The Proposed South Korea-U.S. Free Trade Agreement
(KORUSFTA)

Summary

On February 2, 2006, United States Trade Representative (USTR) Robert Portman and South Korean Trade Minister Kim Hyun-chong, announced their two countries’ intention to negotiate a Korea-U.S. free trade agreement (KORUSFTA). The announcement came after many years of official and unofficial discussions of the feasibility of concluding an FTA. The reaction to the announcement of the launching of the KORUSFTA negotiations has ranged from bipartisan support to some skepticism and opposition.

The Congress would have to approve an FTA before it could enter into force. The KORUSFTA negotiations will be conducted under the trade promotion authority (TPA) that the Congress granted to the President under the Bipartisan Trade Promotion Act of 2002 (P.L.107-210). The authority allows the President to negotiate trade agreements that would receive expedited congressional consideration (no amendments and limited debate). However, the TPA is due to expire July 1, 2007, placing tight time restrictions on the negotiations.

The launching of the negotiations comes with a high degree of political risk for both South Korea and the United States. It comes as the U.S.-South Korean alliance, while remaining very strong, has showed signs of fraying. Some observers assign importance to the negotiations beyond just commercial considerations and assert that the FTA would help to shore up the alliance. On the other hand, failure of the negotiators to reach an agreement could damage the relationship for some time. The fact that the two sides have agreed to launch the talks despite the risks would seem to indicate a degree of mutual trust and expectation of success.

Each country enters the negotiations with some key objectives. The United States will seek, among other goals, reduction or elimination of South Korean restrictions on agriculture imports, resolution of issues affecting auto trade, and reduction in South Korean barriers to foreign investment. In addition, the United States will encourage stronger South Korean government enforcement of intellectual property rights and discussion of and changes to competition policies that discourage foreign business activity in South Korea. South Korea will probably seek FTA preferential treatment for goods produced by South Korean firms in the Kaesong industrial zone in North Korea, the inclusion of South Korean residents in the U.S. visa waiver program, discussion of U.S. antidumping policies and practices, and reduction of U.S. restrictions on maritime services trade.

A number of these issues could prove to be contentious during the negotiations. South Korea is the seventh largest U.S. trading partner, and the United States is South Korea’s third largest trading partner. The KORUSFTA would be the second largest FTA in which the United States is a participant and the largest in which South Korea is a participant, representing a major step for both countries in their pursuit of their respective trade strategies. These negotiations could have repercussions beyond the bilateral relationship as well. This report will be updated as events warrant.

(Source: The Proposed South Korea-U.S. Free Trade: Agreement (KORUSFTA), CRS Report for Congress, May 24, 2006)