ICAS Special Contribution

No. 2006-0209-MEM

South Korea-U.S. Economic Relations: Cooperation, Friction, and Prospects for a Free Trade Agreement (FTA)

Mark E. Manyin

Institute for Corean-American Studies, Inc.

965 Clover Court, Blue Bell, PA 19422

Email: icas@icasinc.org

Biographic Sketch:Mark E. Manyin

[Editor's note: We gratefully acknowledge the special contribution of this CRS Report to Congress with written permission to ICAS of Mark E. Manyin. sjk]

South Korea-U.S. Economic Relations: Cooperation, Friction, and Prospects for a Free Trade Agreement (FTA)
Mark E. Manyin
Analyst in Asian Affairs
Foreign Affairs, Defense, and Trade Division
Congressional Research Service, The Library of Congress


     South Korea is a major economic partner for the United States. In 2004, trade between the two countries was over $70 billion, making South Korea the United States’s seventh-largest trading partner — ahead of France and Italy — and its seventh-largest export market. In 2005, the U.S. was Korea’s third-largest trading partner, second-largest export market, and its largest supplier of foreign direct investment (FDI).

     Bilateral economic relations have advanced to the point that the two sides in February 2006 announced their intention to negotiate a bilateral free trade agreement (FTA), which they hope to complete by 2007. The announcement followed South Korean concessions in four areas: beef, automobiles, pharmaceuticals, and “screen quotas” limiting the amount of screen time that foreign films could be shown. The United States had said an FTA could not be launched unless Seoul demonstrated its ability to deliver compromises in these sectors. If an agreement is reached, it would be the United States’s largest FTA since the completion of the North American Free Trade Agreement. To go into effect, FTAs must be approved by Congress and the Korean National Assembly. The FTA negotiation and ratification processes are likely to politicize bilateral trade disputes and produce spillovers between the economic and strategic aspects of the relationship, particularly if there are dramatic developments in the crisis over North Korea’s nuclear weapons program.

     Increased U.S.-South Korean economic interaction has been accompanied by numerous disagreements over trade and economic policies. The intensity of the disputes has diminished considerably since the late 1980s and early 1990s, in part because South Korea has enacted a set of sweeping market-oriented reforms as a quid pro quo for receiving a $58 billion package from the International Monetary Fund (IMF) following the near collapse of the South Korean economy in 1997. In recent years, the United States and South Korea appear to have become more adept at managing their trade disputes, so that they tend to be less acrimonious than they were in the 1980s and 1990s. This is due in part to the quarterly, working-level bilateral trade meetings that have been held since early 2001. Strategic factors, including South Korea’s increased economic integration with North Korea, have become issues on the bilateral U.S.-South Korea economic front. In the FTA talks, South Korean officials have said they will try to secure preferential tariff treatment for goods made by South Korean firms in the Kaesong industrial zone, located inside North Korea. In 2003, China surpassed the United States as South Korea’s largest trading partner. Many South Korean exports to China are believed to be intermediate goods that are incorporated into products sent to the United States.

     This report summarizes the main issues in U.S.-South Korean economic relations, including South Korea’s economic prospects and economic reforms, major bilateral economic disputes, and the pros and cons of a U.S. -South Korean FTA. The report will be updated periodically.

The full text of this paper is available in Adobe PDF format.

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