By Troy Stangarone
The arrival of South Korean President Lee Myung-bak seems to have concentrated the minds of Republicans and Democrats in a manner that only imminent default has achieved prior to now. Little more than a week ago, it was uncertain that the long-pending free trade agreements with Korea, Panama, and Colombia would even be submitted in time for President Lee’s visit to the United States.
However, with President Lee scheduled to address a joint session of Congress, as well have a Summit meeting with President Barack Obama, neither side wanted to leave the issue unsettled. The House moved first passing the KORUS FTA (278-151) and TAA (307-122), with the Senate (83-16) following shortly thereafter.
Ensuring passage of the KORUS FTA in time for President Lee’s visit is reflective of the strong nature of the alliance. At a time when the United States’ commitment to Asia and trade policy has been questioned, working to complete the process in time for President Lee sends a strong signal that the United States is committed to engaging the Asia-Pacific region and increasing trade liberalization.
It is also reflective of the growing relationship between Seoul and Washington. What only a decade ago was an alliance that many considered to be in trouble has grown into one of the United States’ closest and most dependable partnerships. Reflective of this change has been Korea’s growing leadership role on the global and regional stage, especially on economic issues through the G-20 and serving as host and chair for last year’s G-20 Summit.
Beyond strategic calculations, the agreement is the most significant economic agreement for the United States in nearly two decades and the most important agreement for the United States in East Asia. Last year alone, the United States and Korea conducted more than $115 billion dollars in two way trade in goods and services. According to estimates by the U.S. International Trade Commission, the agreement could add more than $18 billion in new trade in goods alone. At the same time, it will open up Korea’s more than $500 million services market to U.S. service provides, likely significantly adding to that total.
With the U.S. Congress having completed its work, attention now moves to South Korea’s National Assembly. Korea has been attempting to move one step behind the United States in the approval process and the Grand National Party is now setting the stage into motion for approval in Korea. Early expectations are that the agreement will be voted on once the National Assembly reconvenes on October 28. In addition to the agreement itself, Korea will need to pass 14 additional pieces of legislation to make the necessary changes for the agreement to be implemented.
If the early success of the EU-Korea FTA is any indication, the benefits of the KORUS FTA should be readily evident early next year when it comes into force. However, expectations for autos, one of the biggest stumbling blocks to the agreement, should be tempered. The revised agreement struck by the two sides in December only cuts the Korean tariff in half when the agreement comes into effect, and then leaves them there until the fifth year. This will give European producers a price advantage over U.S. models in the Korean market. In anticipation of the EU-Korea FTA coming into effect, European producers aggressively cut their prices in the Korean market and have seen increases of 30 percent in the first three months of the agreement.
Despite the long road it took to get to this point, the KORUS FTA is a critical agreement for both parties and represents a new high in U.S.-Korea relations. Now the hard work starts, making the agreement work for U.S. and Korean consumers and businesses.
Troy Stangarone is the Senior Director for Congressional Affairs and Trade for the Korea Economic Institute. His views are his own.