Fisher Investments Editorial Staff
Trade

A Rising KORUS

By, 12/07/2010

Story Highlights:

  • The US and South Korea finalized the re-negotiation of their 2007 trade agreement.
  • The agreement awaits approval from both countries' legislatures. If ratified, it would be the largest US FTA since NAFTA.
  • Congress struck down the original agreement, largely tied to specifics on auto and beef tariffs—but the latest iteration seems likely to pass.
  • Regardless of its ultimate fate in Washington, the negotiations show renewed energy by the US to address free trade and mark another of many steps forward for freer global trade in 2010.

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After years on the back burner and a head fake at the recent G-20 meeting in Seoul, the US and South Korea finalized the renegotiation of their 2007 trade agreement last Friday. If ratified, the Republic of Korea-United States Free Trade Agreement (KORUS) would be the largest US FTA since the North American Free Trade Agreement (NAFTA) was ratified in 1993.

KORUS was first proposed in February 2006, but the US Congress struck it down in April 2007, largely tied to disagreements on auto tariffs and concerns about US beef. The newly negotiated KORUS departs significantly from its predecessor on autos. The US may keep a 2.5% tariff on South Korean auto imports for five years before it must be dropped entirely. In return, South Korea will soften safety and emissions requirements for US autos and quadruple the number of vehicle exports allowed per automaker to 25,000. Further, South Korea will cut its tariff on US autos from 8% to 4% immediately and phase it out entirely in five years. As for the cows—though officials lifted the full 2003 ban of US beef in 2008 (despite widespread Korean protest), beef imports will remain limited to cattle aged 30 months and younger. 

KORUS has yet to be ratified, but Friday's agreement marks another step forward. And while ratification is  by no means guaranteed, it seems likely to pass the US legislature this time around. Congressional Republicans support the new framework—and in our view, President Obama likely wouldn't have approved negotiations without first securing tentative commitment from enough Democrats for passage.

The US has fallen behind the curve in free trade lately, and we hope the South Korean FTA proves a springboard to languishing agreements with Colombia and Panama. South Korea, in contrast, has been very busy—like the rest of the world, in fact—inking deals with India, ASEAN (the Association of Southeast Asian Nations), Peru, and the EU. The more open trade the better—reducing barriers allows goods and services to flow where they're most needed and most efficiently produced. And contrary to fears of rampant protectionism, 2010 has turned out to be a pretty good year to tear down a few economic walls.

*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

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