Korea and the United States announced last week that they would launch negotiations on a free trade agreement. If they are successful, it would be the biggest FTA Korea has reached since 2004 as well as the United States since 1993, when agreement was signed with Mexico and Canada. Korea and the United States recognize and realize economic, political and strategic benefits to both countries with the historic free trade agreement. FTA negotiations with the United States, one of Korea`s largest export markets, are an increasingly necessary and desirable way to strengthen the Korean economy.

The U.S. trade policymaking process with respect to FTAs is often complex and subject to politicization. This can to some extent be a great challenge for Korea. Thus, Korea must use all available political resources to successfully move FTA negotiations along.  

Korea should launch a number of diplomatic initiatives to secure its reputation within the executive branch, Congress and even the U.S. public via the media both before and throughout FTA negotiations.  

Korea needs to be prepared for several issues that may be raised by the United States over the course of negotiations. The first is the transparency of the Korean policymaking system. The second is the TRIPS (Trade Related Intellectual Property Rights) approach used in many U.S. FTAs, which is another serious challenge for Korea. Third, the relationship between trade and labor, as well as that of trade and the environment is a controversial issue in FTA negotiations with the United States.  

The obstacles to the FTA mostly come from the fact that the United States has highly competitive agricultural, manufacturing, and service industries, both with the world and with Korea. Consequently, a Korea-U.S. FTA would probably bring about a withdrawal of underperforming domestic industries.  

Also, the legal, medical, educational, and visual and auditory service sectors will be pressured to liberalize more than other service sectors, and these service sectors will experience significant changes.  

There are also bilateral trade issues that must be resolved to move forward in the FTA negotiations. These are agricultural products, Korean labor flexibility, the Korean regulatory environment and the U.S. visa waiver for Koreans.  

Other industrial issues are Korea`s pharmaceutical system, automobile imports, strengthening of its intellectual property rights protection, telecommunications policy and financial services.  

The most controversial issue would be the opening of Korean agricultural market to U.S. farmers.  

But, here we have to note that the negative agricultural output effect may not be as large as we expect as there is the trade diversion effect to consider. Korea already imports a big chunk of its domestic demand from overseas markets such as China, Australia, and Brazil, so the FTA would result in a diversification of imports from other countries into the United States` markets.  

Therefore, a successful launch of FTA negotiations between Korea and the United States will bring significant gains to both countries. Korean and U.S. industries tend to be complementary in nature. If a Korea-U.S. FTA were concluded, this complementary trade pattern and the intra-industry trend between Korea and the United States would provide a significantly positive opportunity for long-term and dynamic economic growth for both countries.  

According to an analysis by the Korea Institute for International Economic Policy, Korea`s GDP will grow by between 0.4 to 2 percent with the FTA. An empirical analysis reveals that on trade, the impact would result in a 4.4 percent increase in Korean manufacturing exports to the United States and a 4.8 percent increase in Korean manufacturing imports from the United States.  

For the local service industry, liberalization will prove to be a developing platform. The research shows that Korean service industries will grow by approximately 2.09 trillion won in the short-term and 3.29 trillion won in the long term. This would translate into between 50,000 to 78,000 new jobs.  

The noneconomic gains would be a strengthening and broadening of the Korea-U.S. security alliance. A Korea-U.S. FTA would, by reinforcing the bilateral relationship, promote constructive U.S. engagement in East Asia. It would strengthen Korea`s capacity to serve as a regional economic hub, and could enhance Korea`s strategic role as a mid-weight nation that brings the larger powers together. Presumably, the FTA deal with the United States would make Korea a stronger and more attractive partner for others and also help shift future FTA priorities for Korea.  

The opportunity cost of not having a Korea-U.S. FTA should not be underestimated. The U.S. market is the world`s largest market, and other countries will seize upon any opportunities for growth if Korea hesitates. The FTA with the United States would be able to function as a balance between both economies so as to decrease dependence on the Chinese economy and reduce the potential for depending on any other specific country. Once the negotiations start, we would be obligated to see a successful conclusion.  

The writer is the head of the Americas Team of the Korea Institute for International Economic Policy. - Ed.