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

elative to GDP than do China, Japan, France, and Germany but relatively less than the
United Kingdom, Canada, Mexico, and Switzerland. 6
On a commercial presence basis, the Korean services market is relatively closed. In a sample
of nearly 5,000 mid-to large-sized services firms operating in Korea, 7 98 percent are owned
by Korean individuals or firms. 8 Of the 2 percent of services firms that are foreign owned,
35 firms are U.S.-owned, 31 are EU-owned, and 22 are owned by investors from other
countries, primarily Japan and Switzerland. The provisions of the FTA may increase U.S.
firms’ competitiveness relative to other foreign services suppliers that have not yet entered
into a trade agreement with Korea. 9
Improvement in U.S. firms’ access to the Korean market under the FTA is attributable in part
to the use of a “negative list” approach in the agreement. Under this approach, all disciplines
included in FTA chapter 12 would automatically cover all services industries and industry
segments except for those specifically exempted in FTA Annexes I through III on
nonconforming measures (NCMs) (see appendix tables I.1 and I.2), other FTA chapters, and
side letters. 10 Use of the negative list approach extends the disciplines found in the services
chapters of the FTA to a number of services for which Korea scheduled limited or no
commitments under the GATS, including those yet to be offered commercially. 11 For
instance, Korea elected to make no GATS commitments in sporting and other recreational
services and limited GATS commitments in research and development services other than
marine research, but did not exempt these services from FTA disciplines. Consequently, U.S.
providers of such services would be entitled to unrestricted market access, nondiscriminatory
regulatory treatment, and improved transparency under the terms of the FTA, compared to
the situation under the GATS. Korea has highlighted improvements it made in the FTA over
the GATS via the negative listing approach on research and development, travel, tourism,
and several business services. 12 The trade liberalizing effect of negative listing is moderated
only by the relatively large number of NCMs listed by Korea.
6 Ibid.; World Bank, “WDI and GDF Online”; and Commission staff calculations.
7 Companies with at least 7 billion won ($US 7.5 million) in total assets. Only firms with an identifiable
ultimate owner controlling at least 25 percent of equity are included in this sample. Data were obtained from
Orbis, a large international database that compiles financial and ownership information on public and private
firms.
8 By comparison, 18 percent of U.S. firms and 40 percent of UK firms were foreign in samples obtained
using similar methodology.
9 The EU and Korea commenced FTA negotiations in May 2007. The European Free Trade Association,
of which Switzerland and three other non-EU European countries are members, entered into an FTA with
Korea in September 2006. MOFAT, Republic of Korea, “Bilateral Trade Relations.”
10 NCMs are trade measures which do not conform to the disciplines of the agreement. The United States
has specified six services industries for which it currently maintains cross-border NCMs, whereas Korea
specified 44 services industries subject to cross-border NCMs. The Korean services sectors subject to NCMs
are subject to equal or greater restrictions under the GATS, thus the impact on U.S. services exports resulting
from these NCMs relative to current situation is likely to be small. Additionally, due to the openness of the
U.S. market, the impact of these measures on U.S. imports is also likely to be small.
11 The negative list approach tends to yield greater market access and transparency than the positive list
approach employed in GATS, wherein market access and national treatment apply only to the provision of
specifically listed services. Under a positive list approach, the extension of trade disciplines to newly created
services would have to be negotiated individually.
12 USTR, “Final - United States - Korea FTA Texts,” 2007, Appendix II-A, 53–4, 2007.
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