Mar 14, 2014 - 2:00pm

KORUS at Two: Positive Gains but Growing Pains

Former Vice President, Asia and acting head of Asia of the U.S. Chamber of Commerce

The U.S.-Korea Free Trade Agreement (“KORUS”) entered into force March 15, 2012.  As we commemorate the second anniversary of KORUS, it is important to take a realistic and balanced approach to assessing this important trade agreement. The U.S. Chamber of Commerce and its affiliate, the U.S.-Korea Business Council, were strong supporters of KORUS during the negotiation and Congressional ratification processes and continue to be. 

KORUS was designed to be a “gold standard” agreement that combines both traditional tariff elimination and more contemporary efforts to eliminate non-tariff or beyond-the-border barriers such as overly restrictive or non-science-based regulations, unique environmental or safety standards for certain products, and non-transparent regulatory processes, all of which are increasingly prevalent and problematic technical barriers to trade.

Numbers Provide a Mixed Picture

Looking at overall trade trends after only two years of a trade agreement is a tricky exercise. Many people unrealistically expected dramatic improvements in U.S. trade with Korea. A careful examination of the trade numbers indicates a mixed picture. 

On the positive side, U.S. exports of manufactured and agricultural goods covered immediately by tariff elimination show significant increases, in a few cases over 50% year-over-year.  U.S. exports of services to Korea have also shown strong positive gains. However, overall U.S. exports to Korea are down over the two-year period, largely because Korean demand has slumped (Korea’s overall imports are down) and U.S. exports of some commodities such corn have plummeted for reasons way outside the realm of the KORUS agreement. Additionally, some important items are not yet scheduled for tariff elimination, and there are still non-tariff measures that hinder exports even in some areas in which tariffs have been eliminated. 

Opponents of KORUS have also cited the increase in the bilateral U.S. trade deficit with Korea since KORUS went into effect as proof that the agreement is a failure. Reality is more complicated, as there are various macroeconomic factors at work, including relative domestic demand, in determining trade flows. In short, based on the numbers, it is much too early to draw determinative conclusions that the KORUS agreement is not working. 

Perspective is Important

It is important to have the proper perspective when evaluating KORUS. In a broad sense, the U.S. business community is much better off for having the KORUS FTA in place. Korea was a notoriously difficult place to do business some years ago, but it deserves credit for opening its market much more to imports and foreign investment through KORUS and FTAs with the EU and other countries. Eliminating tariff and non-tariff barriers is always helpful to U.S. exporters, but particularly in markets like Korea, and particularly for small and medium-sized enterprises. 

Some U.S. SMEs are seeing enjoyed growing sales in the Korean market over the past two years.

“Since KORUS came into force, we have had successful meetings with Korean companies, made sales, and those sales are growing,” says Jason Speer, vice president and general manager of Quality Float Works, Inc. “Having KORUS in place has opened the door to a huge market.”

Says Joe Betulius, vice president of marketing for Profile Products“The trade agreement has opened the door for us to better pursue the growing baseball market in Korea. In the past, we were at a disadvantage due to import taxes, but now we are competitive.”

Challenges Remain

That said, not all is going smoothly or well. There are serious and multiple problems with implementation of KORUS to the letter and spirit of the agreement in areas including autos, rules of origin, pharmaceuticals and medical devices, cross-border data movement, and others. The Chamber and USKBC are working closely with the Embassy of Korea and relevant Korean government ministries, and USTR, to resolve these issues. It is important to do so in order to maximize the benefits of KORUS for U.S. companies, increase confidence and certainty in the U.S. business community about doing business in Korea, and pave the way for Korea’s possible entry into the Trans-Pacific Partnership (TPP) negotiations at the appropriate time. Without quick and lasting resolution of these issues, all of the above will be impossible to achieve.   

The bottom line is that KORUS provides an important platform through which the U.S. and Republic of Korea can expand and improve its $100 billion–plus trade relationship while moving to new levels of cooperation. KORUS is in many ways a template for the TPP, so it is critical that it work as intended.  

About the Author

About the Author

Former Vice President, Asia and acting head of Asia of the U.S. Chamber of Commerce

James Fatheree is the former Vice President, Asia and acting head of Asia at the U.S. Chamber of Commerce.