The KORUS FTA was signed on June 30, 2007, but has not yet been sent to Congress for ratification. US concerns about auto and beef trade are the main stumbling blocks. At the Toronto G-20 Summit in June 2010, Presidents Obama and Lee Myung Bak tasked their officials to find solutions by the November Seoul G-20 Summit. If a deal is struck, implementing legislation could be submitted to Congress in early 2011. This paper assesses the problems and potential solutions to these problems and options for legislative action. The author concludes that, once submitted, the KORUS FTA will be approved for three reasons--all related to actions taken by other countries that could adversely affect US commercial and security interests in the Asia-Pacific region. The first reason is to demonstrate support for a strong ally facing North Korean aggression. Neither country wants to let a few provisions in a major trade agreement create friction in a strategically important bilateral alliance. The second reason is to secure a level playing field for US exporters in the Korean market. The imminent signing of the Korea-EU FTA, an agreement modeled on and largely comparable to the KORUS FTA, increases the urgency of Congressional action on the KORUS FTA since US and EU exports compete for sales in the Korean market. The third reason relates to the ability of US officials to advance US economic interests through an effective trade policy. Implementing KORUS is important to help maintain the credibility of US trade initiatives that seek to boost US exports, constrain Chinese economic influence in the Asia-Pacific region, and advance overall US foreign policy and security interests.

Jeffrey J. Schott

English

Research Papers in Economics

N u m b e r   Pb1 0 - 2 3   O C T O b e r  2 0 1 0
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Policy Brief
Prospects for Implementing 
the Korea-US Free Trade 
Agreement
Jeffrey J. Schott
Jeffrey  J.  Schott,  senior  fellow,  joined  the  Peterson  Institute  for 
International Economics in 1983. He is the author, coauthor, or editor of 
several books on trade, including Figuring Out the Doha Round (2010), 
Economic Sanctions Reconsidered, 3rd ed. (2007), Trade Relations 
Between Colombia and the United States (2006), NAFTA Revisited: 
Achievements  and  Challenges  (2005),  Free  Trade  Agreements: 
US Strategies and Priorities (2004), Prospects for Free Trade in the 
Americas (2001), Free Trade between Korea and the United States? 
(2001), and The WTO after Seattle (2000).
© Peter G. Peterson Institute for International Economics. All rights reserved.
Current StatuS of the KoruS fta
The Korea-US Free Trade Agreement (KORUS FTA) was signed 
on June 30, 2007. Since then, the Korean National Assembly 
has vetted the agreement and the pact cleared a major legis-
lative hurdle when the Foreign Affairs and Trade Committee 
approved it in April 2009; the full assembly has deferred final 
passage pending comparable action by the US Congress. In the 
United States, the ratification process has not yet begun; neither 
President George W. Bush nor President Barack Obama has 
submitted implementing legislation to Congress.
Because the deal was signed just before the expiration 
of Trade Promotion Authority (TPA) on June 30, 2007, US 
implementing legislation still qualifies for “fast track” proce-
dures  even  though  the TPA  has  expired.  Under  fast  track 
procedures,  the  president  formally  submits  implementing 
legislation to Congress. In practice, the text of the bill is nego-
tiated with congressional committees and not submitted until 
most disputed issues have been resolved.
President Obama has said that certain problems (mostly 
relating  to  autos  and  beef)  need  to  be  resolved  before  he 
moves forward with implementing legislation. At the Toronto 
G-20 Summit, Presidents Obama and Lee Myung Bak tasked 
their officials to find solutions by the Seoul G-20 Summit in 
November 2010, so that ratification could proceed soon after.
