Order Code RL30566
CRS Report for Congress
Received through the CRS Web
South Korea-U.S. Economic Relations:
Cooperation, Friction, and Prospects for a Free
Trade Agreement (FTA)
Updated September 16, 2005
Mark E. Manyin
Analyst in Asian Affairs
Foreign Affairs, Defense, and Trade Division
Congressional Research Service ˜ The Library of Congress

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South Korea-U.S. Economic Relations: Cooperation,
Friction, and Prospects for a Free Trade Agreement
(FTA)
Summary
South Korea is a major economic partner for the United States. In 2004, trade
between the two countries was over $70 billion, making South Korea the United
States’ seventh-largest trading partner — ahead of France and Italy — and its
seventh-largest export market. In 2004, the U.S. was Korea’s second-largest trading
partner, export market and source of imports, as well as its largest supplier of foreign
direct investment (FDI). U.S. companies have invested nearly $20 billion in South
Korea over the past seven years.
Increased economic interaction has been accompanied by numerous
disagreements over trade and economic policies. The intensity of the disputes has
diminished considerably since the late 1980s and early 1990s, in part because South
Korea has enacted a set of sweeping market-oriented reforms as a quid pro quo for
receiving a $58 billion package from the International Monetary Fund (IMF)
following the near collapse of the South Korean economy in 1997. In recent years,
the United States and South Korea appear to have become more adept at managing
their trade disputes, so that they tend to be less acrimonious than they were in the
1980s and 1990s. This is due in part to the quarterly, working-level bilateral trade
meetings that have been held since early 2001. Strategic factors, including South
Korea’s increased economic integration with North Korea and China, have become
issues on the bilateral U.S.-South Korea economic front. In 2003, China surpassed
the U.S. as the ROK’s largest export market. In 2004, China surpassed the U.S. as
the ROK’s largest trading partner.
U.S.-ROK economic relations have advanced to the point that the two sides in
early 2005 began formal consideration of whether to open negotiations for a bilateral
free trade agreement (FTA). After completing a six-month bilateral review process
of the logistics, benefits, and risks of an FTA, the United States Trade
Representative’s office told South Korea in June 2005 that it was premature to launch
actual negotiations until key outstanding issues are resolved. These include South
Korea’s ban on imports of U.S. beef and its “screen quotas” that limit the dates and
screen time given to foreign films. In early September 2005, USTR Robert Portman
reportedly told reporters that the Administration hopes to decide by the end of 2005
whether to go forward with FTA talks with South Korea.
This report summarizes the main issues in U.S.-South Korean economic
relations, including South Korea’s economic prospects and economic reforms, major
bilateral economic disputes, and prospects for a U.S.-South Korean FTA. The report
will be updated periodically.

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Contents
Overview of U.S.-South Korean Economic Relations . . . . . . . . . . . . . . . . . . . . . . 1
South Korea’s Economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
The 1997 Crisis and IMF-Directed Reforms . . . . . . . . . . . . . . . . . . . . . . . . . 3
Recent Economic Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Economic Reforms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Financial Sector and Chaebol Reforms . . . . . . . . . . . . . . . . . . . . . . . . . 5
Foreign Direct Investment Reforms . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
South Korea’s Increased Economic Integration with China . . . . . . . . . . . . . 9
Improved Inter-Korean Economic Relations
. . . . . . . . . . . . . . . . . . . . . . . 10
Major U.S. Trade Disputes with South Korea . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
South Korea’s Beef Ban . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Telecommunications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Automotive Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
South Korea’s Alleged Currency Manipulation . . . . . . . . . . . . . . . . . . 14
Intellectual Property Rights Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Rice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Steel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Assistance to Hynix Semiconductor . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Pharmaceuticals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
South Korea’s Performance in the Doha Development Agenda . . . . . 18
Korea’s Complaints Against U.S. Anti-Dumping and CVD Practices
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
U.S. Visa Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
A U.S.-South Korea Free Trade Agreement? . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Status of the FTA Proposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Arguments For and Against an FTA . . . . . . . . . . . . . . . . . . . . . . . . . . 20
List of Figures
Figure 1. ROK Real GDP Growth, 1995-2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Figure 2. Foreign Direct Investment into the ROK, 1993-2004 . . . . . . . . . . . . . . 8
Figure 3. ROK Trade with China, U.S., & Japan, 2001-2004 . . . . . . . . . . . . . . . 9
Figure 4. Won-Dollar Exchange Rate, 1997-2005
Source. Bank of Korea, Average Basic Rate. Note Y-Axis is Inverted. . . . 14
Figure 5. Steel Imports from Korea, 1997-2004 . . . . . . . . . . . . . . . . . . . . . . . . . 16
List of Tables
Table 1. Annual U.S.-South Korea Merchandise Trade . . . . . . . . . . . . . . . . . . . . 2
Table 2. Economic Interdependence (2004) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Table 3. U.S.-ROK Automotive Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

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South Korea-U.S. Economic Relations:
Cooperation, Friction, and Prospects for a
Free Trade Agreement (FTA)
The United States and South Korea (known formally as the Republic of Korea,
or ROK) have been allies since the United States intervened in 1950 and fought the
Korean War to prevent a North Korean invasion from taking over South Korea. Over
33,000 U.S. troops were killed and over 100,000 were wounded during the three-year
conflict. In 1954, a year after the parties to the conflict signed an armistice
agreement, the United States and South Korea signed a Mutual Defense Treaty,
which provides that if either party is attacked by a third country, the other party will
act to meet the common danger. The United States maintains about 32,500 troops
in the ROK to supplement the 650,000-strong South Korean armed forces.1
Beginning in the 1960s, rapid economic growth in South Korea propelled it into
the ranks of the world’s largest industrialized countries. For over a decade, South
Korea has been one of the United States’ largest trading partners. Economic growth
also has helped transform the ROK into a mid-level regional power that can influence
U.S. policy in Northeast Asia, particularly the United States’ approach toward North
Korea.
Overview of U.S.-South Korean Economic Relations
In 2004, trade between the South Korea and the United States was over $70
billion, making South Korea the United States’ seventh-largest trading partner —
ahead of France and Italy — and its seventh-largest export market. (See Table 1 and
Table 2) For some western states and U.S. sectors, the South Korean market is even
more important, ranking number five for California’s exporters, number two for
Oregon’s exporters, and number four for all U.S. agricultural exporters. Major U.S.
exports to South Korea include semiconductors, machinery (particularly
semiconductor production machinery), aircraft, and agricultural products. South
Korea is among United States’ largest markets for agricultural products and beef
(before a ban on U.S. beef was put in place in December 2003; see below).
1 In October 2004, the U.S. and South Korea agreed to a phased withdrawal of 12,500 U.S.
troops in South Korea, reducing U.S. in-country troop strength from 37,000 to about 24,000
by September 2008.

