Transcript Korea’s FTA Policies

Korea’s FTA Policies
Introduction
• Korea has changed from reluctant to
enthusiastic FTA player
– Importance of trade in Korean economy has
grown continuously
– Korea sees FTA as a tool to maintain and
expand foreign markets and modernize its
economy
– “multiple negotiations” to achieve as many
FTAs as possible with strategic partners
2
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Korean Trade (1970-2011)
USD billions
600
500
400
300
Total Exports
Total Imports
200
100
0
3
Share of Trade in GDP
120
Exports
100
80
Imports
60
40
Net Trade
20
0
197019721974197619781980198219841986198819901992199419961998200020022004200620082010
Total Trade
-20
4
Regional Exports
(USD billions)
200
US
180
160
China (Hong
140
Kong and
120
Taiwan)
Japan
100
EU
80
60
ASEAN
40
20
0
Central and
1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011
South America
5
Regional Exports
(% of total exports)
45
US
40
China (Hong Kong
35
and Taiwan)
Japan
30
25
EU
20
ASEAN
15
Central and South
10
America
OPEC
5
0
197719791981198319851987198919911993199519971999200120032005200720092011
ROW
6
20
OPEC
0
ROW
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Regional Imports
(USD billions)
140
US
120
China (Hong
Kong and Taiwan)
100
Japan
80
EU
60
ASEAN
40
Central and South
America
7
45
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Regional Imports
(% of total imports)
US
40
China (Hong
35
Kong and Taiwan)
30
Japan
25
EU
20
ASEAN
15
Central and South
10
America
5
OPEC
0
ROW
8
What Does Korea Export
(2007-2011)
Primary
Light
Products
Manufactures
2%
6%
IT Products
Other Heavy
26%
Manufactures
66%
9
What Does Korea Export
(2007-2011)
Nonferrous
Fabrics
Metal products
2%
Precision
Chemistry
2%
Others
2%
13%
Household
Transport Equip
Electronics
22%
3%
General Machine
Electronic
3%
Special Machine
Components
3%
17%
Articles of Iron or
Steel
Mineral Fuels
6%
8%
Industrial
Petrochemicals
Electronic Articles
8%
11%
10
What Does Korea Import?
(2007-2011)
Primary Products
(for export)
14%
Other Heavy
Manufactures (for
Primary Products
domestic use)
(for domestic use)
33%
17%
Light
Manufactures
(for export)
2%
Light
Manufactures
Other Heavy
Manufactures (for
IT Products (for
exports)
domestic use)
16%
6%
IT Products (for (for domestic
exports)
use)
8%
4%
11
What Does Korea Import?
(2007-2011)
Precision Machines
2%
General Machines
3%
Petrochemicals
3%
Others
19%
Mineral Fuels
30%
Agricultural
Products Farm
Nonferrous Metal
Produce
Products
3%
4%
Metal
Transport Equip
Ore Precision
4%
4% Chemicals
Electronic
Components
Industrial
10%
Electronic Articles of Iron and
Articles
Steel
6%
8%
4%
12
Korean Imports by Use
(2007-2011)
Consumption
Misc (Domsetic
Goods (Domestic
Use)
Use)
0%
9%
Capital Goods
Raw Material
(Domestic Use)
(Used for Exports)
18%
27%
Capital Goods
(Used for Exports)
12%
Raw Material
(Domestic Use)
33%
Consumption
Misc (Used Goods (Used
for Exports) for Exports)
0%
1%
13
Korean FTAs: Signed and
Implemented
Country
Study
Begun
Chile
Negotiations Negotiations
Begun
Completed
Implemented
1999.09
2003.02
2004.04
Singapore
2003.03
2003.10
2006.03
2006.03
EFTA
2004.08
2004.12
2006.09
2009.06
ASEAN (Goods)
2004.03
2004.11
2006.08
2007.06
ASEAN (Services)
2004.03
2004.11
2007.11
2009.05
ASEAN (Invest.)