 Assuming a deal is struck in Seoul or soon after, White 
House officials plan to table implementing legislation in early 
2011. On that timetable, the agreement could enter into force 
in late 2011 or January 2012.
flaShpointS in the uS ratifiCation Debate
Critics of the KORUS FTA in the United States cite numerous 
provisions of the pact that should be recast; most of their 
concerns echo complaints about other FTAs that previously 
passed  congressional  muster  (e.g.,  investor-state  dispute 
provisions and labor provisions) or provisions that eliminate 
over time high US tariffs protecting apparel and a few other 
industries. However, most attention has been directed at the 
provisions on autos and beef. 
Autos.  Auto  issues  have  been  a  major  stumbling  block  to 
congressional ratification of the KORUS FTA. Bilateral auto 
trade was valued at about $12 billion in 2008 and Korea had a 
$10 billion surplus. The KORUS FTA gives Korea a small price 
advantage over other importers as a result of the elimination of 
the 2.5 percent US auto tariff; sets a 10-year phaseout of the 
25 percent US tariff on light trucks; and benefits US exporters 
by eliminating the 8 percent Korean auto tariff, which should 
help increase US exports of luxury vehicles. 
The FTA has been opposed by Ford and Chrysler and 
the  autoworkers  union;  General  Motors  (GM)  has  quietly 
supported the deal because of its stake in GM-Daewoo. The N u m b e r   Pb1 0 - 2 3   O C T O b e r  2 0 1 0
2
critics  argue  that  trade  should  be  more  balanced  and  that 
the FTA needs to be rewritten to require Korea to eliminate 
nontariff barriers—e.g., discriminatory tax policies and fuel, 
emission,  and  safety  standards—that  they  claim  impede 
import and distribution of foreign cars in Korea. 
The call for more balanced trade amounts to a managed 
trade manifesto that is seductive in political terms and irra-
tional in economic terms. The list of identified obstacles is 
more substantive and has been the focus of attention of trade 
officials seeking to fulfill the presidential mandate from the 
Toronto G-20 Summit.
What is likely to be included in a KORUS FTA reform 
package on autos? To their credit, US officials under both 
Presidents Bush and Obama have rejected the managed trade 
proposals. Instead, efforts have focused on improving trans-
parency of Korean regulatory policies and the operation of 
dispute resolution procedures in the auto sector. Trade officials 
have looked at the Korea–European Union FTA for precedents 
that might improve upon similar KORUS FTA provisions. 
In  addition,  both  governments  have  sought  to  encourage 
innovation in their auto industries and joint ventures, which 
would spur investment and employment in both countries. 
One example is the LG Chem investment in Michigan that 
President Obama helped launch in July 2010. LG is investing 
$300 million in the plant, which will produce electric batteries 
for US-produced hybrid cars starting in 2012.
Beef. The KORUS FTA phases out the 40 percent Korean 
tariff;  however,  sanitary  restrictions  still  bar  US  exports  of 
cattle  over  30  months  old.  Resolution  of  the  beef  issue  is 
significant for two reasons: to increase US exports to Korea 
and to set a precedent for resolving similar problems with 
other countries, especially Japan. 
US beef exports are well below their peak level before 
shipments were banned in December 2003 due to concerns 
about bovine spongiform encephalopathy (BSE) contamina-
tion.  Pursuant  to  World  Organization  for  Animal  Health 
(OIE) rulings in 2008, Korea subsequently committed to fully 
open its market over time. 
Currently,  US  beef  exporters  face  two  problems.  The 
smaller issue is the resolution of the remaining Korean import 
ban that affects a very small share of potential US shipments; 
in this matter, US and Korean officials are likely to set out a 
specific schedule for monitoring beef production and trade and 
removing import restrictions consistent with OIE guidelines. 
The larger problem is that the long hiatus from the Korean beef 
market during the BSE crisis has allowed Australian suppliers 
to gain a dominant share of the Korean import market. US 
beef producers will find it difficult to dislodge their Australian 
competitors—especially once Australia concludes its own FTA 
with Korea in the near future.  
Will CongreSS ratify the KoruS fta?
Conventional  wisdom  posits  that  once  a  bill  is  tabled, 
Congress  cannot  say  “no”  to  an  important  ally—especially 
now, given sensitive developments on the Korean peninsula. 