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CRS-2
Table 1. Annual U.S.-South Korea Merchandise Trade
(Billions of U.S. Dollars)
U.S.
U.S.
Trade
Total
Year
Exports
Imports
Balance
Trade
1990
14.40
18.49
-4.09
32.89
1995
25.38
24.18
1.20
49.56
2000
26.30
39.83
-13.53
66.13
2003
22.52
36.93
-14.41
59.45
2004
24.99
45.06
-20.07
70.05
Jan-Jun 2004
12.28
21.73
-9.45
34.01
Jan-Jun 2005
12.88
22.04
-9.16
34.92
M a j o r U . S .
Semiconductor chips and manufacturing equipment;
Export Items
aircraft; corn and wheat; plastics
M a j o r U . S .
Cellular phones; semiconductor circuits; televisions
Import Items
and flat panel screens; cars; computer parts;
construction vehicles
Sources: 1990 & 1995 data from Global Trade Information Services. 2000-
2005 data from U.S. International Trade Commission.
South Korea is far more dependent economically on the United States than the
United States is on South Korea. In 2004, the United States was Korea’s second-
largest export market and source of imports, as well as its largest supplier of foreign
direct investment. In 2003, China for the first time displaced the United States from
its perennial place as South Korea’s number one export market. The following year,
China leapfrogged the United States to become South Korea’s largest overall trading
partner.
Table 2. Economic Interdependence (2004)
Total
Export
Source of
Source
Trade
Market
Imports
of FDI
for U.S.,
#7
#7
#7
n.a.
ROK ranks
for ROK,
#2
#2
#2
#1
U.S. ranks
In 2003, China surpassed the U.S. as the ROK’s largest export
market. In 2004, China surpassed the U.S. as the ROK’s largest
trading partner.
Increased economic interaction has been accompanied by numerous
disagreements over trade policies. The intensity of the disputes has diminished
considerably since the late 1980s and early 1990s, in part because South Korea has
enacted a set of sweeping market-oriented reforms as a quid pro quo for receiving a
$58 billion package from the International Monetary Fund (IMF) following the near
collapse of the South Korean economy in 1997. In particular, as a result of the
reforms, South Korea has opened its doors to foreign investors, ushering in billions
of dollars of foreign portfolio and foreign direct investment (FDI). The result is that

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CRS-3
foreign companies, including U.S. firms, now are significant shareholders in many
prominent industrial conglomerates (chaebol), own an estimated 40% of the value
of the shares traded on South Korea’s stock exchange, and own about one-third of
the Korean banking industry. South Korean President Roh Moo-hyun, elected to one
five-year term in 2002, has said that more extensive reforms are needed to help
accomplish his goals of raising per capita gross domestic product (GDP) to $20,000
and of transforming South Korea into an major economic hub in Northeast Asia.
The United States and South Korea appear to have become more adept at
managing their trade disputes, so that they tend to be less acrimonious than they were
in the 1980s and 1990s. This may be partly due to the quarterly, working-level “trade
action agenda” trade meetings that were initiated in early 2001. Both sides credit the
meetings, which appear to be unique to the U.S.-South Korean trade relationship,
with creating a more constructive dialogue by serving as “action-forcing” events.
U.S.-ROK economic relations have advanced to the point that the two sides in
early 2005 began formal consideration of whether to open negotiations for a bilateral
free trade agreement (FTA). After completing a six-month bilateral review process
of the logistics, benefits, and risks of an FTA, the United States Trade
Representative’s office told South Korea in June 2005 that it was premature to launch
actual negotiations until key outstanding issues are resolved. These include South
Korea’s ban on imports of U.S. beef and its “screen quotas” that limit the dates and
screen time given to foreign films. The USTR preliminary decision did not close off
the possibility of FTA negotiations being opened in the future, and South Korean
Trade Minister Hyun-chong Kim has continued to push the proposal in Seoul and in
Washington, DC.
South Korea’s Economy
The 1997 Crisis and IMF-Directed Reforms
South Korea’s 1997 financial crisis was a seminal event in the country’s history.
During the autumn of 1997 — spurred in part by the bankruptcy of some major
industrial conglomerates (chaebol) and a sharp increase in repayments required on
short-term foreign debt — investors lost confidence in the economy and capital fled
the country. The Korean won lost half its value in the space of a few days, tumbling
from 900 to 1900 won to the dollar. In a futile attempt to prop up the currency, the
government’s foreign currency reserves dropped to $4 billion, an amount insufficient
to carry the country through another day. Following the collapse of Hanbo Steel in
January 1997, six of the country’s top 30 chaebol went bankrupt. In December 1997,
barely a year after joining the Organization for Economic Cooperation and
Development (OECD), Seoul turned to the IMF for economic assistance. At virtually
the same time, South Koreans elected longtime democracy activist Kim Dae Jung to
the presidency, the first time since the early 1960s that an opposition leader had won
the country’s highest office.
After negotiating for weeks over the details, on December 4, 1997, South Korea
and the IMF agreed to a $58 billion support package. In return, Seoul agreed to

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CRS-4
tighten its fiscal and monetary policies and engage in far-reaching, market-oriented
reforms of its financial and corporate sectors and of its labor market policies. South
Korea also agreed to open its economy further to foreign goods and investors. The
newly-elected Kim government adopted most of the structural reforms as its own.
Following the financial crisis, South Korea entered into a severe recession. In
1998, gross domestic product (GDP) contracted by 6.7% and unemployment nearly
quadrupled, rising to 7.6% in 1998. The slowdown generated substantial anti-IMF
and anti-American sentiment among many South Koreans. The economy rebounded
in 1999 and 2000, growing by over 10% and 9%, respectively, and enabling the
South Korean government to rapidly retire many of the debts it incurred in 1997.2
In 2001, however, growth slowed considerably, dragged down by a combination of
internal and external developments, including a decline in consumer and business
confidence, due in part to a perception that the post-crisis restructuring drive was
faltering; the bursting of Korea’s stock market bubble; rising oil prices; and a sharp
falloff in exports to the United States and Japan, which entered economic downturns
of their own. The government responded by lowering interest rates, unveiling an
economic stimulus package, and easing the rules on the use of credit cards.
Figure 1. ROK Real GDP Growth, 1995-2005
Percent
15
10.9
10
8.9
9.3
6.8
6.3
5
4.6
5
3.8
3.1
3.1
0
-5
-6.7
-10
1996
1998
2000
2002
2004
1995
1997
1999
2001
2003
2005 est
Source: Bank of Korea.
These measures boosted consumer spending, which helped to double the growth
rate from 3.1% in 2001 to 6.3% in 2002. Growth also was boosted by rapid
economic integration with China. Domestic investment, however, remained low.
2 In August 2001, Seoul paid off the last of the $19.5 billion it had borrowed from the IMF.

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CRS-5
Recent Economic Developments
In 2003, overuse of personal credit cards led to the near-collapse of many
financial firms and a sharp slowdown in economic growth, which fell back to 3.1%.
Until the late 1990s, the consumer sector of the economy had been largely untapped,
with Korean lenders focusing on the corporate sector. Thus, when the government
liberalized financial regulations and forced Korea’s giant conglomerates to curtail
their borrowing in the aftermath of the 1997 crisis, banks and other financial
institutions turned to consumers — at times recklessly — as a new source of profit.
The number of credit card holders behind in their payments increased sharply, with
an estimated 8% of the population in default in March 2004.3 In 2003 and 2004, all
eight of Korea’s specialized credit-card issuers registered massive losses that
collectively were more than double their assets. In most cases, insolvency was
avoided only through bailouts and takeovers by affiliated members of the companies’
respective chaebol groupings. Most of these moves appear to have been engineered,
regulatorally enabled, and/or encouraged by the government, which feared a collapse
of the financial system if the firms were allowed to fail. The government responded
to the household debt crisis by tightening restrictions on credit card use and issuance,
and by initiating a refinancing and forgiveness program for individual debtors.
For 2004, South Korea’s economy grew by 4.6%, below the 6% growth rate the
government had expected.4 Much of the growth was driven by a surge in exports —
particularly to China — which rose by over 30% from 2003. A sharp rise in oil
prices (South Korea imports all of its oil) and lackluster domestic demand
contributed to the slower-than-expected growth rate. In early 2005, the government
has lowered its growth forecast from 5% to less than 4%, due in part to a slowdown
in export growth. The government responded by unveiling a $6.5 billion fiscal
stimulus policy. In the late spring and early summer, domestic production and
demand began to increase, perhaps indicating a turnaround, though rising energy
prices are expected to dampen growth.
Economic Reforms
Financial Sector and Chaebol Reforms. Assessing Korea’s economic
reforms to date depends on one’s perspective. If the point of comparison is the
Korean economy in 1997, then the government’s progress has been impressive.
South Korea’s economy today is far more transparent, open to foreign investors, and
efficient than it was seven years ago. Progress has been particularly notable in
opening the country to foreign direct investment (see below) and in reforming the
financial sector. In the years following the crisis, the government spent about $140
billion to bail out ailing banks and mutual funds.5 This amount is approximately
3 Hye-Seung Seo, “South Korea Unveils Program To Help Ease Consumer Debt,” The Asian
Wall Street Journal, March 11, 2004.
4 Gordon Fairclough, “South Korea Forecasts Growth Of Near 6% on Export Strength,” The
Asian Wall Street Journal, April 26, 2004.
5 Francesco Guerrera, et. al., “Seoul Plans to Sell Most of Stake in Hana Bank,” Financial
(continued...)

