The United States and South Korea Reach Agreement on KORUS FTA Supplement

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12/06/2010

On December 3, 2010 President Obama announced that the United States and South Korea have reached an agreement on a landmark trade deal. President Obama stated that he expects the deal, technically a supplement to the KORUS FTA negotiated by the Bush administration in 2007, to increase annual American goods exports by $11 billion and to support at least 70,000 American jobs. The agreement now requires approval by both the U.S. and South Korean legislatures. Should it pass, it would be the largest trade accord since the 1994 North American Free Trade Agreement, as Korea is America’s seventh largest trading partner.

Passing the KORUS FTA with its new supplement is an important part of President Obama’s National Export Initiative, which aims to double U.S. exports within 5 years. According to a White House fact sheet, within five years the KORUS FTA would eliminate tariffs on over 95 percent of American industrial and consumer goods entering South Korea. This trade agreement is expected to have particularly significant repercussions for the auto, beef and agricultural industries, as well as manufacturing exports and the services and financial industries.

Autos

Negotiators were able to come to an agreement on autos, a sticking point in early negotiations, which both parties hope to be able to pass their legislative bodies. The United States will phase out its 2.5 percent tariff on imported Korean autos over five years, instead of immediately eliminating it the tariff on 90 percent of autos, as in the 2007 agreement. South Korea will cut its tariff on American autos from 8 to 4 percent when the deal goes into effect, and is supposed to phase out the remainder over five years. The deal also improves U.S. access to the Korean auto market by addressing non-tariff barriers such as Korea’s system of automotive safety standards. Additionally, the new deal includes a special auto safeguard which the United States can apply if a harmful surge of Korean auto imports were to occur.

Beef and Agricultural Products

The KORUS FTA eliminates Korea’s 40 percent tariff on U.S. beef exports, which at current sales levels would save the industry $90 million annually. The agreement does not address South Korea’s ban on American imports of beef from cattle over 30 months of age, which was a particularly sensitive political issue for the South Korean government. The FTA is also supposed to improve access to the Korean agricultural market, where the United States is already the largest supplier.

Manufacturing

The KORUS FTA is also supposed to eliminate tariffs or duties charged on U.S. manufacturing exports, including aerospace, automotive, consumer goods, electrical/electronic goods, metals, scientific equipment, and shipping and transportation equipment. It also addresses South Korea developing intellectual property rights protections.

Services

South Korea agreed to match the United States’ openness in many service sectors, improving U.S. access to South Korea’s $560 billion services market.

Further Topics Addressed

The KORUS FTA also addresses investment opportunities, financial services access, South Korean government procurement, environmental commitments, and labor rights. According to the White House, the agreement sets a high standard for labor agreements.

   Although the agreement has the support of Congress members such as Rep. Dave Camp, who is expected to become the House Ways and Means Committee Chairman, some Congressmen are not pleased with the FTA. Sen. Max Baucus, chairman of the Senate Finance Committee, has voiced disappointment that the deal did not fully address barriers to U.S. beef exports.