Korea, U.S. Strike
Historic Free Trade Deal

Signifies establishment of world's third largest economic bloc after NAFTA. EU

Korea and the United States have finally agreed to ink a free trade agreement(FTA), ending 14 months of tricky negotiations between the two countries.
Once ratified by the Korean National Assembly and U.S. Congress, the deal will herald the establishment of the world's third largest economic bloc following the North American Free Trade Agreement (NAFTA) and the European Union. The Korea-U.S. free trade agreement, dubbed "KORUS FTA" will combine the world's largest U.S. economy and the world's 12th largest, Korean economy to create the world's third largest economic bloc with $14.1 trillion worth of Gross Domestic Product following the EU with $15.3 trillion and the NAFTA with $15.1 trillion.
Korean Trade Minister Kim Hyun-chong said during a news conference held at the Seoul Hyatt Hotel on April 2, "The KORUS FTA will be the world's largest FTA the United States has signed following the NAFTA, the one with Canada and Mexico,
and the deal will remove the tariffs of all industrial goods being traded between Korea and the United States, 94 percent of which will not be imposed with tariffs within three years." He held the news conference after signing the FTA with Deputy U.S. Trade Representative Kara Bhatia. Korean FTA chief negotiator Kim Jong-hoon and his U.S. counterpart Wendy Cutler were also present.
Trade experts say that it is significant that the Korea-U.S. FTA will be the largest market-opening experiment in history of Korean people and Korea's first voluntary market-opening deal with the world's largest powerhouse.
Prof. Ahn Se-young, of Sogang University, was quoted as saying, "Trade relations under which ancient Korea offered tributes to Chinese dynasties and the Joseon-U.S. trade pact, signed 125 years ago, were forced ones, but the KORUS FTA is a market-opening one we have chosen for our own interests."
The KORUS FTA, which will combine Korean and U.S. economies, will signal an inauguration of a new market-opening structure in the 21st century, analysts say.
Geopolitically, the deal is expected to serve as a catalyst to solidify an alliance between Korea and the United States, they noted. Prof. Kim Sung-han, of the Institute of Foreign Affairs and National Security, said, "The type of alliance in the 21st century is shifting into a trust-oriented one beyond military alliance, and the Korea-U.S. FTA is a kind of a decision reflecting this trend."
Korea's neighboring countries have begun to keep an eye on the effects the KORUS FTA will bring about. Hatakeyama Noboru, chairman of Japan External Trade Organization, said in an article he contributed to the Asahi Shinbun on March 23 that some Japanese companies may move to Korea in the wake of the of the Korea-U.S. FTA, possibly causing an "industrial void" in Japan.
Korean and U.S. presidents welcomed the deal reached in Seoul on April 2, stressing the significance of the agreement to the alliance of their two countries.? "To be a developed nation, we have to face the challenge ... FTA is that challenge. We have overcome challenges on our own in the past and we have succeeded. We will succeed again," President Roh Moo-hyun told a nationwide live television broadcast later in the day.
In Washington, President George W. Bush said in a letter to leaders of the Senate and the House of Representatives, "The United States-Korea free trade agreement will generate export opportunities for U.S. farmers, ranchers, manufacturers, and service suppliers, promote economic growth and the creation of better paying jobs in the United States, and help American consumers save money while offering them greater choices."
Korea Institute for International Economic Policy (KIEP), a Korean state-funded think tank, initially calculated the spill-over effects the Korea-U.S. FTA will bring -- up 7.2 percent or an increase of $32.6 billion in real GDP,; up 3.1 percent in employment rate or an increase of 510,000 jobs,; a 22.7 percent jump or a surge of $8.2 billion in shipments to the United States; a surge of 44.4 percent or a $8.2 billion in imports from the United States; an annual reduction of 1.2 million won in household expenditures for four family members; and a surge of $40.4 billion in foreign direct investments. The estimate was made on a CGE model before the KORUS-FTA was inked. Korea's economic benefits of the deal could be reduced as Korea and the United Stated agreed on a lower level of FTA than originally planned. nw

Korean FTA chief negotiator Kim Jong-hoon and his U.S. counterpart, Wendy Cutler are all smiles following the signing of a free trade agreement between Korea and the United States.

The estimated are based on the CGE model projection by Korea Institute for International Economic Policy (KIEP) last year. The real value could be lowered due to the signing of a lower-than-expected FTA between Korea and the United States.