By Phil Eskeland
On July 12, 2017, Ambassador Robert Lighthizer of the Office of the U.S. Trade Representative (USTR) sent a letter to Minister Joo Huynghwan of the Ministry of Trade, Industry and Energy of the Republic of Korea (ROK) requesting the convening of a special session of the Joint Committee as provided for in the Korea-U.S. Free Trade Agreement (KORUS FTA) to discuss possible revisions to the agreement. Specifically, the letter conveys the desire on behalf of the Trump Administration to “review progress on the implementation of the Agreement, resolve several problems regarding market access in Korea for U.S. exports, and, most importantly, address our significant trade imbalance.”
First, it is important to note that this request is a far cry from threats to terminate the KORUS FTA. Nonetheless, this action should not be unexpected in light of past campaign rhetoric by President Donald Trump, but represents a prospect to possibly make amendments and modifications to the base text of the agreement.
This meeting can be an opportunity for both South Korea and the United States to update and modernize this 10-year old agreement. There have been many changes in the global economy since KORUS FTA negotiations concluded in 2007, particularly in the field of digital trade. Korea could offer specific changes to policies that have hindered full and open access to U.S. exporters, such as recognition of U.S. automobile safety standards. On the flip-side, Korea should not be reticent in asking for changes in U.S. policies that have hampered Korean exports to the United States.
However, it is disappointing to see the use of just one set of trade statistics by the Trump Administration without incorporating other factors, such as trade in services data that continues to produce record surpluses for the U.S., that form a more complete and accurate economic picture as it relates to Korea. The merchandise trade deficit issue serves as an unfortunate scapegoat for economic stagnation in many parts of the United States that has other causes.
Nevertheless, when examining the totality of trade between the U.S. and Korea in both goods and services, the KORUS FTA has been a success because:
In addition, the independent U.S. International Trade Commission (USITC) concluded last year that the KORUS FTA improved the U.S.-Korea merchandise trade imbalance in America’s favor by $15.8 billion. In other words, the bilateral trade imbalance between the U.S. and Korea would have been much higher absent the KORUS FTA because U.S. exports of items that were covered by the agreement have dramatically increased since implementation. Just ask the U.S. agricultural community about the growth of U.S. exports of beef, cherries, blueberries, lobsters, almonds, and a host of other American agrarian products to Korea regarding the positive impact of the KORUS FTA. Many of these rural farming and ranching communities are located in counties and states that voted for Donald Trump.
In fact, the most recent trade statistics from the U.S. Department of Commerce continue to show the U.S. exporting a record level of goods across-the-board to Korea since the beginning of the year. During May, 2017, (the latest data available), the U.S. sold nearly $4.5 billion worth of goods to Korea – the highest monthly level in the history of U.S.-Korea trade relations. This has helped to produce a 33 percent reduction in the bilateral trade imbalance thus far this year, in comparison to 2016 levels, continuing a declining trend in the U.S.-Korea trade deficit that started mid-last year, well before the U.S. presidential election.
In short, the free market and the KORUS FTA is working on its own accord to resolve the Trump Administration’s concern about the merchandise trade imbalance with Korea. If present trends continue, the U.S. may experience a lower bilateral merchandise trade deficit with Korea in 2017 than we have seen for the past several years – all without any action by USTR.
Phil Eskeland is Executive Director for Operations and Policy at the Korea Economic Institute of America. The views expressed here are his own.
Photo from National Ocean Service’s photostream on flickr Creative Commons.