The Korea Herald


[News Analysis] Korea-US FTA, a win-win deal clouded by uncertain future

By Park Ga-young

Published : March 14, 2017 - 18:37

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Even though some observers foresee a renegotiation of the South Korea-US free trade agreement, which went into effect five years ago today, experts here and in the US said the bilateral deal has benefitted both countries, perhaps even more so the US.

After almost six years of bumpy negotiations, the South Korea-US FTA, also known as the KORUS FTA, went into effect on March 15, 2012. 

The Ministry of Trade, Industry and Energy said Tuesday the KORUS FTA has proven to be a win-win deal by cushioning external conditions such as globally slow demand and bringing distinctive benefits to each country.

Between 2011 -- a year before the FTA went into effect -- and 2016, the world’s trade shrank by 2 percent on average every year and South Korea’s total trade declined by an annual average of 3.5 percent amid the sluggish world economy and low oil prices. But bilateral trade between South Korea and the US bucked the trend with an annual increase of 1.7 percent on average between 2011 and 2016, government data showed.

“Overall bilateral trade in goods, services and investment has expanded since the FTA took effect, bringing benefits to both countries” Ahn Duk-geun, a professor of international trade and law at Seoul National University, told The Korea Herald.

South Korea’s proportion of the US import market inched up to 3.2 percent in 2016 from 2.6 percent in 2011. Meanwhile, the combined share of American goods in South Korea’s import market grew to 10.6 percent from 8.5 percent in 2011, the biggest since 2007.

For the auto sector, the biggest beneficiary of the free trade agreement, South Korea’s auto exports to the US jumped 12.4 percent on average in the 2012-2016 period while imports of American automobiles rose 37.1 percent during the same period.

However, a possibility of renegotiation has emerged as US President Donald Trump has accused the trade deal of killing jobs and has adopted a view quite different from the previous administration.

“The KORUS FTA was considered as one of the most successful trade deals before Trump took office and the new administration seems to be judging trade deals with trade deficit as the most important gauge, but you have to take other elements into consideration such as investment and the service sector,” Ahn said.

Earlier this month, the US Trade Representative said in Trump’s 2017 Trade Policy Agenda that the Korea-US trade deal “has coincided with a dramatic increase in our trade deficit with (South Korea).”

In 2016, South Korea’s trade surplus with the US came to $23.3 billion, compared to an $11.6 billion surplus in 2011. These figures, however, only deal with products, one of three pillars of the free trade agreement that also covers investment and the service sector.

In terms of trade in services, the US has always had a trade surplus with South Korea, hitting another record high in 2016, according to Donald Manzullo, the head of the Korea Economic Institute of America and a former congressman, in an op-ed piece last week.

When service sector exports are included, the bilateral trade deficit drops to $17.5 billion, revealing a more accurate picture of the trade relationship, he added.

In addition, South Korea’s investment to the US amounted to a total of $51.2 billion during the 2012-2016 period, government data showed, while the US made $2.02 billion in investments to its sixth-largest trade partner. In 2016, investment from South Korea to the US hit a record high of $12.9 billion, as many manufacturers -- including auto companies, chipmakers and petrochemical firms -- enlarged their investment in the US.

The trade deficit could have been greater without the KORUS trade deal, according to the Korea Trade-Investment Promotion Agency, citing the US International Trade Commission, which said the country’s trade deficit with South Korea would have nearly quadrupled from $11.6 billion in 2011 to $44 billion in 2015 if the Korea-US FTA had not been implemented in March 2012.

“A possible renegotiation is still uncertain as Trump’s trade policies are still being shaped and if renegotiated we also have issues that need to be raised,” Ahn said. “So both sides could use a renegotiation as an opportunity to upgrade the trade deal.”

By Park Ga-young (