Exploring the possibility of addressing US-Korea trade issues

Since 1948, South Korea and America have cooperated in security, commerce, trade, business, human rights, democratic values, and many more. Under the US-ROK Mutual Defense Treaty, America has maintained army, air force, navy, and marine personnel to defend South Korea from any external aggression. Apart from security alliances, both nations have also strengthened their ties in trade and investment. According to the US Department of State, South Korea was the sixth-largest goods trading partner of the United States in 2019. In 2018, the United States became South Korea’s second-largest source of foreign direct investment. Furthermore, in 2019, both countries achieved $168.6 billion in trade in manufactured goods, agricultural products, hi-tech goods, and services. In 2012, South Korea and the United States also signed the United States-Korea Free Trade Agreement or KORUS FTA to strengthen their bilateral trade ties further. However, despite thriving trade and security relations, both countries have experienced issues maintaining their commercial relationship. This article would discuss major trade disputes and the KORUS FTA and conclude after finding possible ways to address these issues.

Previous major trade disputes

Beef Ban

In December 2003, South Korea banned beef imports from the United States after discovering a cow with BSE (mad cow disease). Before the ban, South Korea used to be the third-largest foreign buyer of US beef. This dispute also halted US-Korea negotiations on FTA and delayed the entire process as the US was not ready to talk until Korea lifted the ban. In 2006, South Korea decided to allow American boneless beef from cattle less than 30 months old. However, South Korean inspectors found some fragments of bones, thus prohibiting the entry of the US beef. For a long time, both countries could not come up with a clear definition of “boneless beef,” and the US negotiators argued that small fragments do not indicate the mad cow disease. Finally, the US called for the suspension of FTA talks that compelled Korea to reverse the beef import ban in 2008 with new sanitary rules. As a result, a series of protests emerged in South Korea against former president Lee-Myung -Bak for reversing the ban. The Korean government was criticized for suppressing the protest with police and water cannons and ignoring the health concerns, ultimately leading to the fall of its approval rate below 20%.

Screen Quotas

Screen quotas ensure that South Korean domestic films are screened each year for at least a minimum number of days. In South Korea, screen quotas were imposed to protect the domestic film industry from foreign movies. In 1966, South Korea enforced the screen quota system, in which it was mandatory to screen Korean films for 90 days each year. However, under Korean-America BIT (Bilateral Investment Treaty), America requested South Korea to alleviate the screen quotes for Hollywood expansion to which South Korea agreed. However, protests emerged, and the Korean movie industry opposed this decision. Furthermore, America pressurized South Korea by halting the FTA negotiations, which forced the Korean government to cut the screen quotes to 73 days a year.  

There were also issues between the two countries related to the automotive trade, pharmaceuticals, intellectual property rights, telecommunications, steel, and semiconductors. Nonetheless, the most severe problems occurred from the United States-Korea Free Trade Agreement that entered into force in 2012 and 2019 (updated version).

KORUS FTA

South Korea believed that the US-Korea FTA was necessary to transform and defend its market from competition. Koreans also thought that the FTA would promote a competitive domestic market and an influx of FDIs. Furthermore, FTA with the US would support Korea to become an economic and financial hub of Northeast Asia. America assumed that an FTA with South Korea would advance America’s foreign policy and yield export benefits. Also, after NAFTA, KORUS FTA was to become the most significant bilateral trade with the USA. Hence, both countries negotiated for several years and the KORUS FTA finally entered into force on March 15, 2012. The agreement reduced and eliminated tariffs and non-tariff barriers between South Korea and the United States and offered to boost opportunities by widening each country’s access to the other’s products and services.  Both the countries committed to maintaining labor and environmental standards. The treaty also provided mechanisms to resolve trade disputes. 

Issue

However, in 2016, the former President of the USA, Donald Trump, objected to the KORUS FTA and called it a ‘job killing’ deal. During his nomination acceptance speech, Donal Trump criticized the KORUS-FTA. He said KORUS FTA “hurt [American] workers and diminished their freedom and independence.” Trump also assured that he would never make such “bad” trade deals. In 2017, Trump intended to withdraw from the US-South Korea FTA as he blamed the FTA for widening the trade gap between South Korea and the USA.

“The fact is that the United States has trade deficits with many, many countries, and we cannot allow that to continue. And we’ll start with South Korea right now.” – Donald Trump

The problem arose when South Korea sold more products to America than the US sold to Korea. When FTA was negotiated, the US hoped trade surplus of about 10 billion USD, which did not happen. The US exports to South Korea fell after the agreement entered into force, leading to the US trade deficit with South Korea. According to Arirang News, Korean exports to the US have grown by 3.4%, while American exports to Korea decreased by -0.6% in 2017. Rob Scott from the Economic Policy Institute stated that the deficit had cost about 90,000 American jobs. The US also complained about the non-tariff barriers that prevented America from exporting more to Korea. According to Economist Sung Won Sohn, America’s insatiable appetite for imports has led to America’s trade deficit with South Korea. In short, the US wanted Korea to import more to narrow the trade deficit.