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CRS-6
25%-30% of the country’s GDP, nearly twice the level required to save Mexico’s
financial system during its crisis in 1995. Notably, predictions that the government
would have to spend substantially more funds have not come to pass, and Korea’s
banking sector as a whole has returned to profitability. By the end of 2001, non-
performing loans (loans which are unlikely to be repaid) had fallen to 2.4% of total
loans, compared with 16.4% in 1998. Since 2001, the Korean banking sector as a
whole has been profitable. At the end of 2003, the percentage of troubled loans had
risen to 2.6%, primarily as a result of the collapse of the credit card bubble.6 (In
2001, the percentage of non-performing loans for large banks in the United States
was 1.5%.) Critics point out that the official South Korean percentage
underestimates the problem because many South Korean loans that are unlikely to be
repaid have not yet been classified as “non-performing.”
The Roh government has accelerated South Korea’s efforts to re-privatize the
banks that were nationalized in the aftermath of the 1997 crisis. By 2000, the
nationalization program had brought about one-third of the banking industry’s assets
into government hands, and state ownership of the banking sector formed the crux
of a major trade dispute with the United States and European Union, in which state-
owned and state-controlled banks were accused of illegally subsidizing Hynix
Semiconductor Inc., the world’s third-largest producer of dynamic random access
memory (DRAM) semiconductor chips. By the spring of 2004, however, sales of
many of formerly state-owned banks had given foreign companies collectively a
major stake in South Korea’s financial sector, notwithstanding occasional statements
by Korean politicians expressing misgivings about excessive non-Korean ownership.
Currently, foreigners own about one-third of the assets in the Korean banking sector,
including majority stakes in four of Korea’s eight nation-wide banks.7 In March
2004, Korea’s Financial Supervisory Commission approved a $1.7 billion bid from
Citigroup for a controlling stake in KorAm, Korea’s seventh-largest bank.
If the yardstick used to assess South Korea’s reforms is the U.S. economy,
however, it becomes clear that Seoul has far to go if it is to make the economy truly
responsive to market-oriented pressures and incentives. Progress has been
particularly difficult in the government’s attempts to pressure the chaebol to correct
the problems revealed by the 1997 crisis, including excessively high debt levels, a
heavy reliance on short-term debt, the lack of transparency, weak corporate
governance, and corporate structures dominated by individual families rather than
professional business managers. Although two of the largest chaebol — Daewoo and
Hyundai — have been dismantled and debt-equity ratios for most of the top
conglomerates have been reduced, corporate governance and cross-shareholdings
within chaebol groupings remain major problems. The bailouts of struggling credit
card affiliates in 2003 and 2004 seemed to many to indicate that the chaebol had not
reformed their past practices of forcing their profitable enterprises to rescue failing
5 (...continued)
Times, January 28, 2004.
6 Economist Intelligence Unit, South Korea Country Report, May 2004, p. 32.
7 Foreigners also are significant shareholders in many prominent chaebol and own an
estimated 40% of the value of the shares traded on South Korea’s stock exchange.

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CRS-7
ones. Also in 2003, a massive accounting scandal at SK Global, the trading unit of
the country’s fourth-largest chaebol, SK Group, revealed similar structural
problems.8
Additionally, the reckless credit card lending activities of Korean credit card
firms exposed the continued weaknesses in risk management and due diligence by
Korean financial interests. One of the government’s responses has been to accelerate
plans to further restructure the financial industry by passing new laws allowing the
consolidation of banking, insurance, asset management, and brokerage services.
Some critics, however, worry that this cross-sectoral consolidation will accentuate
the problem of cross-shareholding within chaebol groupings. Also, bailouts of the
two largest credit card companies, LG Card and Samsung Card, in 2003, have raised
fears that the “too big to fail” dynamic continues to persist in South Korea.
Foreign Direct Investment Reforms. As part of its commitment to the
IMF in December 1997, Seoul pledged to eliminate most restrictions on foreign
firms’ long-term investments in local subsidiaries and controlling interests in local
companies. The government of President Kim Dae Jung, who was elected during the
nadir of Korea’s financial crisis, moved aggressively to liberalize Korea’s foreign
investment regime. Partly as a response to Kim’s reforms, and partly in response to
the lower prices of Korean assets following the 1997 crisis, FDI flows increased
markedly, soaring from $3.2 billion in 1996 to a peak of $15.7 billion in 2000. FDI
fell off significantly from 2001-2003, before rising to $12.8 billion in 2004, the same
year President Roh Moo-hyun’s government began a policy of boosting FDI as a
source of domestic growth.9 Since the 1997 crisis, FDI commitments by U.S.
companies have totaled nearly $20 billion. (See Figure 2.) A number of high-profile
Korean companies have been taken over by foreign interests, notably General
Motors’ purchase of Daewoo Motors in 2002.10 Citigroup’s $2.4 billion purchase of
KorAm Bank in March 2004 was the largest foreign direct investment in Korean
history and Citigroup’s largest investment outside North America.
8 SK Global (now SK Networks)was found to have window-dressed its financial statements
by over 7 trillion won (around $5.8 billion), for which several senior level executives,
including SK Corp’s chairman were convicted of breaching fiduciary responsibilities. The
chairman served a three-month prison term. Following SK Global’s restatement of its
earnings, SK Corp led a rescue of its subsidiary despite the objections of most of SK Corp’s
foreign shareholders, led by Dubai-based Sovereign Asset Management. SK managers
ultimately defeated Sovereign’s efforts, and in July 2005, Sovereign sold its 15% stake in
SK Corp.
9 In a March 4, 2004 speech to the American Chamber of Commerce of Korea, Minister of
Finance and Economy Lee Hun-jai announced the new policy, saying, “foreign direct
investment is important not just for short-term recovery of the Korean economy, but also for
supporting longer-term growth potential.” Andrew Ward, “Korea Moves to Win Back
Foreign Business,” Financial Times, March 5, 2004.
10 Since then, GM Daewoo has become GM’s manufacturing platform in Asia.

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CRS-8
Figure 2. Foreign Direct Investment into the ROK, 1993-2004
18.0
15.7
15.5
16.0
12.8
14.0
11.9
12.0
ns
io
8.9
9.1
10.0
ill
7.5
7.0
b
8.0
6.5
$
6.0
4.5
4.7
3.8
3.9
3.2
3.0
2.9
4.0
2.2
1.0
2.0
0.0
7
8
9
0
1
2
3
996
199
199
199
200
200
200
200
2004
3~1
199
Total FDI
U.S. FDI
Source: ROK Ministry of Commerce, Industry, and Energy
Despite the increased openness to foreign ownership, a number of high-profile
acquisitions by foreign companies have been either delayed or cancelled, due to
nationalistic objections to the sale, disagreements over the sales price, and/or the
discovery of previously undisclosed debts owed by the target Korean company.
These delaying actions often have backfired, resulting in far lower eventual sale
prices. A case in point was the protracted sale of Daewoo Motors. In June 2000,
Daewoo Motor’s creditors, many of them government-owned or controlled, reached
a tentative agreement with Ford, which bid nearly $7 billion for the company.
Negotiations became difficult, and after discovering billions of dollars in previously
hidden liabilities (and taking a large loss from the Firestone tire recall), Ford
withdrew its offer. General Motors, which initially had bid $4 billion, remained the
only viable suitor. Negotiations with creditors and the government dragged on for
over a year and a half, however. Finally, in May 2002, GM and Daewoo’s creditors
signed an agreement, by which GM acquired a controlling stake in Daewoo Motors
for $400 million.
Many Koreans, however, have reacted with alarm to foreign investment and
there has been growing discussion of restricting the takeover of Korean companies
by foreigners. For instance, when Newbridge Capital sold its 50% stake in Korea
First Bank in early 2005 at a high profit, it was accused of being a “foreign
exploiter.” The South Korean government attempted to limit or eliminate an
investment treaty with Malaysia, Newbridge’s home, that allowed the company to
avoid paying Korean taxes on its gains. Newbridge bought Korea First Bank in 1999
and is credited in many circles with turning around the bank’s fortunes. Part of the
Korean government’s apparent ambivalence to foreign investment, particularly in the
financial sector, is that foreign multinationals often are more resistant to government
pressure. Newbridge, for instance, reportedly resisted efforts by the South Korea’s

