Analysis Of Economic Effect Of Free Trade Agreement Between Korea And America

Economic globalization and regional economic integration is the two majortrends of economic in the world nowadays. The trend of trade protectionism increaseddue to the global economic crisis day by day, so more and more countries and regionshope to speed up the concessions of tariff, liberalization of market access, promotetrade, investment and economic growth, so as to maximize the interest of theeconomic globalization by establishment of free trade agreement.South Korea and the United States draw up free trade agreement in April2007,and the free trade agreement come into force in this year for a variety of reasons. Theagreement between the United States and South Korea is very significant and positiveto promote the trade partnership, prevent and against trade protectionism.The U.S.-Korea Trade Agreement is established on realistic foundation, theUnited States is South Korea’s third largest trade partner, South Korea is U.S.’sseventh largest trade partner. In2011, Korea-U.S. bilateral trade value is more than100billion dollars, trade growth rate ramiained at7.5%for years.The main object of the paper is the economic effect of U.S.-Korea TradeAgreement. It is based on customs union theory, free trade zone theory and otherrelated trade theory. Firstly, the paper summarize the process and contents also maindisputed point of KORUS negotiations, and compare Korea-U.S. FTA with Korea-EUFTA. Secondly, Korea-U.S. FTA has solid basis in reality after we analyze trade ingoods, services and foreign investment about Korea and U.S.. Then we analyze theeconomic openness, trade integration degree, industry trade index about Korea andU.S., and apply the gravity model to forecast trade potential after the establishment ofthe free trade agreement.We analyze the static and dynamic effects by building FTAmodel.We also estimate trade creation and diversion by using partial equilibriumformula of the establishment of Korea-U.S. FTA. At last, we estimate trade diversionfrom Korea to China and from U.S. to China on the current situation of trade by thetheoretical formula. China should have some countermeasures and suggestions to faceKorea-U.S. FTA.Based on the existing research results, The paper realize the innovation of thefollowing several aspects: first, the research question is novel for timeliness of topics. Korea-U.S. FTA implemented in this year, to make the study have strong practicalsignificance. Second, this study integrates the qualitative analysis, quantitativeanalysis, and comparative with quantitative methods, constructing model according tothe theory, and then use equilibrium formula to analyze trade creation and diversioneffect of FTA. Third, the significance of this topic is to analyze the influence toChina’s trade after the establishment of FTA.Using standard theory research and empirical research, we conclude that: SouthKorea’s trade dependence on America is higher than America’s dependence on Korea.There is inner-trade in manufactured goods. The trade potential values is greater than1, so Korea and U.S. lack of trade potential in goods at present. The two sides canexpand the cooperation in the field of services.South Korea’s welfare will increase because of FTA, while the U.S. remains thesame quality of production and consumption, so that consumer surplus won’t reduce.On the base of Korea-U.S. trade value in2010, South Korea’s trade creation is96.16958billion dollars, trade diversion is31.29767billion dollars; The UnitedStates’s trade creation will achieve90.6196billion dollars, trade diversion is12.6093billion dollars.