firmly in place has been confirmed through an abundance of historical evidence.
Revised Korea-U.S. free trade agreement over cars
Protectionists always opposed trade talks with the U.S.
Since South Korea started to pursue export expansion for economic growth, it has often encountered trade frictions with the U.S. A big deal with the U.S. has always provoked enormous controversy in Korea. Although Korea has opened up its market for the U.S. products, its exports to the world`s largest market have increased steadily. Automobiles are a best example. The bilateral trade friction in the 1980s and 1990s centered around the auto sector. Protectionists blamed the free trade deal on vehicles as a big concession to the U.S., projecting local carmakers would be doomed. But Korea has sold more cars to the U.S., emerging as the world`s fifth largest car-producing country.
Korea struck a revised free trade agreement with the U.S. on December 3, giving more concessions on automobile and obtaining more safeguards on pork and medicine. Both opposition parties and protectionists dismissed the deal as a failure and staged large-scale protests. They called for the nullification of the free trade pact as the concessions on the auto sector far outweigh any benefits. But local carmakers supported the treaty, asking the government and parliament to ratify the bill as early as possible. Why does the industry welcome the deal while opponents point to the concessions and expected losses?
The changes in the environments
The free trade agreement struck between Korea and the U.S. in 2007 is viewed as a deal of balanced interests and mutual benefits. The auto sector was a major part of the deal and the American carmakers were strong. But the global financial crisis sent two of the three U.S. major carmakers, General Motors and Chrysler, into a near bankruptcy. About 18 million cars were sold on average in the world`s largest market every year but the sales shrank to 15 million in the wake of the worst recession since the Great Depression. Korean carmakers` share in the U.S. market jumped to 8 percent from 3 percent over three to four years. Given the size of the U.S. market and the price of cars, expensive durable goods, it was remarkable achievement.
The concessions in the recent treaty are a result of reflecting various factors: the collapse of American carmakers, the rise of Korean carmakers, auto labor unions` strong support for President Obama, and the ruling Democratic Party`s trade policy opposing neo-liberalism.
The criticism that the government should have not accepted the U.S. demand and insisted on the 2007 agreement may platter the general public. Politicians, in particular, would gain support from their voters with the populist words. It would be great if the U.S. gives in and approves the original scheme. But the chances are pretty low that not only the Obama Administration but also the U.S. Congress will agree to the treaty as it was.
It`s a regret that we have to make a concession but this should give the U.S. a political reason to ratify the free trade accord. Opponents argue that the revised deal will hurt Korea`s auto industry and allow U.S. cars to occupy Korea`s market as Korea has agreed to halve its tariffs on U.S. car imports to 4 percent immediately and remove them in the fifth year. But Korea`s car industry sees no major impact from the deal. It`s apparent whose analysis is more accurate.
Korean carmakers doubled their market share in the U.S. over a short period of time due to the collapse of the American giants. For them, it may be better to try to gain from no tariffs on car parts for the first four years after the treaty and expand their U.S. business in the fifth year when the U.S. car industry returns to normal health and the bilateral trade barriers all disappear. The Toyota case gives a lesson on how to cope with the changes in the U.S. market.
Some people call for the nullification of the free trade agreement but this is nothing but a political rhetoric. Protectionists should realize the early ratification of the accord as requested by the car industry is in the nation`s interest.
By Chung In-gyo, professor of economics at Inha University and chairman of the Korean Association of Trade and Industry Studies