Updated December 28, 2018
U.S.-South Korea (KORUS) FTA
Overview
Promotion Authority (TPA). TPA provides for expedited
The U.S.-South Korea free trade agreement (KORUS FTA)
congressional consideration of legislation to implement
entered into force in March 2012. At the request of the
U.S. trade agreements based on meeting specific criteria.
Trump Administration, the two nations in January 2018
The KORUS FTA modifications, however, consist
began negotiating potential amendments. On September 24,
primarily of South Korean regulatory changes and U.S.
Presidents Trump and Moon, signed an agreement on
tariff modifications, and therefore do not appear to require
KORUS modifications relating to, among other things, U.S.
action by Congress for implementation. The KORUS
auto exports, the U.S. truck tariff, and certain rules,
implementing legislation and agreement provide little detail
including on investment. South Korea’s National Assembly
on amendment procedures, but do provide presidential
ratified the amendments on December 7 and President
proclamation authority to modify the U.S. FTA tariff
Trump proclaimed the related U.S. tariff modifications on
schedule.
December 21, effective January 1, 2019. Although
President Trump characterized the changes as a “basic
[T]he President may proclaim. .modification…of any duty..
redoing” of the agreement, most analysts agree that the
to maintain the general level of reciprocal and mutually
modifications are relatively limited in scope and unlikely to
advantageous concessions with respect to Korea..
fundamentally alter the balance of commitments.
KORUS FTA Implementing Legislation, P.L. 112-41
The KORUS FTA reduces and in most cases eliminates
October 21, 2011
tariff and non-tariff barriers between the two parties on
manufactured goods, agricultural products, and services;
The negotiated modifications include:
provides rules and disciplines on investment, intellectual
property rights (IPR) and other issues; commits both
Changing tariff commitments by extending the 25%
U.S. light truck tariff twenty more years to 2041;
countries to maintain certain worker and environmental
standards; and provides mechanisms for resolving disputes.
Doubling the number of U.S. vehicle exports to South
The second largest U.S. FTA by trade flows after the North
Korea that can be imported with U.S. safety standards
American Free Trade Agreement (NAFTA), KORUS also
(25,000 to 50,000 per manufacturer per year), and
is among the most recently negotiated and arguably has the
clarifying South Korean recognition of certain U.S.
most extensive commitments of any U.S. FTA in effect.
emissions and auto parts standards for U.S. exports;
Amending the trade remedy chapter by adding
The United States and South Korea, allies since 1953,
transparency and reporting requirements including
originally negotiated KORUS to deepen and enhance
calculations of dumping margins;
economic ties and to strengthen a critical alliance
relationship. The sometimes contentious nature of the 2018
Amending the investment chapter, including additions
modification talks, including President Trump’s stated
also in TPP, such as clarifying that public welfare may
intent to withdraw from the agreement if satisfactory
be considered in national treatment determinations and
that failure to meet investor expectations does not
changes were not made, raised concerns among some
violate minimum standard of treatment provisions;
analysts over potential negative spillover effects in the
bilateral security relationship, especially at a time when the
Confirming customs principles on expeditious and risk-
alliance requires close coordination over North Korea
based origin verifications;
policy. Agreement on the modifications has allayed some of
Amending South Korea’s Premium Pricing Policy for
these concerns, but the Administration’s statements linking
Global Innovative New Drugs to ensure it is consistent
trade and security issues and the ongoing threat of
with KORUS commitments;
additional U.S. unilateral import restrictions, particularly on
U.S. auto imports, continues to add a degree of uncertainty
Initiating the addition of certain textile and apparel
inputs to the KORUS short supply list, potentially
and tension in the overall bilateral relationship.
allowing South Korea to make greater use of third-party
Views on KORUS and its outcomes over the past six years
inputs in some exports to the United States.
are mixed. Proponents argue the FTA has expanded trade
In a separate but related move, in the spring of 2018 South
(including U.S. exports), investment, competition, and
Korea also negotiated an exemption from the U.S. Section
consumer choice in both countries, increased U.S. IPR
232 “national security” steel tariffs that were announced in
protection in South Korea, and improved transparency in
March 2018. In place of the 25% tariff, U.S. imports of
South Korea’s regulatory process. Others, including most
South Korean steel are subject to a quota equivalent to 70%
prominently President Trump, argue that the agreement’s
of 2015-2017 imports. South Korea remains subject to the
impact is disappointing, pointing to an increase in the U.S.
Administration’s tariff increases on washing machines,
trade deficit with South Korea. Some U.S. stakeholders also
solar panels/modules, and aluminum, which were also
raise concerns regarding South Korea’s implementation of
announced in 2018. A U.S. Section 232 investigation on
the agreement.
autos is ongoing and could result in additional tariffs on
KORUS Modifications and Other Issues
U.S. auto imports. A proposed currency deal was not
included in the FTA’s modifications, but South Korea has
Unlike the NAFTA renegotiation, the Trump
stated plans to begin disclosing its foreign exchange
Administration negotiated changes to the KORUS FTA
transactions—a practice long sought by the United States.
without following the requirements of U.S. Trade
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U.S.-South Korea (KORUS) FTA
Trade and Investment Patterns
roughly one-third of U.S. goods imports from South Korea.
South Korea is the seventh largest U.S. trading partner with
Auto trade was among the most contentious issues in the
total trade (goods and services) in 2017 of $156.1 billion
original FTA negotiations, but the Detroit Three U.S.