2004.03
2004.11
2009.06
2009.09
India
2005.01
2006.01
2009.08
2010.01
US
2006.06
2007.04
2012.03
EU
2006.07
2009.10*
2011.07
2009.01
2011.08
2011.08
Peru
2007.10
14
Korean FTAs: Signed but Not Yet
Implemented
Country
Study
Begun
Negotiations
Begun
Negotiations
Completed
Turkey
2008.09
2010.03
2012.08
(Goods only)
Colombia
2009.03
2009.12
2012.06
15
Korean FTAs: Under Negotiation
Country
Study
Begun
Canada
Mexico
Negotiations Begun
2004.11
2004.10
GCC
2005.09
2007.11
Australia
2007.05
2008.10
New Zealand
2007.02
2008.05
China ***
2005
2012.05
Indonesia
2011.05
2012.07
Vietnam
2010.06
2012.08
Japan ***
1998.12
2003.10 **
Indonesia
16
Korean FTAs: Under Study
Country
Study
Begun
MERCOSUR
2005.05
Israel
2009.08
Mongolia
2008.10
Central America
(Panama, Costa Rica, Guatemala, Honduras,
Dominican Republic and El Salvador)
2010.10
Malaysia
2011.05
17
Korean FTAs: Studies Quietly
Forgotten
Country
Russia
SACU (South African Customs Union)
Study Begun
2007.10
2008.12^
18
Korean FTAs: Global GDP (2009)
basis, billion USD; Total 57,876 billion
Implemented
834 , 1%
5,101 ,
Signed but not
9%
implemented
Under
7,710 , 13%
9,169 , 16%
34,210 , 59%
negotiation
Under study
Korea
851 , 2%
Rest
19
Korean FTAs: Trade (1999-2003) Basis
(five year export and import total) 1575 billion USD
Implemented
231 , 15%
Signed but not
yet implemented
269 , 17%
690 , 44%
Under
negotiation
Under study
378 , 24%
Rest
7 , 0%
20
Korean FTAs: Trade (2007-2011) Basis
(five year export and import total) 4243 billion USD
Implemented
651 , 15%
Signed but not yet
551 , 13%
1,505 , 35%
implemented
Under negotiation
Under study
1,507 , 36%
29 , 1%
Rest
21
Need for FTA
• Korea is a trade dependent country
– Resource-poor country
• Oil and other raw material must be imported
• Thus, exports to earn foreign currency is a must
– History of “export-led” growth
– Exports and Imports each are over 50% of
GDP in recent years
22
GDP Growth
(2005 real won, billions)
12000
10000
8000
6000
4000
2000
0
1970 1974 1978 1982 1986 1990 1994 1998 2002 2006
2010
23
GDP Growth
(Nominal US dollars, billions)
1200
1000
800
600
400
200
0
1970 1974 1978 1982 1986 1990 1994 1998 2002 2006
24
Need for FTA
• Low foreign direct investment
– Portfolio investment is fickle, and disrupts
exchange rates
– Conglomerates (“chaebols”) financed new
investment and expansion through debt
• Implicit government guarantee caused moral
hazard (“too big to fail”), inefficient financial
sector, and large short term debt (domestic and
foreign)
25
Cumulative FD I
for Selected Countries (1980-2005)
US
80
Japan
France
70
Germany
60
UK
Argentina
50
Brazil
Chile
40
China
Taiwan
30
North Korea
20
Korea
India
10
Thailand
ASEAN
0
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004
APEC
Colombia
26
Short History of Korea’s FTAs
• Before the 1997 financial crisis
– No FTAs signed
– Worries over FTAs and RTAs as trade barrier
• 1997-1998 Financial Crisis
– Need to show commitment to free and
open markets
– Searched potential FTA partners
• APEC
27
Short History of Korea’s FTAs
– Why Chile?