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CRS-9
Financial Supervisory Commission to advance loans to two failing companies, Hynix
and LG Credit.11
South Korea’s Increased Economic Integration with China
As mentioned earlier, in 2003 China surpassed the United States as South
Korea’s number one export market. For several years, China has also been the
number one destination for South Korean overseas direct investment, by a large
margin. Many, if not most, of South Korean exports to China are intermediate goods
used in the production of finished goods that ultimately are exported from China to
other countries, including the United States. A growing number of Koreans are
studying the Chinese language and traveling to China, and public opinion polls show
that a growing number of Koreans have favorable views of China. These
developments, combined with a sharp decline in favorable views of the United States,
have led many American observers to worry that Chinese influence over South
Korean policy is likely to rise in the future, at the expense of the United States.
Figure 3. ROK Trade with China, U.S., & Japan,
2001-2004
120
China (includes Hong Kong)
100
U.S.
Japan
80
60
40
20
0
2001
2002
2003
2004
Source: Korea International Trade Association.
Many South Koreans, however, have ambivalent views of China’s growing
economic importance. The increased competitiveness of many Chinese
manufacturers has caused some consternation in some South Korean firms, pushing
11 Edward Graham, “South Korea Should End its Corporate Xenophobia,” Financial Times,
August 4, 2005.

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CRS-10
them to search overseas for lower-cost production bases. There are concerns that
jobs, particularly in the manufacturing sector, will be lost to Chinese workers as
South Korean foreign direct investment in China increases.
Improved Inter-Korean Economic Relations
The worsened economic situation for many South Korean small and medium
sized enterprises (SMEs) is thought to be a major factor propelling President Roh
Moo-hyun’s economic initiatives with North Korea. In particular, the inter-Korean
industrial zone in Kaesong (also spelled “Gaesong”), North Korea, just north of the
demilitarized zone separating the two countries, is explicitly designed for use by
SMEs, over 1,000 of which reportedly have expressed interest in participating. A
pilot site at Kaesong, housing the factories of fifteen South Korean firms, opened in
2004, and in the summer of 2005 the two Koreas announced plans to expand the zone
in 2006 and 2007.
In the past two years, South Korea has emerged as North Korea’s second-most
important economic partner, after China. Inter-Korean trade has risen by over 60%
since 2000, to nearly $700 million in 2004.12 Since 1994, South Korea has given
around $3 billion worth of economic and humanitarian aid to North Korea, most of
which has come since the June 2000 summit between North Korean leader Kim
Jong-il and then-South Korean President Kim Dae Jung. Since the summit, the two
Koreas have reconnected inter-Korean roads, are close to reconnecting two rail lines,
have expanded a tourism site in Mt. Kumgang (North Korea), and have completed
construction of a pilot industrial zone in Kaesong (North Korea) for South Korean
companies to erect factories using North Korean labor. For 2006, there are plans to
expand the Kaesong site beyond the 15 companies currently operating there, despite
previous statements by South Korean government officials that resolving the North
Korean nuclear crisis was a prerequisite for starting any “new” inter-Korean
economic programs, presumably including the expansion of the Kaesong site beyond
the pilot program. Additionally, as part of the six-party talks on North Korea’s
nuclear weapons programs, Seoul has proposed sending large amounts of electricity
to North Korea, in exchange for concessions from Pyongyang.
Some analysts worry that improved inter-Korean economic relations are
undermining the Bush Administration’s policy of constricting the inflows of foreign
currency that are thought to go to the North Korean elite, providing a critical base of
support for North Korean leader Kim Jong-il. Alternatively, coordinated U.S. and
South Korean policies could use economic leverage to pressure North Korea.
Major U.S. Trade Disputes with South Korea
Given the disparities in size and economic dependence, it is not surprising that
the United States typically sets the agenda of U.S.-ROK trade talks. Since the 1997
financial crisis, these complaints have tended to be directed at regulations
promulgated by “domestic” ministries, such as the Ministry of Health and Welfare
12 South Korean National Statistical Office.

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CRS-11
and the Ministry of Commerce and Industry, that traditionally have had little contact
with foreign governments or firms. One element of the U.S. strategy toward Korea
appears to be attempting to raise the pressure on these ministries by pushing for the
Korean Cabinet to focus on the issue.
In general, U.S. exporters and trade negotiators identify the lack of transparency
of Korea’s trading and regulatory systems as the most significant barriers to trade
with Korea, in almost every major product sector. In 2004, the transparency issue
became a stand-alone item in the quarterly trade action agenda meetings. Many U.S.
government officials also complain that Seoul continues to use government
regulations and standard-setting powers to discriminate against foreign firms in
politically sensitive industries, such as automobiles and telecommunications.
Another major cross-sectoral complaint is that restrictions in the Korean labor
market, such as mandatory severance pay, raise the cost of investing and doing
business. Finally, the United States and other countries have pressed South Korea
to open further its agricultural market, which is among the most closed in the
OECD.13
Below are brief descriptions of several major sector-specific disputes between
the U.S. and South Korea.
South Korea’s Beef Ban. Seoul, along with Tokyo, banned U.S. beef
imports in late December 2003, after the United States reported the discovery of a
cow with bovine spongiform encephalopathy (BSE or “mad cow disease”). South
Korea formerly was the #3 foreign buyer of U.S. beef; the United States exported
$1.2 billion in beef in 2003. South Korean officials periodically have said they
expect the market will be reopened, though the finding of another cow with BSE in
the United States in 2005 undoubtedly will set this back. USTR officials have said
that FTA negotiations are unlikely to begin with South Korea until the ban is lifted.
Telecommunications. In recent years, telecommunications has emerged as
one of the most contentious trade issues between the United States and South Korea.
With one of the world’s highest rates of Internet usage, South Korea is often used as
a market for telecommunications companies to test cutting-edge wireless products
and technologies. The Roh government has designated next-generation mobile
communications as one of ten “new growth engines” that will help Korea reach
President Roh’s goal of nearly doubling per capita GDP to $20,000 by the end of the
decade. Perhaps to this end, the Korean government has attempted to set mandatory,
single-technology standards for wireless telecommunications services. These efforts
led USTR in April 2004 to name South Korea as a “key country of concern” in its
annual report under Section 1377, which requires USTR to assess U.S. trading
partners’ compliance with international telecommunication agreements.
Specifically, for two years, USTR negotiated with the South Korean government
over the Ministry of Information and Communication’s (MoIC) plan to require all
cell phone services to use only the so-called wireless Internet platform for
interoperability (WIPI) for downloading information from the Internet. WIPI is a
13 OECD, Economic Survey - Korea 2004.

