During the news conference after the new FTA was agreed, South Korean Trade Minister Kim Jong-hoon said, the new KORUS is a “win-win” deal for both parties. On announcing the KORUS FTA, President Barack Obama said, “This deal is a win for American workers.  For our farmers and ranchers, it will increase exports of American agricultural products.  From aerospace to electronics, it will increase our manufacturing exports to Korea…”By George Lauriat, AJOTIt’s been a surprisingly long time in coming, and it’s not really a done deal until legislative bodies in both nations ratify the pact, but a new KORUS (Korean-US) FTA was announced on December 3rd. The original deal was inked in 2007, but was never ratified as legislatures in both nations balked at the provisions. The US wanted South Korea to drop restrictions on US made autos and beef. In turn, the Korean National Assembly was unhappy with both the US proposals on beef and autos and felt the tariff relief favored the US too heavily. Consequently they shelved the agreement. Last month in Seoul, President Barack Obama and South Korean President Lee Myung-bak tried again to get the trade deal on track but failed. Both Presidents had strong motivation for getting the FTA re-worked. President Obama, who has said he wants to be the first “Pacific” president, has made it an administration goal to “double exports” over the next five years and through increased exports, increase employment. Further, it would help US companies compete with China for a greater share of Korea’s imports. President Lee wants to expand Korea’s exports to the US and needs Washington’s support with its bellicose neighbor to the north and as a hedge to China. In December, talks began again in Maryland and after four days of negotiations between South Korean Trade Minister Kim Jong-Hoon (who negotiated the 2007 accord) and USTR (United States Trade Representative) Ambassador Ron Kirk, the FTA was reworked. Make no mistake KORUS is a big deal. The pact lifts tariffs on 95% of the goods between the countries within five years. Potentially, the KORUS is the largest FTA for the US since NAFTA in 1994. South Korea is the 12th largest economy in the world and in terms of total trade, imports and exports, ranks as the United States’ seventh largest trade partner. Currently, the US is Korea’s third largest source of imports garnering almost a 9% share but lagging behind China at nearly 18% and Japan at 14%. The Administration estimates that the deal could tally $11 billion in exports immediately. On the other side of the ledger, the US is Korea’s second export destination at nearly 11%, behind China’s 21.5%. Beyond the bilateral benefits, KORUS is envisioned as a springboard to a Pacific Rim trade group, including the ASEAN plus partners that would dwarf the EU (European Union). Auto-Matic One of the major obstacles to the initial approval of KORUS was the US auto manufacturers and their labor unions. It’s estimated that in 2009, the US imported nearly 450,000 vehicles from Korea while exporting just over 6,000 vehicles. Detroit’s automakers had long argued that Korea was artificially blocking US auto and auto part exports to Korea through complex safety and emissions standards as well as tariffs. The Koreans wanted the US to lift the 2.5% tariff on Korea’s imported vehicles, but American automakers argued that with the preponderance of Korean imports the removal of a tariff would only serve to make Korean vehicles more competitive in the US market. Ford’s CEO Alan Mulally, was an advocate for more concessions from Korea and instrumental in the process. Ultimately, with Detroit signing off on the new auto provisions, the revised deal took shape. Under the new deal:
  • US is to lift a 2.5% tariff on South Korean passenger cars four years after the agreement takes effect, rather than immediately, as proposed originally by Korea
  • Korea cuts its tariff on US cars to 4% from 8% and eliminates the tariff completely after fou