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USTR Highlights Benefits of U.S.-Korea FTA on Second Anniversary

Monday, March 17, 2014
Sandler, Travis & Rosenberg Trade Report

The Office of the U.S. Trade Representative on March 13 issued a fact sheet highlighting the many benefits that the U.S.-Korea Free Trade Agreement continues to provide two years after it entered into force to American businesses, workers and farmers. By contrast, at least two lawmakers and several non-governmental organizations claimed that the agreement has done more harm than good to U.S. manufacturing and employment.

The USTR fact sheet indicates that U.S. manufacturing exports to Korea went up by 3.1% from $34.4 billion in 2011 to $35.4 billion in 2013, with shipments of transportation equipment (up by 27.1% to $5.1 billion), electrical equipment, appliances and components (up by 22.5% to $1.3 billion) and pharmaceuticals (up by 52% to $1.2 billion) experiencing substantial growth. In addition, sales of “Detroit 3” cars in Korea rose 40% during 2011-13, while overall U.S. passenger vehicle exports surged 80%. Also doing well were sales of tree nuts, soybean oil, prepared foods, distillers grains, dairy products, and beer and wine.

Despite the strong performance by these and other products total U.S. goods exports to Korea fell by 4.3% from 2011 to 2013. USTR attributes this decline to a fall in U.S. exports of commodities, especially coal and other mineral fuels, as well as a severe drought in the U.S. that led to a sharp decline in U.S. corn exports. Excluding these two categories, which USTR claims are unrelated to the agreement, U.S. exports to Korea increased by 2.3% during the period of review, while Korea’s imports from Japan and China fell by 12% and 3.9%, respectively.

Three rounds of tariff cuts and eliminations have taken place under the agreement since it entered into force on March 15, 2012. Over two-thirds of U.S. agricultural exports are currently entering Korea duty free and over 95% of U.S. industrial and consumer goods exports to Korea will benefit from similar treatment by Jan. 1, 2016. USTR also claims that KORUS has improved Korea’s investment environment through strong provisions on intellectual property rights, services and investment. The agency adds that it will continue to work with Korean authorities in areas where concerns remain, such as autos and customs, in an effort to resolve any outstanding issues and deliver the full benefits of KORUS.

At least two lawmakers and several NGOs countered USTR’s assertions by claiming that KORUS has resulted in the destruction of more than 60,000 U.S. jobs as well as a $8.6 billion or 47% increase in the U.S. trade deficit with Korea since 2011. They contend that almost every U.S. economic sector has experienced declining exports to Korea and that agricultural sales have been particularly hard hit.

Rep. Rosa DeLauro (D-Conn.) warned that the same general FTA model is being used in the Trans-Pacific Partnership negotiations, which she believes will also result in higher trade deficits and lower manufacturing employment in the United States. Rep. Louise Slaughter (D-N.Y.) referred to KORUS as “the latest chapter in the American story of giveaway trade” and backed the inclusion in all U.S. trade agreements of “snap-back” provisions that would return tariffs to pre-agreement levels if non-tariff trade barriers are not removed or new ones are put in place.

ST&R is offering a webinar covering what U.S. and Korean companies need to know to pass a KORUS verification review. Click here for more information.

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