Free Trade between the United States and Korea

Since the turn of the century, the nations of the world have turned their focus on the aspect of globalization through peaceful co-existence. In light of the pursuit to global prosperity, governments of nations across the world look at the premises of free trade as a promising element in uniting the world to function as a single society. The recent free trade agreement between the United States and Korea constitutes a pre-emptive future for the world free trade system as a contributing element to the current trend of globalization.

For the United States, the treaty has broken barriers on flows of goods and services in markets of certain industries in Korea. For Korea, it has provided opportunities for the country’s flourishing economy. Putting the American economic status quo, the trade agreement offers a myriad of opportunities for the declining American economy, particularly, the striking impact is quite noticeable on the automobile and agriculture industries.

The American automobile industry manifests itself as one of the major beneficiaries in the free trade agreement between the United States and Korea simply because it will allow additional shipment of American made vehicles to Korea minus the taxes required and restrictions imposed on advertisements. Jeffrey J. Schott, Scott C. Bradford, and Thomas Moll (8) write that one of the resolutions offered by the United States-Korea free trade agreement was the nullification of the inequality in automobile exporting.

This is, in large part brought about by the fact that, while Korea savored the gradual growth of auto export sales in the United States since 1995, the American automobile manufacturers did not garner equal export sales in Korea (Schott, Bradford, & Moll 8). As previously mentioned, the American automobile exports in Korea have been cannibalized by the Korean government imposed restrictions and other anti-imported regulations.

The lifting of such policies however appears to be inadequate for the American car manufacturers as media participation through anti-imported propaganda in Korea also promoted a nationalist mentality that buying internationally manufactured vehicles was an un-Korean act (Schott, Bradford, & Moll 9). This has also provided a head start for the Korean economy to be as equally competitive domestically and internationally against a direct competitor from an economically stable nation. Prior to the free trade agreement, the United States and Korea have gone through numerous negotiations.

In 1995 and 1998, as a result of strain from an American Super 301 investigation, Korea signed a memorandum of understanding that stipulated the lifting of policies that hinder foreign automobile manufacturers from being competitive in the domestic market (Schott, Bradford, & Moll 9). Considering that an increase in number of products to be shipped does not assure increase in sales, but even with the signing of the memoranda of understanding on two separate occasions, the American automobile manufacturers did not see an increase in sales in Korea.

While the advantages of the free trade agreement on the American automotive industry holds, lifting of certain regulations may however allow the American business model of capitalism to penetrate through the Korean market and send the Korean economy to a downward spiral. This is because the capitalist business practice is predicated with the tendency that once a certain company gains supremacy of the market, the competition will be eliminated. For the flourishing Korean economy, the free trade agreement promises substantial change for international competence in the automobile industry.

Mainly the Korean government’s aims to reinforce domestic markets and attract direct foreign investments will allow companies to develop over time. The Korean automotive manufacturers, in this sense, take advantage of the law-protected domestic market to provide opportunities for growth and development. Schott, Bradford (8), and Moll use the notable increase of exported Korean automobiles from 1997 up to 2005 as a prime example of how the Korean business model allows companies to eventually become competitive and maintain competition in the market.

Unlike capitalism which hinders dilapidating companies to be pushed further to the brink of closure and bankruptcy and entirely eliminate competition Apart from the government policies that stood as key contributors to the minimal sales of American vehicles in Korea, the cultural differences between the two nations is also a contributing factor to the failure of the American automotive industry to penetrate the Korean demographic. Primarily, American vehicles being central to American life and culture, are manufactured to suit the American preference of spacious interiors and high performance engines.

Likewise, the large engines of American automobiles are engineered to adapt to the geographical diversity of the United States As such, the American designs are not fit for the preferences of the Korean market, as well as the geography of Korea. In addition, Schott, Bradford, and Mott (8) indicate that a large percentage of the Korean market is interested on small-engine vehicles that emphasize on the advantages of fuel efficiency over engine performance.

Much of this can be attributed to the fact that small-engine vehicles are less adaptive of diverse terrains but they are more economic in terms of fuel consumption while contributing to the preservation of clean air. While the United States-Korea free trade agreement tenders promising results by lowering tariffs to American exported vehicles, it also presents opportunities and threats on the agricultural domain.

