The U.S. and South Korea: Building a Win-Win Trade Relationship

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EXECUTIVE SUMMARY

The U.S.-South Korea Free Trade Agreement took effect on March 15, 2012. It is a big deal and marks a new chapter of economic relationship between the two countries. Both countries' governments and businesses should strive to take full advantage of the opportunities newly created by this bilateral agreement. The objectives of this article are to report on recent U.S.-South Korea trade statistics, and to offer practical recommendations for building a healthy, long-term and mutually beneficial U.S.-South Korea trade relationship.

Keywords: U.S.-South Korea Free Trade Agreement, KORUS FTA, U.S.-South Korea goods trade, win-win trade relationship, Leading sectors for U.S. export and investment in South Korea

INTRODUCTION

The United States has the world's largest economy, with a gross domestic product (GDP) of $15.06 trillion in 2011 (Central Intelligence Agency, 2012). South Korea has achieved incredibly high economic growth over the past four decades and has become the 15th largest economy in the world today. At present, South Korea is the 7th largest trading partner of the U.S., with the total goods trade (including both exports and imports) between the two countries exceeding $100 billion in 2011 (U.S. Census Bureau, 2012).

The U.S.-South Korea Free Trade Agreement (also known as KORUS FTA) was approved by the two countries' governments in late 2011, and put into effect on March 15, 2012. The Office of the U.S. Trade Representative (2012a) says:

The Agreement is the United States' most commercially significant free trade agreement in almost two decades . . . Under the FTA, almost 80 percent of U.S. exports to Korea of consumer and industrial products will become duty free on March 15, 2012, and nearly 95 percent of bilateral trade in consumer and industrial products will become duty free within five years of that date. Most remaining tariffs would be eliminated within 10 years . . . For services, the FTA will provide meaningful market access commitments that extend across virtually all major service sectors . . . The KORUS FTA will also provide U.S. suppliers with greater access to the Korean government procurement market. In addition to strengthening our economic partnership, the KORUS FTA would help to solidify the two countries' long-standing geostrategic alliance.

The objectives of this article are twofold: (1) to provide a concise and up-to-date report on the U.S.-South Korea trade statistics; and (2) to offer some practical recommendations to help build a smooth win-win trade relationship between the two countries.

WHAT THE U.S.-SOUTH KOREA TRADE STATISTICS TELL US

Both the U.S. and South Korea are heavily involved in international goods trade (see Table 1). In 2011, the international goods trade (including both exports and imports) of the U.S. and South Korea totaled $3.73 trillion and $1.08 trillion, respectively. While the U.S. had a $738.4 billion goods-trade deficit in 2011, South Korea experienced a $33.3 billion of goods-trade surplus in that year.

Although the goods export from the U.S. to South Korea grew ninety-two percent from 2002 to 2011 (see Table 2), the U.S. had a goods-trade deficit with South Korea every year in the past ten years. America's annual goods-trade deficit with South Korea has been fluctuating around $13 billion during the past decade.

The U.S. exported $43.4 billion of goods to South Korea in 2011. Table 3 presents 2011's top U.S. exports to South Korea (in terms of product categories), including computer and electronic products, chemicals, machinery, transportation equipment, and agricultural products. The U.S. imported $56.7 billion of goods from South Korea in 2011. Table 4 presents 2011's top U.S. imports from South Korea. Considering the popularity of such products as Samsung televisions and Hyundai vehicles in the U.S., no one should be surprised to see that "computer and electronic products" and "transportation equipment" are at the very top of the list reported in Table 4.

RECOMMENDATIONS FOR BUILDING A WIN-WIN TRADE RELATIONSHIP

In order to reap the maximum reward of the KORUS FTA, the political and business leaders of the U.S. and South Korea need to adopt a win-win philosophy and develop appropriate systems which bolster the spirit of cooperation. Win-win means that the two countries constantly seek mutually beneficial outcomes in their economic interactions. Win-win sees the world as a cooperative arena, in which one country's economic success is not at the expense of another country's economic success. With a cooperative attitude and a win-win philosophy, the two countries will feel good about the KORUS FTA and will be fully committed to working together closely.

