Updated February 3, 2022
U.S.-South Korea (KORUS) FTA and Bilateral Trade Relations
The U.S.-South Korea free trade agreement (KORUS FTA)
increased U.S. IPR protection in South Korea, and
entered into force in March 2012. The agreement has
improved transparency in South Korea’s regulatory process.
reduced and, in most cases, eliminated tariff and non-tariff
Others have argued that the agreement’s impact is
barriers between the two parties on manufactured goods,
disappointing, often pointing to an increase in the U.S. trade
agricultural products, and services; provides rules and
deficit with South Korea since the agreement took effect,
disciplines on investment, intellectual property rights (IPR)
though most economists dispute this argument (see below).
and other issues; commits both countries to maintain certain
The two countries continue to address implementation
worker and environmental standards; and provides
issues using the agreement’s consultative mechanisms.
mechanisms for resolving disputes. KORUS is the second
largest U.S. FTA by trade flows, after the U.S.-Mexico-
Trade and Investment Patterns
Canada Agreement (USMCA). The agreement is extensive
South Korea is the seventh largest U.S. trading partner, with
in scope, but on some issues, such as digital trade, its
total trade (goods and services) in 2020 of $155.7 billion
commitments are limited compared to more recent trade
From 2019 to 2020, U.S. exports to South Korea decreased
agreements, leading some stakeholders to call for updates.
by $11.9 billion (-15%) to $69.2 billion, in large part due to
pandemic-related challenges (South Korean spending on
In late 2021, the Biden Administration announced plans for
U.S. travel services fell by $4.7 billion). U.S. imports from
an Indo-Pacific Economic Framework that may include
South Korea appear to have been less affected by the
South Korea, but it has released few details regarding the
potential agreement’s
pandemic, decreasing by $2.8 billion (-3%) to $86.4 billion.
scope and enforceability. South
The stock of South Korean FDI in the United States reached
Korea has been active in regional economic agreements that
$63.7 billion in 2020, more than triple its level in 2011
do not include the United States, including the Regional
($19.9 billion), before KORUS took effect. The stock of
Comprehensive Economic Partnership (RCEP), among
U.S. FDI in South Korea, by contrast, has declined to $33.9
major Asian trading nations, such as China, Japan, and the
billion in 2020, from a peak of $40.2 billion in 2017.
ten Association of Southeast Asian Nations (ASEAN)
members. It also has initiated domestic procedures for
The U.S. trade deficit with South Korea has fluctuated since
application to the Comprehensive and Progressive
KORUS took effect, growing significantly early on and
Agreement for Trans-Pacific Partnership (CPTPP), and
then declining more recently, until it roughly doubled in
plans to submit its application by June 2022.
2020 during the pandemic (Figure 1). Auto imports, which
account for much of the increase in U.S. imports since the
KORUS has been modified twice since originally signed in
FTA took effect, peaked in 2015, before the 2.5% U.S. car
2007 under the George W. Bush Administration. The
tariff was reduced under KORUS. As a result, many
Obama Administration negotiated modifications to certain
economists argue that the FTA has not contributed
auto and agricultural provisions prior to submitting the
significantly to the increase in the bilateral trade deficit. In
agreement for congressional approval in 2011. In 2018, the
2016, the USITC estimated that the U.S. bilateral deficit
Trump Administration negotiated amendments relating to
would have been even larger had KORUS not been in
U.S. auto exports, the U.S. truck tariff, and certain rules,
effect. Economists generally find that macroeconomic
including on investment, which took effect in January 2019.
factors are the main drivers of bilateral trade balances,
The Trump Administration characterized the changes as a
“basic redoing” of the
rather than trade agreements.
agreement, but many analysts argued
that the modifications were limited in scope and unlikely to
Figure 1. U.S. Total Trade with South Korea
fundamentally alter the balance of commitments.
