In a post last week, I collected stories on several countries that are concerned about being placed at a competitive disadvantage in either the Korean, or the U.S. market, or in both, by the U.S.-Korea FTA: Trade Diversion (Apr 3).
Fear of trade diversion may motivate the U.S. as well. Fred Bergsten points to trends toward Asian regional economic integration (in the form of a Northeast Asia Free Trade Area agreement between China, Korea,and Japan, a "10+3" agreement between ASEAN, China, Korea, and Japan, or a '10+6" agreement adding in Australia, New Zealand, and India), and to various American concerns about this, including diversion of its own trade.
Viewed in this light, the U.S.-Korean agreement has defensive and reactive elements on the part of the U.S.: China and Economic Integration in East Asia: Implications for the United States (Peterson Institute, March 2007):
East Asia is clearly, if gradually and unevenly, moving toward regional economic integration. Market forces are leading the process, as firms construct production chains across the area that exploit the comparative advantage of its individual countries. Governments are now moving to build on those forces, and consolidate them, through a series of formal agreements to intensify their economic relationships and start creating an East Asian Community....
On the trade side, the United States has grown increasingly uneasy over the prospect of an East Asian bloc, which could discriminate significantly against US exports. It has responded to date in two ways, both of which have already produced modest disagreements with some Asians and could do so much more widely in the future.
One US response is to counter the intra-Asian network of FTAs with bilateral FTAs of its own. After concluding an initial agreement with Singapore in 2002, it has undertaken negotiations with Thailand (which have now stalled), Korea, and Malaysia and has begun to talk about possible initiatives with Indonesia and Japan....
Park Yoon-bae, a reporter for The Korea Times, draws heavily on a Congressional Research Service report from last year, and points to the agreement as a means for the U.S. to consolidate its economic and institutional presence in northeast Asia, in the face of a growing Chinese economy and possible regional economic integration (a theme of Bergsten's as well): FTA to Redraw Economic Map in Asia (Apr 8):
...In fact, the KORUS FTA is shocking news to China and Japan which are vying to create a pan-Asian economic sphere.
The U.S. is apparently trying to put the brakes on the emergence of China as the latter poses not only an increasingly important economic partnership but also a challenger.
According to a report to the U.S. Congress by the Congressional Research Service in January, the emergence of China as an economic power in East Asia provided an incentive for the success of the Korea-U.S. trade talks.
``The rise of China is an ambiguous phenomenon for both South Korea and the United States. Each sees China as both an increasingly important economic partner and a challenger,'' the report said.
It quoted some experts as having suggested that the deal could curb the rising tide of China's economic and political influence in East Asia.
China has surpassed the U.S. as the most important export market for South Korea and the second most important source of imports into Korea behind Japan.
The report pointed out that China is forging ties with the 10-member Association of Southeast Asian Nations (ASEAN) in an ASEAN+3 (China, Japan, and South Korea) forum, an arrangement from which the U.S. is excluded.
``An FTA (with South Korea) could ensure that the U.S. has an institutional presence in East Asia,'' the report said.
The next commentary discusses the possibility that the U.S.-Korea agreement will be a step towards a Free Trade Area of the Asia Pacific (FTAAP), reducing trade barriers among countries on both sides of the Pacific: FOCUS - Proposed trans-Pacific trade pact could get boost from US-Korea deal (AFX News Limited, via Forbes, Apr 8). It doesn't sound like it will lead to an FTAAP anytime soon. The U.S. is likely to be hobbled for a while by an inability to get new trade promotion authority from Congress.
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