The Heritage Foundation

Issue Brief #4605 on Alliances

August 22, 2016

August 22, 2016 | Issue Brief on Alliances

Three Promising Areas for Greater U.S.–South Korean Economic Cooperation

The United States and South Korea have put into place a framework for fruitful economic partnerships that are delivering measurable, concrete benefits for Americans and Koreans alike. Dynamic trade and investment activities have deepened and broadened the economic relationship, and the two longtime allies have much to gain if their governments work together to reinforce the values of open markets and free trade. The next U.S. Administration and Congress should continue to advance U.S.–South Korean economic relations, particularly by focusing on (1) the timely fulfillment of commitments made in the U.S.–Korea Free Trade Agreement (KORUS FTA); (2) energy trade; and (3) strategic development engagement with countries in the developing world to enhance economic freedom.

KORUS FTA at Four: Fulfilling Its Promise

The United States and South Korea have been major economic partners for years. Since March 2012, however, economic interaction between the two countries has become more multifaceted and institutionalized through the implementation of the KORUS FTA. It is still premature to quantify the full, comprehensive impact of the KORUS FTA, particularly with tariffs on certain products continuing to phase out and some provisions yet to take effect.[1] But one point is clear: The trade pact has yielded positive outcomes in terms of trade and investment activities, and created an institutional framework for facilitating many aspects of the overall U.S.–South Korea economic relationship.

U.S. protectionists have repeatedly claimed that the KORUS FTA has resulted in more imports from South Korea. That is true, but it has also resulted in more exports from the U.S. to South Korea. That is the whole point—to increase specialization and exchange so that both countries have access to more goods and services at better prices. Analyses that focus on the trade deficit, equating it to lost jobs, simply do not stand up under careful scrutiny. The Washington Post’s “Fact Checker,” for example, debunked one of the recent high-profile claims in detail[2] and characterized it as something worse than “mostly false.”[3]

Although it may not have been working as fast as some would like it to, the bottom line is that the four-year-old KORUS FTA has been working as promised. A growing number of businesses in both countries have capitalized on the expanded opportunities facilitated by the freer flow of products, services, and ideas made possible by the KORUS FTA. Real-world results are:

  • U.S. exports of goods to South Korea that benefit from the FTA’s tariff cuts have increased every year since it came into effect, growing an average of nearly 5 percent each year.[4]
  • U.S. auto exports to South Korea increased by over 200 percent by value between 2011 and 2015, more than 14 times faster than the increase of U.S. auto exports to the world.[5] With remaining tariffs eliminated on January 1, 2016, sales of “Detroit 3” cars in South Korea, which rose by more than 20 percent in 2015 over 2014,[6] are likely to grow even more.
  • For services, U.S. gains have unfailingly been solid, with U.S. exports of services to South Korea expanding by nearly $6 billion, or close to 35 percent, since the FTA came into effect in March 2012.[7] America’s service industries that have been benefiting from the trade pact include finance, insurance, energy services, logistics, and telecommunications.
  • The top 12 South Korean companies alone generated over 35,000 jobs in the United States in 2015, three times more than in 2012—and more direct investment by South Korean firms is on the way.[8] In June, for instance, Samsung Electronics, which employs 15,000 people in the United States, announced its plan to invest $1.2 billion over four years in a U.S.-based Internet of Things R&D initiative.[9]

In short, the KORUS FTA has been strengthening America’s economic engagement with South Korea, a trusted ally and a willing partner, not only in terms of greater market access and leveling the playing field under agreed rules, but also through a number of practical mechanisms for regular dialogue about specific challenges. A comprehensive trade pact like the KORUS FTA is not self-executing. Ensuring the evolving success of KORUS, and maximizing its intended utility as a platform for a greater economic partnership, will require Washington and Seoul to ensure full implementation and vigorous enforcement of the market-freeing measures in KORUS.