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CRS-12
new platform developed by a Korean association funded by Electronics and
Telecommunications Research Institute (ETRI), a government-funded institute. The
requirement would have excluded users and developers of other operability
platforms, such as the platform developed by San Diego-based Qualcomm, which is
used by a leading Korean cellular service provider. In April 2004, Seoul and
Washington announced they had reached a compromise that allows MoIC to
implement WIPI, but also permits cellular phones to be made compatible with other
standards.14
A similar dispute is over MoIC’s issuance of a mandatory standard — to be
located in the 2.3 gigahertz (GHz) bandwidth spectrum — for a new portable
broadband Internet system used to transmit information from the Internet to laptops
and other wireless equipment. USTR and U.S. companies charged that, under the
influence of ETRI, the original, domestically-designed standard was designed to
deliberately exclude foreign companies in favor of Samsung.15 In June 2004, the
Korean government announced that all license holders would have to use one of the
several technologies compatible with a standard designed by the International
Institute of Electrical and Electronics Engineers. USTR has criticized the decision
as excluding companies that have developed other systems. USTR also has asked the
Korean government to revise its restrictions on foreign ownership in the
telecommunications sector.16
Automotive Trade. Automotive trade continues to be a perennial issue in the
quarterly trade talks, during which U.S. officials argue that Korean tax and “Korea
unique” certification practices discriminate against imports. South Korean imports
of foreign automobiles totaled fewer than 25,000 in 2004 — including 5,415 U.S.
cars — just over 2% of the South Korean market. (See Table 3.) In contrast, South
Korean auto manufacturers exported over 680,000 cars to the United States in 2004,
capturing over 4% of the U.S. market. Nearly all of these vehicles were produced by
Hyundai Motors. USTR is pushing South Korea to lower its 8% tariff and has
protested that South Korea’s tariff, tax, and regulatory structure unfairly penalize
automobiles with larger-sized engines. Specifically, the Bush Administration has
called on Korea to move from engine displacement taxation to a value-based taxation
system, because the former assesses higher taxes on larger vehicles.17 Periodically,
some Members of Congress have introduced legislation calling on South Korea to
end the practices that impede foreign market access and requesting various U.S.
executive agencies to monitor Korea’s progress on this issue. Two initiatives were
H.Con.Res. 144 and S.Con.Res. 43, introduced in the 107th Congress, in May 2001.
14 “U.S., Korea Reach Deal on Single Standard for Cell Phone Technology,” Inside US
Trade, April 30, 2004.
15 USTR, “Results of 2004 Section 1377 Review of Telecommunications Trade
Agreements,” p. 5.
16 USTR, 2005 National Trade Estimate Report on Foreign Trade Barriers (NTE), p. 394-
95.
17 USTR, 2004 National Trade Estimate Report on Foreign Trade Barriers, p.313.

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CRS-13
South Korea, the world’s fourth-largest producer of automobiles, has long
maintained a variety of barriers to the import of automobiles. A ban on Japanese
automobiles was eliminated in 1999. In its October 1997 Super 301 report to
Congress, the Clinton Administration designated Korea as a “Priority Foreign
Country” for its barriers to foreign motor vehicles.18 USTR subsequently initiated
an investigation under Section 301 of the U.S. Trade Act of 1974, as amended, and
issued a call for bilateral consultations to provide fair market access for foreign autos
in Korea.19 In 1998, the United States and South Korea signed a Memorandum of
Understanding (MOU) on foreign access to Korea’s auto market, which led the
USTR to terminate the Section 301 investigation. Under the MOU, Seoul agreed to
reduce its tariffs on motor vehicles from 80% to 8%,20 proactively address instances
of anti-import activity in Korea, lower or eliminate many automobile taxes, create a
new financing system to make it easier to purchase automobiles, and streamline its
standards and certification procedures. Many of these steps — including lowering
tariffs — have been implemented, and in 2002 General Motors purchased the
Daewoo Motor Company from the bankrupt Daewoo conglomerate.
Table 3. U.S.-ROK Automotive Trade
Vehicular Units, including Light Trucks
1999
2000
2001
2002
2003
2004
Korean Auto
Companies’ Exports to
329,600
473,400
618,300
650,300
637,700
688,670
the U.S.
Market Share
2.0%
2.7%
3.6%
3.9%
3.8%
4.1%
Total Foreign Auto
Companies’ Exports to
2,400
4,400
7,700
16,100
19,500
23,345
Korea
Market Share
0.2%
0.3%
0.5%
1.3%
1.9%
2.1%
U.S. Auto Companies’
1,400
1,700
2,000
4,700
4,100
5,415
Exports to Korea
Market Share
0.1%
0.1%
0.1%
0.4%
0.4%
0.5%
Source: U.S. Department of Commerce
18 Super 301 (Section 310 of the 1974 Trade Act) requires the USTR to report to congress
on “priority foreign countries” that practice unfair trade and “priority practices” that have
the greatest effect on restricting U.S. exports. If agreement is not reached on the priority
practices, the USTR is required to initiate a Section 301 case (see the following footnote).
For more information, see Wayne Morrison, Section 301 of the Trade Act of 1974, CRS
Report 98-454.
19 Section 301 (sections 301-309 of the Trade Act of 1974) authorize the USTR to initiate
investigations of foreign trade practices that allegedly discriminate against U.S. commerce.
If a settlement with the foreign country is not reached following the initiation of the
investigation, the USTR decides whether or not to retaliate, usually in the form of 100%
tariffs on selected imports from the offending country. See CRS Report 98-454, Section 301
of the Trade Act of 1974, as Amended: Its Operation and Issues Involving its Use by the
United States, by Wayne Morrison.
20 By way of comparison, the U.S. tariff on passenger vehicles is 2.5%. The Japanese tariff
rate is 0%.

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CRS-14
In May 2005, Hyundai Motors opened a new $1.1 billion plant in Montgomery,
Alabama. The facility is expected to produce 300,000 vehicles annually and will
employ approximately 2,000 workers. The plant’s suppliers are expected to employ
approximately 5,500 workers.21
South Korea’s Alleged Currency Manipulation. In recent years, South
Korea has been criticized for intervening in foreign currency markets by purchasing
U.S. dollar assets to artificially lower the value of the Korean won against the U.S.
dollar in order to boost exports. As of the end of June 2005, South Korea was the
seventh largest foreign holder of U.S. treasury securities, holding $59.7 billion.22 As
Figure 4 shows, the won generally has been appreciating against the dollar since
2002. In response, South Korean authorities have intervened episodically to slow the
won’s rise, though the scale of the intervention has been far less than Japan’s and
China’s. The United States made currency intervention a major issue at the Asia
Pacific Economic Cooperation (APEC) Finance Ministers and G-7 Finance Ministers
meetings in September 2003. Shortly thereafter, South Korea appears to have eased
off large-scale interventionist policies; South Korean government officials say that
since early 2004, they have engaged in only minor intervention to “smooth”
excessive currency volatility.23 Also in September 2003, congressional criticism of
Korea’s currency policy increased. A “Fair Currency Act” has been introduced in
Senate the last two Congresses (S. 377 in the 108th Congress and S. 1592 in the 107th
Congress). If passed, they would require the U.S. government to monitor and take
action against specific countries, including South Korea, that are “engaged most
egregiously in currency manipulation.”
Figure 4. Won-Dollar Exchange Rate, 1997-2005
Source. Bank of Korea, Average Basic Rate. Note Y-Axis is Inverted.
9 00
9 5 1
1 0 0 0
1 ,0 0 8
1 ,0 2 2
1 ,0 1 1
1 ,0 3 8
1 1 0 0
1 ,1 3 1
1 ,14 5
1 ,1 9 0
1 ,19 2
1 2 0 0
1 ,2 5 1
1 ,2 9 1
1 3 0 0
1,3 9 9
1 4 0 0
1 9 9 7
1 9 9 8
1 9 9 9
2 0 0 0
2 0 0 1
2 0 0 2
2 0 0 3
2 0 0 4
J a n
F e b
M a r
A p r
0 5
0 5
0 5
0 5
21 May 20, 2005 letter from Hyundai Motor Co.’s Washington, DC office.
22 Department of the Treasury and the Federal Reserve Board, “Major Foreign Holders of
Treasury Securities,” [http://www.ustreas.gov/tic/mfh.txt]. Japan held $680 billion in U.S.
treasury securities, China $243 billion, and the United Kingdom $141 billion.
23 Charles Roth, “South Korea to Use Reserves For Local Asset Management,” The Asian
Wall Street Journal, February 14, 2005.

