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

Box 4.1 Profile of services industries in Korea and the United States
The Korean services industry is generally less developed, less productive, and less liberalized than the U.S.
services industry. It is characterized by lower labor productivity in virtually all subsectors compared to counterparts
in the United States and other advanced economies such as Germany, France, and Japan. A liberalization index
constructed by Lee and Lee based on the GATS schedules of Korea and the United States indicates that the U.S.
services sectors are more liberalized than Korean services sectors in virtually every area except for tourism, where
the two countries are equally liberalized, and transport, where the Korean market is slightly more liberalized than
the U.S. market.
The services sector in Korea accounted for 56 percent of the country’s GDP and 65 percent of total employment
in 2005, the latest year for which data are available. The largest service sectors in Korea are financial services, real
estate and rental services, and wholesale and retail services respectively. Korea posted a services trade deficit in
that year, as shown in the table below. Services accounted for 14 percent of Korea’s overall exports, with the
transportation sector predominating.
The U.S. services sector accounted for 77 percent of U.S. GDP in 2004 (latest year available from source
consulted) and 78 percent of total employment in 2005. 1 The largest service sectors in the United States are real
estate and rental and leasing services, wholesale and retail services, and financial services, respectively. The
United States is the world’s largest services exporter. Sales of services by foreign affiliates of U.S. parent firms,
the value of which has exceeded that of U.S. cross-border services since 1996, totaled $489.6 billion in 2004 (latest
available). Such sales follow U.S. direct investment in foreign markets, and in part reflect the degree to which
foreign markets are open to U.S. services firms.
Cross-border trade in services with all trading partners by the United States and Korea, 2005 (million U.S.
dollars)
United States Korea
Trade
Trade
Service industry
Exports Imports balance Exports Imports balance
Total services 376,788 314,575 62,213 45,375 58,467 -13,092
Passenger transport 20,930 26,070 -5,140 2,488 1,517 971
Freight transport 17,340 44,160 -26,820 18,352 7,831 10,521
Other transport 24,910 17,950 6,960 3,043 10,619 -7,576
Travel and tourism 102,010 73,560 28,450 5,660 15,314 -9,654
Other services a
211,600 152,840 58,760 15,831 23,187 -7,356
Source: IMF, Balance of Payments Statistics Yearbook, 2006, part 1, 525, and 1,018.
Note: Because of the calculation routines used by the IMF, there may be rounding differences between an aggregate and
the sum of its components.
a Included in “other services” are communications; construction; insurance; financial; computer and information;
royalties and license fees; other business; personal, cultural, and recreational; and other government.
Sources: Lee and Lee, “Feasability and Economic Effects of a Korea-U.S. FTA,” December 30, 2005; World Bank, World
Development Indicators; Bank of Korea, Republic of Korea, “National Accounts.” ECOS—Economic Statistics System;
USDOC, BEA, Survey of Current Business, October 2006; USDOC, BEA, “Gross Domestic Product by Industry
Accounts”; and IMF, Balance of Payments Statistics Yearbook, 2006.
1 World Bank data on services used here differ from services data reported by the U.S. Bureau of Economic Analysis
(BEA) in that World Bank data include public sector figures, but do not include construction or utilities data, while BEA
data exclude government data but include construction and utilities data.
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