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

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of the U.S. footwear market, with China accounting for 85 percent of the import volume. 347 Imports supply more than 95 percent of the U.S. travel goods market, 348 as the domestic industry has “transitioned from one of domestic manufacturing to one of primarily importing, warehousing, and distribution companies.” 349 The small volume of U.S. production of footwear and travel goods tends to serve niche and high-end domestic markets; the U.S. Armed Forces, as governed by the Berry Amendment; 350 or quick response requirements of the domestic market. 351 The impact of the FTA on U.S. imports and production of leather goods would likely be further limited by the general erosion of Korea’s global competitiveness in leather goods. 352 A trade source noted that manufacturing costs in Korea are too high for it to compete successfully in the global footwear market, which has led to a relocation of its footwear production to China and other lower-cost exporting countries 353 as well as to a 40 percent decline in Korean production of leather goods during 2000–06. 354 The trade source stated, however, that Korea is still a center for “very vigorous product development,” manufacturing technology, and production of components for footwear. 355 The impact of the FTA on U.S. exports of leather goods to Korea will likely be small in absolute value and quantity terms, given the relatively small volume of U.S. leather goods exports to Korea. Korea was the seventh-largest export market for U.S. leather goods with 4.9 percent ($107 million) of total U.S. leather goods exports in 2006; most of the U.S. exports to Korea consisted of tanned leather rather than higher unit-valued finished goods. Nevertheless, the elimination of Korean tariffs under the FTA on U.S. leather goods will likely spur U.S. exports of leather and possibly finished leather goods to Korea, a major world market for leather goods with imports of almost $1.9 billion in 2006. 356 A trade source 347 ITAC (13) on Textiles and Clothing, Advisory Committee Report, April 27, 2007, 5. 348 A trade source estimates that U.S. consumers spent a record $20.7 billion on travel goods in 2006. TGA, “U.S. Travel Goods Sales Hit Record in 2006,” May 8, 2007. 349 ITAC (13) on Textiles and Clothing, Advisory Committee Report, April 27, 2007, 6; Pittenger, written submission to the USITC, June 27, 2007; and U.S. industry representative, telephone interview by Commission staff, July 11, 2007. 350 The Berry Amendment (10 U.S.C. 2533a) requires the Department of Defense to give preference in procurement to U.S.-made goods, including apparel, tents and tarpaulins, and fabrics, including all fibers and yarns used in them and goods made from them (e.g., backpacks, hiking packs, duffle bags, and related textile travel goods). According to Robert Panichelle, chief, Field Clothing Division, Defense Supply Center Philadelphia, the Berry Amendment has been “construed as being applicable to footwear.” CRS, “The Berry Amendment: Requiring Defense Procurement to Come from Domestic Sources,” April 21, 2005; Pittenger, written submission to the USITC, June 27, 2007; U.S. industry representative, telephone interview by Commission staff, July 11, 2007; and Panichelle, telephone interview by Commission staff, August 2, 2007. 351 Burke, written submission to the USITC, March 24, 2006; Pittenger, written submission to the USITC, June 27, 2007; and U.S. industry representative, telephone interview by Commission staff, July 11, 2007. 352 A representative of U.S. rubber footwear producers states that, “given the fact that Korean wage rates are significantly higher than those of other Far Eastern rubber footwear competitors, the [domestic] industry is satisfied that the extended and nonlinear phaseout set forth in [the FTA for sensitive rubber footwear] will not pose a threat to the continued operation of domestic manufacturing.” Cooper (counsel), written submission to the USITC on behalf of the Rubber and Plastic Footwear Manufacturers Assoc., May 23, 2007. 353 U.S. industry representative, telephone interview by Commission staff, June 14, 2007. 354 Data on Korean production applies to the “tanning and dressing of leather, luggage, and footwear.” National Statistical Office, Republic of Korea. 355 U.S. industry representative, telephone interview by Commission staff, June 14, 2007. 356 Korean imports of leather goods in 2006 were broken down as follows: $472 million for tanned hides and skins, leather, and composition leather (HS headings 4104–4115); $552 million for travel goods (4202) and other leather goods classified in HS chap. 42, except leather apparel (4203) and miscellaneous goods (4206); and $836 million for footwear (HS chap. 64). Global Trade Information Services, World Trade Atlas (continued...) 3-62
