A recent study said the Korea-U.S. free trade agreement (KORUS FTA) may not be the cause of the rapid increase in South Korea’s exports to the U.S. after the FTA has come into effect.
According to a report titled “Review of the Korea-U.S. FTA Effects on Manufacturing Industry” released by the Korea Institute for Industrial Economics & Trade (KIET) on August 13, South Korea’s exports to the U.S. have continuously grew to US$71.6 billion (82.02 trillion won) last year from US$38.8 billion (44.45 trillion won) in 2009 right after the financial crisis.
However, the report said the industry whose exports showed a significant increase didn’t have much reduction in tariffs and there were other factors for the increase including the fact that U.S. had the overall increase in imports from other countries over the same period.
For instance, South Korea’s car exports to the U.S. grew US$9.2 billion (10.54 trillion won) after the FTA took effect, accounting for more than a half of US$17.9 billion (20.5 trillion won) of the total increase of exports in the manufacturing industry. However, the U.S.’ overall car imports from other countries around the world rose to US$261.9 billion (300 trillion won) from US$182.8 billion (209.4 trillion won) at the period before the FTA came into effect. It means that South Korea is not the only country which saw its car exports increase.
Tariffs on South Korean cars were maintained until 2015 and removed in 2016 but the country’s car exports in 2016 fell short of that in 2015.
Tariffs in the steel and other manufacturing industries also dropped to 0 percent before the implementation of the FTA. Therefore, there is no statistically significant correlation between the rise of Korean exports to the US and the Korea-US free trade agreement going into effect.
The U.S.’ tariffs on South Korea have been gradually lowering after the FTA has taken effect in 2012. The average tariff rate in the manufacturing industry stood at 0.4 percent last year but the figure would have been as low as 1.7 percent even without the FTA.
The report said, “Although it is true that the trade imbalance after the FTA was led by an increase in Korean manufacturing exports to the US, it does not seem that the lower tariffs set by the FTA was the reason behind rising Korean manufacturing exports. Since there are various factors that affect exports, it cannot say the FTA is the cause of rising trade after the FTA has come into effect. The report comes as the United States publicly puts pressure on Korea and other countries to renegotiate free trade agreements that the Trump administration considers to be unfair.