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The “Supplemental” U.S.-South Korea Free Trade Agreement

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On December 3rd, it was announced the U.S. and South Korea had reached an agreement to amend the three year old free trade agreement known as KORUS FTA. President Obama had hoped to sign the deal in time to coincide with the G-20 summit, but the final deal was delayed some weeks. The agreement, which must be ratified by the U.S. Congress and South Korea’s national legislature, seeks to end tariffs on over 95% of industrial and consumer goods in five years.


The agreement represents a major breakthrough for the U.S. auto industry. The deals highlights include:

  • U.S. auto makers will be allowed to import 25,000 cars a year. These cars will no be subject to Korean auto safety requirements or the more stringent Korean fuel consumption and green house gas emission standards.
  • The agreement cuts tariffs on U.S. imports from 8% to 4% over five years, then eliminates them. The U.S. will maintain a 2.5% tariff during this same period.
  • The U.S. retains a 25% tariff on trucks for eight years before eliminating it after ten years.
  • South Korea has agreed to cut its tariff on electric cars and hybrids from 8% to 4% and eliminate the tariff after five years.


The revised KORUS FTA retains the import ban on U.S. beef from cattle more than 30 months old and continues a tariff on U.S. pork until 2015 rather than 2013 as in the original agreement. The ban on beef will continue to pique American beef producers and those members of Congress with significant ranching interests in their state and districts. However, some argue the outrage over the South Korean beef ban has been reduced since the U.S. has secured a 35% market share of South Korean beef imports.


For the Obama Administration the deal offers both opportunity and challenges. U.S. trade negotiators hail the agreement as a restoration of U.S. leadership in promoting free trade and the global economic recovery. President Obama himself declared the agreement could create as many as 70,000 U.S. jobs and also open up South Korea’s $560 billion services market to U.S. companies. The U.S. International Trade Commission estimates the deal could increase U.S. exports by some $10 to $11 billion.

U.S. based opponents of the trade deal decry President Obama from going back on his 2008 campaign pledge to make different trade deals. These groups argue Mr. Obama’s approach is the same as that of former President George W. Bush and the KORUS FTA is a North American Free Trade Agreement (NAFTA) redo. The new agreement will also test the Obama Administration’s strategic engagement with the new Congress. Many Democrats have long opposed the agreement and have impeded its progress. While Republicans have traditionally supported free trade, new GOP members closely aligned with the Tea Party movement have signaled their wariness to the practice. Thus, in order to pass the revised agreement, President Obama will need to forge a coalition that will alienate some of his base and attract votes from some of his most vehement opponents from the 111th Congress.South Korea’s President Lee Myung-bak faces an even more daunting task in his push for ratification. President Lee is facing heavy fire from opposition parties who believe he registered a very weak response to the North Korean artillery strikes on small islands in his country’s territory. Now, he is facing criticism for caving into American pressure on automobiles and agreeing to a deal which undermines South Korean national interests. However, South Korean automakers signaled their strong approval for the deal saying it “eliminated uncertainties in the U.S. market and that South Korea automakers were forecast to increase their market share…”


On balance, President Obama’s trade team has done well to promote U.S. foreign and economic policy. The supplemental KORUS FTA reinforces the longstanding U.S.-South Korea partnership and sends a signal that America knows it must engage the world to support the momentum toward global economic resurgence. If the President and the new Congress can reach accommodation on this deal and other important economic matters, Mr. Obama’s vision of working in a bi-partisan manner to solve our nation’s most pressing problems may be realized.
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