The recently concluded U.S.–Korea free trade agreement (FTA) is the largest FTA the U.S. has negotiated since NAFTA and the largest ever negotiated by Korea. As high as the stakes are for the two parties, the deal will also have a major, if less direct, impact on Japanese business and politics. The Korea Society and the Japan Society co-sponsored a business forum with Wendy Cutler, assistant U.S. trade representative for Japan, Korea and APEC affairs, to assess just what the impact will be.

Cutler, who led the U.S. negotiating team at the 10-month long FTA talks with Korea, believes that the deal is “truly a groundbreaking and historic agreement.” Though its full details won’t be made public until the deal is submitted to Congress, Cutler said that it will cut 95% of bilateral duties. It calls for the elimination of all tariffs on 94% of trade in manufactured goods, opens each country’s service sector and reduces a range of non-tariff trade barriers. Neither side got all of the concessions they wanted from the other, Cutler added, but on balance it’s a strong deal for South Korea—which expects to reap a 12% increase in exports to the U.S. from the deal—and the U.S., which will gain a solid foothold in East Asia’s booming economy.

Reaction to the deal in Japan has been mixed. Tokyo’s own negotiations for an FTA with Korea collapsed in 2004, so many were surprised that the U.S. and Korea were able to reach a deal at all. Some in Japan worry that if ratified, the deal would put the country at a competitive disadvantage vis-à-vis Korea. Cheaper U.S. and Korean goods may displace Japanese exports in both markets, and as Korea becomes more attractive to U.S. foreign direct investment, it may do so at Japan’s expense. Japanese free-trade advocates may be heartened by the deal, which could spur their government to pursue trade liberalization more seriously.

Asked about prospects for a U.S.–Japan FTA, Cutler said such an agreement isn’t realistic in the near term. The U.S.–Korea FTA talks succeeded, she said, because Korea’s leaders were united in their assessment that the country needed to conclude the deal, they were willing to put sensitive economic sectors up for negotiation and maintained a top-level political commitment to the process throughout. Such conditions, she believes, aren’t yet in place in Japan.

Wednesday, April 25, 2007 

Assistant U.S. Trade Representative for Japan, Korea and APEC Affairs

The United States and South Korea recently concluded a comprehensive free trade agreement (FTA) that stands to bring important commercial, economic, political and strategic benefits to the two countries. If ratified, the agreement would eliminate tariffs on nearly 95 percent of consumer and industrial product trade within three years of entry into force and add some $20 billion to bilateral trade. Immediate benefactors of the deal include U.S. farmers and South Korean automobile manufactures, but are there downsides? Will Japan be shut out of lucrative trade opportunities with the U.S.? What are the prospects of a U.S.-Japan FTA? Lead U.S. negotiator for the agreement, Wendy Cutler, Assistant United States Trade Representative for Japan, Korea and APEC Affairs, discusses the bilateral benefits associated with the FTA, and implications for U.S.-Japan trade.