The United States and South Korea, allies since 1953,
originally negotiated KORUS to deepen and enhance
economic ties and to strengthen a critical alliance
relationship. During the Trump Administration, trade
tensions were an irritant in the broader bilateral
relationship, including President Trump’s threats to
withdraw from KORUS during the modification
negotiations, and the imposition of new U.S. global import
restrictions on important South Korean industries, including
steel. President Biden has stated his intent to work more
closely with U.S. allies to address global economic issues,
and during a May 2021 summit, President Biden and
President Moon Jae-in announced plans for greater
cooperation in industries, such as electric vehicle batteries
Source: Bureau of Economic Analysis.
and semiconductors. To date, however, the Trump-era trade
restrictions affecting South Korea remain in effect.
Selected Key Sectors and Provisions
Views on KORUS and its outcomes over its nearly ten-year
Agriculture
existence are mixed. Proponents argue the FTA has
Agricultural products are an area of U.S. comparative
expanded trade (including U.S. exports), investment,
advantage. The United States ran a $6.6 billion agricultural
competition, and consumer choice in both countries,
trade surplus with South Korea in 2020. South Korea’s
https://crsreports.congress.gov
U.S.-South Korea (KORUS) FTA and Bilateral Trade Relations
agriculture sector is highly protected—its agricultural tariffs
Doubling the number of U.S. vehicle exports to South
average 57%—but through KORUS, South Korea
Korea that can be imported with U.S. safety standards
immediately granted duty-free status to almost two-thirds of
(25,000 to 50,000 per manufacturer per year), and
U.S. agricultural exports. Tariffs and import quotas on most
clarifying South Korean recognition of certain U.S.
emissions and auto parts standards for U.S. exports;
other agricultural goods were phased out by 2021. One of
the most significant market access gains for U.S. producers
Amending the trade remedy chapter by adding
is South Korea’s phased elimination of its 40% tariff on
transparency and reporting requirements, including
beef by 2026. U.S. export gains from 2011 to 2020 have
calculations of dumping margins;
been strong in sectors with large tariff reductions, such as
Amending the investment chapter, by clarifying aspects
beef (+$1.0 billion), fresh fruit (+$201 million) and tree
of what may or may not be considered a violation of
nuts (+$95 million). South Korea excluded rice from the
certain commitments; and
FTA tariff commitments, but in 2019 agreed to provide the
United States with a country-specific quota under its WTO
Confirming customs principles on expeditious and risk-
based origin verifications.
obligations, worth approximately $110 million annually.
Motor Vehicles
Currency provisions were not included in the FTA’s 2019
modifications, but South Korea separately agreed to
U.S. and South Korean producers compete intensely in the
disclose its foreign exchange transactions moving
motor vehicle and parts sector and such imports account for
forward—a practice long sought by the United States.
roughly one-third of U.S. goods imports from South Korea.
Auto trade was among the most contentious issues in the
Section 201 and 232 Import Restrictions
original FTA negotiations, but the Detroit Three U.S.
Since 2018, certain U.S. imports from South Korea have
automakers ultimately supported the agreement. KORUS
been subject to restrictions (tariffs and quotas) imposed by
eliminated the 2.5% U.S. auto import tariff in 2016, and
President Trump using authorities under Section 201 of the
was originally to begin reducing the 25% U.S. light truck
Trade Act of 1974 (washing machines and solar panels) and
tariff in 2019, gradually eliminating it by 2021. (The 2019
Section 232 of the Trade Expansion Act of 1962 (steel and
modifications extended the 25% truck tariff to 2041.) South
aluminum). South Korea, typically among the top five
Korea’s 8% auto import tariff was reduced to 4%
suppliers of U.S. steel imports ($1.5 billion in 2020), was
immediately and eliminated in 2016, and its 10% light truck
one of the first countries to negotiate a quota arrangement
tariff was immediately eliminated. Under KORUS, bilateral
with the Trump Administration, in lieu of the 25% steel
tariffs on virtually all auto parts immediately dropped to
tariff. As a result, U.S. imports of South Korean steel are
zero. From 2011 to 2020, U.S. auto and parts exports
subject to a quota equivalent to 70% of 2015-2017 imports.
increased by 150% to $3.1 billion (albeit from a low base),
South Korean officials have urged the Biden
while U.S. imports increased by 58% to $24.4 billion.
