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

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import activities have continued “in a more subtle and indirect manner” and “continue to have a strong residual effect on consumers today.” 450 FTA Provisions The FTA addresses certain tax and TBT issues as described above, and also prescribes a system for consultation and dispute settlement. 451 The provisions of the agreement that relate to the passenger vehicle sector are described in box 3.4. Effect of FTA Provisions Removal of the 8 percent tariff on passenger cars and the 10 percent tariff on light trucks would likely have a positive effect on U.S. exports, potentially enabling U.S. exporters to lower their prices because of the tariff savings; further, the overall tax burden on the Korean consumer who purchases an imported vehicle would be reduced, more or less equalizing the total taxes paid on imported and domestic vehicles. Of particular interest is the treatment of hybrid vehicles. For hybrid vehicles in which the gas- or diesel-powered engine “provides the vehicle’s power system its essential character,” the 8 percent tariff would be immediately removed. 452 There are a number of hybrid vehicles currently produced or slated to be produced in the United States in the coming model years, and U.S. officials assert that all of the U.S.-built hybrids currently on the market would benefit from the immediate elimination of the 8 percent Korean tariff. 453 Consequently, the removal of this tariff could increase the competitiveness of U.S.-produced hybrid vehicles in the Korean market, particularly in light of the fact that there are currently no Korean-built hybrid vehicles. The FTA provisions on market access and national treatment address Korea’s motor vehicle tax system. The reduction of the special consumption tax and the annual vehicle tax, and the restructuring of the vehicle classifications of those taxes, make the taxes less discriminatory against U.S. exports; the systems, however, continue to be based on engine size, and the overall effect is expected to be positive but likely minimal. As noted by Schott, Bradford, and Moll (2006), “[e]ven if the tariffs disappear on bilateral trade under an FTA, foreign automakers fear that the structure of domestic taxes will continue to depress demand in the Korean market for large-engine cars relative to small cars.” 454 Moreover, the FTA commitments on taxes would be applied on a multilateral basis, meaning that U.S. exports would not benefit from preferential taxation treatment. As can be discerned from the data in table 3.16, 95 percent of all vehicles sold in Korea in 2005—imports and domestically produced—were vehicles with engines over 1,000 cc and would therefore be assessed the reduced special consumption tax rate of 5 percent at full implementation. Regarding the annual vehicle tax, 79 percent of all vehicles sold in Korea have engines over 1,600 cc; the 450 Biegun, “Responses to Commissioners' Questions to Mr. Stephen Biegun,” written submission to the USITC, June 27, 2007. 451 For additional analysis regarding TBTs and other NTMs, see chap. 5 of this report. 452 For hybrid vehicles in which the gas- or diesel-powered engine “does not give the vehicle’s power system its essential character,” the 8 percent tariff would be phased out over 10 years. 453 U.S. government official, interview by Commission staff, Washington, DC, June 11, 2007. 454 Schott, Bradford, and Moll, “Negotiating the Korea-United States Free Trade Agreement,” June 2006. 3-78
Box 3.4 Automotive-related FTA Provisions Tariff Liberalization Korea would immediately eliminate its 8 percent tariff on U.S.-built passenger cars and its 10 percent tariff on pickup trucks. The 8 percent tariff on two eight-digit tariff rate lines in the Korean tariff schedule would be phased out in ten equal annual stages. The United States would immediately eliminate its 2.5 percent duty on passenger vehicles with gasoline-powered engines up to and including 3,000 cc, and would phase out over 3 years the 2.5 percent duty on passenger vehicles with gasoline-powered engines over 3,000 cc, and all diesel-powered passenger vehicles. The 2.5 percent tariff on passenger vehicles other than gasoline- or diesel-powered, and the 25 percent tariff on pickup trucks, would be phased out in equal stages over 10 years. National Treatment and Market Access for Goods (Chapter 2) • Korea commits to reducing the special consumption tax and annual vehicle tax, and restructuring the vehicle classifications (see table below). • Korea would not impose any new taxes based on engine displacement. • Korea commits to publicizing the availability of an 80 percent refund of the subway/regional bond for purchasers of new automobiles; 80 percent of the bond is immediately redeemable, or the bond is fully redeemable when it reaches maturity. Korean Automobile Taxes Addressed in the FTA Purchase Tax Current FTA Commitment Special Consumption Tax Below 800 cc—Exempted 801–2,000 cc—5 percent Over 2,000 cc—10 percent Ownership Tax Current FTA Commitment Annual Vehicle Tax Below 800 cc—80 won/cc 801–1,000 cc—100 won/cc 1,001–1,600 cc—140 won/cc 1,601–2,000 cc—200 won/cc Over 2,000 cc—220 won/cc 3-79 Over 2,000 cc is immediately reduced to 8 percent, and further reduced to 5 percent over 3 years. After 3 years, tiers are restructured to below 1,000 cc, which would not be taxed, and over 1,000 cc, which would be taxed at 5 percent. Below 1,000 cc—80 won/cc 1,001–1,600 cc—140 won/cc Over 1,600 cc—200 won/cc
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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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3-20 Table 3.9 U.S.-Korea trade and
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Korean grapes are much more costly
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Potato Products 122 Assessment The
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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
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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
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 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
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
Page 175 and 176: CHAPTER 5 Impact of Trade Facilitat
Page 177 and 178: publication and administration of t
Page 179 and 180: Views of Interested Parties In its
Page 181 and 182: 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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