1. Free Trade Agreement -Theory and Practice-
Chong-Sup Kim

2. Types of preferential trade agreements

3. Economic Effects Trade Creation and Trade Diversion Terms of trade
Increasing returns and increased competition
Investment

4. Trade Creation
Efficient production of B replaces inefficient domestic production.

5. Trade Diversion
Inefficient production of B replaces efficient production of C.

6. Trade Creation S’ D V1 V2 T T’ B B’ N1 N2 N3 N4 S D’ O Q1 Q2 Q3 Q4
Price S’ D V1 V2 T T’ B B’ N1 N2 N3 N4 S D’ O Q1 Q2 Q3 Q4
Quantity

7. Trade Diversion S’ D T T’ B B’ C C’ S D’ O Q1 Q2 Q3 Q4 Price V1 V2 N1Z5 Z1 Z2 Z3 Z4 Z6 S D’ O Q1 Q2 Q3 Q4
Quantity

8. IR(intra-regional exports/total exports) and Share of RI scheme in total world exports

9. Economic Effects of Korea-Peru FTA

10. - Contents - 1. Overview of the Peruvian Economy
2. Characteristics of the Peruvian Economy
3. Economic Relation between Korea and Peru
4. Economic Effects of Korea-Peru FTA

11. 1. Overview of the Peruvian Economy
Indicators
Indicator
Korea
Peru
GDP ($billion)
957
109
GDP per capita ($)
19,750
3,885
Population (1,000,000)
48.5
28.1
Growth rate (%)
4.97
8.98
Inflation rate (%)
2.53
1.78
Exports ($billion)
360 27
Agriculture VA (% of GDP)
3.7
4.8
Mining VA (% of GDP)
0.3
5.8
2007

12. 1. Overview of the Peruvian Economy
Natural Resources
Mineral
Rank in
World Production
Share in World Production (%)
Share in World Reserves
(%)
Silver 1
15.1
13.3
Zinc 3
12.9
7.3
Tin
15.0
11.6
Gold
7.1
8.3
Copper 5
6.7
6.4

13. 1. Overview of the Peruvian Economy
Economic Policy
Even if Alan Garcia is considered as one of the populist leaders in 1980’s, and there was a concern about his economic policy before he was elected, he adopted the same liberal policies implemented by the previous president Toledo.

14. 1. Overview of the Peruvian Economy
Credit rating
Country
S&P
Fitch
Moody's
México
BBB
BBB+
Baa1
Chile A A2
Perú
BB+
BBB-
Ba2
Colombia
Ba3
Brasil
Venezuela
BB- B3
Argentina B+ B
Caa1
Bolivia B-
Ecuador
CCC
Caa2

15. 1. Overview of the Peruvian Economy
Trade Agreements of Peru

16. 2. Characteristics of the Peruvian Economy
Industrial Structure
service
manufacture
mining
agriculture

17. 2. Characteristics of the Peruvian Economy
Peru’s Exports and Imports 25 20
US $billion 15
exports
imports 10 5
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006

18. 2. Characteristics of the Peruvian Economy
Export Structure
others
manufacture
mining
agriculture
fishery

19. 2. Characteristics of the Peruvian Economy
Traditional Exports
Ord.
Code
Description
FOB 2006 1
Gold, nonmonetary, bullion and dore
4,002,778,579 2
Refined copper cathodes and sections of
cathodes
2,968,321,217 3
Copper ores and concentrates
2,824,518,697 4
Zinc ores and concentrates
1,757,851,264 5
Molybdenum ores and concentrates, not
roasted
833,958,136 6
Silver, unwrought (o/than bullion and dore)
479,574,173 7
Lead ores and concentrates
443,012,097 8
Tungsten, powders
305,067,180 9
Zinc (o/than alloy), unwrought, containing
o/99.99% by weight of zinc
229,193,750 10
Refined lead, unwrought
154,487,223
Others
561,493,244
14,560,255,560
Total

20. 2. Characteristics of the Peruvian Economy
Foreign Direct Investment
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
2000
2001
2002
2003
2004
2005
2006
million US$

21. 3. Economic Relation between Korea and Peru
Korea’s Trade with Peru
100
200
300
400
500
600
700
800
2001
2002
2003
2004
2005
2006
million US$
Export
Import

