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

FTA Chapter 13—Financial Services
Assessment
The financial services provisions of the U.S.-Korea FTA would likely lead to increased
penetration of the Korean market by U.S. firms. Particularly important Korean liberalizations
bound by the FTA enable cross-border provision of insurance and asset management
services, full establishment rights for U.S. financial services firms, and the ability to transfer
customer data into and out of Korea. Another important provision would permit U.S.
portfolio managers to provide services to both mutual funds and pension funds in Korea. The
negative list approach adopted in the FTA is also considered especially beneficial to U.S.
financial services firms, as they tend to compete through introduction of innovative new
products. 26 Industry representatives consider Korea to be a significant market for U.S.
financial services firms, 27 and state that these sector liberalizations and resulting reforms
bound by the Agreement would result in sizeable new cross-border exports of financial
services and investment by U.S. firms. Significant new imports of financial services from
Korea are not expected in the near term because the U.S. financial services market is already
generally open.
Financial Services—Except Insurance
The FTA would likely generate a substantial increase in U.S. exports of banking, securities,
and asset management services to Korea. Although cross-border exports to Korea in 2005
accounted for just 1 percent ($344 million) of total U.S. exports of financial services, 28 the
anticipated absolute effect of the FTA would be significant due to the size of the Korean
market and the country’s expressed desire to become a regional financial hub (see box 4.2).
Comparatively speaking, Mexico, 29 which has a comparable GDP, is also an OECD member,
and already has an FTA with the United States, imported $547 million of U.S. financial
services in 2005. 30 The FTA text represents a significant improvement over Korea’s current
GATS bindings. The Commission estimates that the tariff equivalent (TE) of Korea’s
remaining nontariff impediments to banking services stands at 29 percent under the terms
of the FTA, which is less than one-half of the estimated 76 percent TE consistent with
Korea’s GATS bindings. The TE decline reflects, among other things, the removal of certain
restrictions on investment, cross-border supply, and product range (box 4.3 and appendix H).
The FTA would not likely have a significant effect on U.S. imports of financial services
from Korea, as the market for U.S. financial services is already fairly open and highly
competitive, and Korean banks currently have a small presence. As of December 2006,
Korean banks in the United States held $4.4 billion in assets, less than 1 percent of total
26 Reis, testimony before the USITC, June 20, 2007, 27.
27 USKBC and the AMCHAM in Korea, U.S.-Korea Free Trade Agreement Position Paper, 2006.
28 USDOC, BEA, Survey of Current Business, October 2006, 57.
29 Mexico was chosen for comparative purposes because of the similar size of its GDP, and because the
country already has an FTA with the United States, which may serve as an indicator for a potential increase
in financial services trade. Geographic proximity is not as relevant to services trade as it is to trade in goods.
30 USDOC, BEA, Survey of Current Business, October 2006, 57.
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