The US-Korea Free Trade Agreement Revisions Will Have Little Impact on the Balance of Trade

In September 2018, South Korea and the United States signed a revised free trade agreement, the first bilateral trade deal negotiated by the Trump Administration. In a signing ceremony with President Moon Jae-in, President Trump touted the trade deal as a “historic milestone in trade” with significant improvements to reduce the US trade deficit with South Korea. The revisions included changes to customs procedures, the automobile industry, and pharmaceuticals, with side negotiations related to steel imports and currency valuation. Part I reviews the changes in automobiles, including the Korean government easing safety standards, emission testing and labeling requirements, and the US government extending a 25 percent tax for an additional 20 years beyond the original KORUS FTA. It concludes that while some red tape has been eliminated by the Korean government, US manufacturers do not export enough automobiles to be able to “move the needle” significantly on exports. Likewise, the 25 percent truck tax, while entirely antithetical to the principles of trade and harmful to American consumers, is also unlikely to have an immediate impact, if any, as Korean auto manufacturers do not export trucks to the US. Part II reviews the key issues affecting trade in pharmaceuticals, how those issues were addressed in the original KORUS negotiations, and which changes were made under the current revisions. It concludes that while the Korean government issued a new “Premium Pricing Policy for Global Innovative New Drugs” in late 2018, this policy applies to such a limited number of products as to have practically no affect on improving transparency on government pricing and reimbursement of patents pharmaceuticals. Part III reviews the steel and aluminum agreement entered into between the US and Korea in exchange for renegotiating the FTA. It concludes that the tactics used by the Trump Administration of using the threat of unlawful steel tariffs under the pretense of a “national emergency” set a dangerous precedent in legitimate trade negotiations. Furthermore, because Korea only accounts for approximately 10 percent of US imported steel and because the agreed upon quotas may be challenged under the WTO as a prohibited voluntary export restraint, the changes will likely have little appreciable effect on trade of steel and aluminum. Part IV concludes with a brief overview of the currency issues between the US and Korea. However, because no actual agreement was reached between the two governments, the issue remains outstanding for future negotiations. The paper concludes that while modest gains were gained in certain industries, overall the revised KORUS will have little effect on trade between the United States and South Korea.