Seoul plans to renegotiate ISD clause with Washington via service and investment committee


The Korea-U.S. free trade agreement will take effect on March 15, nearly six years after negotiations began in June 2006, making Korea the only nation to have FTAs with both the U.S. and the European Union.

Free trade with the world’s largest economy, which accounts for 23 percent of the global output, is expected to upgrade Korea’s status as a trade partner and most immediately benefit the country’s auto, auto parts, petrochemicals, electronics and semiconductor sectors.

It could, however, bring about industrial restructuring, deal a blow to Korea’s agricultural and fisheries sector and widen income gaps.

Trade volume between the two countries topped $100 billion for the first time last year. Korea’s exports to the United States amounted to $56.2 billion and imports $52.1 billion.

“Trade volumes with the economies we have FTAs with, such as Chile, ASEAN and India, have surged by 20 to 30 percent after the trade pacts took effect,” a trade ministry official said.

State-funded think tanks forecast Korea’s exports to the U.S. to increase by $1.3 billion and trade balance by $140 million over the next 15 years. They also said 350,000 new jobs will be created.

Immediate removal of tariffs on Korea’s major export items will reduce transaction costs and therefore allow more aggressive marketing.

A rise in exports of industrial products will lead to increased production which will enable companies to cut costs and expand employment.

The FTA could also enhance public welfare and productivity as Korean consumers will be able to buy agricultural and industrial products at lower prices.

The domestic market will grow under the FTA, which means more opportunities for small and medium-sized companies.

“Contrary to small and medium-sized businesses’ concerns, FTAs will help them raise competitiveness because products that sell well in Korea will have a higher chance of being recognized in the U.S. and Europe,” said Kim Hyung-joo, a researcher at LG Economic Research Institute.

The FTA with the U.S. is also projected to elevate Korea’s credit ratings, helping the country attract investment and do business abroad. It is also expected to raise the credibility of Korean products and services, reduce costs for companies in securing foreign capital and boost the stock market.

As for the possible downsides such as the widening of income gaps and collapse of weak industries, experts advise thorough preparations to minimize the damage.

The government projects Korea’s farming and livestock industries to face losses of up to 12.67 trillion won over the next 15 years, which could cause higher unemployment rates in the already-bleak rural economy.

Seoul vowed to provide the agricultural and fisheries sector with 24 trillion won in financial support and 30 trillion won in tax benefits.

Service areas including the legal and media markets are also expected to meet huge challenges when advanced U.S. enterprises tap into the market.

“The government and the private sector should set up a real-time monitoring system and work together to maximize the benefits of the FTA and minimize its damage,” said Kim Soo-dong, researcher at the Korea Development Institute.

As for the clause on investor-state dispute settlement, which the opposition party claims should be removed, Seoul said it will hold a service and investment committee meeting within 90 days after the FTA goes into effect for renegotiation with Washington, Trade Minister Bark Tae-ho said.

By Kim So-hyun (sophie@heraldcorp.com)