• Economy small enough so that no major effect on
Korea in case of adverse effects
• But large enough with enough imports to show
positive effects of FTA
• Beachhead into underrepresented South American
markets
• “It takes two sides to tango” – Not many believed in
Korea’s commitment to sign FTAs
• Note that negotiations took more than three years,
and passage another year
– Among problems: Rice, Apples (no Chilean exports),
Grapes (growing season opposite of Korea)
– Chile started and finished negotiations with US during
negotiations with Korea
28
Short History of Korea’s FTAs
• 2003 “FTA Roadmap”
– Few more FTAs with “small economies”
• Singapore (No agriculture)
• EFTA (Little agriculture)
– Then larger economies
– Ultimately largest economies / trading partners
• EU, US, China, India
– Fast negotiations with multiple partners
• Not one negotiation at a time
– Comprehensive FTAs with “WTO plus”
• Must include services, investment (FDI)
29
Short History of Korea’s FTAs
• Korean strategy – why?
– Korea as a “trade hub” to increase FDI and
jobs
– Catch up with other countries with multiple
FTAs
– Increase productivity
• Services
– Lessons from financial services during financial crisis
– Reduce trade diversion
30
Short History of Korea’s FTAs
• KORUS FTA
– Politically sensitive
– Passage and implementation delayed even
though content substantially same as KOREU FTA
31
Short History of Korea’s FTAs
• “Unusual” Issues
– Kaesong Industrial Complex
• Located in North Korea, using NK labor with South Korean
investors and firms
• Rules of origin for most FTAs allow “Kaesong” products to
be classified as Korean
• But for KORUS FTA, to be further negotiated
– KORUS FTA allows special “outward processing zones” but has
not agreed whether Kaesong will be OPZ
– Clothing
• Under current US rules of origin, Korean clothing made
with Chinese textiles can be classified as non-Korean
• FTA Provisions in place to classify most clothing made in
Korea with Chinese textiles as “Korean”
32
Short History of Korea’s FTAs
• Future
– China
– Korea-China-Japan FTA
– Adjusting existing (early) FTAs
– Regional Integration
• ASEAN+3 or ASEAN+6 (Australia, New Zealand,
India)
• TPP
• FTAAP: Asian-Pacific FTA (APEC)
33
Korea Trade Policy Considerations
(FTA and WTO)
• Open foreign manufactured goods markets
– Automobiles, IT and office equipment, steel,
clothing
• Avoid opening sensitive sectors
– Agriculture (rice, beef, dairy, fresh foods)
– Education, medical services
– Reluctant to further open financial markets and
capital accounts
• Maintain subsidies for certain sectors
– Agriculture, fishery and other “backward” industries
• Weaken foreign anti-dumping policies
34
Why Colombia?
• One of largest Latin American economy
– Geographical hub – North and South America
and Asia
– Already signed FTAs with 18 countries, but not
yet with any Asian countries
• Rich in energy and other natural resources
– Relatively high tariffs on Korea’s strategic goods
(e.g. automobiles : 35%)
– Does not export much agricultural goods
(except coffee)
35
Degree of Openness (Goods):
Korean Side
Longest
Total tariff-free
Immediate
transition period liberalization
elimination of
for eliminating after transition
tariffs
tariffs
period
Excluded from
tariff
elimination
Chile
87.20%
16
96.25%
0.20%
Singapore
59.7
10
91.6
8.4
EFTA
86.3
10
99.1
0.9
ASEAN
India
EU
Peru
US
More than
63.0%
not compatible
81.7
84.5
80.8
[2016]
7
20
17
20
40 items
(HS 6 digit)
not compatible not compatible
99.60%
0.4
99.1
0.9
99.9
0.1
Notes
3.45% of tariff lines to
be discussed after DDA
negotiation (all
agricultural goods);
Chile liberalization rate
= 99%
Singapore eliminates all
tariffs at
implementation
EFTA elimination rate
= 100%
Note
not compatible
