Much attention has been focused on automobiles, hitherto a major US grievance and a large component of the bilateral trade deficit: during 2006, only about 4,000 US-manufactured cars (excluding GM's Daewoo subsidiary) were sold in South Korea while sales of cars manufactured by South Korean companies (including cars manufactured in Korean-owned US plants) in the United States exceeded 800,000. South Korean automakers sold 730,863 vehicles in the United States in 2005, while American auto companies sold only 5,795 in South Korea, according to Commerce Department figures.
The FTA will abolish taxes in South Korea "on large cars produced in the United States, which US auto makers have long called an impediment to market access in Korea".
The agreement requires Korea to reduce "car taxes that are based on engine displacement that allegedly disadvantage U.S.-made cars, which tend to be larger than domestically-produced Korean cars".
The Obama administration has opposed these engine displacement taxes even while vowing to support domestic limits on greenhouse gas emissions.
The 775,000 vehicles Korea sold in the U.S. in 2007 include 250,000 that were made at the Hyundai plant in Alabama. When Hyundai brings its Kia factory in Georgia on line, it will increase Korea's total production capacity in the U.S. to 600,000 units per year. If GM Daewoo vehicles are included in US companies' sales in Korea, their market share there rises to 12.8%, versus a US market share of 5% for Korean manufacturers.
Rice is excluded, at Seoul's insistence. In return, South Korea will reduce its 40% tariff on US beef over 15 years.
Market opening already underway in law and accounting will widen, but major service sectors such as education and healthcare were excluded. Labour productivity in the South Korean service sector is just 56% of that in manufacturing, far below OECD's average of 93%.
Seoul wanted products made by South Korean companies in the Kaesong Industrial Region in North Korea included in the deal; Washington did not. The disagreement is unresolved but was not allowed to scupper the deal, which allows for further talks on the subject.
Agriculture in South Korea is expected to be adversely affected, and $119 billion in aid to South Korean farmers has been announced over the next ten years to offset the effects of the finalized agreement.
The free trade agreement is expected to increase the growth rate of the South Korean GDP by 0.6% per year for the next 10 years. The South Korean government also cite increased foreign direct investment in Korea and heightened competition.
More than $1 billion worth of US farm exports to South Korea will become duty-free immediately. Most remaining tariffs and quotas will be phased out over the first 10 years the agreement is in force. KORUS FTA would remove tariffs on 95% of consumer and industrial products between the countries within three years. South Korean industrial tariffs average 6.5% - and many are 8% - making market access a very important issue for US industries.
The trade accord, if ratified, will knock down tariff and non-tariff barriers between the world's largest and 11th-largest economies, which did US$74 billion in two-way trade in 2006.
The agreement does require both countries to enforce their own labor and environmental laws, and ensures access to legal mechanisms to ensure enforcement