March 15, 2016 will mark the four-year anniversary of the entry into force of the United States-Korea Free Trade Agreement (KORUS). These past four years have been a period of growth and resurgence for the American economy, with 2015 recording solid GDP growth, a net gain of 2.6 million private-sector jobs, and the sixth consecutive year of net gain in manufacturing employment.
The U.S.-Korea trade and investment relationship is substantially larger and stronger than before the KORUS agreement. Since entry into force of the agreement in 2012, the U.S. and Korea have carried out five rounds of tariff cuts and eliminations, creating significant new market access opportunities for U.S. exporters. 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 autos. Overall, U.S.-Korea goods and services trade has risen from $126.5 billion in 2011 to nearly $150 billion in 2015.
More Exports to Korea of Made-in-America Manufactured Goods
Exports of manufactured goods are up 8.4% from 2011 (pre-KORUS) to $37.3 billion in 2015. This is more than twice as fast as the U.S. growth rate in exports of manufactured goods to the world, over the same time period.
|Passenger Vehicles||$418 million||$1.287 billion|
|Pharmaceuticals||$630 million||$934 million|
|Machinery||$6.1 billion||$6.9 billion|
More Exports to Korea of Grown-in-America Agricultural ProductsU.S. auto exports to Korea increased by 208% by value between 2011 and 2015, more than 14 times faster than the increase of U.S. auto exports to the world (up 14%), thanks to Korea’s 50% tariff reduction (from 8% to 4%) when KORUS entered into force. The remaining tariffs were eliminated on January 1, 2016. Sales of “Detroit 3” cars in Korea rose by 21.0% in 2015 over 2014, outpacing both the overall growth of U.S. exports to Korea and worldwide exports of U.S. passenger vehicles. Korea is now our 9th largest export market for autos, with annual exports of $1.3 billion in 2015. U.S. auto exports have more than tripled, increasing from 16,659 vehicles in 2011 to 50,364 autos in 2015.
Korea is currently our fifth-largest market for agricultural exports thanks to KORUS. U.S. exports of key agricultural products benefiting from tariff cuts and the lifting of other restrictions under KORUS have seen significant growth.
|Beef||$686 million||$810 million|
|Lemons||$ 9 million||$30 million|
|Shelled Almonds||$74 million||$180 million|
|Fresh Cheese||$30 million||$147 million|
|Cherries||$40 million||$109 million|
|Wine & Beer||$18 million||$33 million|
U.S. cherry exports to Korea were valued at $109 million in 2015, up 172.5% compared to 2011. In 2015, exports of citrus fruit were up over 25% from 2011, with lemon exports up 241.3% to $30 million and grapefruit exports up 47.8% to $13 million in 2015. The $810 million in exports of beef and beef products to Korea in 2015 marked an increase of 18.1% between 2011 and 2015. Dairy products grew by nearly 37% from 2011, with the $147 million worth of fresh cheese exports showing a remarkable 398% increase from a base of less than $30 million before the FTA.
More Exports to Korea of Straight-from-America Services and Intellectual Property Works
U.S. services exports to Korea are a particularly strong point, up 34.5% to an estimated $22.4 billion in 2015 as compared to $16.7 billion in 2011. This rate of growth nearly tripled the overall 13.1% growth of U.S. services exports to the world.
Under KORUS, Korea has opened up new market access 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 is enhancing their efficiency and competitiveness. In addition, Korea now allows U.S. investors to wholly own Korean telecommunications operators, and now allows U.S. investors to own some broadcast service providers since March 15, 2015.
|Intellectual Property||$4.5 billion||$6.1 billion|
|Travel Services||$5.9 billion||$7.6 billion|
|Professional & Management Services||$697 million||$1.05 billion|
More Exports through Elimination of Non-Tariff Barriers
Thanks to KORUS, there have been significant improvements to transparency in the Korean regulatory system and 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, enabling affected stakeholders to have a real opportunity to weigh in on 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. Intellectual property revenue from Korea has accordingly risen rapidly, from $4.5 billion in 2011 to $6.1 billion in 2014.
Innovative provisions in KORUS helped to level the playing field for made-in-America autos, contributing to the growth in auto exports noted above. This included requirements to allow 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. Korea also modified its key motor vehicle taxes so that U.S. cars are now in the same tax brackets as their Korean competitors. And, finally, transparency provisions in the agreement ensure that automakers have sufficient opportunity to participate in the setting of new regulations and adequate time to adjust to changes new regulations.
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 2015, in part due to the slowdown in the Chinese economy, is driving down demand for imports across the board, and goods imports into Korea were down nearly 17% in 2015. KORUS helped mitigate some of this negative effect on U.S. exporters. At the same time, the U.S. economy and consumption has been growing steadily.
Despite this, U.S. goods and services exports combined were up 1.2% between 2014 and 2015. In comparison, U.S. goods and services exports to the world were down 5.1% in 2015. This growth was driven by services exports to Korea, which were up 8.2% in 2015 from the previous year. However, in 2015 there was a small decline in U.S. goods exports to Korea. To put the decline in goods exports into perspective, imports of goods from the U.S. were down 2.8%, according to Korean statistics, while imports of goods from Japan were down 14.7%, the EU down 8.4%, and Australia down 19.4%. At the same time the U.S. share of Korea’s imports rose to 10.1% in 2015, up from pre-KORUS levels of 8.5%.
Enforcement and Implementation
The obligations in KORUS are backed up by a strong dispute settlement mechanism, and provides a productive forum to resolve issues and increase cooperation. USTR has made full use of the consultation mechanisms set up under the agreement to ensure that Korea fully implements its commitments. Since KORUS has been in force, over 40 meetings of Committees and Working Groups established under the FTA have been convened, and the Ministerial-level Joint Committee has met three times. Regular contact between U.S. and Korean officials has also contributed to heading off potential implementation issues at an early stage.