22. 3. Economic Relation between Korea and Peru
Korea-Peru Trade Intensity Index

23. 3. Economic Relation between Korea and Peru
Korea’s main exports to Peru
unit: million US$
HS Code
Product
2005
2006
852520
Transmission Apparatus Inc Reception App
21.7
25.7
390120
Polyethylene
21.4
25.5
271019
Petroleum oils and oils obt from bituminous
22.9
20.2
870323
Motor cars and other motor vehicles
10.8
18.7
390110
14.3
14.4
870332
10.6
870421
Motor vehicles for transport of goods
8.7
12.7
870210
Motor vehicles for transport of persons
6.1
9.9
481019
Paper and paperboard
9.0
852812
Colour monitors and projectors
4.6
10.3
870899
Parts and accessories of motor vehicles
5.3
5.8
390210
Polypropylene
5.2
870333
3.3
7.3
401120
New pnewmatic tyres, of rubber
2.6
7.1
847170
Storage units
5.7
3.6
Source: UN COMTRADE

24. 3. Economic Relation between Korea and Peru
Korea’s main import from Peru
unit: million US$
HS Code
Product
2005
2006
260800
Zinc ores and concentrates
74.6
329.6
260300
Copper ores and concentrates
73.2
182.7
260700
Lead ores and concentrates
30.3
56.1
260112
Iron ores and concentrates
23.4
28.4
160590
Crustaceans, molluscs and others
9.6
15.6
090111
Coffee
5.7
11.5
030749
Cuttle fish, squid
4.4
8.5
030420
Frozen fish fillets
4.5
5.5
740200
Unrefined copper, copper anodes
4.1
5.0
230120
Flours, meals and pellets, of fish or crustacea
2.8
2.3
510820
Yarn of fine animal hair
0.8
3.4
510539
Wood and fine or coarse animal hair
1.3
160430
Caviar and caviar substitutes
0.7
2.7
740311
Refined copper and copper alloys
0.2
3.2
790700
Other articles of zinc
1.8
1.4
Source: UN COMTRADE

25. 3. Economic Relation between Korea and Peru
Korea’s FDI to Peru
140.0
120.0
113.7
100.0
86.9
76.8
백만 US$
80.0
63.8
60.0
40.0
29.1
16.6
20.0
0.0
2001
2002
2003
2004
2005
2006

26. 4. Economic Effects of Korea-Peru FTA
CGE model
variable
Korea (%)
Peru (%)
Welfare
0.0063
0.22
GDP
0.0100
0.23
Exports
0.0311
0.66
Imports
0.0345
0.65
Trade Balance
0.00
Employment
0.0000
0.29

27. 4. Economic Effects of Korea-Peru FTA
RCA Analysis
RCA Indices of Korea’s Main Export Products

28. 4. Economic Effects of Korea-Peru FTA
RCA Analysis
Complementarities Table between Korea’s Export Supply and Peru’s Demand

29. 4. Economic Effects of Korea-Peru FTA
Top 30 products which Korea imports from Andean countries

30. 4. Economic Effects of Korea-Peru FTA
Top 30 products which Peru imports from Asian countries

31. Economic Effects of Korea-Colombia FTA
Analytical Framework
Categories based on RCA and exports

32. 4. Economic Effects of Korea-Colombia FTA
Table 7.4 The Impact of FTA on the Competitive Products of Colombia, TYPE 1
HS6 Code
Korea's IM from Colombia
Colombia's EX
PEC
Korea's IM
Colombia
Korea
US$
Share, %
to World, US$ %
from World, US$
RCA
Tariff HS
21,954,049
18.4
1,280,402,071
100.0
119,471,645
78.1 2 HS
79,433,818
14.5
913,553,068
547,045,319
173.4 3 HS
946,108
0.0
516,381,569
7.2
7,208,356,298
1.9
3.3 HS
69,656
0.1
492,126,783
121,507,508
46.6 30 HS
273,066
0.2
168,316,536
144,263,996
5.6 13 HS
5,280
167,215,549
31,095,192
11.4
6.5 HS
1,145
134,866,295
20,242,212
5.3 HS
463,539
1.0
131,358,627
45,592,764
11.6 8 HS
10,946,850
1.4
128,702,670
15.0
787,062,677
5.9 HS
203,359
7.7
116,881,233
2,655,128
20.3 HS
1,590
106,331,631
74.2
143,345,167
3.9 HS
167,420
96,820,477
42.7
226,336,316 HS
3,211,329
0.8
92,731,162
22.7
394,869,667
9.3 HS
5,833
2.8
91,822,685
206,532
78.7 25 HS
16,901
1.1
86,739,406
1,595,156
35.4 5 HS
21,827
62,216,093
31.2
199,371,071
1.7 HS
629
61,830,007
39,197,110 HS
118,095
54,692,094
18.0
303,293,495
1.6
76.8 HS
1,670,496
49,783,645
81.2
59,283,724
10.3 HS
1,932
44,652,732
23,970,643
6.2 HS 89
40,101,716
11.1
362,466,205
1.3 HS
2,376
40,043,159
5,414,470
21.7 HS
1,228,017
33,841,456
6.3
515,748,799
2.2

