'FTA may not be cause of trade imbalance'

The Korea-US free trade agreement may not be the cause of the increasing trade imbalance between the two countries, according to a report from the Korea Institute for Industrial Economics & Trade Sunday.

In the report, researcher Kim Ba-woo claimed that there was no statistically significant correlation between the rise of Korean exports to the US and the Korea-US free trade agreement going into effect.

“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,” said Kim.

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.

The Korea-US FTA, which went into effect in March 2012, has been criticized by the American president as being “horrible” and one that hurt jobs in the US.

Trump has vowed to renegotiate, and even to consider terminating the bilateral trade deal. 

According to the Office of the United States Trade Representative, US goods and services with Korea reached about $144.6 billion last year, with a US-side goods deficit of $27.7 billion and services surplus of $10.7 billion for a net $17 billion deficit.

Kim argues that American imports of products in sectors such as the automobile industry rose not only from Korea but globally, indicating that rising import numbers were a result of a recovering American economy rather than lower tariffs. 

“In the case of automobiles, export numbers began to rise before the fall in tariffs,” the report claims.

The Korean Trade Ministry said last month that it would call for a meeting with its US counterpart to discuss the root causes of the trade imbalance. US Trade Representative Robert Lighthizer asked for a meeting to consider “possible amendments and modifications” to the FTA in a letter dated July 12, but no date has yet been set for the discussion.

The Korean government maintains that the Korea-US FTA is a deal that is beneficial to both sides.

On July 31, the Korean government submitted a written comment to the US Trade Representative via the Embassy of Korea in the US, noting that 40 out of 50 US states saw exports to Korea increase in the five years following the FTA going into effect. In particular, the comment noted, states in the Rust Belt saw an average rise of 45 percent in exports to Korea between 2012 and 2016.

American agencies such as the National Pork Producers Council also submitted comments. The NPPC wrote, “The growth of US pork exports to South Korea has been primarily because of the KORUS and the elimination of high South Korean import duties on US product.”

The report from KIET also supports that stance, saying that many of the US’ imports from Korea are tied to direct investments from Korean companies.

“This indicates that trade with Korea has contributed to, rather than hurt job creation in the US. The Korean government must respond to US pressure in trade negotiations by connecting trade and investment,” Kim wrote. 

By Won Ho-jung (hjwon@heraldcorp.com)