said Korea is one of the fastest-growing import markets for travel goods, with imports of such goods rising by 65 percent during the years 2004 to 2006 to $545 million. 357 Views of Interested Parties In its report, the ITAC on Textiles and Clothing (ITAC 13) stated that its members did not make a unified statement in support of or in opposition to the FTA. 358 The report stated that members of footwear companies support the FTA because the rules of origin reflect their priorities—the 17 sensitive rubber footwear articles receive a “NAFTA style” rule of origin and a long, nonlinear duty phaseout, while all other footwear articles receive much more flexible rules of origin and immediate duty-free treatment. The report noted that members of the travel goods companies support the FTA because the agreement provides immediate and reciprocal duty-free treatment and flexible rules of origin for all textile and nontextile travel goods. The Travel Goods Association (TGA), a trade association representing manufacturers, distributors, retailers, promoters, sales representatives, and suppliers of luggage and other related products, stated in a written submission to the Commission that it supports the FTA because the agreement would grant immediate and reciprocal duty-free entry to both textile and nontextile travel goods under flexible rules of origin. 359 TGA added that incorporating these rules into an FTA with a major trading partner like Korea, one of the fastest-growing markets for imported travel goods, will make the FTA a “landmark agreement” for the U.S. travel goods industry and be of potential benefit to the domestic industry. The American Apparel & Footwear Association (AAFA), the national association of the apparel and footwear industries and their suppliers, stated in a written submission to the Commission that the FTA’s flexible and forward-looking footwear and travel goods provisions should provide new opportunities to grow the once significant, but declining, footwear and travel goods trade between the United States and Korea. 360 AAFA noted that the FTA rules of origin will not only help stem the decline in footwear and travel goods trade between the United States and Korea, but also provide a mechanism to rebuild this vital relationship. AAFA added that the FTA will have a negligible impact on the individual sectors that it represents. The Rubber and Plastic Footwear Manufacturers Association (RPFMA), 361 a trade association representing the principal domestic producers of protective footwear and rubbersole, fabric-upper footwear, stated in a written submission to the Commission that it is “satisfied” with the phaseout schedule under the FTA for U.S. tariffs on the core products 356 (...continued) Database. 357 Pittenger, written submission to the USITC, June 27, 2007; and Global Trade Information Services, World Trade Atlas Database. 358 ITAC (13) on Textiles and Clothing, Advisory Committee Report, April 27, 2007. 359 Pittenger, written submission to the USITC, June 27, 2007. 360 Lamar, “Re: U.S. International Trade Commission Inv. No. TA-2104-24 (May 7, 2007)–U.S.-Korea Free Trade Agreement,” written submission to the USITC, June 27, 2007. 361 Cooper (counsel), written submission to the USITC on behalf of the Rubber and Plastic Footwear Manufacturers Assoc., May 23, 2007. 3-63
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U.S. International Trade Commission
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This report was prepared principall
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CONTENTS-Continued Chapter 3. Secto
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CONTENTS—Continued Chapter 5. Imp
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CONTENTS-Continued Chapter 7. Liter
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CONTENTS-Continued Tables—Continu
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Abbreviations and Acronyms 3G third
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Abbreviations and Acronyms—Contin
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Abbreviations and Acronyms—Contin
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vehicles) would likely be diverted
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Sector-specific Assessments The U.S
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total increased fish imports from K
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Korea would likely limit the impact
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Intellectual property rights (IPR):
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sector barriers. 5 These merchandis
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Table 1.1 U.S.-Korea FTA: Location
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Table 1.2 Korean tariff rates on im
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Table 1.4 U.S.-Korea FTA: Summary o
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observed GDP for model regions). Th
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Box 2.1 Interpreting the model resu
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Table 2.1 U.S.-Korea FTA: Simulated
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2-8 This page has been updated to r
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Figure 2.2 U.S-Korea FTA: Simulated
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As shown in figure 2.2, the largest
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2-14 This page has been updated to
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Economy-wide Impact of Implementing
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Grain (Wheat, Corn, and Other Feed
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Korea imported 3.8 million mt of wh
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U.S. oilseed product exports to Kor
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Table 3.2 U.S. oilseed product expo
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Table 3.3 Animal feed exports to Ko
Page 66 and 67: consumed domestically by the U.S. l
Page 68 and 69: ates. For corn starch, the United S
Page 70 and 71: quota rates have been effectively e
