trade adjustment assistance program and free trade agreement...
TRANSCRIPT
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2019/SOM2/HRDWG/SYM/008
Trade Adjustment Assistance Program and Free Trade Agreement Utilization Support for MSMEs -
Case of Korea
Submitted by: Korea
Symposium on Trade and Human Resources Development: Capacity Building for Inclusive
TradeViña del Mar, Chile
3 May 2019
www.FTAschool.com
Inkyo CheongProfessor of International Trade
Inha [email protected]
TAA Program and FTA Utilization Support for MSMEs- Case of Korea -
2019 APEC HRDWG
www.FTAschool.com
Contents
2
Korea’s FTA network
Challenges for Korea in expanding FTAs
TAA program and domestic measures for MSMEs
National programs for supporting MSMEs’ FTA
utilization
Conclusion and implications
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Korea’s FTA network
3
Korea: Global FTA network in 15 years
4
ASEAN
Singapore
India
Japan
NZ
In force or concluded Negotiations Pre-negotiations
Korea
Chile
Korea’s FTA Network: 2004
Mexico
5
Korea’s FTA Network: 2010
ASEAN
MERCOSUR
GCC
EFTA
EU
Singapore
Canada
USA
Russia
India
Japan
Colombia
NZ
Aus.
Peru
In force or concluded Negotiations Pre-negotiations
China
Korea
Chile
TurkeyMexico
Korea: Global FTA network in 15 years
6
Korea’s FTA Network: 2017
ASEAN
GCC
EFTA
EU
Singapore
Canada
USA
Russian Federation
India
Japan
New Zealand
Aus.
Peru
China
Republic of Korea
Chile
Turkey
Mexico
SICA6
Korea: Global FTA network in 15 years
In force or concluded Negotiations Pre-negotiations
Colombia
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
70.00%
80.00%
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
FTA partners’ trade share(%) out of Korea’s whole
trade.
Export Import
Challenges for Korea in expanding FTAs
8
Challenges for promoting FTAs
9
• Winners vs Losers
• Share of gains from the implementation of FTAs
• Trickle-down effects
• Packages for Losers• Challenges
– Overcoming anti-FTA sentiment– Securing FTA support for businessmen and
consumers who can benefit from FTA
• An FTA with US
Challenges for promoting FTAs
10
• National Roadmap for FTA Promotion(2003)• Presidential Directive on the Procedure of FTA
Promotion(2004)• Official discussion for a Korea-US FTA(2005) • Losing sectors
– Trade Adjustment Assistance Program(2005)• Winning sectors
– Study for FTA utilization/support(2009)– National program for supporting FTA utilization(2010)
• The Law on the Procedure of Trade Agreement Promotion(2011)
Korea’s TAA Program
11
Korea’s Policy Package for FTA Utilization
인하대 FTA대학원 www.FTAschool.com 12
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TAA program and measure for losing sectors
13
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Domestic infrastructure for the promotion of FTAs
14
• Presidential Directive on the Procedure of FTA Promotion(2004)• Procedure on FTA promotion/negotiation • Communication with interest groups• Domestic coordination • Supporting mechanism for losers from FTAs
• Manufacturing: Trade Adjustment Assistance Program • Agriculture: Agricultural Assistance Program
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Complementary domestic measure for agriculture sector
15
ImplementationOf the UR CommitmentsUnder the WTO Agricultural and Rural Integrated Measures
119T → 123.2T
2004 2020201720102008
FTA with Chile(’04)1.4T
FTA with US(’07, ’11, ’12)21.1T → 23.1T
FTA with EU(’10) 10.8T
2011 20252015
FTA with Australia and Canada(’14)11.6T
2014 20242013
FTA with China(’15)1.6T
FTA with New Zealand(’15)1.1T
FTA with Vietnam(’15)0.2T
Measures for improving the quality of living in rural area
Phase 1(’05~’09)
22.8T
Phase 1(’10~’14)34.58T
Phase 1(’15~’19)
46.5T
T: Trillion Won= US$870M Total support:
49.9T$43.33B
Source: Revised based on Moon, Hanpil(2019), “Market opening of agriculture sector and complementary domestic measure”, Presented at JRI-KREI seminar(Inha University, April 29)
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US’ TAA: Pros and Cons
• Gains from trade liberalization vs. Pressure of structural adjustment "Those injured by (that) trade competition should not be required to
bear the full brunt of the impact. ... (T)here is an obligation to render assistance to those who suffer as a result of national trade policy." (John F. Kennedy in the Trade Expansion Act of 1962)
• There are arguments for TAA as Rosen(2006): First, job creation does not always take place at the same location
where jobs are lost. Second, the new jobs are in different industries than the jobs lost. Third, the burden of adjustment does not end when the worker gets a
new job, since the jobs lost due to trade pay higher wages and provide better benefits than in the new jobs being created.
