Fact-checking of Unbalanced Korea-U.S. Trade and Countermeasures in the Agricultural Sector

Abstract

 U.S. President Donald Trump expressed his willingness to revise and amend the Korea-U.S. FTA, with hisnegative perspective on the trade imbalance between the two countries. Korea and the U.S. recently agreed torenegotiate the trade pact.– At the request of U.S. President Trump, the first and second special joint committee meetings wereconducted on the KORUS FTA. After the second meeting, the two countries decided to commence theamendment negotiation procedure. In terms of BOP, Korea has recorded current account surplus with the U.S., but it has invested more in the U.S.than the counterpart did in Korea. And TSI varies depending on the global competitiveness of a country.– Korea’s average investment (financial account) in the U.S. improved from USD 3.1 billion of liabilities toassets worth USD 18.1 billion after the implementation of the FTA. The country’s average current accountsurplus went up by 106.7% from USD 16.2 billion to USD 33.5 billion after the implementation of the FTA.– Korea’s TSI dropped in all industries where the country has higher competitiveness than the U.S. and the restof the world. The U.S. TSI against the RoW worsened, while its TSI in trade with Korea improved. The merchandise trade in the agri-food sector has an unbalanced trade structure in which Korea’s imports aremuch larger than its exports to other countries. A deficit in the goods account of livestock products (includingdairy products), fruits and nuts worsened after the FTA took effect.– The TSI of more competitive product groups of Korea compared to the U.S. decreased from 0.68 in2011 to 0.61 in 2016, which was lower than that of the U.S. (0.97). The TSI of less competitiveproduct groups slightly increased from –0.96 to –0.94 during the same period, but it was still muchlower than the U.S. (-0.66).– The goods deficits increased in the categories of beef (USD 150 million in carcass, USD 200 millionin boneless meat), fresh cheese (USD 10 million), skim milk powder (USD 8 million), orange (USD 50million), grape (USD 9 million), and grapefruit (USD 6 million). Trade imbalance between Korea and the U.S implies that a balanced, adequate view on it can be made when amacroscopic BOP including the current (goods) account is considered. The merchandise trade imbalancebetween the two countries should be addressed without going against the purpose of the free trade agreement.– Korea’s import-specialized structure in the agri-food sector can become permanent if the tariffs foragricultural products imported from the U.S. are immediately abolished, and this could affect the freetrade agreements Korea concluded with other countries. Therefore, the resolution of goods deficitshould be aimed at enhancing the domestic and global competitiveness, rather than readjusting thetariffs and the tariff elimination timing. Korea needs to exert efforts to improve the structure of the agri-food sector that largely relies on imports,and set the direction of policies by considering the domestic agricultural industry structure and marketconditions.– The authorities should enhance the global competitiveness to improve the current import-specializedstructure of the agri-food sector in trade with the U.S., and transform the framework of the industryand relevant policies with consideration for changing consumer demands and market conditions. Tothis end, a cooperative system at the level of governance is required.