Meaning of the 12th anniversary of the Korea-US FTA and challenges for continued prosperity

Written by Dr. Indy Suk-oh Kim

Chairman of ICTC

Former KORUS FTA rules of origin group negotiator

It has been 12 years since the Korea-US FTA, which can be said to be the core of the Korea-US economic alliance, came into effect. If you count from the inception stage of the Korea-US FTA, the history of the Korea-US FTA is 20 years. The Korea-US FTA is the agreement with the most twists and turns among the 21 FTAs ​​concluded and entered into force by Korea. Although it is clear that the benefits of concluding an FTA are greater than any other FTA, the Korea-US FTA was met with fierce opposition and resistance in both Korea and the US. In the United States, there was strong opposition from the automobile industry, and in Korea, there was loud opposition from anti-American ideological groups, including farmers' groups and labor unions.

The Korea-US FTA was dramatically concluded after eight rounds of formal negotiations in April 2007, but it was not welcomed by both Koreas and the US, and the National Assembly ratification process drifted. To make matters worse, the candlelight protests against mad cow disease in American cattle that broke out in Korea in 2008 pushed the Korea-US FTA further into the cliff. After the mad cow disease craze ended with the Korea-US beef negotiations, the Korea-US FTA was put on the chopping block again in 2010 due to the Obama administration's request for renegotiation of the automobile sector. The Korea-US FTA finally came into historic effect on March 15, 2012, five years after the conclusion of negotiations. The Korea-US FTA, which was launched after great hardship, seemed to be going smoothly for five years, but with the inauguration of the Trump administration in 2017, it faced a crisis again due to President Trump's words, “Bad Deal unfavorable to the United States.” Fortunately, the Korea-U.S. FTA, which had been pushed to scrap, was resolved in March 2018 with the revision of some provisions and is still in operation today.

Which of the two countries proposed the Korea-US FTA first? The initiative for the Korea-US FTA negotiations was the Bush administration. The United States first expressed its intention to conclude a Korea-US FTA through the Deputy Representative of the United States Trade Representative (USTR) in May 2004. The United States sought to advance its core foreign policy and security alliance, such as the issue of North Korea, through the FTA with South Korea. While pursuing simultaneous FTA trade policies in the early 2000s, Korea prioritized concluding FTAs ​​with small and medium-sized economies such as Chile, Singapore, EFTA, and ASEAN, and announced that it would pursue FTAs ​​with large economies such as the United States and the EU in the mid- to long-term. It was a policy.

What kind of results has the Korea-US FTA achieved as it celebrates its 12th anniversary despite going through numerous historical twists and turns? Let’s limit ourselves to the product trade sector. The trade volume between Korea and the United States in 2011 was $100.7 billion, but increased by a whopping 85.7% to $187 billion in 2023. During the same period, Korea's trade with the world increased by only 18.1%. Looking at the trade status between Korea and the United States, the United States will be Korea's 2nd largest export and import country in 2023, and Korea will be the 8th largest exporter (3.2% share) and 6th largest importer (3.8% share) of the United States. These achievements would have been possible because of the infrastructure of the economic alliance called the Korea-US FTA. Furthermore, the Korea-US FTA is expected to contribute to further strengthening the close economic cooperation system between Korea and the US as Korea participates as a core country in the IPEF (Indo-Pacific Economic Framework) agreement, which is being led by the US from 2022.

What should be done to ensure that the Korea-US FTA continues to produce fruitful results in the future? First, we need to address the rules of origin. Textile and clothing products and some processed foods are stipulated to grant FTA benefits only to products processed using domestic raw materials. Jeans made in the United States are not enjoying the benefits of the Korea-US FTA because they do not meet the standards for yarn produced in the region, and some processed foods made in Korea are not enjoying the benefits of the Korea-US FTA because they do not meet the standards for using materials produced in the region. Shouldn't we provide consumers in both Korea and the United States with the benefit of being able to freely consume American jeans and Korean food at cheaper prices?

Rules of origin that reduce FTA benefits do not fit the purpose of a free trade agreement. Above all, the current situation is very different from the industrial structure it was 20 years ago when Korea-US FTA negotiations began. The time has come to boldly improve regulations that impede FTA benefits in line with the changed industrial structure. In addition, in accordance with Section 232 of the U.S. Trade Expansion Act, import restrictions on Korean steel products that have been in place since 2018 should be lifted. This is also a representative non-tariff measure that undermines the benefits of the Korea-US FTA. Only then will the close economic and security core alliance between Korea and the United States, established through the Korea-US FTA, be able to continue to prosper.