With just hours to go, the US and South Korea reached a FTA yesterday which scraps tariffs on a huge range of items but excludes rice, as Seoul had demanded.
The pact, secured after 10 months of tough negotiations, is "an agreement for the 21st century," Deputy US Trade Representative Karan Bhatia told a press conference.
"The agreement we have reached is a strong deal for both Korea and the United States," he said, adding it would break down both tariff and non-tariff barriers.
The US is counting on the agreement, which needs approval from the legislatures of both countries, to shrink its trade deficit with South Korea which amounted to US$16 billion in 2005.
More than 80 percent of that came from the auto trade. South Korea sold some 800,000 vehicles in the US last year, while US firms exported only some 4,000 vehicles the other way.
Seoul has agreed to change its tax system on autos based on engine size which makes US models more expensive.
The two sides agreed immediately to lift tariffs -- 8 percent in Korea, 2.5 percent in the US -- on all cars of less than 3,000cc and auto parts. Tariffs on larger models will be phased out later.
Sandwiched between low-cost China and high-tech Japan, can develop a new model for economic growth following the FTA pact.
The world's largest and 11th biggest economies will both enjoy a big boost and their sometimes shaky political alliance will also be strengthened, they said.
Song Wongun, of the Korea Economic Research Institute, said the agreement was inevitable and necessary for South Korea's economic survival.
"South Korea, stuck in between rapidly growing China and already industrialized Japan, needs a new engine for growth -- like service industries that can be strengthened by competing with advanced US peers," Song said.
"South Korea will also be able to enjoy a more favorable trade status in the United States, the world's biggest market, than other Asian rivals," Song said.
South Korea's economy depends 70 percent on foreign trade but after several years of modest growth, analysts and industrialists have been warning it seems to be losing its way and must find a new course if it is to keep up.
"China is catching up fast. Japan is racing ahead but we are running in one place," Samsung Group chairman Lee Kun-hee said.
"We need fresh growth engines to swiftly and effectively cope with an uncertain business climate," Hyundai Motor chief Chung Mong-koo remarked earlier this month.
"Unlimited competition is continuing in the global auto industry. Japanese firms are stepping up their push to hold us in check while latecomers in China and other countries are catching up at a faster pace," he added.
South Korea is expected to grow 4.4 percent this year following 5 percent last year -- far below an average growth of nine percent in the 1990s when it was one of the "Asian Tigers."
Trade between South Korea and the US totaled US$74 billion last year and studies showed this could rise by about 20 percent if commerce is liberalized.
Song also saw big opportunities for the US.
The pact can create better opportunities for US farmers and businesses to expand their Asian presence, he said.
In turn, major US industries such as financial and banking services, automobiles and pharmaceuticals will have more access to Asia's third largest economy.
"The US can use South Korea as a bridgehead for continuing to lead the global economy in Northeast Asia, a huge economic bloc being shaped by a rapidly growing China," Song said.
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