Updated July 21, 2023
U.S.-South Korea (KORUS) FTA and Bilateral Trade Relations
The U.S.-South Korea free trade agreement (KORUS FTA)
Act of 2022 (CHIPS, P.L. 117-167) and the 2022 Inflation
entered into force in March 2012. The agreement has
Reduction Act (IRA, P.L. 117-169), arguing that both laws
reduced and, in most cases, eliminated tariff and non-tariff
harm South Korean companies.
barriers between the two parties on manufactured goods,
agricultural products, and services. It also provides rules
Views on KORUS and its outcomes over its 11-year
and disciplines on investment, intellectual property rights
existence are mixed. Proponents argue the FTA has
(IPR), and other issues; commits both countries to maintain
expanded trade (including U.S. exports), investment,
certain worker and environmental standards; and provides
competition, and consumer choice in both countries,
mechanisms for resolving disputes. KORUS is the second
increased U.S. IPR protection in South Korea, and
largest U.S. FTA by trade flows, after the U.S.-Mexico-
improved transparency in South Korea’s regulatory process.
Canada Agreement (USMCA). The agreement is extensive
Others have argued that the agreement’s impact is
in scope, but on some issues, such as digital trade, its
disappointing, often pointing to an increase in the U.S. trade
commitments are limited compared to more recent trade
deficit with South Korea since the agreement took effect,
agreements, leading some stakeholders to call for updates.
though most economists dispute this argument (see below).
The two countries continue to address implementation
In May 2022, the Biden Administration launched the Indo-
issues using the agreement’s consultative mechanisms.
Pacific Economic Framework for Prosperity (IPEF)
initiative. South Korea is among 14 inaugural negotiating
Trade and Investment Patterns
partners in the U.S.-led initiative, which may provide a
South Korea is the seventh largest U.S. trading partner, with
forum to enhance the U.S.-South Korea economic
total trade (goods and services) at $227.4 billion in 2022.
relationship beyond existing KORUS FTA commitments.
From 2021 to 2022, U.S. exports to South Korea increased
South Korea also has been active in regional economic
11% to $96.5 billion. U.S. imports from South Korea
agreements that do not include the United States, including
increased 22% to $132 billion. The stock of South Korean
the Regional Comprehensive Economic Partnership
FDI in the United States has more than tripled since the
(RCEP), among major Asian trading nations, such as China,
KORUS FTA took effect, reaching $72.5 billion in 2021.
Japan, and the 10 Association of Southeast Asian Nations
The stock of U.S. FDI in South Korea, by contrast, has
(ASEAN) members. South Korea joined the 4-nation
grown by a more modest 35% during this period, reaching
Digital Economic Partnership Agreement (DEPA) in June
$38.1 billion in 2021.
2023 and also has initiated domestic procedures necessary
for potential application to the Comprehensive and
The U.S. trade deficit with South Korea has fluctuated since
Progressive Agreement for Trans-Pacific Partnership
KORUS took effect, growing early on, declining from
(CPTPP), but has not applied to date.
2015-2018, and then increasing again (Figure 1). Auto
imports, which account for much of the increase in U.S.
KORUS has been modified twice since it was signed in
imports since the FTA took effect, grew most rapidly from
2007 under the George W. Bush Administration. The
2011-2015, before the 2.5% U.S. car tariff was reduced
Obama Administration negotiated modifications to certain
under KORUS. As a result, many economists argue that the
auto and agricultural provisions prior to submitting the
FTA has not contributed significantly to the increase in the
agreement for congressional approval in 2011. In 2018, the
bilateral trade deficit. Economists generally find that
Trump Administration negotiated amendments relating to
macroeconomic factors are the main drivers of bilateral
U.S. auto exports, the U.S. truck tariff, and certain rules,
trade balances, rather than trade agreements.
including on investment, which took effect in January 2019.
Figure 1. U.S. Total Trade with South Korea
The United States and South Korea, allies since 1953,
originally negotiated KORUS to 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. Bilateral trade tensions have eased under President
Biden, who has prioritized working more closely with U.S.
allies to address global economic issues. During summits
with former President Moon Jae-in (May 2021) and
President Yoon Suk Yeol (May 2022), President Biden
announced plans for greater bilateral cooperation to

strengthen economic security in priority industries, such as
Source: Bureau of Economic Analysis.
electric vehicle (EV) batteries and semiconductors.
Selected Key Sectors and Provisions
However, South Korean officials have complained that

