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Monday, August 22, 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

If implemented, the proposed U.S.-South Korea Free Trade Agreement (KORUS FTA), signed on June 30, 2007, would be the second-largest U.S. FTA (next to NAFTA). South Korea is the seventh-largest trading partner of the United States, and the United States is South Korea’s thirdlargest trading partner. 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.

Implementing legislation for the KORUS FTA is eligible for expedited congressional consideration (no amendments, limited debate) under the trade promotion authority (TPA). 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. On December 3, 2010, after a series of arduous negotiations and missed deadlines, President Obama and President Lee announced that they had reached an agreement on addressing the outstanding issues related to the KORUS FTA. As a result, U.S. and South Korean negotiators agreed, in the form of an exchange of letters and agreed minutes, to modifications to the commitments made in the 2007 agreement These modifications include 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 Though the issue of full U.S. beef access was not resolved because of its political sensitivity in South Korea, the Obama Administration plans to request consultations on this matter as soon as the KORUS FTA goes into effect.

On July 7, 2011, the House Ways and Means Committee and the Senate Finance Committee held simultaneous “mock mark-up” sessions on preliminary draft implementing bills for the KORUS FTA, as well as for the FTAs with Colombia and Panama. The process is preliminary to the President submitting the actual draft implementing bills under the expedited procedures provided for under TPA. They are also advisory in that the President is not obligated to accept any “amendments” that the committees have submitted. In the case of the KORUS FTA, the two committees considered different draft bills. The Senate Finance Committee considered and approved a draft that included renewal of a trade adjustment assistance (TAA) program, while the Ways and Means Committee considered and approved a draft that included only the KORUS FTA. President Obama said he would not formally submit FTA implementing legislation until there was an agreement from Congress to renew TAA.

A broad swath of the U.S. business community supports the KORUS FTA . With the modifications in the commitments reached in December, this group also includes the three Detroit-based 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 Korea-European FTA that went into effect on July 1, 2011.

Date of Report: August 9, 2011
Number of Pages: 59
Order Number: RL34330
Price: $29.95

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