Securing and Advancing Energy Trade between the U.S. and South Korea

The United States and South Korea are each uniquely situated to advance energy trade and security as a reliable supplier and a strategic buyer, respectively. Given its abundance of natural resources and the recent growth in domestic energy production of oil and natural gas, the United States is in a position to export far more energy than it used to. On the other hand, South Korea ranks among the world’s top five importers of liquefied natural gas (LNG), coal, crude oil, and refined products, relying on fuel imports for about 97 percent of its primary energy consumption.[10]

Advancing energy trade and security between the U.S. and South Korea is a natural and constructive step forward. In fact, even before Congress lifted the decades-old ban on crude oil exports in December 2015, America’s unrefined ultralight oil (known as condensate) had been exported from a port in Texas to South Korea since July 2014.[11] Also notable is that South Korea is the second-largest LNG importer in the world. Currently, 80 percent of South Korea’s imports of natural gas come from the Middle East. Clearly, importing LNG from the U.S. can reduce South Korea’s overdependence on the region.

Under the KORUS FTA, South Korea is well positioned to benefit from U.S. LNG exports. According to the current U.S. natural gas regulations, applications to authorize exports of LNG to South Korea are “deemed consistent with the public interest and granted without modification or delay,”[12] given that South Korea is an FTA partner with the U.S. As a matter of fact, starting in 2017, the Korea Gas Corporation will import 2.8 million metric tons of LNG annually from Sabine Pass terminal in Louisiana under a 20-year contract with Cheniere Energy Partners, L.P.[13]

Amid shifting dynamics in global energy markets triggered by the U.S. shale revolution, it is in the interest of policymakers both in Washington and Seoul to work together in order to ensure that America’s invigorated energy production also facilitates South Korea’s energy supply and security. In order to further bolster trade ties between the two countries, the U.S. and South Korea should develop a forward-looking bilateral strategic energy trade initiative to ensure that no artificial barriers impede the development of a durable energy partnership. Ultimately, such an initiative could be developed into a regional energy architecture involving other countries, such as Taiwan and Japan, as well.

A Strategic Partnership to Promote Global Development

Driven by shared values and increased prosperity, the U.S.–South Korean alliance has been indispensable in achieving Washington’s strategic objectives and maintaining stability in northeast Asia. Indeed, the U.S. alliance with South Korea has been deservingly recognized as one of the most successful U.S. bilateral relationships. As an added benefit, South Korea has become one of the principal U.S. partners in addressing an array of global challenges as well as diplomatic opportunities. As Fred Hiatt of The Washington Post once put it, “in a world of dangerously failed states and willful challengers to American leadership, South Korea is an astoundingly successful democracy”[14] that has shown itself to be a willing partner of the U.S. in key endeavors around the globe.

In the rapidly evolving world of development assistance, with its greater emphasis on the vital role of the private sector in achieving durable economic growth, enhancing U.S.–South Korean international-development cooperation presents a unique opportunity to coordinate the two countries’ ongoing development assistance more strategically and maximize the potential impact of aid to nations in need of greater economic freedom. As a former recipient of U.S. development assistance, South Korea, now one of the richest countries in the world, provides a unique perspective and credibility to the donor community it has now joined. A strategic partnership between South Korea and the United States to provide developing countries with values-driven, results-oriented development assistance has considerable potential to promote best practices effectively and strengthen aid efficiency. Such a partnership would in turn reinforce other vital economic and diplomatic linkages between the two allies.

Time to Move Onward and Upward

South Korea has proven to be a reliable and strong ally for America in advancing freedom, opportunity, and prosperity in the region and around the globe. Much more can be accomplished, as the United States and South Korea have a lot to offer to each other, and much to gain from their ever-evolving partnership on many key policy fronts. The next Administration and Congress should continue to move the U.S.–South Korea alliance onward and upward by:

  • Fully implementing and enforcing the provisions of the KORUS FTA;
  • Developing and implementing a strategic energy bilateral trade initiative with the government of South Korea; and
  • Collaborating with South Korea to promote economic freedom in developing countries around the world.
—Anthony B. Kim is Research Manager of the Index of Economic Freedom and Senior Policy Analyst for Economic Freedom in the Center for Trade and Economics, of the Institute for Economic Freedom and Opportunity, at The Heritage Foundation. Ambassador Terry Miller is Director of the Center for Trade and Economics and the Center for Data Analysis, as well as Mark A. Kolokotrones Fellow in Economic Freedom, at The Heritage Foundation.