Page 72 and 73: Noncitrus Fruit 87 Views of Interes
Page 74 and 75: 3-20 Table 3.9 U.S.-Korea trade and
Page 76 and 77: Korean grapes are much more costly
Page 78 and 79: Potato Products 122 Assessment The
Page 80 and 81: ate is 304 percent ad valorem. 141
Page 82 and 83: Other Vegetables 162 Assessment The
Page 84 and 85: U.S. exports of other fresh and pro
Page 86 and 87: tariff concessions that could accru
Page 88 and 89: Dairy Products 215 Similarly, the p
Page 90 and 91: TRQ for food whey, 223 based on cur
Page 92 and 93: potential changes in trade based so
Page 94 and 95: Figure Figure 3.1 Korea: Beef and v
Page 96 and 97: Views of Interested Parties The inc
Page 98 and 99: are subject to the same food safety
Page 100 and 101: enefit under the provisions of this
Page 102 and 103: Box 3.2 Potential price and quantit
Page 104 and 105: 50 percent, while the vegetable jui
Page 106 and 107: and major supplier, and U.S. tariff
Page 108 and 109: textiles and apparel through 2005.
Page 110 and 111: U.S. Exports The impact of the FTA
Page 112 and 113: passage. NCTO indicated that, even
Page 114 and 115: In its report, the ITAC on Distribu
Page 118 and 119: of these producers. 362 RPFMA noted
Page 120 and 121: prohibit improper inducements by ph
Page 122 and 123: Machinery, Electronics, and Transpo
Page 124 and 125: U.S. exports of auto parts would be
Page 126 and 127: imports from and exports to Korea.
Page 128 and 129: Passenger Vehicles 433 Assessment U
Page 130 and 131: Table 3.16 Korean passenger vehicle
Page 132 and 133: import activities have continued
Page 134 and 135: Box 3.4 Automotive-related FTA Prov
Page 136 and 137: access. The FTA affirms the parties
Page 138 and 139: gaining U.S. market share regardles
Page 140 and 141: keep the products out.” 492 Mr. B
Page 142 and 143: these vehicles to Korea. The commit
Page 144 and 145: Brown expressed concern about the r
Page 146 and 147: goods; and high-technology medical,
Page 148 and 149: device pricing, reimbursement, and
Page 151 and 152: CHAPTER 4 Impact of Market Access P
Page 153 and 154: elative to GDP than do China, Japan
Page 155 and 156: services as a substantial improveme
Page 157 and 158: Box 4.2 Financial services: Competi
Page 159 and 160: Summary of Provisions Chapter 13 of
Page 161 and 162: national treatment, full establishm
Page 163 and 164: Box 4.4 Competitive conditions in t
Page 165 and 166: and cross-connect links 70 are more
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Box 4.5 U.S. legal services trade w
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establish offices in Korea to provi
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Box 4.6 Competitive conditions in t
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equirements and foreign ownership r
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CHAPTER 5 Impact of Trade Facilitat
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publication and administration of t
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Views of Interested Parties In its
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Summary of Provisions This chapter
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use of TBTs to protect Korea’s au
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conformity assessment procedures el
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FTA Chapter 15-Electronic Commerce
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Views of Interested Parties The U.S
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quantities as to be a substantial c
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that such transshipment could imped
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Box 6.1 Foreign investment in Korea
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in the FTA. The awards made by any
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Table 6.1 U.S.-Korea FTA: Industry
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(ITAC 5) report cited as particular
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Section C of Chapter 11 and the lac
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practices, and violations of consum
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FTA Chapter 17—Government Procure
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Both the United States and Korea ar
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8) 87 also expressed support for th
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Box 6.2 Recent conditions of IPR pr
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protection to life of the author pl
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Views of Interested Parties A numbe
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GPHA stated in testimony before the
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Box 6.3 Labor market conditions in
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FTA Chapter 20—Environment 131 As
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trade measures are the least disrup
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FTA Chapter 22-Institutional Provis
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Views of Interested Parties The Ind
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CHAPTER 7 Literature Review and Sum
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7-3 Table 7.1 Model, liberalization
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terms. Much of the increase in U.S.