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CRS-15
In the future, the U.S. dollar and the market for U.S. treasury securities could
be affected by the South Korean government’s launch of the Korean Investment
Corporation (KIC) to manage a portion of South Korea’s foreign exchange reserves,
in July 2005. The KIC initially is managing $20 billion, and is expected to
eventually manage $100 billion by 2012. The stated goals of the program are to
invest South Korean foreign currency holdings more effectively. The program also
aims to boost President Roh Moo-hyun’s efforts to turn Korea into a major financial
and commercial hub in Northeast Asia by helping boost Korea’s asset management
industry.
Intellectual Property Rights Issues. Bilateral tensions often have arisen
over U.S. allegations that Korea does not sufficiently protect intellectual property
rights (IPRs). Since becoming a signatory to the World Trade Organization (WTO)
Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs) in
1994, USTR has moved Korea back and forth between the Special 301 “priority
watch list” and the “watch list.”24 Most recently, in January 2005, USTR
downgraded Korea to the “watch list” because of “significant steps” Seoul had taken
to strengthen its IPR regime. USTR has cited South Korea’s increased protection for
recordings transmitted over the internet and the launch in May 2004 of a
“Pan-Government Comprehensive Plan For IPR Protection” headed by a Han Duk-
soo, a prominent official who has a Cabinet portfolio to promote the initiative.
USTR also lists several items, such as copyright protection and DVD piracy, on
which it would like to see Korea make additional progress.25
Rice. The South Korean government controls the purchase, distribution, and
end-use of all imported rice. During the Uruguay Round of multilateral trade
negotiations (1986-1993), South Korea was granted a 10-year grace period before
opening its rice market to imports. In return for receiving this concession, South
Korea agreed to allow minimum access for rice through the use of quotas. The grace
period ended on the last day of 2004. Prior to that date, South Korea notified the
WTO that it wished to extend the minimum access quota system rather than convert
to tariffs. Under the Uruguay Round agreement, Seoul could do this only if it
obtained the consent of other WTO members, which could demand concessions to
expand their quota. The United States availed itself of this right, and on December
30, 2004, U.S. and South Korean officials announced an agreement, under which
Korea will double the amount of rice it imports over the next 10 years, provide
guaranteed access for 50,000 MT of U.S. rice each year, and make imported rice
available directly to Korean consumers. As of early August 2005, the Korean
24 “Special 301” refers to Section 182 of the Trade Act of 1974. Since the start of the
Special 301 provision in 1989, the USTR has issued annually a three-tier list of countries
judged to have inadequate regimes for IPR protection, or to deny access: 1) priority foreign
countries are deemed to be the worst violators, and are subject to Section 301 investigations
and possible trade sanctions; 2) priority watch list countries are considered to have major
deficiencies in their IPR regime, but do not currently warrant a Section 301 investigation;
and 3) watch list countries, which maintain IPR practices that are of particular concern, but
do not yet warrant higher level designations. See Wayne Morrison, Section 301 of the Trade
Act of 1974, CRS Report 98-454.
25 USTR, 2005 Special 301 Report, April 29, 2005.

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CRS-16
National Assembly had not ratified the rice deal. China and Thailand, two other
parties to the rice negotiations, reportedly wished to see an end of the quota system
in favor of tariffication, which presumably would be more advantageous to lower-
cost rice producers such as themselves. In 2003, U.S. exporters sold 55,000 metric
tons (MT) of rice — or about 28% of the 200,000 MT minimum access quota — to
South Korea, behind China’s exports of 115,000 MT.26
Steel. From 1998 through 2003,
Figure 5. Steel Imports from
South Korean steel exports to the United
Korea, 1997-2004
Millions of Metric Tons
States were one of the most politically
3
charged items on the bilateral economic
2.9
2.7
agenda, particularly since the 1997 Asian
2.4
financial crisis. From 1997 to 1998, Korean
2
shipments of steel to the U.S. nearly 2
1.7
doubled, vaulting South Korea into the top
1.5
five U.S. sources of steel imports. In 2003,
1.5
1.1
imports from South Korea declined below 1
pre-crisis levels, helping to defuse the issue.
In the preceding five years, a number of
anti-dumping cases were initiated against
0
South Korean exporters, and Presidents
1997 1998 1999 2000 2001 2002 2003 2004
Clinton and Bush each granted safeguard
relief (under Section 201 of the Trade Act Source: U.S. Census Bureau
of 1974) for U.S. steel producers.27 Korea
and other countries challenged both Section 201 actions at the World Trade
Organization, which ultimately ruled that the actions were inconsistent with global
trading rules. In December 2003, President Bush terminated the safeguard tariffs he
had established in March 2002.28 In 2000, Korea also won a major WTO case
involving anti-dumping duties the United States imposed against Korean exports of
stainless steel plate in coils and stainless steel sheet and strip.
Assistance to Hynix Semiconductor. In 2001, a major trade dispute
erupted between the United States and South Korea over allegations that the Seoul
government was propping up Hynix Semiconductor, presently the world’s third-
26 Inside US Trade, “Fight over Korean Rice Market Pits China Against U.S., Australia,”
June 11, 2004.
27 Section 201 relief, often referred to as “safeguard” or “escape clause” relief, is defined
in sections 201-204 of the Trade Act of 1974, as amended (19 U.S.C. 2251-2254).
Safeguard relief provides for temporary duties, quotas, or other restrictions on imports that
may be traded fairly, but that enter in such quantities as to cause or threaten to cause serious
injury to a domestic industry. The relief is intended to give the domestic industry an
opportunity to adjust to the new competition and remain competitive. Within six months
after a Section 201 petition has been filed with the International Trade Commission, the ITC
must conduct an investigation, determine if relief is warranted, and recommend appropriate
remedial action from a specified range of options. The President then decides whether to
implement the recommended measure, apply an alternative measure, or take no action at all.
28 For more on the steel Section 201 case, see CRS Report RL32333, Steel: Price and
Availability Issues, by Stephen Cooney.

