September 1, 2006｜Korean Peninsula
Researcher, Korea Institute for International Economic Policy
The third round of full-scale negotiations relating to the ROK-US Free Trade Agreement (KORUSFTA) will take place in Seattle over four days from September 6. Ahead of this, on August 14, the ROK and the US exchanged drafts for the reduction of tariffs in three fields: agricultural produce, industrial products and textiles. The intention is that the FTA negotiations currently underway will, in principle, be completed by the time the US Trade Promotion Authority (TPA) runs out in June 2007, but one cannot predict whether or not things will go as planned. This is because, although we are moving towards the third round of negotiations, there are still highly vociferous voices of objection within the country.
As can be seen from the fact that, in response to a survey of 620 domestic companies recently conducted by the Korea Chamber of Commerce and Industry concerning the KORUSFTA, 65.8% answered that, “It should be actively promoted”, there are hopes in the manufacturing sector that this will lead to an increase in exports to the world’s largest market. However, the KORUSFTA does not solely seek free trade; it also aims for a change in the economic system as a whole, including the economic institutions and laws that are perceived to be an impediment to free trade. In other words, the KORUSFTA clearly transcends the liberalization of trade, and one should not lose sight of the fact that it is characterized by its pursuit of extremely deep and wide-ranging economic integration. Naturally, it is inevitable that it will be a significant challenge for the ROK more than the US, as the former has not had any experience of such an agreement to date. It is precisely for this reason that not a few people within the ROK fear that the KORUSFTA will result in the ROK’s economic system being turned into one along the lines of the US & UK models, whether they like it or not, and that the autonomy and public nature of domestic policies will be destabilized by activities focused on securing profits for US companies, which are competitive on a global scale.
Such apprehensions about the KORUSFTA are concentrated in the pharmaceuticals field, and it would be no exaggeration to say that how deftly the ROK resolves this problem will determine the success or otherwise of the KORUSFTA.
During the pharmaceutical session of the second round of negotiations, which took place in Seoul in July, the US side protested against the “health insurance selection list method for pharmaceuticals (positive system)” that the ROK was trying to promote with the aim of ensuring more appropriate setting of pharmaceutical prices in health insurance, and actually boycotted the negotiations. This system is one in which only highly cost-effective, economically effective pharmaceuticals will be subsidized by health insurance, even if they are new drugs; the US and most of the rest of the OECD have introduced this system as part of their endeavors to put the finances of their insurance systems on a sounder footing and ensure that public health insurance meets public needs. However, the US is vehemently opposed to the introduction of this in the ROK, on the grounds that it poses a disadvantage to foreign pharmaceutical manufacturers such as those in its own country.
Nevertheless, the US subsequently announced that it would accept that system and, for two days from the 21st of this month, the pharmaceuticals subcommittee meeting recommenced in Singapore. During this meeting, the US side submitted a list of 16 requests, including a request that the ROK government guarantee the “transparency of procedures” to ensure that foreign pharmaceutical manufacturers are not damaged by the positive system. The US also requested that patients be given the right to be informed of new drugs, that the value of innovative new drugs be recognized, and that price inflation be reflected when determining the insurance price of new drugs. In addition, the ROK side submitted four requests, including a request that the manufacturing standards of its own pharmaceuticals and the licenses of its medical care staff be recognized in the US as well and, in particular, that the sale of pharmaceuticals and biological preparations that have met domestic standards be permitted in the US as well, on the grounds that they are of superior quality on a global scale. However, at these negotiations, it was not possible to build consensus and reach an accord with regard to the conflict of interest relating to the proposal for the enforcement of the positive system. At the third round of FTA negotiations, it is likely that the ROK and the US will seek to coordinate their interests, but it is anticipated that the negotiations will run into rough waters.
In the field of pharmaceuticals, will the ROK’s pharmaceutical manufacturers be able to increase their competitiveness by securing the transfer of the necessary technology and management know-how through investment by US-based multinationals? Furthermore, will the ROK government be able to achieve greater soundness in the finances of its insurance system, without losing the public nature that has been a feature of the health insurance system up to the present day? The pharmaceuticals field is the site of an experiment that will demonstrate the true nature of the FTA negotiation ability of the ROK government in the face of the US, the strongest force in the pharmaceuticals industry.