Korea-US FTA not the cause of trade imbalance, new report suggests

Legislation | | MIC Customs Solutions |

A new report has disputed the assertion that the free trade agreement between South Korea and the US is responsible for the growing trade imbalance between the two countries.

New analysis has indicated that the free trade agreement (FTA) between South Korea and the US should not be blame for the emerging trade imbalance between the countries.

The Korea Institute for Industrial Economics and Trade (KIET) has issued a report suggesting there is no statistically significant correlation between the recent rise of Korean exports to the US and the Korea-US FTA (KORUS) going into effect.

KORUS became law in March 2012, with South Korean exports to the US having continuously grown since that time, reaching $71.6 billion (€60.71 billion) last year, compared to $38.8 billion in 2009.

Data from the Office of the US Trade Representative has indicated that the value of US goods and services with Korea reached approximately $144.6 billion in 2017, with a US-side goods deficit of $27.7 billion and a services surplus of $10.7 billion resulting in a net $17 billion deficit.

As such, US president Donald Trump has described the impact of KORUS as "horrible" and is seeking to renegotiate or even scrap the deal, due to concerns that it is hurting the US jobs market. However, the KIET research has downplayed the real-terms impact of KORUS on these trends.

It noted that the industries where exports showed the most significant increase were not the main beneficiaries of KORUS-related tariff reductions - in the case of automobiles, for example, export numbers began to rise before the fall in tariffs, with the country's car exports in 2016 actually falling short of 2015 levels, despite the removal of tariffs that year.

The report also highlighted other factors at play, including the fact that the US saw an overall increase in imports from other countries over the same period, while noting that many US imports from Korea are tied to direct investments from Korean companies.

"This indicates that trade with Korea has contributed to, rather than hurt, job creation in the US. The Korean government must respond to US pressure in trade negotiations by connecting trade and investment," said the document.