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CRS-17
largest producer of dynamic random access memory (DRAM) semiconductor chips.
In 2001 and 2002, Hynix’s leading creditors — most of which were owned by the
Korean government — orchestrated a series of rescue packages that kept Hynix in
business by enabling it to restructure its 8.6 trillion won (over $7 billion) in debt. In
the United States, Micron Technology, the Idaho-based second largest producer of
DRAMs, led a campaign against the support packages, arguing that they amounted
to government-sponsored bailouts that allow Hynix to export at low prices and that
they were a prime cause of the drastic plunge in global chip prices in 2001 and 2002.
Micron, the last U.S.-based DRAM producer, eventually filed a countervailing duty
case, which it won, resulting in a 44% punitive tariff being assessed against Hynix’s
exports to the United States. In a similar case, the European Union imposed a 34%
countervailing duty against Hynix. Korea challenged both rulings in the WTO. A
WTO panel was formed and in February 2005 ruled that the United States had failed
to “properly demonstrate” that the Korean government had subsidized Hynix. The
United States appealed in June 2005, the WTO’s Appellate Body reversed the ruling,
in part by using a definition of what government actions constitute a subsidy that is
broader than the definition used by the panel.29 Because Appellate Body decisions
cannot be appealed, the United States’ punitive tariffs will remain in place.
Meanwhile, Hynix has sold many of its non-semiconductor assets, introduced
a program to upgrade its efficiency, completed its debt-workout program, and has
overtaken Idaho-based Micron to become the world’s second-largest chipmaker.
Pharmaceuticals. Korea is ranked in the world’s top 15 pharmaceutical
markets, with annual sales in the $4 billion range. In 2001, imports comprised
approximately 30% of the total market, compared with an average of 50%-70% for
other countries that do not have a significant research-based domestic industry.
Korea’s expenditures on pharmaceutical products is about $115 per person per year,
less than half the $240 average for OECD countries.30 The country has a nationalized
health insurance system, which began to experience a negative cash flow in 1995.
For years, the U.S. government has complained that a number of Korea’s
pharmaceutical policies are designed to protect the domestic Korean industry, which
predominantly produces generic drugs.
Criticisms have mounted since 2001, when the Korean government
implemented a series of emergency measures to fill the national health insurance
fund’s mounting deficit, estimated at the time to be over 4 trillion won ($3.3 billion).
Recent complaints include the lack of transparency of the Korean Ministry of Health
and Welfare, particularly the Ministry’s allegedly poor record on consulting with and
notifying companies about regulatory changes; the reimbursement scheme of the
health insurance system, which allegedly gives price incentives for doctors to
prescribe and patients to use Korean-made products; poor protection of intellectual
property rights for medical patents; and the discriminatory nature of Seoul’s
requirements that foreign drugs must be retested on Koreans living in Korea, rather
29 “WTO Appellate Body Finds U.S. Can Keep Duties on Korean DRAMS,” Inside US
Trade, July 1, 2005.
30 American Chamber of Commerce in Korea, Improving Korea’s Business Climate 2002,
p. 148.

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CRS-18
than on other ethnic Asians, as the U.S. has insisted. In a sign of pharmaceuticals’
growing importance on the bilateral trade agenda, in January 2002, the two sides
established a bilateral private sector health care reform working group.
South Korea’s Performance in the Doha Development Agenda. In
the current round of multilateral trade talks, the Doha Development Agenda, USTR
officials consistently have praised South Korea for attempting to bridge the
differences between the developed and developing countries, particularly on non-
agricultural market access issues. Seoul also has been criticized consistently for
resisting agricultural liberalization in the negotiations. Korea’s tariffs on agricultural
products, except rice, average 66%, compared with a 7.5% average for tariffs on
industrial products.31
Korea’s Complaints Against U.S. Anti-Dumping and CVD Practices.
For over a decade, South Korea has chafed at the United States’ use of anti-dumping
and counter-vailing duty (CVD) laws to raise tariffs on Korean exports. According
to one study, in July 2000 the five CVD and 18 anti-dumping orders against South
Korean exports covered approximately $2.5 billion, or over 7%, of U.S. imports from
South Korea in 1999. Moreover, these tariff hikes have tended to be concentrated in
a handful of Korean industries — semiconductors, steel, televisions, and
telecommunications equipment — that have considerable political influence in Seoul.
During the Uruguay Round (1986-1993) of the General Agreement on Tariffs
and Trade (GATT, the WTO’s predecessor organization), Korea was one of several
countries demanding revisions to global anti-dumping rules, changes the United
States opposed because of concerns that they would constrain U.S. anti-dumping
investigators. South Korea, joined most prominently by Japan, has taken up this
issue again in the Doha Development Agenda talks, against U.S. opposition.32
In recent years, Seoul has become more assertive in using the WTO to challenge
United States’ trade practices. In 1999 and 2000, Seoul took the U.S. to the WTO
over allegedly discriminatory U.S. anti-dumping duties placed on Korean exports of
steel and semiconductors. Korea won both of the steel cases it initiated.
U.S. Visa Policies. South Koreans’ complaints about U.S. visa policies tend
to fall into two categories.33 First, some Korean government officials, Korean
businesses, the American Chamber of Commerce in Korea, and Korean-Americans
have questioned why South Korea is not a participant in the U.S. Visa Waiver
Permanent Program, under which foreigners traveling from certain countries are
permitted to travel to the United States as temporary visitors, without having the
31 USTR, 2004 National Trade Estimate Report on Foreign Trade Barriers, p.290.
32 Notwithstanding Korea’s position on anti-dumping, U.S. trade officials have praised their
Korean counterparts for their willingness to compromise and serve as a bridge to developing
countries during the November 2001 WTO Ministerial talks in Doha, Qatar.
33 For more on U.S. visa policies, see CRS Report RL31512, Visa Issuances: Policy, Issues,
and Legislation, by Ruth Wasem.

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CRS-19
immigration documents normally required for entry.34 Among the statutory
requirements for countries to participate in the U.S. visa waiver program is that the
country must have a low nonimmigrant visa refusal rate for two years — averaging
no more than 2% over both years and not exceeding 2.5% in any one year.
According to State Department officials, South Korea’s visa refusal rates have
consistently been over this threshold. U.S. State Department officials attribute the
rise in Korea’s refusal rates since 1997 to the increased number of Koreans illegally
seeking to find work in the United States.
The second, and more recent, category of complaints is lodged against U.S. visa
policies implemented since the September 2001 terrorist attacks on the United States,
particularly requirements for mandatory interviews, fingerprinting, and greater
scrutiny of business travelers for possible technology transfer risks. Like citizens of
many other countries, Koreans particularly have objected to the fingerprinting, which
some Koreans have likened to requirements imposed upon them during Japan’s
thirty-five-year occupation of the Korean Peninsula in the first half of the 20th
Century.
A U.S.-South Korea Free Trade Agreement?
Status of the FTA Proposal. In recent years, there have been some calls for
the United States and Korea to negotiate a free trade agreement, which would lower
trade barriers between the two countries. In early June 2005, after South Korea and
the United States completed a six-month bilateral review process of the logistics,
benefits, and risks of an FTA, U.S. Trade Representative Robert Portman reportedly
told South Korean Trade Minister Hyun-chong Kim in early June 2005 that it was
premature to launch actual negotiations until key outstanding issues are resolved.
These include South Korea’s ban on imports of U.S. beef and its “screen quotas” that
require theaters fill at least 40% of their screen time with Korean movies.35 The
USTR preliminary decision did not close off the possibility of FTA negotiations
being opened in the future, and South Korean Trade Minister Kim has continued to
push the proposal in Seoul and in Washington, DC. On September 8, 2005, USTR
Robert Portman reportedly told reporters that the Administration hopes to decide by
the end of 2005 whether to go forward with FTA talks with South Korea, Malaysia,
Egypt, and/or Switzerland, all of which have asked the Bush Administration to begin
negotiations.36
However, President Roh reportedly did not raise the issue during his June 9,
2005 summit with President Bush, which occurred less than a week after the
Portman-Kim meeting. The summit meeting dealt with security issues and was held
in part to counter perceptions of tension in the U.S.-South Korea alliance. The
34 For more on the visa waiver program, see CRS Report RL32221, Visa Waiver Program,
by Alison Siskin.
35 “Portman Says U.S. Not Ready to Launch FTA Talks with Korea,” Inside US Trade, June
10, 2005.
36 “Thomas Endorses Korea, Egypt FTAs,” Inside US Trade, September 9, 2005.