Nonetheless, the vote will likely be close, since Democratic 
leaders will “excuse” as many of their members as possible from 
voting “yes” while still allowing passage of the bill. President 
Obama and his allies in Congress do not want to take the 
blame for a foreign policy or security crisis that could unfold 
if the FTA is rejected. But passage will require a large majority 
of Republican votes and a significant minority of Democratic 
votes, just as with almost every FTA since the North American 
Free Trade Agreement (NAFTA).
However, three “wild cards” are affecting congressional 
action on trade legislation in 2011: composition of the new 
Congress after the November 2010 election; White House 
strategy regarding the other FTAs with Colombia and Panama, 
which also await congressional action; and legislation targeting 
Chinese currency manipulation as a countervailable subsidy.
Republicans  will  make  large  gains  in  both  houses  of 
Congress and could take control of the House. Republican 
control of the Senate is also possible but less likely given the 
ascent of anti-establishment candidates in recent Republican 
primary elections. How these events affect trade votes is harder 
to assess, since newly elected members in both parties may 
The call for more balanced trade...
is seductive in political terms and 
irrational in economic terms.
Resolution of the beef issue is significant 
for two reasons: to increase US exports 
to Korea and to set a precedent for 
resolving similar problems with 
other countries, especially Japan. N u m b e r   Pb1 0 - 2 3   O C T O b e r  2 0 1 0
3
tend to take more protectionist positions than their prede-
cessors. Over the past two decades, the US trade debate has 
become more ideological, and both the right and left wings of 
the political spectrum have a protectionist bias.
If the Republicans gain control of the House, their leaders 
are likely to push for ratification of the KORUS FTA (and 
perhaps all three FTAs at the same time; see below). The lead-
ership will have to pressure the right wing of the Republican 
Party, since most Democrats will oppose, as they did in the 
2005 vote on the Central America FTA (CAFTA). In this 
scenario,  the  national  security  rationale  will  loom  large  in 
the debate and will probably be decisive in securing support 
among otherwise protectionist members.
 Will the Obama administration submit legislation only for 
the KORUS FTA, or will it try to “kill three birds with one stone” 
by linking FTAs with Korea, Colombia, and Panama into an 
omnibus implementing bill? The rationale for linking the three 
pacts is that members don’t want to vote three times on trade 
bills, so it is better to do them all together in a single bill. This 
strategy would probably mute a lot of the criticism from specific 
manufacturing firms about the KORUS FTA, since those firms 
benefit from the other pacts. Labor unions would continue to 
oppose all three FTAs—but members representing labor constit-
uencies were never going to vote for these trade deals anyway. 
However,  the  Colombia  FTA  no  longer  qualifies  for 
fast track. Speaker Nancy Pelosi and the House Democrats 
changed  a  House  rule  in  April  2008  nullifying  the  pact’s 
eligibility. Therefore, from a parliamentary perspective, it is 
unclear how a “3 in 1” bill would be handled.
If Democrats maintain control of the House, they will 
probably want to continue to defer action on the Colombia 
FTA. This strategy would provide time to press for more policy 
and  judicial  reforms  in  Colombia;  it  would  also  partially 
compensate labor constituencies for moving forward with the 
KORUS FTA.
If Republicans gain control, however, the “3 in 1” strategy 
could be revived. House Democrats may prefer to accept one 
trade vote on FTAs if the China currency bill proceeds down 
a parallel legislative track, and thus they may passively accept 
House action that essentially annuls the 2008 rule change.
