Mar 21, 2012

Korea Benefits from FTAs

Liberals, in Korea, have been claiming that Free Trade Agreements with the EU, Chile, ASEAN and the U.S. is hurting Korea.

However, the statistics show a vastly different reality.  The Chuson Ilbo posted a decent article analyzing trade statistics.  The article, however, fails to detail the effects of FTAs on consumer prices.  Invariably, FTAs, also, leads to a decrease in consumer prices, thus, a decrease in inflation.

The article notes, in part, that:
From July last year, when the Korea-EU FTA went into effect, until November, exports to the EU rose 14.8 percent compared to the same period a year earlier in terms of products that saw tariff reductions, the Korea International Trade Association says.

Total exports to the EU declined 8.5 percent over the same period, but that was due to a 30 percent drop in shipments of electronics products and ships in the wake of the European fiscal crisis. Electronics and ships were subject to zero tariffs even before the FTA between the two sides, "so the FTA played a key role in cushioning the shock as seen in the 50 percent increase in EU investment in Korea during the second half of last year," according to Myung Jin-ho at KITA.

The FTA with Chile was sealed in 2004, and bilateral trade surged from US$1.85 billion the year before to $7.17 billion in 2010. Exports to the South American country rose a whopping 462 percent, while imports from Chile grew 218 percent. Excluding copper, which accounts for around 70 percent of imports from the country, Seoul has achieved a trade surplus every year, rising from $200 million in 2003 to $1.7 billion in 2010.

The average tariff rate of Korean exports to Chile was 6 percent before the FTA but fell to 2.9 percent in the first year the deal went into effect and dropped even further to 0.5 percent last year.

According to a Foreign Ministry report last year on the concrete economic effects of FTAs, Korea's trade with Chile, Singapore, the EFTA, ASEAN and India in 2010 stood at $153.9 billion, leading to a trade surplus of $18.8 billion for Korea. That accounted for 17.3 percent of Korea's total trade volume and 39 percent of its overall trade surplus.

Compared to pre-FTA days, Korea's trade with those groups rose 60 percent, while the trade surplus increased 168 percent.  
The full article may be found at:  What are the Benefits of Korea's FTA?
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SeanHayes@ipglegal.com

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