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U.S. and South Korea Reach Agreement on FTA Changes

The United States and South Korea have reached an agreement in principle on modifications to be made to their bi-lateral free trade agreement. Among other commitments, U.S. imports of steel products from South Korea will not be subject to the recently announced 25 percent additional tariff but will be subject to a product-specific quota equivalent to 70 percent of the average annual import volume of such products during the period 2015 to 2017, effective from 1 May. No similar agreement was concluded with respect to the additional 10 percent tariff imposed by the United States on aluminium, however. On first glance, it appears the steel restraint may contravene article 11.1(b) of the WTO Agreement on Safeguards, which prevents WTO members from seeking, taking or maintaining any voluntary export restraints, orderly marketing arrangements, or any other similar measures on the export or the import side.

The two primary modifications to be made to KORUS deal with automobiles, a sector in which the United States runs a substantial trade deficit with South Korea. Specifically, Seoul agreed to give the United States an additional 20 years, until 2041, to phase out its 25 percent tariff on lorries imported from South Korea, although press sources note that South Korea does not currently export such vehicles to the United States. South Korea will also double to 50,000 per manufacturer per year the number of automobiles allowed to be imported from the United States even if they do not meet South Korean safety standards, although according to press sources no single U.S. automaker yet ships more than 10,000 vehicles to South Korea in a given year. South Korea offered no additional market access for U.S. agricultural products and officials said there were no changes to previously agreed tariff eliminations.

In addition, South Korea has agreed to principles for conducting verifications of origin of exports under KORUS and will establish a working group to monitor and address future issues that arise. The two sides are also negotiating a side agreement on provisions to prohibit competitive devaluation and exchange rate manipulation. While USTR states that this agreement will include strong commitments on transparency and accountability, press sources note that it will not be subject to the FTA’s dispute settlement provisions.

USTR asserts that the changes made to the agreement will reduce the U.S. trade deficit with South Korea, which has increased by 70 percent since the KORUS agreement took effect in 2012. The agency notes that once the amendments are completed they will undergo domestic review procedures in both countries, which in the United States will include a 60-day consultation period with Congress on any required modifications to the tariff schedule.

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