The US-Korea Free Trade Agreement, considered to be the most significant agreement of its kind for the US since the 1994 North American Free Trade Agreement, takes effect Thursday.
Within five years, the agreement will eliminate tariffs and phase out quotas on nearly 95% of consumer and industrial products traded between the two nations. US automakers and farmers and South Korean LED lighting, car parts and textile manufacturers are among the industries expected to benefit from the duty-free exchange of goods.
KORUS, as the agreement is known, also establishes regulatory frameworks that will open the South Korean market to US service providers in industries such as health care, telecommunications, financial consulting and accounting. The South Korean services market is estimated at $580 billion, according to the Office of the US Trade Representative.
“The US-Korea trade agreement will help American companies and American workers regain a strong hand in the Korean marketplace, making sure that more of the goods and services sold there are made in America – not somewhere else,” the Office of the US Trade Representative says.
KORUS talks started in 2006 and extended into 2011 to renegotiate South Korean non-tariff barriers for US-made vehicles. The US Congress ratified the free trade agreement in October.
The US International Trade Commission projects that the reduction on South Korean tariffs and quotas will add $10 billion to $12 billion to US gross domestic product annually and generate at least 70,000 jobs in the US.
The South Korean government estimated that South Korean exports to the US will increase by more than $1.2 billion per year and imports from the US will increase by more than $1.1 billion per year over the next 15 years. South Korea’s government projects KORUS will create about 350,000 jobs in South Korea.
With a GDP of estimated at $1.01 trillion in 2010, South Korea was the world’s 14th-largest economy, according to the World Bank. South Korea also has free trade agreements with the EU and the Association of Southeast Asian Nations.
In 2010, South Korea’s economy grew 6.1%. The International Monetary Fund estimates it expanded 3.9% in 2011 and will grow 4.4% in 2012. That’s comparable to other engines of global growth, such as Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa, a group known as the CIVETS.
The US used to be South Korea’s biggest trading partner, according to a White House fact sheet, but since 2003 the US has dropped into fourth place – behind China, Japan and the EU. During the same period, China’s market share of South Korea’s imports increased to 17% from 7%.
—Sabine Vollmer (email@example.com) is a CGMA Magazine senior editor.