33. 4. Economic Effects of Korea-Colombia FTA
Table 7.7 The Impact of FTA on the Competitive Products of Korea, TYPE 1
HS6 Code
Colombia's IM from Korea
Korea's export
PEC
Colombia's IM
Korea
Colombia
US$
Share, %
to world, US$ %
from World, US$
RCA
Tariff HS
50,106,416
11.2
13,438,840,714
100
446,170,664
2.4 35 HS
2,399,439
0.7
12,427,812,869
335,691,897
2.3
9.1 HS
2,848,030
2.8
8,882,152,403
100,243,278
2.1 5 HS
1,757,107
3.7
8,751,615,197
47,468,611
4.8
8.8 HS
2,376
0.0
7,037,834,672
6,051,516
12.1 HS
3,581,844
4.2
6,167,308,985
85,402,866
2.6
10.4 HS
2,750,569
5,170,574,809
107,102,729
3.4 HS
19,926,930
69.4
4,090,203,363
28,703,436
1.6 HS
21,298,936
12.0
3,728,878,001
177,155,670
6.1 HS
44,675,414
14.7
3,655,657,651
303,773,961
2.9 HS
53,106
5.8
3,174,082,912
915,485
10.1 HS
68,839
1.9
2,334,373,779
3,581,345
4.5 HS
119
2,298,289,595
699,953
16.6 HS
787,544
2,129,611,367
27,742,004
1.5 HS
55,224
0.2
1,693,298,337
22,593,286
4.0 HS
684,045
1.2
1,652,700,633
55,734,597
1.7
5.7 HS
1,456,681
1,611,106,532
68,436,048 HS
2,272,161
31.3
1,540,137,618
7,255,882 HS
246,302
15.8
1,425,509,397
1,556,106
2.2 10 HS
5,924,975
21.9
1,342,901,908
27,031,973
7.8 20 HS
4,005,763
1,291,555,243
84,012,531 15 HS
81,011
0.8
1,270,888,506
10,472,984
8.2

34. 4. Economic Effects of Korea-Peru FTA
Index of Trade Conformity

35. Thank You !

36. Trade Intensity Index
The trade intensity index (T) is used to determine whether the value of trade between two countries is greater or smaller than would be expected on the basis of their importance in world trade.
Iij is defined for country i's exports to country j as the share of i's exports going to j (Xij/Xi) relative to the share of j's imports (Mj) in world imports (Mw).
If the trade intensity index takes a value above (below) unity the countries have greater (smaller) bilateral trade than would be expected based on the partner's share in world trade.

37. World Trade Intensity Index Iab =(200/500)/(400/40,000) = 40 B A
Trade(Imports) = 40,000 B
200
500 A

38. Revealed comparative advantage
Balassa's (1965) measure of relative export performance by country and industry, defined as a country's share of world exports of a good divided by its share of total world exports.
RCAij is revealed comparative advantage of country i in product j.
Xij and Xi represent country i’s exports of product j and total exports.

39. Revealed comparative advantage
RCAij=(5/500)/(200/40000)=2
World
Exports
40,000
200
500 5 B

40. Index of Trade Conformity (ITC)
Xik (Mik) denotes the product k’s share in country i’s total exports (imports).
ITC can have a value from 0 to 1. The more similar an economy’s export structure to another economy’s import structure, the closer the ITC is to 1.

41. Index of Trade Conformity (ITC)
Prod.
A’s export
B’s import 1 40 4 2 60 6 3 5
Prod.
A’s export
B’s import 1 40 2 60 3 4 6 5
ITC = 1
ITC = 0