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

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U.S. exports of auto parts would be expected to increase with the implementation of the FTA as a result of the immediate elimination of Korea’s 8 percent duty as well as provisions that ensure the equivalent treatment of remanufactured and used goods, such as auto parts. 403 However, such export growth would likely be mitigated, in part, by the strong relationships between Korean producers and their local supplier networks, the limited interchangeability of original equipment parts, and the relatively small role of U.S. automakers (and their U.S.-made vehicles) in the Korean market. Moreover, although the equivalent treatment of remanufactured goods may provide additional market access opportunities, 404 reused and remanufactured auto parts account for only 0.5 percent ($250 million) of the estimated value ($48 billion) of the total Korean auto parts market. 405 U.S. suppliers of electronics would likely benefit from the FTA. The Commission’s economy-wide analysis of the long-term effects of tariff and TRQ liberalization estimates that U.S. exports of electronic equipment to Korea would be likely to increase by $212–231 million (3.8–4.2 percent). 406 Despite the fact that many electronics products are duty-free under the ITA, FTA provisions provide general duty-free access to non-ITA goods such as CE. CE are estimated to account for less than 5 percent of total U.S. exports of electronics and are expected to benefit from FTA tariff liberalizations. Nontariff provisions, such as those in the intellectual property and TBT chapters of the FTA, are expected to improve U.S. electronics firms’ competitiveness in the Korea market. 407 For example, U.S. industry representatives express the view that the FTA provides strong protection for intellectual property rights. 408 Furthermore, U.S. manufacturers are leading suppliers of many electronics products, and the current Korean market demand for sector products such as wireless broadband equipment is expected to benefit U.S. firms. 409 Korea’s high rate of Internet usage and broadband penetration—the U.S. Commercial Service estimated it to be approximately 90 percent of Korean’s 15 million households in 2006—along with the development of new wireless Internet technologies, has provided opportunities for highly innovative and specialized U.S. telecommunications equipment firms. 410 Wireless technological innovation and broadband access in Korea has also increased demand for computer software in the market. Because computer software currently receives duty-free access to the Korean market under the ITA, the sector is expected to benefit primarily from FTA provisions addressing NTMs. Industry groups, such as the International Intellectual Property Alliance (IIPA), indicate that the FTA’s intellectual property provisions would have 403 Other industries that may benefit from Korea’s agreement to accept remanufactured goods include machinery and medical goods. USTR fact sheet “Free Trade with Korea, Brief Summary of the Agreement.” Korea currently allows imports of remanufactured goods, with requirements on certain goods, particularly medical devices. There is no known prohibition, however, on imported remanufactured goods. U.S. government official, e-mail message to Commission staff, July 5, 2007. 404 The concept of remanufactured goods is relatively new in Korea. A law relating to domesticallyremanufactured goods was enacted in December 2005 to foster environmentally friendly industries, including remanufactured goods. U.S. government official, e-mail message to Commission staff, July 13, 2007. 405 U.S. government official, e-mail message to Commission staff, July 13, 2007. 406 Impact relative to an estimated 2008 base. See chap. 2 of this report for additional information regarding the economy-wide analysis. 407 For additional analysis regarding TBTs and other NTMs, see chap. 5 of this report. 408 ITAC (15) on Intellectual Property Rights, Advisory Committee Report, April 27, 2007, 6; and ITAC (8) for Information and Communications Technologies, Services and Electronic Commerce, Report, April 27, 2007, 4. 409 USFCS, “Doing Business in Korea: A Country Commercial Guide for U.S. Companies,” 2007. 410 Ibid. 3-70
a beneficial impact on copyright-based industries, such as computer software. 411 The FTA’s intellectual property provisions and Korea’s recent efforts to strengthen intellectual property rights protection through mechanisms such as the Computer Program and Protection Law are expected to assist U.S. firms and their position as principal suppliers of prepackaged software to Korea. 412 U.S. suppliers of machinery products, a sector that comprises a wide variety of products, are generally expected to benefit from the FTA’s reduction or elimination of tariffs. The Commission’s economy-wide analysis of the long-term effects of tariff and TRQ liberalization under the FTA for this sector estimates that U.S. exports to Korea could increase by $2.8–2.9 billion (36–38 percent). 413 Because current U.S.-Korea trade in this sector is relatively large in dollar terms, the elimination of duties on products in this sector would contribute to larger estimated effects in the modeling results. Currently, U.S. firms account for an estimated 15–20 percent of total Korean imports in this sector. Examples of sector products 414 likely to experience increased exports resulting from the FTA include computerized numerically controlled (CNC) cutting machine tools, electrical power systems, and security products. Currently, the United States is one of the leading Korean import sources for CNC machine tools. 415 Korean market demand for machine tools is primarily in sectors where major Korean manufacturing exists, such as the automotive sector, metal processing, electronics, and precision machine industries. 416 Korea currently has an 8 percent duty on most machine tools; the FTA would provide immediate duty-free access to many types of machine tools, while other machinery products would have staging periods ranging from 3 to 10 years. U.S. exports of electrical-power generating equipment are currently assessed tariffs ranging from 0 to 8 percent and are expected to benefit from the immediate or phased elimination of duties. The United States is one of the leading suppliers of turbines, generators, and nuclear reactors to Korea. Korea currently plans to increase power-generating capacity in the country in anticipation of greater future electricity demand, 417 providing further opportunities for U.S. firms. U.S. suppliers of security products, with many facing 8 percent duties, are expected to benefit from immediate or phased reduction of duties along with increased demand of sector products, because of factors such as the replacement of airport and port security systems in Korea. 418 Semiconductors and household appliances have traditionally been affected by NTMs, particularly standards and conformity assessment in the Korean market. While concerns regarding the Korean market remain for U.S. suppliers of these products, the FTA provisions will likely benefit these sectors. Semiconductors are one of the leading categories of U.S. 411 IIPA, “Re: Investigation No. TA 2104-24, U.S.-Korea Free Trade Agreement,” written submission to the USITC, June 25, 2007, 2. 412 USFCS, “Doing Business in Korea: A Country Commercial Guide for U.S. Companies,” 2007. 413 Machinery products are covered under the GTAP sector “machinery and equipment n.e.c.” For additional information on the Commission’s CGE results, see chap. 2 of this report. Impact relative to an estimated 2008 base. See chap. 2 of this report for additional information regarding the economy-wide analysis. 414 The sector consists of a very broad range of products that cover an extremely large range of industries. The sectors highlighted in the assessment are provided as examples of products that may have some potential to benefit from the FTA. 415 USFCS, “Doing Business in Korea: A Country Commercial Guide for U.S. Companies,” 2007. 416 Ibid. 417 Ibid. 418 Ibid. 3-71
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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
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consumed domestically by the U.S. l
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ates. For corn starch, the United S
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quota rates have been effectively e
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Noncitrus Fruit 87 Views of Interes
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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
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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 116 and 117: of the U.S. footwear market, with C
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
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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
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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
Page 167 and 168: Box 4.5 U.S. legal services trade w
Page 169 and 170: establish offices in Korea to provi
Page 171 and 172: Box 4.6 Competitive conditions in t
Page 173 and 174: 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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