by Rajiv Biswas, Asia Pacific Chief Economist for IHS Markit
- The US and South Korea held a special session of the US-Korea FTA Joint Committee on toady (22 August) to discuss renegotiating the Korea-US Free Trade Agreement (KORUS). KORUS originally came into force on 15 March 2012.
- A key concern for the current US Administration is the size of the bilateral trade deficit, which reached USD 17 billion in 2016.
- Total US-South Korea bilateral trade of goods and services reached USD 144.6 billion in 2016, with US exports of goods and services to South Korea reaching USD 63.8 billion, while US imports from South Korea reached USD 80.8 billion.
- The US has a bilateral deficit with South Korea for trade in goods that reached USD 27.7 billion in 2016.
- However, in bilateral trade in services, the US has a large bilateral trade surplus, which reached USD 10.7 billion in 2016. Key US exports of services to South Korea include travel and tourism, transport services and intellectual property-related services.
Outlook for KORUS Talks:
A key concern for the US is that US exports of goods to South Korea have not grown following the implementation of KORUS. The US has a bilateral deficit with South Korea for trade in goods of USD 27.7 billion in 2016. The US bilateral trade deficit in goods has more than doubled from the level prior to KORUS implementation, which is an important focal point for the US Administration.
Furthermore, US exports of goods in 2016 have declined by 2.8% in US dollar terms compared to the 2011 level of exports prior to KORUS implementation. In contrast, US imports of goods from South Korea in 2016 were 23.4% higher than in 2011, just prior to the implementation of KORUS. The US is expected to focus on renegotiating KORUS terms on trade in autos and steel, which are sectors in which the US has significant sectoral trade deficits with South Korea.
However, once bilateral trade in services is taken into account, the combined US bilateral trade deficit in goods and services with South Korea is significantly lower. US exports of services to South Korea have performed strongly since KORUS came into force, rising by 29.3% between 2011 and 2016.
Although the US is seeking to re-negotiate KORUS, this is occurring against a wider background of closer US and South Korean strategic and defence co-operation to address escalating military tensions with North Korea, as well as jointly leading international initiatives together with China to apply tougher economic sanctions on North Korea. North Korea again escalated its aggressive rhetoric of military threats on 21st August in response to the commencement of the annual joint US-South Korean military exercise Ulchi-Freedom Guardian.