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Over the past decade, the United States and Korea have pursued free trade agreements (FTAs) with a number of bilateral trading partners. For the United States, the Korea-US (KORUS) FTA is by far the most significant in economic and political terms. For Korea, the KORUS FTA is matched, at least in commercial terms, by the recently concluded Korea-European Union (KOREU) FTA. Going forward, Korea will likely continue to pursue additional FTAs with its major trading partners, while the United States seems likely to refrain from new bilateral arrangements for at least the near term as the Congress and Obama administration struggle to advance implementing legislation for pending FTAs with Colombia, Panama, and Korea signed in 2006 and 2007.
American and Korean firms will soon have to adapt to the diverse export and investment opportunities created by these newly minted FTAs. The main open question is whether the agent of change will be: (1) the KORUS FTA; (2) the KOREU FTA in combination with other Korean FTAs with partners in Asia; or (3) some combination of the two. This short paper examines the implications of these evolving trading arrangements on US-Korea bilateral trade relations. It is organized in three sections: the first section addresses whither the KORUS FTA and why the US legislative logjam may be broken in 2010. The second section examines competitive regionalism and the impact of the KOREU FTA on US-Korea trade. The final section explores two alternative scenarios for the future course of US-Korean trade relations, depending on whether or not the KORUS FTA is ratified.
Whither the KORUS FTA
Korea and the United States signed their historic bilateral trade accord in June 2007 but neither country has yet completed the ratification process. In Korea, the agreement has passed a key committee in the National Assembly but further action is likely to await comparable progress in the US Congress. In the United States, the KORUS FTA qualifies for fast-track implementing procedures but neither the Obama administration nor Congressional leaders seem anxious to start the legislative process. No US action is likely in the waning months of 2009 due to the fractious domestic political debate over health care reform, which has blocked consideration of all other controversial initiatives, including the KORUS FTA. However, after his summit meeting with Korean President Lee Myung-Bak in Seoul on November 19, 2009, US President Barack Obama said “I am committed to seeing the two countries work together to move this agreement forward. There are still issues that are being discussed and worked on and we have put our teams in place to make sure that we are covering all the issues that might be a barrier to final ratification of the agreement.”
Why is US implementing legislation for the KORUS FTA so contentious? Looking at it from both foreign policy and commercial perspectives, the deal looks like a clear winner for US trade and investment. The United States International Trade Commission (USITC 2007) analyzed the KORUS FTA soon after its signing and concluded that the pact, if enacted, would likely increase US GDP by $10.1–11.9 billion as a result of tariff and tariff-rate quota (TRQ) provisions related to goods market access. US merchandise exports to Korea would likely increase by an estimated $9.7–10.9 billion and US merchandise imports from Korea would likely increase by about $6.4– 6.9 billion as a result of tariff and TRQ provisions included in the pact. The USITC report also estimated that US services exports would increase somewhat as a result of FTA provisions on market access, national treatment, and regulatory transparency, though the overall impact of service liberalization on US output would not be significant given the relatively small size of US service trade with Korea.
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