Building America’s Next Great Alliance

Congress should ratify the Korea-United States (KORUS) Free Trade Agreement to solidify the United States’ strategic security, economic, and political influence in East Asia.

South Korea has been a critical ally to the United States for over 60 years. Since the signing of the Mutual Defense Treaty in 1953, in which both countries agreed to defend each other against outside aggression, South Korea has become the United States’ seventh largest trading partner and a major financial ally. During the 2008 financial meltdown South Korea urged the G20 to keep global markets open. South Korea is also vital in maintaining U.S. military interests in East Asia, with 27,000 American troops currently stationed there after the implementation of the Combined Forces Command (CFC) in Seoul to defend against North Korea in 1978. Most recently, the military partnership between these two nations was best exemplified with the handling of the March 2010 sinking of a South Korean submarine by North Korea.

With this history in mind, former South Korean Ambassador Thomas C. Hubbard voiced strong support for the Congressional ratification of the KORUS Free Trade Agreement, citing the $3 million in state revenue and 10,000 new jobs generated by Korean car manufacturers in Alabama and Texas. Hubbard also projected grim consequences for rejecting the agreement, and President Obama’s Trade Representative issued a recent statement stressing the $10 to $12 billion that would be added to U.S. GDP after the agreement’s passage.1 The statement also noted that Congressional support for the agreement would make 95 percent of all bilateral trade with South Korea duty-free in 3 years.

Analysis

If ratified by Congress, the KORUS Free Trade Agreement would be the most substantial development in U.S.-Korean relations since the Military Defense Treaty of 1953. It would enhance national security interests in Asia by increasing U.S. defense forces in South Korea, and form an alliance of neighboring states to pressure China to adhere to World Trade Organization (WTO) standards. It would include the United States in a trade agreement with the Association of Southeast Asian Nations (ASEAN) and encourage other Asian powers to enact similar agreements with the United States.2 The agreement would also improve U.S. agricultural industries by granting duty-free status to two-thirds of U.S. agricultural exports. It would increase revenue for the American meatpacking industry by eliminating the 40 percent tax on beef imported from the

Key Facts:

• The agreement would make • 95 percent of trade between the two nations duty-free in 3 years, phasing out all tariffs on bilateral imports and exports in 10 years.

• The KORUS FTA will increase • the export of U.S. goods and services by $30 billion, increasing the export manufactured goods by 46 percent.

• The agreement would give U.S. • investment firms greater access to $100 billion in government procurement funds. \

• The KORUS FTA would reduce • the U.S. trade deficit by $4 billion annually.

United States over 15 years. The Korean automobile industry, which accounts for 30 percent of the United States’ market, would also build 600,000 new vehicles in the U.S. each year with the termination of an 8 to 10 percent tariff on passenger cars and trucks, providing more jobs to middle-class Americans.3 Both nations would also commit to making 60 percent of the textile and apparel trade duty-free and liberalize service trade beyond WTO guidelines. The United States International Trade Commission concludes that while U.S. GDP would only increase by a total of $11.9 billion, agricultural and automobile industries would significantly increase exports by $10.9 billion and the textile industry would improve imports by $6.9 billion.4 This would expand employment in the major U.S. agricultural and textile sectors, and strengthen South Korean GDP by as much as 2.27 percent.

Next Steps:

Providing great economic and political benefit, the ratification of the KORUS FTA will be a vital step in improving the American economy, yet there are still lingering concerns over the safety and sanitation of imported beef, the production of ITAC-12 steel, and access to the Korean car market all mentioned in the agreement. Therefore, to address these issues, Congressman Mike Michaud of Maine introduced the TRADE Act of 2009 in the 111th Congress, which received 136 co-sponsorships and asked to review the KORUS FTA to ensure that U.S. interests are fully met. Meanwhile, organizations like the U.S.-Korea FTA Business Coalition and the U.S. Chamber of Commerce have also been consulting members of Congress on the benefits of the agreement by bringing together representatives of American industries and organizations to push for its ratification. Secretary of State Hillary Clinton recently traveled to Seoul, where she addressed the South Korean people with a commitment to signing the KORUS FTA, but public opinion will also be crucial to making the agreement a priority for the 112th Congress.

Endnotes:

1. “Korea-U.S. Free Trade Agreement,” Office of the United States Trade Representative, December 3, 2010, accessed May 1, 2011, http://www.ustr.gov/trade-agreements/free-trade-agreements/korus-fta.

2. William H. Cooper and Mark E. Manyin, “Proposed U.S.-South Korea Free Trade Agreement (KORUS FTA): Provisions and Implications,” Congressional Research Service, February 12, 2010, accessed May 1, 2011 http://www.fas.org/sgp/crs/row/RL33435.pdf.

3. Troy Stangarone, “Moving the KORUS FTA Forward in a Time of Economic Uncertainty,” Korea Economic Institute of America, 2008, accessed May 1, 2011, http://www.keia.org/Publications/Exchange/01Exchange08.pdf.

4 Jordan Heiber, “U.S. – Korea Economic Relations: A Washington Perspective,” Korea Economic Institute, June 30, 2007, accessed May 2, 2011, http://www.keia.org/Publications/KoreasEconomy/2008/Heiber1.pdf.

5. “In Seoul, Clinton says US committed to passing free trade pact with South Korea this year.” The Washington Post, April 16, 2011.

6. International Trade Administration, “The United States-Korea Trade Agreement.” U.S. Department of Commerce, December 7, 2010, accessed May 2, 2011, http://www.trade.gov/mas/ian/tradeagreements/fta/tg_ian_002423.asp.

7. “KORUS FTA Facts,” Office of the United States Trade Representative, June 2008, accessed May 1, 2011, http://www.ustraderep.gov/assets/Document_Library/Fact_Sheets/2008/asset_upload_file51_14959.pdf.

8. Ho-Jin Lee, “Recent Developments in the Korean Peninsula In the Context of the U.S.–ROK Alliance,” The Brookings Institution, February 25, 2011, accessed May 1, 2011, http://www.brookings.edu/speeches/2011/0225_korea_lee.aspx.

Talking Points:

• Ratification of the KORUS • FTA would exchange industrial imports and increase agricultural exports, providing greater employment to working- and middle-class Americans.

• Ratifying the trade agreement • would strengthen U.S. credibility in Southeast Asia, putting greater pressure on China to comply with World Trade Organization standards.

• Ratification of the agreement • would reinforce U.S. defense strategy in Asia, making it the largest development in Korean-U.S. relations since the Military Defense Treaty of 1953.