• However, there are voices against the idea of the TAA. Unemployment insurance provides benefits for unexpected job losers Large portion of unemployment due to changes in technology and
consumer preferences, not trade. (Markheim and Sherk 2007, p.3)
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Korea’s TAA: EnactmentKorea’s TAA is substantially different from US’s, even though Korea
benchmarked US’ system.
Korea USYear of Implementation 2007 1962(TAAEA 2013)
Law Law on the TAA with the implementation of FTAs (April, 2006) The Trade Expansion Act of 1962
Coverage Manufacturing, Industry related Services Agriculture, Fishery, Manufacturing, Services
Focus of TAA Firms >> Workers Workers (farmers) >> FirmsAgency of Administration Ministry of Knowledge Economy for firms
Ministry of Labor for workersEconomic Development Administration
Department of Labor for workers
Managing Agency for firms Small & Medium Business Corporation(HQ, 22 regional center)
11 Trade Adjustment Assistance Centers (regional offices)
Eligibility Criteria10% reduction of sale or production due to increase of imports based on
FTAs (5% for consulting)
5% reduction of sale or production due to imports during trade
liberalization
Contents of TAA
Assistance
Consulting services
80% of costs with a cap of 40 million won ($34,782)
50/50 cost sharing (cap: $75,000)
LoanDiscounted interest rates(2%, 5-10 years)
(cap: $3.9 million, $0.43 million for operational fund)
No financial support since 1986
Source: Based on Cheong(2014) and various reports on TAA
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The threshold for TAA support: 25% 10%(5%)
Sales or revenue
Layoffs
Issues of TAA program in Korea:
1. Direct linkage between trade and losses
2. TAA benefits without restructuring
3. Equity issue
4. Threshold: 25% 10%(5%)
‘Political Patronage’ vs a Quid Pro Quo for FTAs
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Opinion on the threshold for TAA eligibility
Source: Cheong(2014)
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Trend of TAA firms
20
'08 '09 '10 '11 '12 '13 ‘14 ‘15 ‘16 ‘17 ‘18 Total
Application(B) 3 3 2 0 13 31 27 21 24 40 19 183
TAA(A) 2 3 2 0 8 24 26 17 24 39 19 164
Ratio(A/B, %) 67 100 100 - 62 77 96 81 100 98 100 90
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TAA firms by FTA and Industry
21
Textile Food Chemicals Metal Elec.
goodsMachin
eryHHD goods Total
Chile 6 1 7
SGP 1 1
EFTA 2 3 3 1 1 10
ASEAN 24 4 3 7 3 1 42
India 2 1 3
EU 4 19 12 7 3 8 6 59
US 1 4 5 2 1 2 1 16
Canada 1 2 3
China 2 5 6 5 3 1 22
Vietnam 1 1
Total 34 34 28 21 19 17 11 164
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Distribution of TAA firms by the size of firms
22
No. of employees No. of firms Ratio
1~5 31 18.96~10 40 24.411~20 40 24.421~30 21 12.831~50 15 9.1
51~100 15 9.1More than 101 2 1.3
Total 164 100
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National programs
for supporting MSMEs’ FTA utilization
23
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The government of Korea needed
• Political support for FTA policy
• Realizing economic effects of FTAs
• Promoting inclusive trade for MSMEs
National program for enhancing FTA
utilization in mid 2009
Korea’s trade authority in 2008-2010
24
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Impediments to FTA Use (percent of respondents by country)
Note: Survey based on 221 firm samples.Source: Cheong and Cho (2010)
35.83
4.17
34.17
10.8315.00
0
10
20
30
40
Low tariffpre ference
Lack ofin form ation
ROO-re la tedcos ts
Otheradm in is tra tive
cos ts
Rem ain ingNTBs
Survey : Impediments to FTA Use
25
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Export share with FTA preferences
26
Source: Kawai, M. and G. Wignaraja (2014b), “Policy Challenges Posed by Asian Free Trade Agreements: A Review of the Evidence” in R. Baldwin, M. Kawai and G. Wignaraja (edited), A World Trade Organization for the 21st Century: The Asian Perspective, Cheltenham (UK): Edward Elgar. Based on data compiled by the national trade and industry ministries; IDE-JETRO
0
10
20
30
40
50
60
Korea, Rep. of Thailand Malaysia Viet Nam
% 2008
2009
2010
2011
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Control tower Policy maker and national coordinator
FTA Promotion and Policy Adjustment Authority (FTAPPAA
FTAPPAA
• FTAUC
• Assistance Centers
Implementation agency The National FTA Utilization Center (FTAUC) Regional (local) FTA Assistance Centers.