Renegotiation

In 2018, the Trump administration requested to renegotiate the agreement regarding US auto exports, truck tariffs, etc. Moreover, during the negotiations, the Trump administration imposed global import restrictions on South Korea. According to Brock R. Williams, the negotiated modifications included extending the 25% US light truck tariff to 2041, doubling the number of US vehicle exports to South Korea from 25,000 to 50,000 per year, adding transparency and reporting requirements, etc. (2021).

How to address these issues?

Although the United States and Korea share a long history of cooperation, Korea also enjoys a healthy commercial tie with China. South Korea is one of the few countries that runs a trade surplus with China. During the Trump administration, China became the US’ biggest trade nemesis. Hence, it can be said that South Korea is “sandwiched” between America and China (a similar situation occurred during the THAAD deployment, where the South Korean economy was “punished” by China for installing THAAD).

According to Professor Sohn Sung-Won, the issues can be solved by establishing trust between two countries. The Trump administration directed protectionist policies not only towards China but also to South Korea. Therefore, South Korea must show that it backs America in the US-China trade war in the future. South Korea can also consider acting as an intermediary between the US-Chian trade. For instance, South Korean can import unfinished Chinese products and manufacture them to export to the United States. This would change the origin of products and would also bring positive spillover effects to the US-Korea FTA. Moreover, South Korea could consider building factories in the United States to escape import tariffs, creating jobs and bringing more investment in America.

Nonetheless, South Korea can not always back America as it can also hamper Sino-Korean relations. Therefore, South Korea must find alternative markets and diversify significantly in the areas where it has not negotiated. Some options include countries from Latin America, Europe, and South Asia. For example, South Korea’s New Southern Policy aims at partnering with ASEAN countries along with India. The New Southern Policy is also helping South Korea side-stepping the pressure to join Quad (against China) while simultaneously being engaged in regional security.

Lastly, the ongoing US troop withdrawal from Afghanistan has compelled countries aligned with America to reconsider their alliances. The repercussions of the withdrawal have caused crises in Afghanistan and have filled US partners with doubts. Thus, it is also essential for the US to become flexible with its allies and regain their trust. Fortunately, President Joe Biden has taken a different approach to maintain economic ties with South Korea. Unlike Trump, who imposed trade tariffs to solve disputes, President Biden is expected to promote free trade and take a multilateral trade approach.

In conclusion, South Korea and the United States need to engage in agreements (other than FTA) and cooperate exhaustively to extend their positive ramifications to resolve their disagreements. For instance, the US-Korea Vaccine partnership has created a good atmosphere between the two countries. This healthy cooperation can support the KORUS FTA and prevent it from being jeopardized in the future.   

?References

Arirang News . (2017). South Korea-U.S. Fta in balance ahead of Moon-Trump summit? YouTube. https://www.youtube.com/watch?v=_QL9PkMmc6I.

Congressional Research Service. (2007, February 12). South Korea-U.S. economic relations. EveryCRSReport.com. https://www.everycrsreport.com/reports/RL30566.html#_Toc228343882.

Schott, J. H., Bradford, S. C., & Mall, T. (2006, June). Policy brief 06-4: Negotiation the Korea ... - piie.com. Policy Briefs. https://www.piie.com/sites/default/files/publications/pb/pb06-4.pdf.

South Korea's Options amidst a US-CHINA Trade War: Opportunities and risks. JIA SIPA. (2018, November 19). https://jia.sipa.columbia.edu/online-articles/south-koreas-options-admidst-us-china-trade-war.

Trump denounces Korea-US FTA As 'job-killing' deal. Korea Times. (2016, July 22). https://www.koreatimes.co.kr/www/news/nation/2016/07/120_210039.html.

Williams, B. R., Canis, B., & Manyin , M. E. (2021, January 25). U.S.-South Korea (korus) FTA. CRS Report. https://fas.org/sgp/crs/row/IF10733.pdf.

Yonhap. (2021, August 20). How Biden's presidency will Influence Korean economy. How Biden's Presidency will Influence Korean Economy? https://world.kbs.co.kr/service/contents_view.htm?lang=e&menu_cate=business&id=&board_seq=393713.

Zarroli, J. (2017, September 6). Trump pledges to withdraw from U.S.-South Korea trade agreement. NPR. https://www.npr.org/2017/09/06/548985192/trump-pledges-to-withdraw-from-u-s-south-korea-trade-agreement.

Pic Courtesy-Ciaran O'Brien at unsplash.com

(The views expressed are those of the author and do not represent views of CESCUBE.)