SEOUL, March 15 (Yonhap) -- The free trade pact with the United States that went into effect Thursday will open a new chapter for the South Korean economy as the export-driven economy taps deeper into the world's largest economy, and help solidify the political alliance with Washington, experts said.
The free trade agreement (FTA) signed in 2007 was approved by South Korea's National Assembly in November last year. The U.S. Congress ratified the deal in October. The free trade accord, known as the KORUS FTA, was supplemented in late December in 2010 with minor modifications that mostly dealt with the auto industry.
The KORUS FTA will help South Korea's economy expand by more than 5 percent in the long term as it will lead to more exports by reducing trade barriers, an earlier study showed. The deal will create about 350,000 jobs, helping ease tightened labor market conditions here.
The report compiled by 10 local think tanks predicted that South Korea will see its trade surplus with the U.S. increase by US$140 million annually over the next 15 years after the FTA goes into effect. The nation's total global trade surplus, however, will expand by an annual average of $2.77 billion, the report showed.
"The deal will help boost our exports, especially sales of autos, electronic goods and textiles, to the American market," said Kim Soo-dong, a researcher at the state-run Korea Institute for Industrial Economics and Trade (KIET). "The U.S. market is one of the major markets for local manufacturers."
Bilateral trade topped the $100 billion milestone last year, with South Korea's exports to the U.S. reaching $56.2 billion. Seoul's imports from the U.S. amounted to $52.1 billion last year.
South Korean exports, which contribute more than 70 percent to the nation's economy, will be one of the major winners, according to experts.
Under the terms revised in 2010, the two countries agreed to scale back tariff cuts for cars. The U.S. will eliminate its 2.5 percent tariff on automobiles in four years, instead of immediately or after three years, as was previously agreed, after the deal takes effect.
South Korea will cut its 8 percent tariff on U.S. car imports to 4 percent immediately, instead of immediately eliminating it.
Analysts said the free trade deal would help South Korea's auto companies expand their shares in the vast American market.
Hyundai Motor Co., the world's fifth-largest automaker along with its affiliate Kia Motors Corp. is expanding its presence in the U.S.
"Automakers and auto-parts makers will benefit most from the KORUS FTA, and their market shares will expand further," said Chae Hee-keun, an analyst at Hyundai Securities.
Other analysts predicted the deal would help South Korea attract more foreign investments and make business practices and management more transparent.
The FTA is also expected to create new opportunities and markets for Korean goods, services and workers, while benefiting Korean consumers with more competitive pricing and better quality of goods and services in the Korean market.
"The free trade pact with the U.S. will provide an opportunity for South Korean smaller firms to boost their competitiveness in overseas markets," said Kim Hyung-joo, a researcher at LG Economic Research Institute.
In terms of political impacts, the KORUS FTA is also expected to help bolster the alliance with Washington, as it could expand the bilateral ties between the countries beyond the traditional military alliance, according to the analysts.
"The strengthened alliance made through the free trade pact will further boost South Korea's credibility in the global community, as well as help reduce geopolitical risks facing the country," said Cheong In-kyo, a professor at Inha University in South Korea.
However, some economists and opponents argue the deal will devastate the livelihoods of South Korean farmers and the poor and worsen economic polarization between the haves and have-nots.
According to the report from the Ministry of Food, Agriculture, Forestry and Fisheries, the KORUS FTA will lead to a reduction of 12.67 trillion won in production by the country's agricultural, farming and fisheries industries in the next 15 years.
The ministry report said the FTA will cause the country's farm production to dwindle by some 700 billion won in the fifth year of its implementation alone.
It said the reduction of output will further expand to a little over 1 trillion won in the 10th year and to 1.27 trillion won in the 15th year.
Seoul already has plans to support the country's farmers and help make up at least part of their losses due to the South Korea-U.S. FTA and is in the process of updating the measures.
The government is planning to provide a total of 54 trillion won, including 30 trillion won worth of tax incentives, to the agricultural and other sectors to minimize possible damages after the accord goes into effect.
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