FTAPPAA
National FTA Utilization Center (FTAUC)
Regional (local) FTA Assistance Centers (13)
Organization for the Promotion of FTA UItilization
27
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Business demand survey
FTA business information
FTA expert, consulting
Direct assistance
for business
FTA system maintenanc
e
Majorcontents
Regular and special meeting and surveys for industrial agencies, representative companies
- FTA info for tariffs, rules of origin
- Seminars, workshops
- Guide books, pocket books, brochures
- Cyber-learning system on FTAs
-FTA classes in universities
-Courses for FTA consultants
- FTA business consulting
- FTA call center
- Local FTA Assistance Centers
- Integrated Business ROO center
- Integrated FTA Info Center
Official agencie
s
‐ FTAPPAA and national related agencies
‐ National FTA Utilization Center (New)
FTAPPAA and related agencies
FTAPPAA and related agencies, universities, business forum, academic associations
Related national agencies, customs brokers, FTAPPAA
Korea Customs Services, Center for ROO, Chamber of Commerce, KITA, etc.
Major Components of Korea’s FTA Support
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Better services for MSMEs(2018)
Policy improvement
‥ Focus: MSMEs ‥ National FTA center
✓Consultants for SMEs✓Professional consultants for micro firms✓Target by consultant and region
✓National – regional centers✓New role for FTA centers✓Capacity building
‥ Active support ‥ Efficiency✓Overseas FTA support centers✓Easy system for rules of origin✓On-site consultation
✓Better management✓Business friendly✓Close linkage between authority and agency
Goal:Enhance the utilization of
FTAs by MSMEs
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Integrated portal for preferential tariff rates under Korean FTAsIntegrated portal for preferential tariff rates under Korean FTAs
FTA information system
30
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Integrated portal for FTA rules of origin (ROO) Integrated portal for FTA rules of origin (ROO)
31
FTA information system
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FTA call centerFTA call center
Ask whatever on FTA utilization
FTA call centerNumber 1380 anywhere in Korea
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FTA information system
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Consultation by FTA Call Center
Topics 2016 2017Proof of rules of origin 11,985 9,913
Rules of origin by product 1,864 1,273Classification, HS code 5,747 4,085
Customs clearance issues 959 658AEO 1,578 1,473
Verification 363 384Others 5,159 3,786Total 27,655 21,572
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FTA Utilization TargetsUtilization Ratio
National support for FTA utilization
Utilization Ratio Utilization target ratio of 60%
• 40% by 2012
• 60% by 2013
Consulting ‘10 ‘11 ‘12 ‘13
Number of
Companies600 2,000 3,000 3,000
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FTA Utilization TargetsUtilization Ratio
National support for FTA utilization
Utilization Ratio
Consulting
Higher than 60% utilization ratio for most FTAs under implementation
• 69% for the Korea-US FTA• 78% for the EU-Korea FTA
4,800 companies (2018)
Budget 11.2 billion Won(2018)
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Conclusion and implications
36
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Conclusion and implications
37
• Importance of exporting and joining the GVC, especially
for MSMEs
• Rules of origin: Most difficult parts for MSMEs’ exports
using FTAs
• FTAs and Inclusiveness
– TAA: Supporting losing sectors while improving political
environment for active trade policy
– Packages for supporting the utilization of FTAs by MSMEs
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Conclusion and implications
38
• Capacity building for consultants
– Educational system in university
– Retired businessmen with retraining
• Efficiency of supporting system
– Overlapping services
– TAA without restructuring
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Thank you for listening