Young Gui Kim

East Asian Value Chains and Economic Effects of Free Trade Agreements

The rise of global value chains has changed the trade and investment patterns in East Asia. The intra-regional trade of intermediate goods in East Asia turned out to increase compared to the EU and the US, and East Asian value chains have grown rapidly in recent years. This paper calculates the indicators to show how the global value chains have deepened in each region by using the World Input-Output Tables which cover 41 countries and 35 sectors during 1996-2009. The results from this study provide some policy recommendations as follows. Global trade liberalization is needed to maximize the positive effects expected from the global value chains. East Asian countries also need to harmonize the border measures including standards, SPS, and TBT which are expected to facilitate global value chains in the region. The liberalization of services such as distribution, finance, and business services among others are also expected to contribute to efficient movement of goods and materials in the intra- and inter-region trade. Specifically, the East Asian countries need to harmonize the intra-regional bilateral FTAs to reduce the so-called noodle bowl effects.

Evaluation of a Decade of Korea's FTA Policy

We analyze Korea’s FTA policy based on the outcomes of recent bilateral FTAs, in terms of achieving policy objectives. While many previous studies mainly focused on trade impacts under bilateral FTAs, this study analyzes the overall economic impact of FTAs in terms of growth and welfare, as changes in bilateral trade may affect global trade and the general economy in a variety of ways. In order to analyze the overall effect of FTAs, we adopt the Computable General Equilibrium (CGE) approach. With a CGE model, the macro economic impacts of FTAs can be calculated taking into account the complicated interactions among economic agents and industries. The growth effect in the EU shows the high-est results, followed by 0.9% growth and an additional 0.43% and 0.11%, in the ASEAN and Chile respectively. In addition, by com-paring the overall growth effect of FTA on total economic growth in 2013, the growth impact of FTAs accounted for 1.19% among 3% of total economic growth in Korea. This implies that Korea, as one of the most open economies in the world, could sustain positive growth rates due to FTAs such as the Korea-ASEAN FTA, despite the trade collapse during the global financial crisis.

Korea-U.S. FTA in its Third Year: Current Status of Implementation and Issues

March 15, 2015 marks the third year since the entry into force of the KORUS FTA. The effect of the FTA has been positive in trade and investment. During the 34 months since its entry into force, Korea saw an increase of 31.54% in exports to and 10.77% in imports from the U.S. The effect of the trade increase under the KORUS FTA was 82.4% for exports and 8.44% for imports. In analyzing the portion of Korean trading products with the U.S. in overall trade products, the KORUS FTA was considered as to have contributed not only to the intensive margin, but also the extensive margin, with a 2.1% increase in the portion of exports to the U.S. and a 1.9% increase in the portion of imports from the U.S. Although the utilization rate has increased after FTA effectuation, the rate for exports was 43.8% and that of imports was 60.7% in 2014. In order to overcome the severe deviation in industrial impact, we need to find a solution involving active utilization in industries that were insufficiently affected by the KORUS FTA. There should therefore be an attempt to improve the environment for appropriate FTA application to mitigate this deviation.Continuous monitoring is necessary from the present moment on. There are differences in the two countries’ perspectives concerning the contents and levels of implementation, and newly imposed measures by Korea could become problematic with respect to KORUS FTA implementation.Issues such as origin verification, express delivery packages and financial data transfer also reveal the divergence of views between Korea and the U.S. Detailed regulations or specific agreements are called for.A close review is also required for newly enforced measures in Korea, including the incentive-penalty system based on automobile emission figures, policies to reduce the price of pharmaceuticals and the verification system for processed organic food, to verify whether or not these measures are consistent with the KORUS FTA’s objective and purpose.

Korea-U.S. FTA in Its Second Year: Current Status of Implementation

Since the Korea-U.S. (KORUS) FTA entered into force on March 15, 2012, both sides have reviewed its status of implementation through various joint committee and working group meetings, and discussed ways to further advance their cooperation on bilateral trade issues for successful implementation. This article provides an overview of the status of implementation of the liberalization commitments made in the KORUS FTA, focusing on the trade in goods, services, investment, and other regulatory areas.

The First Anniversary Evaluation of the Korea-U.S. FTA and Its Implications

Since it was signed in April of 2007, and after undergoing additional negotiations in 2011, the Korea-U.S. FTA finally came into effect as of March 15, 2012, with the completion of the ratification process in the two countries after six years since negotiations began. Some were hopeful while others remained concerned about the KORUS FTA, as it is a high-level and comprehensive FTA that was signed with a mega-economic power. Accordingly, there had been many tough challenges in internal negotiations for the KORUS FTA to become effective. This paper aims to evaluate, however on a limited basis, the effect the KORUS FTA had on the trade and investment in the two countries as of its first anniversary.

Prospects and Implications of a US-EU FTA

Ever since the 1990s, there has been a stream of unofficial studies and reviews discussing the possibility of a US-EU FTA. The average tariff rates for manufactured goods, however, in the US and EU are each a mere 2.0% and 2.4%, and both possess largely open economies. In this context it was generally accepted that a FTA between two parties would not bring about impact in terms of export growth. Accordingly, the US and EU have been concentrating on pursuing FTAs with emerging countries. In trade relationships with developed countries they have, meanwhile, focused on abolishing non-tariff barriers; they continued to discuss on liberalization in services and initiated several regulatory cooperations by industry, rather than on comprehensive FTAs. Key achievements in bilateral cooperation between the two sides are the US-EU MRA (1998), the EU-US Open Skies Agreement (2007) and the formation of consultative groups on different issues and industries under the auspices of the Transatlantic Economic Council. Industrial circles from both sides have from time to time brought up the necessity of a US-EU FTA, but the feasibility of an actual agreement has been considered low. However, the global financial crisis and the European debt crisis have led to the develop-ment of economic and political contexts that support the cause for a comprehensive FTA between the two economies. Such changes can be discussed in both internal and external contexts.

Determinants of Exports: Productivity or Fixed Export Costs

The purpose of this paper is to develop a theoretical framework to take several key determinants of exports into consideration and to propose an empirical model to identify which factors affect firms’ export performance, whether to start exporting (export extensity) and how much they will export (export intensity). Extending the Melitz (2003) model, in our theoretical part, we consider firm heterogeneity in two dimensions; fixed cost as well as productivity. As a result, when a firm with low productivity engages in exporting, there can also be a higher productive firm facing relatively high fixed cost. This allows us to resolve the difficulty in interpreting controversial empirical results, for example, whether productivity or firm size is a key determinant of export. Furthermore, in our empirical part, by using Korean firm-level data, we conclude that productivity plays an important role when a firm decides whether to start exporting, while fixed export costs variables are important determinants of fractions of outputs to be exported.