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Ten years in the past this month, the USA and South Korea carried out the Korea-U.S., or KORUS, free commerce settlement (FTA). The settlement was seen as a possibility to handle financial tensions within the relationship, broaden industrial alternatives between the USA and South Korea, and deepen ties between the 2 allies.
When the USA and South Korea started negotiating the KORUS FTA in 2006, the expectation was that the negotiations would go shortly. It might finally take greater than six years of negotiations, debate, and delays earlier than the KORUS FTA can be permitted and carried out by each governments. Whereas the 2 sides concluded the negotiations in little over a yr, the settlement confronted political obstacles and home issues in each nations that will gradual the approval and implementation processes.
The KORUS FTA was one in every of three FTAs negotiated by the USA towards the tip of the Bush administration, with the KORUS FTA being essentially the most economically and strategically important of the agreements. Nevertheless, the Bush administration selected to ship the Colombia FTA to Congress for passage exterior of the conventional session course of, ending the prospect for the approval of free commerce agreements throughout the remainder of the Bush administration’s time period.
Politics, nonetheless, was not the one impediment to the passage of the KORUS FTA in the USA. There have been home issues over market entry for U.S. car and beef exports. U.S. automotive producers had persistently confronted challenges within the Korean market and had been involved that the KORUS FTA didn’t go far sufficient to handle their issues, whereas U.S. beef producers continued to face restrictions on exports to South Korea resulting from an earlier case of mad cow illness in the USA.
These issues had been finally resolved by way of further negotiations over autos that additionally secured the assist of the UAW for the settlement, in addition to a industrial settlement on beef that allowed most U.S. beef from cattle beneath 30 months of age to be exported to South Korea.
Opposition to the KORUS FTA, nonetheless, continued to linger in the USA because the U.S. commerce deficit with South Korea grew after implementation of the settlement. In 2017, then-President Donald Trump, already important of the commerce deficit and the KORUS FTA, threatened to withdraw from the settlement earlier than finally renegotiating the accord to handle issues largely associated to entry for U.S. automotive exports and lengthening the phase-out of the U.S. gentle truck tariff.
Opposition was not unique to the USA, nonetheless. South Korean farmers had been involved that bigger U.S. agricultural producers would push them out of native markets. In addition they opposed additional agricultural opening to the USA through the Trump administration’s renegotiation efforts. The Korean Confederation of Commerce Unions opposed the settlement. The then-opposition Democratic United Social gathering threatened power to cease the vote within the Nationwide Meeting and its management threatened to scrap the settlement ought to they win the 2012 basic election, all regardless of their celebration initially negotiating the settlement beneath the Roh administration.
Regardless of all of those issues, most stakeholders in the USA and South Korea are probably glad with how the settlement has carried out over the past 10 years.
How Has the Settlement Carried out?
Full KORUS yr information (March 15 to March 14 of the next yr), will not be but accessible, however a comparability of annual commerce information from the final yr previous to the implementation of the KORUS FTA by way of 2021 reveals that commerce between the USA and South Korea has grown considerably over the past decade.
Whole commerce in items between the USA and South Korea has elevated 68 p.c over the past decade, rising from $100.8 billion in 2011 to $169.1 billion final yr. Over that interval, each nations have seen a comparatively equal quantity of progress of their respective items exports. U.S. items exports to South Korea have grown by 64 p.c over the past decade, whereas Korean exports to the USA elevated 71 p.c.
Regardless of the disruptions from the pandemic, commerce between the USA and South Korea has continued to broaden. U.S. exports to South Korea had been at a pre-pandemic excessive of $61.9 billion in 2019, however grew to $73.2 billion final yr. South Korea has seen an identical progress, with its exports to the USA growing from $73.3 billion simply previous to the pandemic to $95.9 billion final yr.
There have additionally been adjustments within the patterns of commerce. Previous to the KORUS FTA’s implementation, equipment and electrical components had been two the largest classes of exports from the USA to South Korea. Vitality exports, particularly exports of crude oil and LNG, have since surpassed equipment and electrical components because the main U.S. exports to South Korea.
Whereas the KORUS FTA eradicated the tariff on imports of crude oil and LNG, different components, nonetheless, probably contributed extra to the surge in U.S. power exports to South Korea. In late 2015, the USA lifted a longstanding prohibition on the export of crude oil, whereas it solely started exporting LNG in 2016 after LNG export amenities got here on-line. Each of those home shifts in the USA probably performed a bigger position within the progress of power exports from about $85 million in 2011 to $18 billion final yr.
The areas of concern in regards to the settlement have proven enchancment as nicely. The U.S. commerce deficit with South Korea, which rose through the early years of the settlement, started to say no in 2016 and continued to take action till the pandemic started. By 2019, the commerce deficit was barely smaller than it was previous to KORUS coming into impact, however rose to $22.7 billion in 2021, through the pandemic.
Exports of U.S. beef and cars have additionally performed nicely. Beef exports to South Korea have grown from $525 million to $1.1 billion final yr. U.S. exports of automobiles have grown from $347 million in 2011 to $3.5 billion in 2021. When it comes to the variety of automobiles, U.S. exports to South Korea have grown from 8,252 automobiles in 2011 to 30,759 final yr in line with the Korea Vehicle Importers & Distributors Affiliation. Exports of automobiles and automotive components at the moment are the fifth largest export class for the USA.
Whereas there have been issues through the preliminary 5 years of the settlement that KORUS could also be having a destructive influence on home cattle manufacturing in South Korea, the variety of cattle has grown lately and is predicted to exceed 2012 numbers this yr.
If the pandemic hasn’t been an impediment to the expansion in items commerce, it has had an influence on companies commerce. In 2011, the USA exported $17.9 billion in companies to South Korea. These figures reached a excessive of $24.4 billion in 2017. Nevertheless, U.S. companies exports fell from $23.4 billion in 2019 to $17.9 billion in 2020, the final yr information is offered, almost definitely from the decline in journey and different companies hindered by the pandemic.
Exports of South Korean companies to the USA have grown extra modestly, rising from $9.9 billion in 2011 to a excessive of $11 billion in 2019, but in addition declined in 2020, solely reaching $9.7 billion.
International Direct Funding has additionally grown beneath the KORUS FTA. In accordance with the Bureau of Financial Evaluation, U.S. funding in South Korea has grown modestly from $28.2 billion in 2011 to $33.9 billion in 2020, however South Korean funding in the USA has grown 220 p.c since 2011. South Korean funding in the USA grew from $19.9 billion in 2011 to $63.7 billion in 2020.
One factor that the KORUS FTA was not profitable in facilitating, nonetheless, was defending South Korea from the Trump administration’s efforts to make use of the Part 232 nationwide safety course of to position quotas on exports of South Korean metal to the USA.
What Comes Subsequent?
Whereas the KORUS FTA has benefited the USA and South Korea, new points have arisen. When the USA and South Korea initially completed negotiating the KORUS FTA in 2007 Netflix had simply begun streaming, Twitter was a yr previous, and Fb was solely three years previous. The digital economic system within the intervening years has reshaped how we eat and buy content material in ways in which weren’t as clear on the time. The pandemic and geopolitical tensions between the USA and China have additionally reshaped how governments strategy commerce coverage.
The KORUS FTA will stay the muse of the South Korea-U.S. financial relationship, however the future might be formed by the adjustments which have occurred because the settlement was initially negotiated. Whether or not by way of the Biden administration’s Indo-Pacific Financial Framework or different types of collaboration, points associated to know-how, digital commerce, and local weather change will form the subsequent decade of South Korea-U.S. financial relations.
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