About the Author

Anthony B. Kim Research Manager, Index of Economic Freedom, and Senior Policy Analyst
Center for Trade and Economics (CTE)

Ambassador Terry Miller Director, Center for Data Analysis and the Center for Trade and Economics and Mark A. Kolokotrones Fellow in Economic Freedom
Center for Trade and Economics (CTE)

Show references in this report

[1] Mark E. Manyin, Emma Chanlett-Avery, Mary Beth D. Nikitin, Ian E. Rinehart, and Brock R. Williams, “U.S.–South Korea Relations,” Congressional Research Service, April 26, 2016, https://www.fas.org/sgp/crs/row/R41481.pdf (accessed August 18, 2016).

[2] Glenn Kessler, “Public Citizen’s Misleading Math on the Korea Free Trade Agreement,” The Washington Post, April 7, 2015, https://www.washingtonpost.com/news/fact-checker/wp/2015/04/07/public-citizens-misleading-math-on-the-korea-free-trade-agreement/ (accessed August 18, 2016).

[3] Glenn Kessler, “About the Fact Checker,” The Washington Post, September 11, 2013, https://www.washingtonpost.com/news/fact-checker/about-the-fact-checker/ (accessed August 18, 2016).

[4] Tami Overby, “Four Years In: The Benefits of the U.S.-Korea Free Trade Agreement,” Above the Fold, March 15, 2016, https://www.uschamber.com/above-the-fold/four-years-the-benefits-the-us-korea-free-trade-agreement (accessed August 18, 2016).

[5] Office of the United States Trade Representative, “Fact Sheet: Four Year Snapshot: The U.S.-Korea Free Trade Agreement,” March 2016, https://ustr.gov/about-us/policy-offices/press-office/fact-sheets/2016/March/Four-Year-Snapshot-KORUS (accessed August 18, 2016).

[6] Ibid.

[7] Overby, “Four Years In: The Benefits of the U.S.-Korea Free Trade Agreement.”

[8] Thomas Byrne, “South Korea Is a Crucial U.S. Partner,” The Washington Post, August 16, 2016, https://www.washingtonpost.com/opinions/south-korea-is-a-crucial-us-partner/2016/08/16/e1d5a7d6-62fc-11e6-b4d8-33e931b5a26d_story.html?utm_term=.939b22a2b006 (accessed August 18, 2016).

[9] Ibid.

[10] U.S. Energy Information Administration, “World: Korea, South,” October 2015, https://www.eia.gov/beta/international/analysis.cfm?iso=KOR (accessed August 18, 2016).

[11] Christian Berthelsen and Lynn Cook, “U.S. Oil Exports Ready to Sail,” The Wall Street Journal, July 30, 2014, http://www.wsj.com/articles/oil-shipment-cracks-decades-old-ban-1406762293 (accessed August 18, 2016).

[12] U.S. Department of Energy, Office of Fossil Energy, “How to Obtain Authorization to Import and/or Export Natural Gas and LNG,” http://energy.gov/fe/services/natural-gas-regulation/how-obtain-authorization-import-andor-export-natural-gas-and-lng#LNG (accessed August 18, 2016).

[13] Charles Lee, “S Korean Kogas’ Q1 LNG Imports Mark First Increase in Two Years,” S&P Global Platts, May 12, 2016, http://www.platts.com/latest-news/natural-gas/seoul/s-korean-kogas-q1-lng-imports-mark-first-increase-27570969 (accessed August 18, 2016).

[14] Fred Hiatt, “Will the U.S. Commit to Free Trade with South Korea?” The Washington Post, April 12, 2010, http://www.washingtonpost.com/wp-dyn/content/article/2010/04/11/AR2010041102508.html (accessed August 18, 2016).