Question

Question about the trade

who are the losers of FTA in Korea and why?(in can be China-korea FTA or US Korea FTA)? what are the political impact they have?

Answer 1

1)

The implementation of the Korea-U.S. free trade agreement spells both good and bad news for local businesses. The passing of the bill at the National Assembly on Tuesday was welcomed with open arms by major export-oriented industries such as automobiles and textiles, while the food and agriculture industries expressed their dissatisfaction at the decision.

It is obvious that, given the huge economies of scale in agricultural production, the U.S. has a comparative advantage in the production of farm outputs. Therefore, the U.S. farm products, which were subject to tariffs, will be sold tariff-free in the Korean markets, increasing the demand for these products. Meanwhile, both the Korean customers and the U.S. farmers will benefit from this transaction. The biggest losers will be the Korean farmers, which explains the fierce protests within the country.

Not all are happy about the ratification, however. Particularly, the pharmaceutical, food and agriculture industries expect to see imports and therefore competition surge once the deal takes effect in January.

“It’s awful news,” said Kim Young-kil, vice chairman of the Hanwoo Association. “We were negatively affected by foot-and-mouth disease [last winter], then the Korea-European Union FTA [which took effect in July], and now this.”

The livestock and agriculture industries have strongly opposed the deal as for the next 15 years the two sectors are expected to see production losses amount to 12 trillion won ($10.4 billion), or 844 billion won per year, according to a report from the Ministry of Food, Agriculture, Forestry and Fisheries.

The most severely affected will be the livestock industry, as its accumulated production is expected to decline by almost 7.3 trillion won in the first 15 years following the implementation of the FTA.

In response to their concerns, the government insisted it will protect the local agricultural industry by injecting 22 trillion won to support farmers and help make up part of their losses.

The pharmaceutical industry is also expected to suffer, due in part to a clause that allows American patent holders to delay Korean companies from manufacturing and distributing generic drugs in the U.S., and vice-versa.

As this strengthens patent rights for newly developed medicines, of which Korean companies have only developed 17, it is expected to aid U.S. firms significantly more.

And with intellectual property rights bolstered, it will become more difficult for local companies to produce generic or modified drugs.

According to the government, Korea’s production of generic drugs is expected to drop by 68.6 billion won to 119.7 billion won because of the FTA. Seoul has said it is working on a plan to try and delay the introduction of the clause for three years.

“The clause actually has the effect of lengthening the life of patents,” said Kim Jin-hyun, a professor at Seoul National University. “It is absolutely disadvantageous to local pharmaceutical companies.”

In addition, tariffs on health care goods will also be abolished. Korea’s import duty on 463 goods, or 76.8 percent of products, will be eliminated immediately. This will affect vaccines and syringes among other products. For 122 products, or 20.2 percent of health care goods, including aspirin, the duty will disappear in three years.

2)

Besides  the  above­mentioned effects,  the  Korea­ China  FTA  is  expected  to  have  geo­political  effects  in  Asia.
Above  all,  it  will  contribute  to  stabilizing  the  diplomatic  and geopolitical  relationship  between  Korea and China,Korea China  FTA  is  expected  to  result  in  the  expansion  of   bilateral  cooperation  and  greater  interdependency.  It will  also help  the  Chinese  leadership  and  private  sector  to  realize  the importance  of  political  as  well  as  military  security  in  the Korean peninsula. For its part, Korea can use the Korea­ China FTA  to  develop  a  strategic  and  cooperative  relationship  with China while maintaining the Korea­U.S. alliance.

Due to political sensitivity to the opening of agriculture, Korea excluded many items from its exports to US, but after the implementation of the agreement, its exports to US increased an annual average of 61% for four years. According to the research results who conducted proven analysis on Korea-US trade using an econometric model, the increase in trade between the two countries are mostly attributable to the implementation of FTA.

Although most analysis of FTAs tends to focus primarily on economic costs and benefits, a political economy perspective emphasizes the security component. Classical economist Albert Hirschman and other contemporary scholars, such as Amy Searight, contend that trade is often motivated by political and strategic goals.[1] More specifically, Hirschman finds that large states in asymmetric trading relationships use economic incentives to influence the smaller state’s domestic politics, as a way of advancing its political and strategic goals. Against the backdrop of Hirschman and Searight’s conceptualization of the trade-security nexus, we analyze the political and strategic motivations behind the KORUS FTA.

During the Cold War, “securing security” through prosperity was the primary motivation behind US trade relations with countries in Northeast Asia, since US policymakers were concerned with containing the spread of Communism throughout the region.[2] Through the US-centric hub-and-spokes system, the US opened its market to exports from its Northeast Asian allies as a means to increase its political leverage in those countries.[3] The US maintained a close relationship with these allies throughout the Cold War, and even after the Cold War ended, the US-centric system has endured. However, in the post-Cold War era, China’s rise has presented a new challenge to US hegemony in the region. Thus, the US strategy has shifted from containing the spread of Communism to balancing against the “rise of China” through free trade agreements and asymmetric trading relationships.

Since the turn of the century, Sino-US competition in Northeast Asia has rapidly intensified as both nations vie for economic and political influence, especially in South Korea. In 2005, the tide began to turn as China became South Korea’s largest trading partner, usurping the position traditionally held by the US. This change did not go undetected in Washington. The US strategic response to South Korea’s changing trade patterns can be found in a 2006 report presented to the US Congress by the Congressional Research Service (CRS) entitled, “The Rise of China and Its Effect on Taiwan, Japan, and South Korea: U.S. Policy Choices,” which highlights how the economic rise of China and its growing network of trade and investment relations in Northeast Asia are causing major changes in human, economic, political and military interactions among countries in the region. These changes have serious implications for US economic and security interests in Northeast Asia, and “… have increasingly impacted policy deliberations in Taipei, Tokyo, and Seoul. For China’s trading partners, dependency on the Chinese market means that Beijing is looming larger in all aspects of policy making.” Clearly, the CRS report invokes Hirschman’s contention that trade relations affect domestic politics in numerous areas, including foreign policy.

In reality, the KORUS FTA is part of the US strategy to use its asymmetric trading relationship with South Korea as a means to maintain its political influence in Seoul while simultaneously balancing against China’s increasing power and influence in the region.

THANK YOU !