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Friday, December 9, 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 October 3, 2011, President Obama submitted draft legislation (H.R. 3080/S. 1642) to implement the U.S.-South Korea Free Trade Agreement (KORUS FTA) to both houses of Congress. On October 6, the House Ways and Means Committee reported out H.R. 3080 (H.Rept. 112-239). The Senate Finance Committee reported out S. 1642 (without written report). On October 12, the House passed H.R. 3080 (278-151) and sent it to the Senate which passed it (83- 15). The President signed the legislation on October 21, 2011 (P.L. 112-41). In South Korea, after a contentious battle, the Korean National Assembly passed the agreement on November 22. It is expected to enter into force in early 2012.

The KORUS FTA is the second-largest U.S. FTA (next to NAFTA). South Korea is the seventhlargest trading partner of the United States, and the United States is South Korea’s third-largest trading partner. The 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.

Congress approved the KORUS FTA implementing legislation using expedited procedures authorized by the Trade Promotion Authority (TPA). Under TPA, the President had the discretion on when to submit the implementing legislation to Congress. The KORUS FTA was negotiated and signed on June 30, 2007, by President George W. Bush. However, 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, 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 included 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 modifications were included in the implementing legislation. 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.

A broad swath of the U.S. business community supported the KORUS FTA . With the modifications in the commitments reached in December, this group also included the three Detroit-based auto manufacturers and the United Auto Workers (UAW) union. It still faced opposition from some labor unions and other groups, including Public Citizen. Many U.S. supporters view 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 suggested 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.

Date of Report: November
30, 2011
Number of Pages:
Order Number: RL3
Price: $29.95

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