October 16, 2011
Analysts have long considered the Korea – United States (KORUS) Free Trade Agreement (FTA) to have an important strategic impact. In both countries, a degree of support for commencing negotiations towards an FTA was the hope that an agreement would restore increasingly strained bilateral relations.However, the passage of legislation by the US Congress to implement the KORUS FTA may have opened up an unforeseen strategic impact in US-Taiwan relations, and consequently has an associated impact on South Korea’s position in the region.
Reporting on the KORUS FTA in Taiwan has been overwhelmingly negative. It has been argued that the KORUS FTA will reduce the competitiveness of Taiwanese exports to the US and ultimately drive Taiwan closer to China. Taiwan will face increased competition in textile, machinery, auto parts and plastic goods. Taiwanese goods to the EU already suffer competitive disadvantage as a result of the Korea-EU FTA.
As a result of its position vis-à-vis China, Taiwan effectively does not have the option of pursuing FTA agreements. The only competitive advantage that it can pursue is through economic links with China. Accordingly, to address the potential effects, Taiwan will seek to widen its tariff free status with China. China is the largest trading partner of both Taiwan and South Korea. However, inevitably, as economic dependence increases, political dependence also increases.
The strategic impact of the KORUS FTA may be more significant than was initially thought. While originally designed as a means to increase the relevance of the US in South Korea, it may ultimately decrease the relevance of the US to another regional ally, Taiwan. In the medium term, this will have an effect on South Korea’s position in the region as a key US ally.