheries
Agriculture
In case losses accrue from rapid increase of imports following the conclusion of KORUS FTA, the scope of products subject to direct payment in compensation for losses in income will be expanded from the current coverage of kiwis and greenhouse grapes only to beef, pork, mandarin oranges and beans. Eligibility requirements, payment requirements and payment will be decided after gathering views of interest groups concerned.
Eligibility for the subsidy for going-out-of-business farmers after losing competitiveness due to the KORUS FTA will be fanned from kiwis, greenhouse grapes and peaches only to other products.
In order to expand the scope of eligibility for the direct payment in compensation for losses in income and the going-out-of-business subsidy, the government will make headway for amendments to the present special law on agriculture and fisheries pertaining to FTA as well as for expansion of the trade adjustment assistance fund planned to be established at 1.2 trillion Korean won.
The government plans to prepare measures to strengthen the competitiveness of livestock farming, horticulture, grains and forest products where losses are expected by modernizing the production facilities, cultivating best brands, developing new varieties and supporting the development of technology.
Fisheries
The government will do the same for fisheries including the compensation for losses by product and the boosting of competitiveness by sector.
In case losses accrue from rapid increase of imports, direct payment by product will be made in compensation for losses in income.
The going-out-of-business subsidy will be granted if they so choose due to the loss of competitiveness.
Products subject to the direct payment and the going-out-of-business subsidy, payment requirements and payment will be decided after gathering views of interest groups concerned.
Also, the government plans to design measures to strengthen the competitiveness of deep sea fishery, coastal and near sea fishery, and farming by modernizing the production facilities, upgrading the distribution system and supporting the development of technology.
5. Adjustment and compensation measures in manufacturing and services
Next, we will touch upon the domestic adjustment and compensation measures in manufacturing and services.
Support via trade adjustment assistance
According to the “Act on Trade Adjustment Assistance for Manufacturing, etc.”, the government will provide loans for short-term management fund, loans for facility investment and others to secure competitiveness, and management and technology consulting services to manufacturing businesses that are set to be adversely affected or have already been on account of the KORUS FTA.
The present “Act on Trade Adjustment Assistance for Manufacturing, etc.” will be amended to the “Trade Adjustment Assistance Act” to broaden the scope of manufacturing service businesses eligible for trade adjustment assistance from the current 51 business categories to all manufacturing service businesses.
At the same time, the scope of businesses not to be brought under the eligibility scope of trade adjustment assistance such as government function, public services, and speculative and entertainment businesses will be fixed by June 2007.
Assistance via promoting business conversion
The government plans to facilitate business conversion of small and medium manufacturing and service businesses that have suffered from the KORUS FTA but disqualified to meet the requirements for trade adjustment assistance by providing loans to fund business conversion, making consulting services available and supporting the selling of idle facilities.
Support for workers’ job security
On the other hand, workers at businesses under trade adjustment, supplier businesses and businesses approved for business conversion will deserve special attention. Business transfer, re-employment subsidy, employment maintenance subsidy and other job security schemes will be expanded to a great extent. The government will also devise measures for job transfer and more job training for re-employment by June.
In addition, a KORUS FTA job security task force will be formed during April to bolster support for workers’ job security. FTA fast-track assistance teams will be set up at all job centers under regional labor offices in the second half of 2007.
6. Assistance for businesses going overseas
The government will develop measures to extend assistance to Korea’s products and services to take most advantage of new opportunities to become available via the KORUS FTA in advancing the United States market or other foreign markets.
In particular, in view of the automobiles and pick-up trucks market and the textiles market expected to be available through the FTA, the government will closely consult the concerned businesses on facilitating more such businesses to advance the United States market and other overseas markets and on measures to increase exports of electric and electronic goods and daily supplies where Korea has a competitive edge.
The government will also help Korea’s SMEs in other manufacturing businesses to make headway to the US niche market such as government procurement and new promising markets. Multifaceted institutional assistance will be designed for export businesses by establishing a committee on trade remedy cooperation and putting a customs-related assistance system in place at the earliest possible time.
Financial, legal, accounting and other business support services will be contemplated for similar assistance in relation to expanding overseas through boosting competitiveness. Particularly for the financial sector, measures for overseas expansion will soon be made available.
Alongside, we will secure mutual recognition arrangement and visa quota for service professionals to facilitate highly skilled professionals to move into the United States market.
We will also support the overseas marketing of Korean culture to ensure continued spread of Korean Wave (Hallyu).
We will spur support for exports of agricultural and marine products to the United States market. The government will provide the agricultural and stock farm product businesses with loans for short selling and processing and support export logistics cost. The distribution channel will be improved and the development of technology will be further supported for promising export marine products.
7. Future plans
Based on this framework, the government will make adjustment and compensation measures concrete in due course.
In April, each ministry concerned will carry out an accurate sector-based impact analysis on the outcome of the FTA negotiations with advice of research institutes and experts fully digested.
The findings and results of the analysis will be a yardstick to single out the sectors expected to be negatively affected. And accordingly, we will fix the product-by-product measures for compensation for losses, for support to upgrade the competitiveness and for assistance for them to go abroad before signing the agreement.
Fellow Koreans,
As we said earlier, the Korean economy is now securing a new growth engine and a dear opportunity to consolidate its future through the conclusion of KORUS FTA.
The government will make maximum efforts to best utilize this opportunity.
We call on you to demonstrate your firm encouragement and support toward signing of the agreement announced today and ratification at the National Assembly for it can take effect as soon as possible.
Thank you.
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