Tariffs, Coupang and the Korus FTA in 'sleep mode'

Lee Jae-min

The author is a professor of law at Seoul National University’s School of Law. 

It has been exactly one year since Korea and the United States reached their tariff-investment agreement. Tariffs have fluctuated ever since. The reciprocal tariffs that began the process became trade-balance tariffs and have now been recast as Section 301 tariffs. Korea’s $350 billion investment in the United States is also taking its first steps. It is time for an interim review.

Many wonder what lies ahead for U.S. tariffs and whether they have legal and political staying power. The future is hard to predict, but I suspect little will change after the U.S. midterm elections in November or even under a new administration two years later. The tariffs will probably continue under different names and mechanisms.

One concern is how tariff measures have evolved. The past 18 months have shown that tariffs can be imposed through multiple routes. Almost every relevant U.S. statute has been tested, clarifying the limits and reach of each. It is a process of refinement through trial and error, which makes legal challenges increasingly difficult.

There is also a practical reality. Measures already finalized, including forced-labor tariffs, are projected to generate $950 billion in revenue over the next decade. The figure will rise if additional Section 301 tariffs are imposed. That is at least 100 trillion won ($70.4 billion) annually, revenue no administration will easily surrender.

Korea therefore needs to treat U.S. tariffs not as a temporary problem to solve but as a constant. If they cannot be resolved soon, stable “management” is the best option. Washington will continue to tighten and loosen the tariff lever, requiring Korea to manage shifting conditions. The real tariff game, I believe, is only beginning.

One tool worth revisiting is the Korea-U.S. free trade agreement (Korus FTA). Its original goal was tariff “elimination.” Fourteen years later, that function has largely disappeared. The agreement has entered a kind of “sleep mode,” with its core function disabled. Yet one useful feature remains: its channels and consultation mechanisms across numerous fields. They could provide a basic framework for managing the new tariff era.

The agreement provides channels covering tariffs, nontariff barriers, digital trade, labor, competition and investment. It has nine committees, six working groups, 10 councils and a Joint Committee above them. If even several operated actively, they could serve as bridges and forums for managing bilateral disputes linked to tariffs and easing tensions.

The Coupang issue, now a major bilateral irritant, also demonstrates the need. A problem that might have been resolved quickly is growing amid inadequate communication and consultation. More stable, systematic dialogue is needed. The FTA infrastructure can also help domestically by setting deadlines and providing a framework for coordination among ministries with conflicting positions.

This is not about reviving fond memories of the Korus FTA. In today’s reality, “free” in “free trade agreement” may need to be replaced by “fenced.” It is an FTA that is no longer really an FTA. Still, it would be difficult to find or build another comparable forum for discussing numerous issues with Washington. We should leave the past behind and find new uses for it.

That requires Korea to take the initiative. The long silence over the FTA has been strange. During 18 months of tariff turmoil, it was barely mentioned, perhaps because raising it seemed pointless. That judgment had some merit. But now that the dust is settling and the situation is entering a management phase, circumstances have changed.

The United States has FTAs with 20 countries. Among them, however, only Canada, Mexico and Korea conduct significant manufacturing trade with the United States in sectors directly exposed to tariffs. Canada and Mexico are now using their trilateral FTA, the Usmca, as a tool while conducting its review with Washington. Remove those two and Korea stands alone — and we are doing nothing.

U.S. tariffs increasingly look entrenched. What initially resembled a temporary structure is hardening into concrete. How Korea manages this entirely new trade equation is now our task. The Korus FTA may be in sleep mode, with its core function disabled and its speed reduced, but we should put its hidden utility to work.