Administration to revisit the quota arrangement in light of a
Services
less restrictive arrangement the Administration recently
negotiated with the European Union. Section 232 import
Services trade was a priority in the KORUS FTA talks, as
restrictions remain in place unless the President removes
the United States sought greater market access for its highly
them, whereas those under Section 201 are statutorily time-
competitive services firms and South Korea hoped to
limited and set to expire in the near term (February 2022 for
improve productivity in a sector that lags behind its
solar panels, though a potential extension is pending, and
manufacturers. Commitments are on a “negative list” basis;
February 2023 for washing machines).
i.e., they apply to all sectors except those specifically
exempted. Provisions prohibit discriminatory treatment,
Potential Issues for Congress
local presence requirements, and market access limitations,
Economists generally view overall bilateral trade
and require certain steps in the regulatory process. Industry-
balances as a poor metric for the success of FTAs. What
specific commitments include the opening of South Korea’s
is the best way to evaluate the KORUS FTA? Has it
legal services sector; a financial services chapter, including
achieved congressional goals?
a provision to allow data flow transfers; and an annex on
express delivery. From 2011 to 2020, top U.S. exports gains
In certain areas, the agreement does not reflect the most
have occurred in telecom, computer and information
recent U.S. negotiating positions, such as on digital
trade. Would KORUS benefit from changes or updates,
services (+$1.2 billion), other business services (+$845
and, if so, how should this be achieved?
million), and financial services (+$647 million).
What are congressional priorities for the proposed Indo-
2019 KORUS FTA Modifications
Pacific Economic Framework with respect to South
The changes to KORUS negotiated in 2018, consisted
Korea? How would it affect the KORUS FTA and
primarily of South Korean regulatory changes and U.S.
compare to other regional agreements like CPTPP?
tariff modifications, and were implemented in January 2019
U.S. stakeholders periodically have raised concerns over
by the Trump Administration without action by Congress.
South Korea’s implementation of certain commitments,
The KORUS FTA implementing legislation provides the
such as on customs verifications and cross-border data
President authority to modify the U.S. FTA tariff schedule.
transfers for financial services. Does the executive
branch have adequate resources and tools, including the
[T]he President may proclaim. .modification…of any duty..
FTA’s mechanisms for consultation, to address
to maintain the general level of reciprocal and mutually
implementation and enforcement issues that may arise?
advantageous concessions with respect to Korea..
P.L. 112-41, October 21, 2011
Brock R. Williams, Coordinator, Specialist in
International Trade and Finance
The negotiated modifications included, among other things:
Bill Canis, Specialist in Industrial Organization and
Changing tariff commitments by extending the 25%
Business
U.S. light truck tariff to 2041;
Mark E. Manyin, Specialist in Asian Affairs
https://crsreports.congress.gov
U.S.-South Korea (KORUS) FTA and Bilateral Trade Relations
IF10733
Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan shared staff to
congressional committees and Members of Congress. It operates solely at the behest of and under the direction of Congress.
Information in a CRS Report should not be relied upon for purposes other than public understanding of information that has
been provided by CRS to Members of Congress in connection with CRS’s institutional role. CRS Reports, as a work of the
United States Government, are not subject to copyright protection in the United States. Any CRS Report may be
reproduced and distributed in its entirety without permission from CRS. However, as a CRS Report may include
copyrighted images or material from a third party, you may need to obtain the permission of the copyright holder if you
wish to copy or otherwise use copyrighted material.
https://crsreports.congress.gov | IF10733 · VERSION 10 · UPDATED