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Liberalization generated small incr
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Sander Levin, Member of the U.S. Ho
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Regarding footwear and travel goods
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Korea’s establishment as a region
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The California Table Grape Commissi
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order activity, and facilitate expa
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At the Commission’s hearing, Mr.
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Information Technology Industry Cou
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With respect to tariff and nontarif
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deterring illegal transshipments. I
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PhRMA identified what it views as t
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the TIA stated that it supports the
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access to the market. The Council a
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United States, Spain, Chile, Brazil
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Bibliography Advanced Medical Techn
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AT&T. “AT&T Reaction to Free Trad
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______. “Korea-U.S. Free Trade Re
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______. “Country Finance: South K
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Global Trade Information Services I
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International Labor Organization (I
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Jones, Laura E. Executive Director.
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Lee, Hyunok, and Daniel A. Sumner.
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Nam, In-Soo. “Helio's Losses To W
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Powers, Mark. Northwest Horticultur
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Smith, Brad. American Council of Li
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U.S.-Korea Business Council (USKBC)
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______. “Korea, Republic of Oilse
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U.S. International Trade Commission
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Ward, David. American Council on Ed
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APPENDIX A Request Letter from USTR
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APPENDIX B Federal Register Notices
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pwalker on PROD1PC71 with NOTICES 2
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APPENDIX C Hearing Participants
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ORGANIZATION AND WITNESS: PANEL 1 (
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APPENDIX D U.S.-Korea FTA: Chapter-
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fees and charges on trade in goods
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determines the tariff classificatio
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The transparency provisions would a
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necessary duties within 1 year of i
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technical regulation or conformity
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procedures), and practices of a par
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aviation, fisheries, or maritime ma
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of standards and criteria and on te
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of the FTA that impose unilateral o
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use of electronic authentication in
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parties’ rights and obligations u
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establishment of Uniform Domain-Nam
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government to take appropriate meas
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environmental laws. 102 In the U.S.
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not limited to, policies on commerc
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Economic indicators 2002 2006 Popul
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Table E.1 Leading U.S. exports to K
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APPENDIX F GTAP Model
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Updating the GTAP Database The curr
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Key Assumptions Agency. 4 The price
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Table F.2 U.S.-Korea FTA benchmark
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Measuring the Impacts of the FTA an
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General Effects of Trade Agreements
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APPENDIX H Tariff Equivalents in Ko
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Previous Literature The method for
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For the purposes of this report, a
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Table H.1 Tariff equivalents in Kor
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APPENDIX I Services Nonconforming M
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Table I.1 U.S.-Korea FTA: Korean se
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APPENDIX J Description of Possible
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are in effect import prices, and th
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APPENDIX K Overview of Agricultural
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Additionally, although current regu
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About This Report The United States
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