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

prohibit improper inducements by pharmaceutical or medical device manufacturers or
suppliers to health-care professionals or institutions for the listing, purchasing, or prescribing
of pharmaceutical or medical device products 383 eligible for reimbursement under health-care
programs operated by its central level of government.” 384 PhRMA expressed a similar view,
indicating that the provisions of the FTA would help to ensure a level playing field for U.S.
companies in terms of ethical business practices. 385
Given the relatively low tariff rates applied by Korea on imports of pharmaceutical products,
the phasing out of Korean tariffs on pharmaceuticals would likely have a small but positive
impact on U.S. exports to Korea. Korean tariffs on pharmaceutical products (HS chapter 30)
currently range from 0 to 8 percent ad valorem with 54 of 148 Korean tariff lines for
pharmaceuticals having free MFN rates of duty. If the FTA is implemented, 68 additional
tariff lines for U.S. pharmaceutical products would have duties eliminated immediately.
Duties on the remaining 26 tariff lines would be phased out over a period of 3 years. The
tariffs that would be phased out include the tariff provision with the highest level of Korean
imports from the United States in 2006, “Medicaments in Measured Doses, Other,” which
currently has a duty of 8 percent ad valorem. This category accounted for 32.0 percent of
U.S. pharmaceutical exports to Korea in 2006. 386 Korean imports for all tariff lines subject
to 3-year staging were 49.7 percent of imports from the United States in 2006. 387
In addition to traditional pharmaceutical products, the Korean Food and Drug Administration
also administers preapproval testing and registration requirements for the relatively new,
“highly functional” cosmetic products. 388 These products, often called “cosmeceuticals,”
include antiaging treatments, sunscreens, and other cosmetics that are marketed as having
druglike benefits. 389 The ability of U.S. companies to compete in the Korean market for
cosmeceuticals is currently impeded by burdensome requirements and a general lack of
transparency in the regulatory system. 390 The FTA requirements for transparency in
regulatory approval processes may provide U.S. cosmetic companies better access for their
cosmeceutical products in the Korean market.
Views of Interested Parties
The U.S. pharmaceuticals industry generally supports the FTA, especially the provisions
addressing nontariff issues. According to hearing testimony, U.S. pharmaceuticals firms have
faced a range of market access impediments in the Korean market. 391 Industry representatives
specifically mentioned the importance of the strong protections provided by the intellectual
property rights of the FTA. 392 In testimony before the Commission, a representative of
PhRMA expressed support for the transparency provisions of the Pharmaceuticals and
383 An analysis of the effects of the FTA on the market for medical devices is presented in a separate
section of chap. 3 of this report.
384 USTR, “Final - United States - Korea FTA Texts,” 2007, Article 5.5.
385 May, testimony before the USITC, June 20, 2007, 288.
386 Global Trade Information Services, World Trade Atlas Database.
387 Ibid.
388 WTO, Trade Policy Review Body (TPRB), “TPR, Republic of Korea, Report by the Secretariat,”
September 17, 2004.
389 Sung, “Korea's Cosmetic Market Brief,” September 2005, 2.
390 USTR, “Korea,” 2007 National Trade Estimate Report on Foreign Trade Barriers, April 2, 2007, 359.
391 May, testimony before the USITC, June 20, 2007, 185.
392 PhRMA, “PhRMA Statement on the U.S.-Korea Free Trade Agreement (April 3, 2007).”
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