This report provides indications of the possible effects of the proposed U.S.-Korea Free Trade Agreement (KORUS FTA) on individual states. For each state the indications result from pairing two sets of data. Whether a state's exports are higher as a result of the KORUS FTA will depend significantly on whether firms that now export take advantage of the market openings (e.g., declining or eliminated tariffs, expanding or phased out quotas) negotiated in this trade agreement. In addition, the extent to which a state's exports change in the same pattern as projected by the USITC estimates will depend on the extent to which the industry in a given state echoes the makeup of the respective industry at the national level. Therefore, the indication of industries for which net exports (exports minus imports) are projected to increase or decrease as listed in Table 4 should be viewed as providing a general "compass" rather than serving as a precise global positioning system in projecting state industry export changes upon full implementation of the KORUS FTA. Estimating the trade effects of FTAs, including the proposed KORUS FTA, is imprecise and highly sensitive to the assumptions that are used. As a result, the data do not capture the value added by production that occurs in other states. In addition to the national-level estimates featured in this report, states may experience a broad range of benefits from liberalizing trade in services and reducing or eliminating barriers to investment flows. Potential National Sector-Specific Trade Effects of the KORUS FTA

According to studies conducted by the USITC, U.S. exports of goods to South Korea under the KORUS FTA could increase by more than imports from South Korea, in both percentage and value terms, slightly reducing, but not eliminating the U.S. trade deficit with South Korea. These estimations are based on KORUS FTA changes in tariff rates and tariff rate quotas at the end of the phase-in period of the agreement. Table 4 lists these in three groups: (1) sectors for which increases in U.S. exports to South Korea are expected to exceed increases in U.S. imports from South Korea; (2) industries for which U.S. exports and imports are not expected to increase; and (3) sectors for which U.S. imports from South Korea are expected to exceed U.S. exports to South Korea. Possible State Export Effects of the KORUS FTA

At the state level, tables are included for each state in Appendix A . At a disaggregated level, the composition of trade for any given state may differ considerably from that at the national level. However, this lack of precision may be an issue when the models are used to estimate the effects of bilateral trade agreements, especially at the state level, where the overall amount of trade and, therefore, the impact of the agreement, is expected to be less than that of a comprehensive multilateral agreement. These estimates provide an analysis of the immediate impact of the agreement and of the phased elimination of tariffs and tariff rate quotas on 40 broadly-defined industrial sectors and on a group of 20 narrowly defined industrial sectors and their sub-sectors. State Export Data Issues 
As mentioned, this report uses Census Bureau data on the origin of movement of commodities by state to estimate exports to South Korea as a result of the KORUS FTA. The state identified in the data is that from which the final merchandise starts its journey. Accounting for agricultural exports by state, however, is particularly complicated.
In February 2011, the United States and South Korea finalized negotiations on a bilateral free trade agreement. As a result, the Obama Administration is expected to submit implementing legislation to the 112th Congress on the proposed U.S.-South Korea Free Trade Agreement (KORUS FTA). This report addresses congressional interest in the effects of this agreement on exports by state to South Korea by using two sets of data. Data developed by the U.S. International Trade Commission (USITC) are used to identify the possible direction of trade change for 40 industries at the national level. These results are paired with lists of each state's top 10 exports which provide a guide to the possible direction of trade for various state industries as a result of tariff elimination and tariff rate quota reductions under the proposed KORUS FTA. Improved access for services, liberalized investment regimes, and elimination of non-tariff barriers for a few goods and agricultural products are not captured in this analysis.
Estimating the trade effects of a potential FTA, however, is highly sensitive to the assumptions used and to important limitations of the available data. Such estimates are especially problematic at the state level. As a result, the data in this report should be viewed as providing a general sense of the possible impact of the proposed FTA on state level exports. Over the full implementation period of the agreement, a broad range of economic factors can overwhelm the potential effects of tariff and tariff rate quota provisions. Whether a state's exports are higher as a result of the KORUS FTA will depend significantly on whether firms that now export take advantage of the market openings (e.g., declining or eliminated tariffs, expanding or phased out quotas) negotiated in this trade agreement. In addition, the extent to which state exports change in the same pattern as projected by the USITC estimates, will depend on the extent to which they echo the makeup of the respective industry at the national level.
While South Korea is the United States' seventh largest trading partner, it accounts for less than 3% of all U.S. trade. It has a population one-sixth that of the United States. By comparison, Canada and Mexico, the United States' first and third largest trading partners, with whom the United States also has a trade agreement (the North American Free Trade Agreement (NAFTA)), accounted for 16% and 12% respectively of total U.S. trade in 2010.
The impact of the KORUS FTA on the exports of individual states reflects both projected national effects on industrial sectors and the composition of industries within each state. Manufactured products currently dominate U.S.-South Korea trade, and the dollar value of exports in virtually all industries is expected to be higher than without a trade agreement. However, the greatest sectoral growth rate in trade is expected to come from agricultural exports, in states with large agricultural sectors. Higher imports in some industries, particularly auto and parts production, are not expected to affect gross exports, but could affect net exports.
The discussion in this report is limited to presenting the effects of the KORUS FTA on U.S. exports to South Korea on a national level with possible implications at the state level. It does not present data on U.S. imports from South Korea at the state level because of data issues. Nevertheless, increases in imports in some sectors and in some states could be higher than increases in exports as a consequence of the FTA.