The third wild card is what happens to the China currency 
bill in the next Congress. The bill passed by the House Ways 
and Means Committee on September 24, 2010, will probably 
not make it through the full Congress this year. Whether a 
similar bill is revived in the next Congress depends on Chinese 
policy changes and US electoral results. That said, the odds 
are good that a China bill will be tabled early in 2011 because 
members  from  both  parties  want  to  counter  the  implicit 
subsidization of Chinese exports resulting from the persistent 
undervaluation of the renminbi—and they see draft legislation 
as a useful prod for Chinese policy reform. Big business will 
oppose this legislative effort, but I doubt they would divert 
substantial lobbying efforts on priority tax matters to actively 
block a bill—especially if the “3 in 1” strategy unfolds.  
Why Will CongreSS aCt?
There  are  three  main  reasons  why  the  Obama  administra-
tion  decided  to  accelerate  efforts  to  resolve  the  impasse 
over the KORUS FTA despite the continued opposition of 
labor unions, Ford and Chrysler, and leading congressional 
Democrats. All derive from actions taken by other countries 
that could adversely affect US commercial and security inter-
ests in the Asia-Pacific region.
The first reason is to demonstrate support for a strong 
ally facing North Korean aggression. When the KORUS FTA 
was negotiated, the main concern related to North Korea was 
whether goods produced in the Kaesong Industrial Complex 
would be eligible for FTA preferences. Since then, however, 
North Korea has taken a number of provocative actions—
especially  testing  nuclear  devices  and  launching  offensive 
missiles—that  underscore  the  importance  of  a  strong  and 
durable alliance between the United States and South Korea. 
Neither country wants to let a few provisions in a major trade 
agreement create friction in a strategically important bilateral 
alliance. That’s the reason why Secretary Hillary Clinton is 
now a strong advocate within the Obama administration for 
the KORUS FTA despite earlier reservations voiced during the 
2008 election campaign.
Implementing the KORUS FTA is important 
to help maintain the credibility of 
other US trade initiatives that seek to 
boost US exports, constrain Chinese 
economic influence in the Asia-Pacific 
region, and advance overall US foreign 
policy and security interests.N u m b e r   Pb1 0 - 2 3   O C T O b e r  2 0 1 0
4
The second reason is to secure a level playing field for US 
exporters in the Korean market. Korea has concluded or is nego-
tiating FTAs with most of its major trading partners; by defini-
tion these deals discriminate against US exporters and investors. 
Korean FTAs in force or under negotiation cover more than 50 
percent of Korea’s merchandise trade, and that ratio will exceed 
70 percent if talks with China begin as expected in 2011.
The  imminent  signing  of  the  Korea–European  Union 
FTA, an agreement modeled on and largely comparable to the 
KORUS FTA, increases the urgency of congressional action 
on the KORUS FTA since US and EU exports compete for 
sales in the Korean market. The Korea–European Union FTA 
is scheduled to be signed on October 6, 2010 and to enter into 
force on July 1, 2011, at which time European firms will benefit 
from tariff preferences in the Korean market largely comparable 
to those that had been expected to have been already available 
to US firms. 
The third reason relates to the ability of US officials to 
advance  US  economic  interests  through  an  effective  trade 
policy. The long delay in ratifying the KORUS FTA sends a 
signal to US trading partners that US officials don’t have the 
requisite political support to follow through on agreements 
reached at the trade negotiating table. Such concerns do not 
prevent them from negotiating with the United States, but 
foreign officials are inclined not to put their best cards on the 
table for fear that they will have to renegotiate the deal to 
assuage a skeptical Congress. 
Implementing  the  KORUS  FTA  is  thus  important  to 
help maintain the credibility of other US trade initiatives—
including  the  Doha  Round  of  multilateral  trade  negotia-
tions in the World Trade Organization and the Trans-Pacific 
Partnership talks—that seek to boost US exports, constrain 
Chinese economic influence in the Asia-Pacific region, and 
advance overall US foreign policy and security interests. 
The views expressed in this publication are those of the author. This publication is part of the overall programs 
of the Institute, as endorsed by its Board of Directors, but does not necessarily reflect the views of individual 
members of the Board or the Advisory Committee.

Prospects for Implementing the Korea-US Free Trade Agreement

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