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Abandonment of Korea-US FTA to Help N. Korea Drive Wedge between S. Korea and US

Korea-US FTA
Jon Wolfstahl, a former special assistant to the US President for national security, said “North Korea is trying to make the US and South Korea hate each other.”

Exports in US-based think tanks point out one after another that not only is US President Donald Trump’s threatening to abandon the Korea-US Free Trade Agreement (FTA) inadequate in the current situation but help North Korea easily reach its goal of undermining Korea-US relationships.

“North Korea is trying to make the US and South Korea hate each other,” said Jon Wolfstahl, a former special assistant to the US President for national security and a senior director for nonproliferation and arms control at the National Security Council in the Obama administration and currently a research fellow at Harvard University’s Belfer Center in an interview with the Wall Street Journal (WSJ) on September 3 (local time). “Scrapping the Korea-US FTA will help Kim Jong-un reach the goal more easily. Now is the worst time to wage economic war with a close ally.”

“If President Trump unilaterally abrogates the Korea-US FTA, the two countries’ partnership will be undermined,” said Troy Stangarone, a researcher at the Korea Economic Research Institute of America in Washington, DC. Stangarone also ran down President Trump, saying “President Trump seems to treat allies worse than the enemy of the United States.”

Meanwhile, as news traveled that President Trump mentioned the abandonment of the Korea-US FTA, South Korean people are paying a lot of attention to how much the abolition of the agreement will affect the economies of Korea and the US.

The Korea Economic Research Institute of America said in April that if the tariff rate is revised again, Korea will suffer a maximum export loss of US$17 billion in three fields — automobile, machinery and steel — for the next five years.

With reference to this, the Hyundai Economic Research Institute in January predicted that if the Korea-US FTA is scrapped, exports will decrease by US$13.1 billion over the next four years until 2020, and 127,000 jobs will vanish.

However, there is analysis that if the Korea-US FTA is scratched off, damage to the United States will eclipse damage to Korea because the bilateral trade structure is complementary. This is because if the agreement goes down the drain, US companies exporting products to Korea will have to pay a higher tariff rate on average than their Korean companies exporting products to the US.

If and when the FTA comes to and, both countries will be subject to MFN tariff rates in accordance with World Trade Organization (WTO) rules. According to a June report released by the Korea Institute for Industrial Economics and Trade, Korea’s tariff rate for US goods was 1.6 percent, while the US’s tariff rate for Korean products at least 4 percent.

The report predicts that if the agreement is terminated, US exports to Korea will decline more sharply than Korean exports to the US for this reason.

In Korea’s export and import structure in 2015, the abolishment of the Korea-US FTA will make Korea’s exports to the United States decline by US$1.32 billion while pulling down Korea’s imports from the US to US$1.58 billion.

However, a decrease in trade between the two countries will lead to a decrease in consumer welfare and gross output, which is expected to eventually have a negative impact on both economies.

On top of that, some argue that since Korea’s major exports concentrate on items in which the US has weak export competitiveness, the dismantlement of the Korea-US FTA will have a limited impact on Korea’s import and export.

The Original Posted by Michael Herh/Business Korea