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Comments on the Kiyota-Stern Study
Published May 25, 2011
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The U.S.-Korea Free Trade Agreement, or KORUS FTA, is a historic agreement that should enhance bilateral economic relations and reinforce the long-standing partnership of the United States and Korea on political and security matters.

The KORUS FTA is designed to promote competition and regulatory reform so that the trade pact complements other domestic policies implemented to boost productivity and economic growth in both countries. Part of these gains is achieved through commitments to greater transparency of administrative and regulatory procedures and through joint working groups on autos and other issues. Such results, of course, confound analysts who do not know how to accommodate them in their economic models!

The KORUS FTA provides substantial new opportunities for trade and investment in goods and services. Most tariffs on bilateral trade will be removed within three years. Even in agriculture, many tariffs will be phased out over time and many quotas will be expanded; only rice will be exempted from the liberalization. The impact of these bilateral preferences will depend, of course, on what happens in the Doha Round, on how quickly the multilateral liberalization is implemented, and on the evolution of other FTAs among Asia-Pacific countries.

The analysis by Kiyota and Stern (2007) captures some of these aspects of the agreement. The authors deserve praise for advancing knowledge on how to estimate results from trade negotiations. Their current model sets out an elegant methodology that has pushed the envelope of academic research. But for the purposes of policy analysis, it still leaves much to be desired.

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