($73.4 billion in exports and $82.7 billion in imports). From
automakers ultimately supported the agreement. The
2011 (the year before KORUS took effect) to 2017,
KORUS FTA eliminated the 2.5% U.S. auto import tariff in
bilateral trade increased by 21%. U.S. imports increased by
2016, and was originally to maintain the 25% U.S. light
25% for goods and 12% for services, while exports
truck tariff through 2018, gradually eliminating it by 2021.
increased by 9% for goods and by 45% for services. From
(The 2018 modifications are to extend the 25% truck tariff
2011 to 2017, the stock of U.S. foreign direct investment
to 2041.) South Korea’s 8% auto import tariff was reduced
(FDI) to South Korea grew from $28.2 billion to $41.6
to 4% immediately and eliminated in 2016, and its 10%
billion, while South Korean FDI in the United States grew
light truck tariff was immediately eliminated. Under
from $19.9 billion to $51.2 billion.
KORUS, bilateral tariffs on virtually all auto parts
immediately dropped to zero. From 2011 to 2017, U.S. auto
The overall (goods and services) U.S. trade deficit with
and parts exports doubled to $2.4 billion, while U.S.
South Korea grew by more than 70% since KORUS went
imports increased by 55% to $23.9 billion.
into effect. It grew from $5.4 billion in 2011 to $9.3 billion
in 2017, which represented less than 2% of the global U.S.
Services
trade deficit in 2017. It is difficult to determine the extent to
Services trade was a priority in the KORUS FTA talks as
which the trade agreement affected trade given the myriad
the U.S. sought greater market access for its highly
factors that simultaneously affect these flows. In 2016, the
competitive services firms, and South Korea hoped to
U.S. International Trade Commission estimated that the
improve productivity in a sector that lags behind its
bilateral trade deficit would have been larger without
manufacturers. Commitments are on a “negative list” basis;
KORUS. Slower economic growth in South Korea likely
i.e., they apply to all sectors except those specifically
explains some of the deficit growth; South Korea’s imports
exempted. Provisions prohibit discriminatory treatment,
from China and Japan were also flat or fell from 2011 to
local presence requirements, and market access limitations,
2016. This pattern shifted in 2017, as South Korea’s global
and require certain steps in the regulatory process. Industry-
and U.S. imports increased markedly, leading to a $7.3
specific commitments include the opening of South Korea’s
billion decrease in the bilateral trade deficit.
legal services sector; a financial services chapter including
a provision to allow data flow transfers; and an annex on
Figure 1. U.S. Total Trade with South Korea
express delivery. Since 2011, the U.S. bilateral services
trade surplus trade grew from $6.9 billion to $13.3 billion,
with major growth in exports of travel (+$4.1 billion) and
charges for use of intellectual property (+$1.6 billion).
Potential Issues for Congress
Trade Agreements and Trade Deficits. The Trump
Administration has made trade balances a key metric of the
success of U.S. FTAs, yet most economists argue other
factors largely determine trade balance outcomes. What are
the best metrics to evaluate U.S. FTAs? Has KORUS,
which lowered reciprocal trade barriers, achieved its goals?
Modifications and Ongoing Implementation. Congress
has constitutional authority to regulate foreign commerce,
Source: Bureau of Economic Analysis.
implements FTAs through legislation, and sets U.S. trade
Selected Key Sectors and Provisions
negotiating objectives, but the Administration sought
Agriculture
modifications to KORUS without formal congressional
notification or consent. What is the appropriate role for
Agricultural products are an area of U.S. comparative
Congress in considering modifications to FTAs that do not
advantage. The United States ran a $6.3 billion agricultural
require changes to U.S. law?
trade surplus with South Korea in 2017. South Korea’s
agriculture sector is highly protected—its agricultural tariffs
Trade Disputes and the Alliance. Some analysts worry
average 57%—but through KORUS, South Korea
that trade tensions may influence South Korean views on
immediately granted duty-free status to almost two-thirds of
the alliance and broader bilateral relations. What is the most
U.S. agricultural exports. Tariffs and import quotas on most
productive way to address trade concerns, such as the
other agricultural goods are to be phased out by 2021. One
imbalance in bilateral auto trade, without damaging vital
of the most significant market access gains for U.S.
U.S. national security and foreign policy interests? Are the
producers is South Korea’s phased elimination of its 40%
KORUS FTA’s dispute mechanisms sufficient?
tariff on beef by 2027. Rice, however, was excluded at
Seoul’s request. Despite export gains from 2011 to 2017 in
Brock R. Williams, Coordinator, Specialist in
sectors with large tariff reductions, such as beef (+$500
International Trade and Finance
million) and fruits and tree nuts (+$356 million), overall
Bill Canis, Specialist in Industrial Organization and
U.S. agriculture exports to South Korea have decreased,
Business
due largely to a major decline in the value of corn exports (-
$1.1 billion), and partly due to a drop in commodity prices.
Jenny Hopkinson, Analyst in Agricultural Policy
Mark E. Manyin, Specialist in Asian Affairs
Motor Vehicles
U.S. and South Korean producers compete intensely in the
IF10733
motor vehicle and parts sector and such imports account for
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U.S.-South Korea (KORUS) FTA
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https://crsreports.congress.gov | IF10733 · VERSION 8 · UPDATED