A report filed by the United States Chamber of Commerce, United States-Korea Business council, and American Chamber of Commerce in Korea (7) indicates that American exported agricultural products which include wheat, corn, soybeans, skins and hides, cotton, pistachios, almonds, wine, bourbon, whiskey, cherries, and various vegetables were exempted from Korean imposed tariffs. The report also expressed that other tariffs on other American agricultural exports such as beef and poultry products, dairy products, and processed food products will eventually be eliminated over a 15-year time period.

While tariff eliminations of such products will bequeath concrete benefits for the American economy, it will have a striking impact on Korean agriculture. While there are high tariff exemptions on most recognized and consumed agricultural products, Korea appears to be firmly strict on importation of rice products as quotas and tariffs remain imposed on the rice being exported to the north-eastern Asian nation. This is because rice is one of the country’s main agricultural products and removing the restrictions will drastically change the market of rice in the country.

This is because most of Korea’s agriculture is embedded on production of rice, and although agriculture only constitutes 7% of Korean employment, strong bonds with rural areas make agriculture an influential factor in the Korean political scene. (Cooper and Manyin 2). As such, further negotiations on the inclusion of rice in the free trade agreement may cause local political pressures for the Korean bargaining party and ultimately endanger the entire free trade agreement. A main considerable advantage of tariff exemptions and eliminations on agricultural products can be helpful in times of natural disaster.

If agricultural lands and products, for example, are devastated by hurricanes, the Korean government can subsidize food shortages through imported agricultural products. Similarly, imported agricultural products can also serve as such as vegetables and fruits can serve as supplements for possible victims of natural disasters while the funds acquired from exporting agricultural products to the United States may aid in recuperating from the losses brought about by catastrophe.

However, the United States call for Korea to open all of its agricultural markets is quite dangerous considering that the advancement of American products would mean the delineation of the domestic ones. As previously mentioned while this proves to be beneficial for the American economy and superficially, for the Korean economy, there is threat of competition and possible elimination of domestic products in the market. In this sense the differences between the two nations influence the quality of the products being imported and exported.

Much has been said about the effects of the trade agreement on the Korean agriculture industry, but a point of contention can be pointed out once again to the American business practice of capitalism. Considering that Korea has allowed American penetration on one of its sources of economic stability, the Korean economy will be threatened by the tendency of capitalism to saturate a particular market and eliminate competition. The possible influx of American exported agricultural products may weaken the Korean economy.

Apart from pushing direct competitors to closure, the American penetration of Korean agriculture could mean the loss of thousands of jobs. Primarily since American products will provide competition for the domestic farmers, the sales will be lessened to a maximum of half the amount when restrictions on foreign products still apply. This will also prompt farmers to double the cost of production to counter the possible influx of imported American agricultural products. And farmers will have to exert all the extra effort without guarantee of gaining profit to compensate for the heightened production cost.

Furthermore, the unpredictable political state of affairs in the United States causes an unstable future for the concept of free trade agreement. Initially because trade policies or the premise of free trade agreement may change from one president to another; the stipulations of the Bush administration for instance may be amended by the Obama administration in one way or another. What the future holds is uncertain, so as the saying goes, but in terms of geopolitical affairs the actions of governments and representative parties of nations render the future pre-emptive for a particular endeavor.

Take the case of the free trade agreement between the United States and Korea, the stipulations agreed upon by both nations give a possible outcome for the future of the concept of trade agreement. Although the positive and negative aspects of the matters agreed upon still provide uncertainties, it still provides possible consequences for the actions which ultimately influence the function of free trading as a contributor to the idea of globalization.

Works Cited Cooper, William, and Mark Manyin. “The Proposed South Korea-U. S. Free Trade Agreement (KORUS FTA). ” 18 July 2008. Congressional Research Service Report for Congress 9 December 2008 <http://www. au. af. mil/au/awc/awcgate/crs/rl33435. pdf>. Schott, Jeffrey J. , Bradford, Scott C. , and Thomas Moll. “Negotiating the Korea–United States Free Trade Agreement. ” Policy Briefs in Economics 6-4 (2006): 8-9.

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