288 Integrative Case 2.5 The Korea-US Free Trade Agreement (KORUS) Charles M. Byles (Virginia Commonwealth University) What does the Korea-US Free Trade Agreement cover? Will it deliver its promise? "American manufacturers of cars and trucks will gain more access to the Korean market and a level playing field to take advantage of that access. We are strengthening our ability to create and defend manufacturing jobs in the United States; increasing exports of agricultural products for American farmers and ranchers, and opening Korea's services market to American companies. High standards for the protection of workers' rights and the environment make this a model for future trade agreements, which must be both free and fair." by $10 billion. The tariff rates were 12.1% on average for ex for Korean exports to the Uni US exports to Korea of consu ucts became duty free on M 95% of trade between the ty duty free on March 15, 201 implementation of the agree iffs will be removed. The International Trade the creation of 70,000 jobs a chandise exports. In addi tance for American compar advantage in services is ac services market. There is t -Statement by President Barack Obama announcing KORUS on December 3, 2010. The Korea-US Free Trade Agreement (KORUS) had job creation in a variety of its origins on June 5, 2006, when the United States telecommunications, educ and the Republic of Korea (South Korea-hereafter, addition, there are opportu "Korea") began negotiations. Although the agree- investment in Korea. KO ment was signed by both countries on June 30, 2007, tional framework to remov it was stalled for a few years because of the expiration ment in Korea and the ins of President George W. Bush's fast-track trade author- easier and more predictal ity and disagreements about trade in automobiles and mechanisms and intellect beef. Almost three years later on June 26, 2010, Presi- Despite the generals dent Barack Obama and President Lee Myung-bak from the government an expressed commitment to move ahead with the agree- have been predictions tl ment and address the outstanding disagreements. nomic losses for the Un The United States Congress and the Korean National Economic Policy Institu Assembly approved the agreement on October 12 and E. Scott published in 20 November 22, 2011, respectively. The agreement was displace up to 159,000 je finally implemented on March 15, 2012. Importance to the United States of KORUS addition, the article arg! is surging truck import that one study of the Accordino to the Office of the United for the protection of make this a model for future trade agreements, which must be both free and fair. - Statement by President Barack Obama announcing KORUS on December 3, 2010. chand tance for An advantage in services ma job creation telecommu addition, th investment tional fram ment in Ko easier and mechanisn The Korea-US Free Trade Agreement (KORUS) had its origins on June 5, 2006, when the United States and the Republic of Korea (South Korea-hereafter, “Korea”) began negotiations. Although the agree- ment was signed by both countries on June 30, 2007, it was stalled for a few years because of the expiration of President George W. Bush's fast-track trade author- ity and disagreements about trade in automobiles and beef. Almost three years later on June 26, 2010, Presi- dent Barack Obama and President Lee Myung-bak expressed commitment to move ahead with the agree- ment and address the outstanding disagreements. The United States Congress and the Korean National Assembly approved the agreement on October 12 and November 22, 2011, respectively. The agreement was finally implemented on March 15, 2012. Despite from the have been nomic los Economic E. Scott displace u addition, is surging that one currency continue Importance to the United States of KORUS According to the Office of the United States Trade Representative (USTR), KORUS is the most commer- cially significant free trade agreement in almost two decades. Estimates from the US International Trade Commission show an addition of $10 billion to $12 billion to the US annual gross domestic product as a result of Korean tariff reductions on merchandise. In addition, merchandise exports to Korea will increase Bilateral of Multil An articl regional idly from reaction 1) © Charles M. Byles. Reprinted with permission. Trade C a Commons s4 are il devoti (which ible t and Cold and e by $10 billion. The tariff rates prior to the agreement were 12.196 on average for exports to Korea and 3.5% US exports to Korea of consumer and industrial for korean exports to the United States Almost 80% ucts became duty free on March 15, 2012, and nearly 95% of trade between the two countries will become duty free on March 15, 2017. Within 10 years of the implementation of the agreement, most remaining tar- The International Trade Commission also estimates the creation of 70,000 jobs as a result of increased mer- chandise exports. In addition, of particular impor- tance for American companies given their competitive advantage in services is access to Korea's $580 billion ар ifts will be removed. esp tiv T 1 S services market. There is the potential for additional job creation in a variety of services industries such as telecommunications, education, and health care. In addition, there are opportunities for increases in direct investment in Korea. KORUS will provide an institu- tional framework to remove previous barriers to invest- ment in Korea and the institutions to make investment easier and more predictable such as dispute settlement mechanisms and intellectual property protections. eco- Despite the general support in the United States from the government and business community, there have been predictions that KORUS will produce nomic losses for the United States. For example, Economic Policy Institute working paper by Robert an ma casier and more ation thor and resi bak ree- mechanisms and intellectual property protections, Despite the general support in the United States from the government and business community, there nomic losses for the United States. For example, have been predictions that KORUS will produce eco- Economic Policy Institute working paper by Robert E. Scott published in 2010 warned that KORUS could displace up to 159,000 jobs between 2008 and 2015. In addition, the article argues that a major risk of KORUS is surging truck imports from Korea. Scott also notes S. nal nd as that one study of the benefits of the agreement ignores currency manipulation by Korea in order to ensure a continued trade surplus. le е 0 Bilateral Trade Agreements in the Context of Multilateral Trade An article in the Economist published in 2009 noted that regional and bilateral trade deals were increasing rap- idly from 49 in 2001 to 167 in 2009. This increase was a reaction to the failure of the Doha Round of the World Trade Organization (WTO) negotiations. The article, Part Two Integrative Cases however, gave a number of criticisms of regional and bilateral trade deals. First, these deals impose much many companies do not take advantage of their provi- bureaucracy and paperwork on trade and as a result, sions. Second, the deals favor less efficient companies that gain advantages primarily through lower tariffs. to the with in TH tincti Bour only And Finally, regional and bilateral deals do not serve as a ucts stepping stone to broader multilateral trade deals but are instead a distraction for governments. Rather than devoting time working on the multilateral process ins Go lis ac m (which could take much time and energy and is less vis- ible to the public), countries instead work on regional and bilateral trade deals such as KORUS and the Colombia and Panama FTAs, which can take less time and are more visible to the public. Will these criticisms apply to KORUS? Can it provide some trade advantages especially to President Obama's National Export Initia- tive to double exports between 2009 and 2014? a The Essence of KORUS The KORUS agreement consists of 24 chapters and several annexes, appendices, and confirmation letters. ter, annex, appendix, or confirmation letter, but rather role of institutions sie., KORUS) not only on primarily What follows is not a detailed discussion of each chap- an exposition of the key provisions in order to show the ion
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