Impacts of U.S.-South Korea FTA on Japan

Toshihiko KINOSHITA (Professor, Waseda University)

The U.S. and South Korea have just reached agreement on an FTA deal as a political and economic compromise between the two countries. As such, there are problems associated with this FTA, especially as an economic agreement between two OECD member countries. What about its economic impact on Japan?

While South Korea is emphasizing the positive effect on its textile and automobile exports to the U.S., the impact on Japan should be very small, because for Japan textile exports are no longer important and most of the Japanese cars sold in the U.S. are produced within the U.S. these days. In the area of electronics, competition between Korean and Japanese products may be a bit harsher in the U.S. market, but Korean electronics companies purchase a huge amount of machineries and parts from Japan every year.

Rather, some psychological effects may be felt in Japan as well as other East Asian countries. The U.S. could give Asian nations an impression that the U.S. is economically committed to this region by concluding an FTA with an Asian country other than Singapore. South Korea, on the other hand, might be able to publicize the possibility of developing its own economic model rather than adopting a quasi-Japanese model.

In a sense, this is a welcome move, because South Korea has avoided a political breakup with the U.S., and has shown its willingness to push structural reform in response to U.S. demand. Hopefully, this agreement will lead to reopening of Japan's negotiations with South Korea over an FTA, which has been postponed for about three years now. On this occasion, Japan should make more efforts to reform its own economic structure including agriculture for the purpose of supporting the WTO-based multi-lateral trade system and also avoiding unnecessary delay in concluding FTAs in the Asian region.