KIET report shows that preferential duties in KORUS FTA had little effect on export increases

Posted on : 2017-10-23 16:52 KST Modified on : 2017-10-23 16:52 KST
SK trade authorities plan to use the findings to counter claims that the agreement is unfair
Hyundai cars are lined up on a shipping pier at the Hyundai Motors’ Port waiting to be loaded onto a ship for export.
Hyundai cars are lined up on a shipping pier at the Hyundai Motors’ Port waiting to be loaded onto a ship for export.

South Korean trade authorities submitted empirical analysis findings to Washington showing that preferential US duties as part of the South Korea-US Free Trade Agreement (KORUS FTA) had almost no direct effect on the increase in South Korean exports to the US over the past five years.

The findings are expected to be used as major support in the two sides’ amendment negotiations to counter Washington’s claims that the agreement is unfair and beneficial only to South Korea. An Oct. 22 Korea Institute for Industrial Economics & Trade (KIET) report titled “Analysis of FTA Effects by Industry” included results from a quantitative analysis of the effects of preferential FTA duties (abolition or reduction) on South Korean exports of 12 major manufacturing items to the US in the period (2007-16) before and after the agreement took effect in Mar. 2012.

The findings indicates that the effects of preferential duties were not statistically significant for 11 of the items, including automobiles, steel, general machinery, and agriculture/forestry/fishing products. It was the first-ever empirical analysis purely focused on the effects of the agreement’s concessions on exports after eliminating the three factors of US consumer income levels, changes in trade, and exchange rate fluctuation. South Korean trade authorities previously submitted the findings to the US while negotiating during the second session of the two sides’ joint KORUS FTA committee in Washington on Oct. 4.

The analysis also found that the actual average US import duty rate for South Korean manufacturing products fell from 1.2% in 2012 to 0.4% last year, but rose slightly from 1.6% (the World Trade Organization’s most-favored nation duty rate) to 1.7% over an equivalent period when the FTA did not exist.

“While imports of South Korean automobiles, steel, general machinery, and other manufacturing items have increased substantially in the US market over the past five years, the analysis showed no major correlation with the reduction of duties according to the agreement,” KIET said.

“Based on the absence of a large difference between the actual duty rate and the decrease in duties when there was no agreement, the decrease in duties does not appear to have led to an increase in exports of South Korean items,” it added.

The institute further said the “decline in the FTA usage rate as factors such as administrative costs for place-of-origin certification functioned as transactional expenses for exporting businesses also stems from the minor effect of preferential duties.”

The Office of the Minister for Trade reportedly began work with state economic think tanks on Oct. 11 to examine scenarios for potential impacts on the South Korean economy if the FTA comes to an end.

By Cho Kye-wan, staff reporter

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