An Analysis of Trade Liberalization in Services: A Korea-ASEAN FTA

As tariffs have fallen worldwide through multilateral negotiations, the focus of free trade agreements has shifted towards other issues, including trade liberalization in services, harmonization of technical standards, and so on. Korea and ASEAN established a Joint Study to examine the feasibility and desirability of a comprehensive FTA. This paper evaluates the impacts of trade liberalization in services of a Korea-ASEAN FTA using a computable general equilibrium model. We use a modified version of the GTAP model that captures trade liberalization in services. As services are an input into the production of most industries, an inefficient service sector can be very costly to the economy as a whole. From the general equilibrium perspective, liberalizAs tariffs have fallen worldwide through multilateral negotiations, the focus of free trade agreements has shifted towards other issues, including trade liberalization in services, harmonization of technical standards, and so on. Korea and ASEAN established a Joint Study to examine the feasibility and desirability of a comprehensive FTA. This paper evaluates the impacts of trade liberalization in services of a Korea-ASEAN FTA using a computable general equilibrium model. We use a modified version of the GTAP model that captures trade liberalization in services. As services are an input into the production of most industries, an inefficient service sector can be very costly to the economy as a whole. From the general equilibrium perspective, liberalization in services gives manufacturing industries access to low cost, high quality service inputs so that they can be competitive. This implies that the positive effects of trade liberalization in services are never negligible. We find that the impacts of service liberalization on GDP and welfare are significant. If trade barriers to services are reduced by 60 percentages, it is estimated that Korea's GDP would increase by 0.21 percentages.