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On February 2. 2006, USTR Robert Partman and South Korea Trade Minister Kim, Hyun-chong, announced their two countries' intension to negotiate a Korea-U.S. FTA.
The Korea-U.S. negotiation will be conducted under the trade promotion authority(TPA)
TPA helps the two countries to find accelerated and debated negotiations because TPA
is due to expired July 1, 2007.
According to the theory of international economics, the formation of FTA create the effects of trade creation and trade diversion that results from resource allocation and rules of origins. Therefore, many researchers take interested in the extent of trade diversion effect from Japan to U.S. after formation of Korea-U.S FTA. A lot of analysis showed that the trade diversion effects would lower than expectations because of bilateral trade patterns, especially Korea-U.S. and Korea-Japan. Only 8% of Korean products have the comparative advantage with imported products from Japan. In addition, there are overall intra-industry trade pattern between Korea and Japan. Intra-industry trade does not base on comparative advantage. Even if the Korea-U.S. established the FTA, the trade relations between Korea and Japan would continue to trade differentiated productions which are high-tech or capital intensive items. Therefore, trade diversion effects from Japan to U.S. will lower than expectations after Korea-U.S. FTA