U.S.-Korea Free Trade Agreement: Potential Economy-wide ... - USITC

would grant immediate and reciprocal duty-free market access for tariff lines covering all
leather goods, except for 17 U.S. tariff lines covering “sensitive” rubber footwear from
Korea. 339 U.S. tariffs on the sensitive footwear, which range from 20 percent to 64 percent
AVE (based on 2006 trade), would receive a nonlinear phaseout over 12 years. 340
The FTA rule of origin for the sensitive rubber footwear would, as in other U.S. FTAs, be
similar to that under NAFTA, requiring a good to have a regional value content of not less
than 55 percent of the appraised value of the article, which would effectively limit the use
of nonoriginating uppers because of the high labor content associated with stitching. All
other footwear would receive a more flexible rule of origin based on assembly also found
in other recent U.S. FTAs, in which qualifying footwear could contain nonoriginating uppers
and other materials as long as it is assembled in the FTA parties. A flexible process-based
origin rule would apply to textile and nontextile travel goods, 341 requiring that the goods be
cut or knit to shape, or both, and sewn or otherwise assembled in the FTA parties. 342 A trade
report notes that more than 80 percent of all travel goods sold in the United States in 2006
were textile travel goods. 343
The Commission’s economy-wide analysis of the long-term effects of tariff and TRQ
liberalization estimates that the FTA would likely result in an increase of $81–104 million
(104–133 percent) for U.S. imports of leather goods from Korea and approximately
$60–71 million (53–63 percent) for U.S. exports of leather goods to Korea. 344 The results
largely reflect Korea’s small and greatly diminished share of U.S. imports of leather goods,
as well as the high import share in key domestic markets for leather goods. 345 Once a major
world exporter of leather goods, Korea supplied just 0.2 percent ($54 million) of total U.S.
imports of leather goods in 2006. 346 U.S. imports of leather goods come mostly from China,
which supplied 71 percent ($19 billion) of the total in 2006. Imports now supply 98 percent
339 The 17 tariff lines (20 lines in the 2007 HTS) cover rubber or plastic protective footwear and certain
athletic and other footwear with rubber or plastic soles and fabric uppers (HTS subheadings 6401.10.00,
6401.91.00, 6401.92.90, 6401.99.30, 6401.99.60, 6401.99.90, 6402.30.50, 6402.30.70, 6402.30.80,
6402.91.50, 6402.91.80, 6402.91.90, 6402.99.20, 6402.99.80, 6402.99.90, 6404.11.90, and 6404.19.20).
340 The tariffs would remain unchanged during years one through eight, and then be reduced in four equal
annual stages, becoming free at the beginning of year 12. U.S. imports from Korea of rubber footwear
covered by the 17 U.S. rate lines fell by 98 percent from $145.8 million in 1996 to $2.8 million in 2006.
Official statistics of the U.S. Department of Commerce.
341 Textile travel goods are covered in FTA chap. 4, which contains the rules of origin and other
provisions specifically applicable to textiles and apparel. A summary of these provisions appears in app. D of
this report.
342 Many recent U.S. FTAs apply a more restrictive “fabric-forward” rule of origin to textile travel goods,
whereby imports of such goods from the FTA party must be made from inputs produced in the FTA region
from the fabric stage forward to qualify for tariff preferences. For a textile travel good to qualify for FTA
preferences under a fabric-forward rule, the production of the fabric used in the travel good, as well as
cutting and sewing, must occur in the FTA parties. A representative of the U.S. travel goods industry
contends that a fabric-forward rule “essentially renders the agreement useless for U.S. travel goods firms.”
Pittenger, written submission to the Commission.
343 Pittenger, written submission to the USITC, June 27, 2007.
344 Impact relative to an estimated 2008 base. See chap. 2 of this report for additional information
regarding the economy-wide analysis.
345 U.S. imports of leather goods from the world in 2006 totaled $27.1 billion, of which $19.0 billion
(70 percent of the total) consisted of footwear and $6.8 billion (25 percent) consisted of travel goods. Official
statistics of the U.S. Department of Commerce.
346 U.S. leather goods imports from Korea declined by 90 percent from $546 million in 1996 to
$54 million in 2006.
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