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Tuesday, March 15, 2011

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 Congress granted the President under the Bipartisan Trade Promotion Act of 2002 (P.L. 107-210).

Under TPA the President has the discretion on when to submit the implementing legislation to Congress. President Bush did not submit the legislation because of differences with the Democratic leadership over treatment of autos and beef, among other issues. Early in his Administration, President Obama indicated the need to resolve those issues before he would submit the implementing legislation. On December 3, 2010, after a series of arduous negotiations and missed deadlines, President Obama and President Lee announced that their negotiators reached agreement on modifications in the KORUS FTA, and that they were prepared to move ahead to getting the agreement approved by the respective legislatures. The White House is expected to send implementing legislation to the 112
th Congress and that it would like to see Congress approve the agreement by July 1 of this year.

The modifications are in the form of changes in phase-out periods for tariffs on autos, a new safeguard provision on autos, and concessions by South Korea on allowing a larger number of U.S. cars into South Korea under U.S. safety standards than was the case under the original KORUS FTA provisions. The issue of full U.S. beef access was not resolved because of the political sensitivity of the issue in South Korea. In 2008, when President Lee reached a separate agreement with the United States to lift South Korea’s ban on U.S. beef imports, massive anti- South Korean government protests forced the two governments to renegotiate its terms. The U.S. beef sector has largely supported the KORUS FTA.

A broad swath of the U.S. business community supports the KORUS FTA . With the modifications in the agreement reached in December, this group also includes the three Detroitbased auto manufacturers and the United Auto Workers (UAW) union. It still faces opposition from some labor unions and other groups, including Public Citizen. Many 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 to break down South Korean trade barriers or that the agreement will encourage U.S. companies to move their production offshore at the expense of U.S. workers. 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 signed in by South Korea and the EU that is expected to go into effect on July 1, 2011.

Date of Report: March 1, 2011
Number of Pages: 57
Order Number: RL34330
Price: $29.95

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