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CRS-20
absence of an FTA from the summit agenda raised the question of how high a priority
it is for the Roh Administration, though there are reports that the two governments
are discussing whether FTA talks can be launched when President Bush travels to
Pusan, South Korea, in November 2005 to attend a summit of leaders from the APEC
forum.37
Ultimately, the decision on whether or not to launch an FTA is likely to boil
down to a matter of trust between the Bush and Roh administrations. Korean
officials say that they need a pledge that FTA talks will proceed in order to weather
the domestic political opposition expected if they relax the screen quota and lift the
beef ban. Many U.S. officials say that Korea’s action on these two issues is a litmus
test for whether Seoul is politically capable of making the compromises the United
States will expect in an FTA agreement.
As part of President Roh’s goal of transforming South Korea into an economic
hub, and in an effort to keep pace with Japan and China — which have initiated
several bilateral and regional trading arrangements — Seoul has pursued free trade
agreements (FTAs), signing deals with Chile and Singapore. South Korea is
negotiating agreements with Japan, the Association of Southeast Asian Nations
(ASEAN), and other countries.
Arguments For and Against an FTA. A U.S.-ROK FTA is championed
by the American business community in Korea, and many Korean businesses
operating in the United States. The National Association of Manufacturers has
identified South Korea as a one of the “top five candidate countries” for a future trade
agreement. In previous Congresses, Senator Max Baucus introduced legislation (S.
944 in the 107th Congress and S. 1869 in 106th Congress) authorizing FTA
negotiations with Seoul. No legislative action was taken on either attempt. On
September 8, 2005, following a meeting of the Congressional Oversight Group that
consults with USTR, House Ways and Means Chairman Bill Thomas reportedly said
that the possibility of an FTA with Korea is “exciting,” and noted many of the
economic reforms Seoul has carried out in recent years.38
On the economic front, the biggest beneficiaries of an FTA likely would be
those export industries in both countries that currently face relatively high initial
trade barriers to their products. In a 2001 study undertaken at the request of the
Senate Finance Committee, the International Trade Commission (ITC) estimated that
within four years after implementation of a hypothetical FTA, U.S. bilateral
agricultural exports would increase by more than 200%. For Korea, the ITC
projected that textiles and apparel exporters would see their shipments to the U.S.
rise by 125%.39 Thus, the report implied that the FTA’s potential benefits would be
37 Guy De Jonquieres and Anna Fifield, “Washington and Seoul hold preliminary bilateral
trade talks ahead of Bush visit,” Financial Times, September 14, 2005.
38 “Thomas Endorses Korea, Egypt FTAs,” Inside US Trade, September 9, 2005.
39 United States International Trade Commission (ITC), U.S.-Korea FTA: The Economic
Impact of Establishing a Free Trade Agreement (FTA) Between the United States and the
Republic of Korea, (Washington, DC, 2001), p. 5-1 - 5-2.

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greatly diluted if these politically sensitive sectors were excluded.40 After four years,
U.S. exports to Korea were estimated to increase by 54% while South Korean exports
to the U.S. would rise by 21%. Overall, an FTA would raise U.S. GDP by a
projected 0.2%, while Korean GDP would rise by 0.7%.41 An earlier study by the
Institute for International Economics (IIE), found similar effects for the U.S.
economy, but had a wider band for the increase on Korean GDP, which was projected
in the 0.4%-2.0% range.
As in the ITC study, the IIE report found that most of the benefits to U.S. firms
would derive from increased access to Korea’s market. In contrast, the IIE projected
that most of Korea’s gains from an FTA would stem not from preferential access to
the U.S. market but from improvements in the allocative efficiency of the Korean
economy brought about by the trade reforms required by an FTA.42 Thus, one of the
major long-term benefits from an FTA may be less the rise in bilateral trade itself,
and more the gains realized from further accelerating and cementing South Korea’s
market-oriented reform process.
Many proponents of a U.S.-ROK FTA contend that an agreement will boost
U.S. strategic interests. Some have called for an FTA as a way to reinforce the U.S.-
South Korea alliance, which many believe to be under significant stress due to
differences over how to deal with North Korea and the size and role of the U.S. troop
presence in South Korea.43 A related argument is that an FTA with South Korea will
help counter China’s growing economic and political influence in South Korea
particularly, and in East Asia generally, developments which some believe are
hampering U.S. interests. Some — including Senator Baucus — have coupled this
contention with criticism of the Bush Administration’s trade policy of negotiating
FTAs with politically important but relatively economically insignificant countries
and of neglecting U.S. economic relations with Asia.44
Opposition to a prospective U.S.-ROK FTA has yet to coalesce, in part because
the proposal is still in the conceptual phase. If negotiations are initiated, criticism is
expected to come from U.S. import-competing groups, particularly clothing
manufacturers, that have benefitted from relatively high trade barriers. U.S.
industries and companies that allege trade barriers have made it difficult to penetrate
the Korean market, such as U.S. automobile manufacturers, are also expected to cast
40 For a similar argument, see Choi and Schott, Free Trade, p.80.
41 ITC, U.S.-Korea FTA, p. x-xi.
42 See Choi and Schott, Free Trade, p. 79-82.
43 Balbina Y. Hwang and Anthony B. Kim, “Beyond the U.S. — South Korea Alliance:
Reinvigorating Economic Relations,” Heritage Foundation Backgrounder, No. 1853, May
18, 2005.
44 Senate Committee on Finance Press Release, “Speech of U.S. Senator Max Baucus at the
First Annual Asia Forum ‘Toward a Strong Asia Trade Policy,’” September 21, 2004. For
more on the Bush Administration’s pursuit of FTAs, see CRS Report RL31356, Free Trade
Agreements: Impact on U.S. Trade and Implications for U.S. Trade Policy, by William
Cooper, and CRS Report RS21657, U.S. Trade Policy and Changing Domestic and Foreign
Priorities: A Historical Overview, by Ray Ahearn.

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doubt on the wisdom of concluding an FTA with South Korea. FTA negotiations are
expected to be complicated by the expiration of trade promotion authority (TPA),
also known as “fast track negotiating authority,” in June 2007.45 If negotiations are
not finalized by this date and TPA is not renewed, the implementing legislation for
a U.S.-Korea FTA could be considered under normal congressional procedures,
potentially giving Congress greater scope to review and ask for changes in specific
portions of an agreement.
Skepticism, at times mixed with outright opposition, may also come from U.S.
companies and trade experts contending that South Korea has a mixed record at best
in implementing previous agreements due in part to staunch resistance by South
Korean import-competing industries. Indeed, disagreements between the United
States and South Korea have prevented the two countries from finalizing negotiations
over a bilateral investment treaty (BIT), which were initiated in the late 1990s.46 The
major stumbling block is Korea’s so-called “screen quotas.” If the two countries can
not conclude a BIT, which is far less comprehensive than an FTA, many skeptics
wonder if they will realistically be able to complete an FTA.
One danger of launching FTA talks is that they could damage the U.S.-South
Korean alliance if the negotiations fail or become exceptionally bitter. In particular,
the South Korean media and National Assembly often carefully and publicly
scrutinize their government’s economic negotiations with the United States for signs
that Korean officials compromised too heavily. In early 2005, for instance, the
National Assembly launched a corruption investigation of individuals who negotiated
the deals with the United States and other countries to allow greater imports of
foreign rice into South Korea. Aside from the North America Free Trade Agreement
(NAFTA) with Canada and Mexico, an FTA with South Korea would be the United
States’ largest. Due to the size of the Korean market, U.S. companies may demand
more concessions than they have in other recent FTA negotiations, such as those with
Australia and Thailand. If so, this is likely to be perceived as unfair inside South
Korea. In short, managing public expectations in both countries therefore will be an
important part of the negotiating process.
45 Under TPA, Congress agrees to consider trade agreements which the President has
negotiated, on a fast-track basis - without amendment and with limited debate. For more,
see CRS Report RS22237, Trade Promotion (Fast-Track) Authority in the Trade Act of
2002, by Lenore Sek.
46 BITs are designed to improve the climate for foreign investors — typically by committing
the signatories to prohibit discrimination against foreign investors — by establishing dispute
settlement procedures and by protecting foreign investors from performance requirements,
restrictions on transferring funds, and arbitrary expropriation. The United States has signed
over 30 BITs, primarily with countries undergoing significant economic reforms. The U.S.
and South Korea last held formal negotiations in 1999.

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