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Thursday, November 18, 2010

The Proposed U.S.-South Korea Free Trade Agreement (KORUS FTA): Provisions and Implications

William H. Cooper, Coordinator
Specialist in International Trade and Finance

Mark E. Manyin
Specialist in Asian Affairs

Remy Jurenas
Specialist in Agricultural Policy

Michaela D. Platzer
Specialist in Industrial Organization and Business

On June 30, 2007, U.S. and South Korean trade officials signed the proposed U.S.-South Korean Free Trade Agreement (KORUS FTA) for their respective countries. If approved, the KORUS FTA would be the second largest FTA that South Korea has signed to date, after the agreement with the European Union (EU). It would be the second largest (next to North American Free Trade Agreement, NAFTA) in which the United States participates. South Korea is the seventhlargest trading partner of the United States and the United States is South Korea’s third largest trading partner. Various studies conclude that the agreement would increase bilateral trade and investment flows. The final text of the proposed KORUS FTA covers a wide range of trade and investment issues and, therefore, could have substantial economic implications for both the United States and South Korea. The agreement will not enter into force unless Congress approves implementation legislation. The negotiations were conducted under the trade promotion authority (TPA), also called fast-track trade authority, that the Congress granted the President under the Bipartisan Trade Promotion Act of 2002 (P.L. 107-210). The authority allows the President to enter into trade agreements that receive expedited congressional consideration (no amendments and limited debate).

On June 26, 2010, President Obama announced that he would direct U.S. Trade Representative Robert Kirk to work with the South Korean trade minister to resolve outstanding issues on the KORUS FTA by the time he and South Korean President Lee Myung-Bak meet again in Seoul for the November 2010 G-20 meeting. The President said that he intends “in the few months” after the November meeting to present Congress with the implementing legislation for the agreement. In follow-up briefings, Administration officials indicated that the discussions would focus on South Korean measures related to market access for U.S. autos and beef. It was the first time the Administration had assigned a timeframe for dealing with the KORUS FTA. President Lee responded that he and President Obama would talk about “the specific ways to move this [FTA] forward.” President Obama announced this step at a time of overall tightening U.S.-South Korean relations in the face of new security threats from North Korea. However, on November 11, after months of discussions, the two sides failed to reach agreement in Seoul on the auto and beef issues. The two presidents said that they have instructed their negotiating teams to continue work “in the coming days and weeks” at resolving the outstanding issues.

In South Korea, however, the politics of the KORUS FTA likely will make it difficult for the government of President Lee to appear to accede to new U.S. demands. This is particularly due to memories of events in 2008, when Lee reached an agreement with the United States to lift South Korea’s partial ban on U.S. beef imports, triggering massive anti-government protests that forced the two governments to renegotiate the beef agreement. The South Korean National Assembly has yet to vote on the KORUS FTA, and is debating whether or not to do so before the U.S. Congress acts. It is expected that the Assembly would pass the agreement, at least in its current version.

While a broad swath of the U.S. business community supports the agreement, the KORUS FTA faces opposition from some groups, including some auto and steel manufacturers and labor unions. Some U.S. supporters view passage of the KORUS FTA as important to secure new opportunities in the South Korean market, while opponents claim that the KORUS FTA does not go far enough. Other observers have suggested the outcome of the KORUS FTA could have implications for the U.S.-South Korean alliance as a whole, as well as on U.S. Asia policy and U.S. trade policy, particularly in light of an FTA completed in October 2009 between South Korea and the European Union.

Date of Report: November 12, 2010
Number of Pages: 54
Order Number: RL34330
Price: $29.95

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