bilateral cooperation is undercut by the CHIPS and Science
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U.S.-South Korea (KORUS) FTA and Bilateral Trade Relations
Agriculture
clarifying South Korean recognition of certain U.S.
Agricultural products are an area of U.S. comparative
emissions and auto parts standards for U.S. exports;
advantage. The United States ran an $8.2 billion
• amending the trade remedy chapter by adding
agricultural trade surplus with South Korea in 2021. South
transparency and reporting requirements, including
Korea’s agriculture sector generally is highly protected—its
calculations of dumping margins;
agricultural tariffs average 61.5%—but through KORUS,
• amending the investment chapter, by clarifying aspects
South Korea immediately granted duty-free status to almost
of what may or may not be considered a violation of
two-thirds of U.S. agricultural exports. Tariffs and import
certain commitments; and
quotas on most other agricultural goods were phased out by
2021. One significant market access gain for U.S. producers
• confirming customs principles on expeditious and risk-
is South Korea’s phased elimination of its 40% tariff on
based origin verifications.
beef by 2026. U.S. export gains from 2011 to 2021 have
Currency provisions were not included in the FTA’s 2019
been strong in sectors with large tariff reductions, such as
modifications, but South Korea separately agreed to
beef (+$1.7 billion), fresh fruit (+$175 million) and tree
disclose its foreign exchange transactions moving
nuts (+$162 million). South Korea excluded rice from the
forward—a practice long sought by the United States.
FTA tariff commitments, but in 2019 agreed to provide the
United States with a country-specific quota under its WTO
Section 201 and 232 Import Restrictions
obligations, worth approximately $110 million annually.
Since 2018, certain U.S. imports from South Korea have
been subject to restrictions (tariffs and quotas) imposed by
Motor Vehicles
President Trump using authorities under Section 201 of the
U.S. and South Korean motor vehicle industries are major
Trade Act of 1974 (washing machines and solar panels) and
competitors. Such imports account for roughly 25% of U.S.
Section 232 of the Trade Expansion Act of 1962 (steel and
goods imports from South Korea. Auto trade was among
aluminum). South Korea, typically among the top five
the most contentious issues in the original FTA
suppliers of U.S. steel imports ($2.9 billion in 2021), was
negotiations, but the Detroit Three U.S. automakers
one of the first countries to negotiate a quota arrangement
ultimately supported the agreement. Under KORUS, the
with the Trump Administration, in lieu of the 25% steel
United States eliminated its 2.5% auto import tariff in 2016,
tariff. As a result, U.S. imports of South Korean steel are
and was originally to begin reducing its 25% light truck
subject to a quota equivalent to 70% of 2015-2017 imports.
tariff in 2019, gradually eliminating it by 2021. (The 2019
South Korean officials have urged the Biden
modifications extended the 25% truck tariff to 2041.) South
Administration to revisit the quota arrangement in light of
Korea’s 8% auto import tariff was reduced to 4%
less restrictive arrangements the Administration has
immediately and eliminated in 2016, and its 10% light truck
negotiated with the European Union and Japan. Section 232
tariff was immediately eliminated. Under KORUS, bilateral
import restrictions remain in place unless the President
tariffs on virtually all auto parts immediately dropped to
removes them. Section 201 restrictions are statutorily time-
zero. From 2011 to 2021, U.S. auto and parts exports to
limited and set to expire in February 2026 for solar panels;
South Korea tripled to $3.8 billion (albeit from a low base),
restrictions on washing machines expired in February 2023.
while U.S. imports increased by 76% to $27.1 billion.
Potential Questions Faced by Congress
Services
•
Services trade was a priority in the KORUS FTA talks, as
Economists generally view overall bilateral trade
the United States sought greater market access for its highly
balances as a poor metric for the success of FTAs. What
competitive services firms and South Korea hoped to
is the best way to evaluate the KORUS FTA? Has it
improve productivity in a sector that lags behind its
achieved congressional goals?
manufacturers. Commitments are on a “negative list” basis
• In certain areas, KORUS does not reflect the most
(i.e., they apply to all sectors except those specifically
recent U.S. negotiating positions, such as on digital
exempted). Provisions prohibit discriminatory treatment,
trade. Would KORUS benefit from changes or updates,
local presence requirements, and market access limitations,
and, if so, how should this be achieved? To what extent
and require certain steps in the regulatory process. Industry-
could IPEF effectively address such issues?
specific commitments include the opening of South Korea’s
legal services sector; a financial services chapter, including
• What are congressional priorities for the IPEF initiative
a provision to allow data flow transfers; and an annex on
with respect to South Korea? How might it affect the
express delivery. From 2011 to 2021, top U.S. exports gains
KORUS FTA and compare to other regional agreements
have occurred in telecom, computer and information
like CPTPP and the DEPA?
services (+$1.2 billion), other business services (+$1.3
• How can the United States balance domestic economic
billion), and financial services (+$813 million).
policy goals and increasing bilateral cooperation in key
2019 KORUS FTA Modifications
industries (e.g., EV batteries and semiconductors)?
The changes to KORUS negotiated in 2018 consisted
• How might the IRA and CHIPS Act affect bilateral trade
primarily of South Korean regulatory changes and U.S.
relations and broader global supply chains for EV
tariff modifications, and were implemented in January 2019
batteries and semiconductors?
by the Trump Administration without action by Congress.
•
The KORUS FTA implementing legislation provides the
Does the executive branch have adequate resources and
President authority to modify the U.S. FTA tariff schedule.
tools, including the FTA’s mechanisms for consultation,
to address KORUS implementation and enforcement
The negotiated modifications included, among other things
issues?
• changing tariff commitments by extending the 25% U.S.
light truck tariff to 2041;
• doubling the number of U.S. vehicle exports to South
Liana Wong, Analyst in International Trade and Finance
Korea that can be imported with U.S. safety standards
Mark E. Manyin, Specialist in Asian Affairs
(25,000 to 50,000 per manufacturer per year), and
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U.S.-South Korea (KORUS) FTA and Bilateral Trade Relations

IF10733


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https://crsreports.congress.gov | IF10733 · VERSION 16 · UPDATED

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