Five Years of Free Trade
I still remember the anxiety I got from driving an American-made car in Seoul in the mid-1990s. On occasion, I had my car keyed, tires slashed, or woke up to find it covered in eggs. I was prevented from parking in certain lots and even had a nationalistic Korean refuse to sell me imported gas for my American imported vehicle at the height of the 1997 financial crisis. For a while I took these incidents personally, until I realized that the same thing was happening regularly to drivers of almost all foreign cars – even if those drivers were Korean.
Fast-forward to 2017. The days of egged Fords and keyed Buicks in Seoul are long gone. I still go regularly to Seoul, but as I sit in my Washington DC office and reflect on the five years of the U.S.-Korea Free Trade Agreement (KORUS), I am reminded that Korea has long been a challenging market for foreign companies and, despite the tremendous progress in the bilateral trading relationship, there is still room for improvement.
At five years old, I still believe that KORUS has been a benefit to both economies. The agreement has benefited U.S. exporters of manufactured and agricultural goods and service providers, and strengthened the economy of a long-time U.S. ally and key security partner in the Asia-Pacific. It’s also added jobs to the U.S. economy, paved the way for substantial increases in Korean investment in the United States, and established 21st century rules that all future U.S. free trade agreements should build from.
Of course, there remain a number of challenges, but I am encouraged by the United States Trade Representative’s acknowledgment that “through U.S. engagement with Korea, the United States succeeded in making significant progress in addressing issues in many [of these] areas.” Here at the U.S.-Korea Business Council, we too, remain committed to resolving issues quickly, fully and faithfully in line with the agreement.
For now, let’s take a look at the numbers, which – along with the egg free parking lots – help explain why we still hold a positive view of KORUS.
Due to slower economic growth that has dampened domestic demand, Korea is importing less from the world. Since 2011, Korea’s imports from the world fell 22.5% from $524.41 billion to $406.01 billion. However, over that same period, Korea’s imports from the United States grew 3.3% from $61.9 billion to $63.9 billion. This macroeconomic dynamic is important, especially as free trade agreements are enacted to incentivize trade amongst participants – which KORUS is clearly doing.
In addition to the growth in overall exports, KORUS has led to a surge in U.S. service exports to Korea, and a growing U.S. surplus in services trade. This is significant and reflects the relative strengths of the U.S. and Korean economies. According to the Department of Labor, 80% of the U.S. work-force works in the service sector, whereas Korea’s service sector makes up much less of its workforce by comparison (69.5%). The changes brought by KORUS have created new opportunities, and many highly competitive U.S. services firms across a range of service industries are taking advantage of these openings.
Another benefit of KORUS has been a rapid increase in the number of jobs supported by exports to Korea. According to a 2016 report by the Department of Commerce’s International Trade Administration, the United States saw exports to Korea support an increase of 87,000 jobs between 2009 and 2015; bringing the total number of jobs supported by exports to Korea to 358,000 (as of 2015). That increase was the fourth largest of any country in the world over the same period, which is particularly impressive given Korea’s limited market size.
KORUS also includes an investment chapter that is designed to facilitate bilateral investment between the two countries. By any measure, the United States is the net beneficiary here. Korea is the 14th largest foreign direct investor in the United States, with its 2015 position at $38.17 billion and it is the fifth fastest growing source of FDI in the United States with investment growing 17.3% between 2010 and 2015. This growth is a crucial development for the bilateral relationship in recent years. Such investment now results in 45,100 direct, well-paying jobs. According to Select USA the average yearly salary paid by Korean companies operating in the U.S. is $91,000. Further, Korea joins Japan and Ireland as the only three countries that rank in the top 15 of both the largest and fastest growing sources of FDI in the United States.
Security is another winner from the KORUS agreement – and simply put, there are no metrics that adequately assess the tremendous value gains here. In addition to the billions of defense exports from the U.S. to Korea over the past few years – valued between $12-14 billion between 2013 and 2016 – there are ancillary benefits for global economic activity and regional stability that go unmeasured.
As mentioned earlier, not every aspect of the KORUS agreement has worked as planned. In all our discussions about the agreement with Korean government officials, the Council is vigilant in mentioning the pressing need to resolve a number of outstanding issues relating to regulatory transparency, customs clearance, and regulatory overreach. Yet, as we take stock of the agreement – or any trade agreement for that matter – we must remember that trade is not a zero-sum game, and benefits are not fully captured if we view them too narrowly. But we believe that overall, KORUS is providing benefits to American companies and we look forward to continuing to seek improvements wherever possible.