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Seventh Anniversary of the Korea-U.S. Free Trade Agreement

By Phil Eskeland

Seventh wedding anniversaries are oftentimes overlooked.  It is not as glamorous as a 25th silver or 50th golden anniversary.  Gifts associated with a seventh year wedding anniversary in the U.S. are items made either out of copper or wool; a far cry from precious stones linked with other momentous anniversaries.  Nevertheless, on this day, it is still valuable to look back to evaluate the effectiveness of one of the most economically and strategically significant trade deals ever negotiated and implemented by the United States:  the Korea-U.S. Free Trade Agreement (KORUS FTA)

In 2011, the Republican-controlled Congress passed by a wide bipartisan margin the United States-Korea Free Trade Agreement Implementation Act.  The legislation was signed into law by President Barack Obama on October 21, 2011.  The KORUS FTA became operational on March 15, 2012.  While 80 percent of U.S. exports to South Korea of consumer and industrial products immediately became duty free, full implementation of KORUS will occur on March 15, 2022, when almost all remaining tariffs will be eliminated.

Part of the justification for supporting this agreement was an analysis by the independent U.S. International Trade Commission (USITC) that estimated U.S. “merchandise exports to South Korea would likely increase by an estimated $9.7-10.9 billion as a result of tariff and TRQ [tariff-rate quota] provisions” once the KORUS agreement was fully implemented in 10 years.  While the USITC study also concluded that aggregate U.S. employment changes would “likely be negligible” because of the small size of the Korean economy relative to the U.S. economy, this did not prevent the Obama Administration from predicting that KORUS would support an estimated 70,000 U.S. jobs based on a separate calculation, at the time, from the U.S. Department of Commerce that every $1 billion in merchandise exports supports about 6,600 jobs in the United States.

During the early years of KORUS, there were times when it appeared that U.S. exports to Korea were not growing much, if at all, and exasperated a growing bilateral trade imbalance.  As a result, some anti-trade activists criticized the agreement even though the stagnant U.S. export growth was primarily attributable to declining commodity prices and a decision by Seoul to reduce its purchases of coal worldwide to reduce its greenhouse gas emissions.  But as KORUS entered its fifth year of implementation when Korean tariffs on even more U.S. products were lowered further or went to zero, the U.S. became much more competitive in selling goods in Korea.  For example, sales of U.S. beef to Korea (a politically sensitive item in the original KORUS negotiations) have increased by 56 percent in volume and 155 percent in value since 2011 as the Korean tariff rate is gradually being reduced from its pre-KORUS high of 40 percent.

As a result, U.S. exports of merchandise goods to Korea increased by $12.9 billion since 2011 to reach a record $56.3 billion in 2018.  Thus, using the latest exports-to-jobs analysis from the Department of Commerce, the increased level of merchandise exports to Korea supported over 81,000 U.S. jobs.  In other words, at the seven-year mark, the KORUS FTA achieved the benchmark goals estimated by both the USITC and the Obama Administration three years before full implementation.  A tertiary benefit to rising U.S. exports to Korea was also a parallel decline in the bilateral merchandise trade deficit to levels not seen since 2013.  These achievements were all reached before any of the modifications to the KORUS FTA that were negotiated by the Trump Administration last year went into effect in January.

In addition, the composition of U.S. merchandise exports to Korea has changed during the past seven years.  In 2011, the top U.S. export to South Korea was computers and electronic products.  Now, oil and gas produced from the shale revolution in the U.S. comprise the largest share of American exports to Korea, reaching an astounding $8.6 billion.  In fact, Korea is presently the second largest importer of U.S. oil in the world.  This is a byproduct of initially allowing only petroleum exports to countries that the U.S. had negotiated a free trade agreements, but accelerated when Congress formally lifted the ban on crude oil exports to all nations in 2015.

As we reflect on the success of the KORUS FTA on this notable anniversary, it is important to also remember that other factors may influence future economic behavior as we move further away from the initial implementation date.  There are other macroeconomic factors that may alter America’s current market share in Korea, including Korea’s free trade agreements with other countries, along with uncertainties in dealing with the North Korean regime that may have secondary effects on the South Korean economy.  Nonetheless, the initial criticism of the KORUS FTA was premature and not warranted.  The agreement has worked as intended by increasing U.S. export opportunities to Korea, providing additional employment opportunities for American workers, and strengthening the alliance between the U.S. and the Republic of Korea.


Phil Eskeland is Executive Director for Operations and Policy at the Korea Economic Institute of America. The views expressed here are his own.

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