Agreement acted as bulwark for US exports in the face of low overall demand in Korea in 2012.
Here’s the first installment of an interview of Francisco J. Sanchez, Commerce Department under secretary for international trade, by Datamyne blog anchor Bill Armbruster.
Bill Armbruster: What are the main benefits of the FTA for US companies?
Francisco Sanchez: In a nutshell, under the US-Korea agreement, almost 80% of US exports of consumer and industrial products to Korea are no longer subject to import duties, as well as nearly two-thirds (by value) of US agricultural exports. This immediate tariff reduction alone gives US exporters an important cost advantage over similar products exported by competitors who do not have a trade agreement with Korea. Within five years of the agreement’s implementation, nearly 95% of bilateral trade in consumer and industrial products with Korea will become duty free – with most remaining tariffs eliminated within 10 years.
In addition, most remaining tariffs on agricultural products will be phased out over time. Additionally, the agreement opens up Korea’s $580 billion services market for highly competitive US companies, providing further market access for a wide range of service sectors, including express delivery, legal, accounting, and financial services.
On a broader scale, it establishes a framework for a more transparent and robust commercial environment that will further strengthen an already strong US-Korea bilateral relationship. It is expected to increase US GDP by nearly $12 billion and US goods exports by nearly $11 billion annually, supporting 70,000 new American jobs.
Armbruster: The FTA has been in effect since March 15, 2012. According to Census Bureau statistics, US exports to Korea in 2012 totaled $42.3 billion, down slightly from the $43.4 billion during the same period in 2011.
These numbers would seem to indicate that the FTA had not produced the hoped-for increase in exports, and that in fact US exports had fallen. What are your thoughts on this?
Sanchez: The US-Korea agreement is living up to its promise in expanding opportunities for US exporters, and the 2012 data bear this out:
Overall exports to Korea of American manufactured goods are up 1.3%, US automobile exports to Korea were up 46%, and there were significant increases of US exports to Korea of key agricultural goods such as fruits and nuts, fruit juices, and wine. Some goods, like orange juice, have seen triple-digit increases. US services exports to Korea increased more than 10% and US exports of machinery and other capital goods have grown, with increasing exports of aerospace products and parts, semiconductors, industrial machinery, pharmaceuticals and medicines, motor vehicles, and other general purpose machinery.
The slight decrease in aggregate US exports to Korea for 2012 was due to (1) general macroeconomic factors, in particular lower than expected economic growth in Korea – especially low during the time the agreement has been in force; and (2) drops in exports of commodities like corn and coal, which were affected by external factors. US exports of both commodities to the world were down significantly due to these external factors. If corn and coal as affected by those factors are disregarded, US exports to Korea in 2012 were 2.5% higher than 2011.
The agreement actually acted as a bulwark for US exports in the face of low overall macroeconomic demand in Korea. Korea’s imports from non-FTA partners decreased more than imports from FTA partners. For example, Korean imports from China decreased 6.5%, and Korean imports from Japan decreased 5.8%.
Given the wide month-to-month fluctuations in trade data, which are completely normal, one needs to be cautious in giving too much weight to only one year of data, especially when all of the provisions and tariff cuts of the agreement have not yet come into effect.
As all the provisions of this trade agreement come into effect, we look forward to seeing even further benefits for US exporters.
Go to Part 2: Opportunities and challenges for US exporters to South Korea
Francisco J. Sanchez is Under Secretary for International Trade at the US Department of Commerce and leads the International Trade Administration, which has 2,400 employees with offices throughout the United States and in 73 countries. During the Clinton administration, he served as assistant secretary for aviation and international affairs at the US Department of Transportation. Prior to that, he served as a special assistant to President Clinton, and chief of staff to the special envoy to the Americas. Sanchez has also spent more than 15 years working with consulting companies in the private sector.
Bill Armbruster, the anchor for the Datamyne Blog has covered shipping and trade for 30 years as a reporter and editor with The Journal of Commerce and Shipping Digest. “I’ll be blogging on headline news and current issues in oceangoing commerce, trying to shed some light on the backstories and, wherever I can, supply some sound advice for shippers.” Write Bill care of [email protected]
The opinions expressed in this article are those of its author and do not purport to reflect the opinions or views or Descartes Datamyne. In addition, this article is for general information purposes only and it’s not intended to provide legal advice or opinions of any kind and my not be used for professional or commercial purposes. No one should act, or refrain from acting, based solely on this article without first seeking appropriate legal or other professional advice.