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FACT SHEET: U.S.-Korea Agreement 2nd Anniversary
TWO YEARS OF ENHANCED OPPORTUNITIES: THE U.S.-KOREA FREE TRADE AGREEMENT
March 15, 2014, marks the two-year anniversary of the entry into force of the United States-Korea Free Trade Agreement. In its second year, this landmark agreement continues to provide tangible benefits for American businesses, workers, and farmers exporting to our sixth-largest trading partner. In addition to the three rounds of tariff cuts and eliminations that have already taken place, the agreement has also expanded opportunities for our growing services trade, improved transparency in Korea’s regulatory system, strengthened intellectual property protection, and leveled the playing field for key U.S. exports, including automobiles. Despite headwinds resulting from the slowdown in the Korean economy over the past 2 years, U.S. goods and services exports combined are up 3.8% between 2011 (pre-FTA) and 2013.
More Exports to Korea of Made-in-America Manufactured Goods
U.S. manufacturing exports to Korea were up 3.1 percent – from $34.4 billion in 2011 to $35.4 billion in 2013. Exports of transportation equipment have experienced a significant increase – up 27.1 percent to $5.1 billion. Exports of electrical equipment, appliances, and components, such as air purifiers and compressors, also experienced gains of 22.5 percent to $1.3 billion; exports of pharmaceuticals were up 52% to $1.2 billion. While starting from a small base, sales of “Detroit 3” cars in Korea increased 40 percent, and overall U.S. passenger vehicle exports to Korea increased 80 percent. Thanks to the agreement’s groundbreaking provisions on non-tariff measures, such as motor vehicle safety standards, for the first time ever, U.S.-made tractor trailers are hauling steel in Korea.
More Exports to Korea of Grown-in-America Agricultural Products
U.S. exports of key agricultural products that benefited from the tariff cuts under the agreement continued to post significant gains, and in 2013 Korea was our fifth largest market for agricultural exports. For example, exports of tree nuts were up 51 percent to $300 million in 2013 as compared to 2011, and exports of soybean oil were up 119 percent to $40.5 million. Exports of prepared foods were up 25 percent to $270 million, and distillers grains exports were up 40 percent to $126.1 million. Exports of wine and beer were up 41 percent to $25 million, and dairy exports were up 35 percent to $301 million.
More Exports to Korea of Straight-from-America Services
U.S. services exports to Korea experienced robust growth since the entry into force of the agreement, and were up 25.3 percent to an estimated $20.5 billion in 2013 as compared to 2011. Royalties and license fees were up 63 percent to $7.3 billion, and travel services were up 22 percent to $4.5 billion. The United States’ private services trade surplus with Korea increased by 43 percent to $11.1 billion in 2013 as compared to 2011.
Under the agreement, Korea has opened up new areas for U.S. services providers and investors. The agreement has provided greater access to Korea’s market for U.S. express delivery services. Korea has also undertaken reforms to allow U.S.-based financial institutions in Korea to process data in their regional and global offices, which will enhance their efficiency and competitiveness. In addition, Korea now allows U.S. investors to wholly own Korean telecommunications operators, which has expanded opportunities for some of America’s most competitive sectors. Korea has also opened its legal services market, and over a dozen U.S. law firms are now offering their services to Korea’s increasingly global businesses.
More Exports through Elimination of Non-Tariff Barriers
Thanks to the agreement, there have been significant improvements to transparency in the Korean regulatory system, increasing opportunities for stakeholder input in the development of regulations in a wide range of sectors, including pharmaceuticals, information technology, motor vehicles, and financial services. For example, the agreement significantly lengthened public comment periods for proposed laws and regulations with potential impact on trade so that affected stakeholders can weigh in on the proposed measures.
The agreement also strengthened intellectual property protection, including by lengthening copyright terms and enhancing enforcement against violations of U.S. copyrights, patents, and trademarks.
The agreement leveled the playing field for American-made cars through innovative provisions allowing U.S. exporters to market cars in Korea built to U.S. safety standards rather than Korean standards, greatly reducing the cost of supplying U.S.-made autos to the Korean market. Under KORUS, Korea modified its motor vehicle taxes so that U.S. cars are in the same tax brackets as their Korean competitors. And transparency provisions in the agreement ensure that automakers have sufficient opportunity to participate in the setting of new regulations and time to adjust to changes.
Economic Factors Affecting U.S. Exports to Korea
Economic factors unrelated to the FTA have also affected U.S. exports to Korea. A slow-down in economic growth in Korea in 2012 and 2013 reduced demand for imports across the board, particularly from countries that did not have an FTA with Korea. This fall in U.S. exports of commodities, especially mineral fuels (primarily coal), which dropped by $1.0 billion). In addition, the severe drought in the United States in 2012 led to a steep decrease (of $1.7 billion) in U.S. exports of corn to Korea. Largely due to these two external factors, total U.S. goods exports to Korea were down 4.3 percent in 2013 compared to the same period in 2011 (pre-FTA). Excluding these two categories, whose changes are unrelated to the trade agreement, U.S. exports to Korea increased by 2.3 percent between 2011 and 2013, while Korea’s imports from Japan fell 12 percent and its imports from China fell 3.9 percent. As the Korean economy began to improve late in 2013, overall U.S. exports also began to increase, and beginning with October 2013 there have been four consecutive months in which total U.S. exports to Korea increased compared to the same month in the previous year.
Enforcement and Implementation
The obligations of the agreement are backed up by a strong dispute settlement mechanism. And, USTR has made full use of the consultations mechanisms set up under the agreement to ensure that Korea fully implements its obligations, and to provide a productive forum to resolve issues and increase cooperation. Since KORUS has been in force, 28 meetings of Committees and Working Groups established under the FTA have been convened, and the Ministerial-level Joint Committee has met twice.
* On March 19, 2014, this fact sheet was updated to reflect goods and services export growth to Korea*