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Car, Tech Industries Expected to Gain Most From FTA Deal

Korea Times

Car, Tech Industries Expected to Gain Most From FTA Deal

By Kim Sung-jin, Staff Reporter

3 February 2006

Local automobile and information technology (IT) industries are expected to benefit most from the Korea-U.S. free trade agreement (FTA).

“The U.S. has inked and pursued a complete FTA deal with its trade partners, leaving very few exceptions. Therefore it is unlikely that Korea will pursue a limited FTA deal with the U.S.,” Samsung Economic Research Institute (SERI) senior researcher Jeon Young-jae said.

He noted that as the U.S. had little to gain from removal of tariffs on merchandise trade and further opening up of manufacturing sectors, Washington would strongly urge Seoul to fully liberalize its service, investment and agricultural sectors and shore up its intellectual property right (IPR) protection policies in the FTA talks.

“The upcoming launch of FTA talks with the U.S. will encourage Korea and other major economies such as Japan, China and the EU to begin formal free trade negotiations,” Jeon said.

“In that sense, the Korea-U.S. FTA will no doubt accelerate Korea’s FTA talks with other developed economies,” he added.

JP Morgan’s senior economist Lim Ji-won also advised that the Korean government shouldn’t be swayed by severe opposition from local interest groups as witnessed in the past rice market case in 2005, with regard to its decision to globalize its economy.

“What’s most important is that the government persuade its people that the market opening is an irreversible global trend and frankly inform them about the negotiation processes and its plans to liberalize certain market segments,” Lim said.

She said otherwise, Korea wouldn’t be able to conclude the deal with the U.S. before the expiration of the Trade Promotion Authority (TPA).

The TPA or “fast track” is an authority to negotiate trade agreements granted by the U.S. Congress to President George W. Bush and will expire in July 2007.

If Korea fails to meet the time limit, both Seoul and Washington will lose their chances to take advantage of the TPA that eases otherwise harsh scrutiny of the bilateral FTA deal by the U.S. Congress, which would be very time consuming.

Lee Jong-woo, head of research of Hanwha Securities, said the Korea-U.S. FTA would serve as a boon to Korea’s export-driven manufacturing industries such as the automobiles and information communication technology (ICT) industries, but could put a dent in the local banking, retail and construction service industries.

“Industries such as automobiles and ICT equipment, that are armed with strong international competitiveness can capitalize on the Korea-U.S. FTA by securing a firm base to extend exports,” Lee said.

“But other manufacturing industries and agricultural sectors that lag behind in global competitiveness will suffer from intensified competition triggered by the Korea-U.S. FTA,” he said.

The Korea Institute for International Economic Policy (KIEP) forecast that the Korea-U.S. FTA would boost Korea’s exports to the U.S. by 4.3 percent, or $2.82 billion, and imports from the U.S. by 10 percent or $4.62 billion.

The economic think tank expects the static effect of the Korea-U.S. FTA, the estimated GDP boost effect from the removal of tariffs in bilateral trade, to reach $2.9 billion, equivalent to 0.42 percent of Korea’s GDP.