91.8% after 10 years
97.4% after 10 years
98.3% after 10 years
36
Degree of Openness
Korea-Colombia FTA
Immediate Longest transition
elimination
period for
of tariffs
eliminating tariffs
Korea (Goods)
Tariff lines
82.38%
Korea (Goods)
Import value
98.96%
Colombia
(Goods)
Tariff lines
Colombia
(Goods)
Import value
Korea
(Ag) lines
Korea (Ag) value
Colombia
(Ag) lines
Colombia (Ag)
value
60.64%
34.08%
16.21%
89.42%
54.77%
95.16%
19
20
Total tariff-free
liberalization after
transition period
98.69%
(90.27 after 5 years)
(96.11% after 10 years)
100%
(98.96% after 5 years)
(99.98% after 10 years)
99.35%
(82.46% after 5 years)
(96.73% after 10 years)
100%
(55.45% after 5 years)
(97.80% after 10 years)
89.97%
(47.84%: 5 , 70.96%: 10)
99.99%
(99.63%: 5, 99.94%: 10)
95.02%
(62.71%: 5, 76.06%: 10)
100%
(97.55%: 5, 100.00%: 10)
Excluded
from tariff
elimination
Notes
1.29%
0.00%
0.65%
0.00%
10.33%
0.01%
4.98%
0.00%
37
Sensitive Goods
Korea-Colombia FTA
• Manufactured Goods
– Tariff elimination: 12 years
• Korea: Nickel, Nickel plates, Wooden construction products
• Colombia: Refrigerators, Air-conditions, Washers
• Agricultural Goods
– Tariff elimination 19-20 years
• Korea and Colombia: Boneless Beef
• Colombia: Uncut chicken and 1 more product
– Excluded from Tariff Elimination
• Korea: beef, milk, cream, potatoes, garlic, onion, pepper,
orange, apple, pear, ginseng, rice
• Colombia: rice, beef, milk, powdered milk, pepper, garlic,
onion, green soybeans, red beans. Orange, sugar cane and
sugar beet, etc.
38
Degree of Openness
(Services and Investment)
• Korea’s liberalization measures are
mostly the same as GATS offer
– Trade in financial services limited (mostly) to
mode 3 (direct investment)
• Most services (including financial
services) are open to foreign investment
– Notable Exceptions:
• A/V services – especially TV and radio
• Accounting and Law – open in stages, up to joint
ventures only
39
Degree of Openness (Services &
Investment) Korea-Colombia
• Usual liberalization measures
– NT, MFN
– forbid or restrict local presence requirements,
investment requirements (e.g. export
requirements)
– List all non-conforming measures
– In principle, allow capital flows, repatriation
– Investment protection measures
– ISD in case NT and MFN not followed
• Public Debt excluded from “investment”
40
Other Notable Measures:
Korea-Colombia FTA
• Government Procurement
– Beyond current WTO GPA measures
• Kaesong Industrial Complex
– Origin is Korean for 100 goods (HS 6 digit
level)
41
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Korean Trade with Colombia
(USD millions, 1969-2011)
1800
1600
1400
1200
1000
800
600
400
200
0
Exports to Colombia
Imports from Colombia
42
Korean Exports to Colombia
(2008-2011), 4890 million USD
construction,
mining equip, 119
others, 1294 , 26%
, 2%
steel, flat-rolled
automobile, 1595 ,
33%
prod, 132 , 3%
other petrochem,
132 , 3%
prime mover,
pump, 175 , 4%
auto parts, 1121 ,
23%
synthetic resin,
316 , 6%
43
Korean Imports from Colombia
(2008-2011, 1081 million USD)
Aluminum, 40 , 4%
Agrochem,
Leather, 14 ,
Others, 37 , 3%
1%
Pharma, 43 ,
4%
Copper articles,
Misc Foods
110 , 10%
(include. Coffee),
285 , 26%
Crude Petroleum,
Alloy Iron, 232 ,
113 , 11%
Coal, 204 , 19%
22%
44
Conclusion
• Korea is a trade-dependent country
– FTA is seen as measure to insure and guarantee
future trade
• Korea is pursuing “multiple negotiations”
with major and significant trade partners
–
–
–
–
–
Laid out in 2003 “FTA Roadmap”
US and EU were “big hurdles”
China: the most sensitive
Japan: reluctant to negotiate
Possible stepping stone to regional FTAs
(ASEAN+10, FTAAP, TPP)
45
Conclusion
• Characteristics of Korean FTAs
– Significant liberalization of goods trade and
direct investment
46