American government officials and business managers must study South Korea's economic and business environments carefully for the purpose of identifying new business opportunities. For U.S. companies that are unfamiliar with the South Korean market, a good starting point is to make a comparison of the two countries' economies (see Table 5). Signing and implementing the KORUS FTA is not the end in itself, but rather it is a means of increasing trade between the two countries, creating good-paying jobs for American as well as South Korean workers, and building healthy and strong economies for both countries (Kim, 2011).

The U.S. and South Korea are, of course, different in terms of their historical backgrounds, cultural traditions, political dynamics, economic policy priorities, and so on. It is natural that the two countries would agree on some economic issues but disagree on some other economic issues. In order to build and maintain a stable, mutually-beneficial trade relationship, they need to have regularly scheduled, candid discussions of economic matters to help them truly understand each other's needs, wants, ideas, concerns and priorities. Luckily, the U.S. and South Korea have set up mechanisms to do exactly this (Office of the U.S. Trade Representative, 2012b and 2012c).

The U.S. & Foreign Commercial Service and the U.S. Department of State (2012) have identified the following as the "leading sectors for U.S. export and investment" in South Korea:

* aerospace industry

* specialty chemicals

* cosmetics

* defense industry equipment

* education services

* new and renewable energy

* entertainment and media

* franchising

* medical equipment and devices

* pollution control equipment

* semiconductors

* travel and tourism

* agricultural sectors

In his book When Cultures Collide: Managing Successfully across Cultures, Richard D. Lewis (1996), a cross-cultural specialist who speaks 10 European and 2 Asian languages, offered these observations: "They (Koreans) trade humor with westerners (an unusual trait in Asia) and they are quicker to decide and initiate than either the Japanese or Chinese, who regard them as inconstant. They show greater readiness to sign western contracts than many other Asians, but evince less adherence to them if they find new partners. They are proud of their ability to work harder than the Japanese and being able to outperform them in certain industries."

CONCLUSION

The world economy continues to evolve and South Korea has successfully industrialized its economy. As South Korea's economy has developed, the U.S.-South Korea trade relationship has also become increasingly important. The March 15, 2012-implemented KORUS FTA marks a new chapter of economic relationship between the two countries (Schott, 2011). This FTA provides preferential access for American manufacturers, farmers, ranchers, and service providers to the South Korean market, and vice versa. Both countries' governments and businesses should strive to take full advantage of the opportunities newly created by the KORUS FTA. The American economy can certainly benefit from additional studies on related topics.

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REFERENCES

Central Intelligence Agency. (2012). The world factbook - United States. Retrieved June 10, 2012 from, https://www.cia.gov/library/publications/the-world-factbook/geos/us.html

Kim, H. (2011). Dynamics of free trade agreements: Benefits and strategic considerations. SERI Quarterly, July, Vol. 4, Issue 3, pp. 10-21.

Lewis, R. (1996). When cultures collide: managing successfully across cultures. London: Nicholas Brealey Publishing Limited, 295.

Office of the U.S. Trade Representative. (2012a). U.S.-Korea free trade agreement. Retrieved June 10, 2012 from, http://www.ustr.gov/trade-agreements/free-trade-agreements/korus-fta

Office of the U.S. Trade Representative. (2012b). U.S. Trade Representative Kirk concludes first meeting of the U.S.-Korea free trade agreement joint committee. Retrieved June 24, 2012 from, http://www.ustr.gov/about-us/press-office/pressreleases/ 2012/may/us-trade-representative-kirk-concludes-first-meeting-u

Office of the U.S. Trade Representative. (2012c). Assistant U.S. Trade Representative Cutler meets with Korean journalists to discuss the U.S.-Korea trade agreement. Retrieved June 24, 2012 from, http://www.ustr.gov/about-us/pressoffice/ blog/2012/june/cutler-meets-journalists-korus

Schott, J. (2011). Why the Korea-United States free trade agreement is a big deal. SERI Quarterly, 4(3), 22-29.

U.S. & Foreign Commercial Service and the U.S. Department of State. (2012). Doing business in Korea: 2012 country commercial guide for U.S. companies. Retrieved June 25, 2012 from, http://www.buyusainfo.net/docs/x_6114956.pdf

U.S. Census Bureau. (2012). Top trading partners - total trade, exports, imports, year-to-date December 2011. Retrieved June 10, 2012, from: http://www.census.gov/foreign-trade/statistics/highlights/top/top1112yr.html

[Author Affiliation]

Lee-Ing Tong, National Chiao Tung University (Taiwan)

Carl H. Tong, Radford University