Innovation Hubs Business Research in North America

 Thirty-nine firms that are well-versed in FTA rules of origin were asked if they found it easy to comply with the ROO of the FTAs promoted by the Korean government. Thirty-three firms said it was easy to meet the ROO, two said it was tough, and four said they couldn't do it at all given their current situation. The ROO is well-known in the following industries: miscellaneous, textiles, energy and electronics, automobiles, and manufacturing. The miscellaneous business is characteristic of SMEs; the degree of recognition of FTAs is generally high, and the degree of recognition of the ROO is the greatest, which is considered an unexpected outcome of the survey. The steel and petrochemical industries were found to have a low degree of recognition of the rules of origin, as is the case with their recognition of the Cheong and Cho FTAs and their plans to use the existing FTAs (ADBI Working Paper 156). The petrochemical industry, like the steel industry, has relatively low tariff rates. Because most petrochemical products are intermediate input items, several nations, including Korea, levy extremely low tariffs on them. When asked how the ROO to be implemented by the Korean government's FTAs could be improved in contrast to the existing ROO, the majority of firms said it was necessary to adopt a more forgiving form of the rules of origin. 

On the other hand, 14 (12%) of the businesses polled believed that a more 

robust version of the ROO should be implemented. These businesses were shown to be mostly producing products that compete heavily with imported goods in the domestic market. The majority of Korea's current free trade agreements are with small and medium-sized developing countries. Furthermore, the spectrum of advantageous tariffs under these FTAs is limited, with only one out of every five firms taking use of them. On the other hand, half of the polled businesses stated that they expect to use the current FTAs. These businesses are thought to have responded in anticipation of the Korea-US FTA's implementation, and the majority of them expect it to be implemented soon. 27 ADBI Working Paper 156 Cheong & Cho As a result, the Korean government should finish the internal ratification of the Korea-US Free Trade Agreement so that it can be implemented as soon as possible. The FTA was difficult to ratify by the US Congress due to the presidential election, but Korea should work closely with the new US administration to complete the ratification procedures by 2009. Furthermore, the Korean government should implement the agreement it reached with India this year and complete its FTA negotiations with the EU. 

Furthermore, the Korean government should push free trade agreements 

with East Asian countries like Japan and the People's Republic of China. Lee Myung-bak's government is now supporting strategic FTAs with the goal of establishing a "global FTA network," but the government needs to enhance its mechanism for coordinating domestic interests. The government intends to secure the world's largest advanced markets by promoting free trade agreements with the major economic blocs (the United States and the European Union), adopting the advanced economies' economic systems, establishing a national opening-up mindset, and paving the way for the revitalization of less competitive enterprises. The administration is also establishing Korea's continental strongholds by signing free trade agreements with Central America (Chile, Mercosur), Southeast Asia (ASEAN), Europe (EFTA, EU), and North America (US, Mexico, and Canada). It seeks to secure first-mover advantage in emerging major markets through bilateral free trade agreements with India, the People's Republic of China, Russia, and the Gulf Cooperation Council. The promotion of FTAs with Korea's key trading partners is essential, and plans for increasing FTA use should be aggressively investigated. The organization and channel via which FTA-related information relevant to businesses can be delivered, rather than unilaterally promoting FTAs and emphasizing their benefits to the public, should be strengthened. Due to labor constraints, SMEs, in particular, are unable to grasp not only the substance of existing FTAs, but also the rules of origin for their products. The framework that supports FTAs for SMEs should be strengthened. Some SMEs make extensive use of FTAs, whereas the majority are largely indifferent to them. While the current structure employed by many SMEs to deliver items to large domestic firms should be considered, FTAs are beneficial not only for exports but also for obtaining the parts required for production. 

Korea's free trade agreements include tight and detailed laws of origin

Future free trade agreements should include more neutral and liberal origin restrictions. Furthermore, future free trade agreements should be addressed with greater sophistication and strategic thinking. The government's procedures for promoting FTAs have been systematized, but the procedures for gathering opinions within the country leave much to be desired. As a result of the top-down approach to FTA promotion that has been used thus far, the matters in which the enterprises are interested have not been adequately reflected in the agreements. Bottom-up trade policies are widespread in advanced countries, so the issues that businesses are interested in are first addressed, and then FTAs are promoted to meet these needs. Korea should now build a trade policy structure similar to that of advanced countries after concluding FTAs with numerous countries. Since the conclusion of the Korea-US FTA, the Korean people have been increasingly interested in the economic consequences of FTAs; yet, it has become difficult to reach internal consensus among people on the promotion of FTAs with other countries, even with obvious validation of economic feasibility. Furthermore, during FTA discussions, the government's involvement in maintaining its position in order to reflect public sentiment is limited. As a result, interested organizations, particularly industrial circles, should be heavily involved in the process of developing plans and gathering essential data. FTA discussions that are conducted without first gathering public opinion are more likely to result in problems due to a lack of internal understanding of such FTAs and may result in tremendous social costs, as evidenced by the candlelight street rallies over American beef imports.