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

assets held by foreign banks. 31 Total U.S. imports of banking and securities services
registered $12.3 billion in 2005, and sales of financial services by U.S. affiliates of foreign
firms totaled $23.8 billion in 2004 (latest available). 32 While precise figures on sales by U.S.
affiliates of Korean firms do not exist, cross-border imports of financial services from Korea
totaled $125 million in 2005, 33 or approximately 1 percent of total U.S. banking and
securities services imports. Such U.S. imports are most likely concentrated in the provision
of trade financing to U.S. clients importing goods from Korea, and do not directly compete
with U.S.-based banks. Near-term growth in imports will likely be a result of demand for
trade finance services generated by increased trade in goods between the United States and
Korea, rather than a direct result of financial sector liberalization.
Insurance
The FTA would also be expected to generate a substantial increase in U.S. exports of
insurance services to Korea. The Korean insurance market is the seventh-largest in the world
in terms of premium volume, and the biggest to be included in a recent U.S. bilateral FTA.
It has remained relatively closed to foreign firms, however. As such, the potential for crossborder
U.S. exports or sales by foreign affiliates of U.S. firms in this sector likely is sizeable.
Total U.S. cross-border exports of insurance in 2005 totaled $6.8 billion, although exports
to Korea amounted to just $74 million, or 1 percent of the total. 34 Comparatively speaking,
Mexico imported $158 million of insurance services from the United States in 2005. 35
According to industry estimates, cost savings to the life insurance sector from removal of the
restriction on data transfer could reach $50 million, and potential gains from new market
growth due to the FTA provisions could be $5 billion in the long term. 36
With respect to the potential for increased U.S. imports from Korea, the U.S. insurance
market is already open to foreign firms, so market access gains for Korean firms would
likely be marginal. In 2005, total U.S. cross-border imports of insurance services were
$28.5 billion, and insurance sales by U.S. affiliates of foreign firms totaled $81.3 billion in
2004 (latest available). 37 Precise figures on sales by U.S. affiliates of Korean firms are not
available, but cross-border imports totaled $15 million in 2005, 38 or less than 0.1 percent of
total U.S. imports of insurance services. Near-term growth in imports would likely result
from demand for insurance generated by increased trade in goods between the United States
and Korea, rather than as a direct result of insurance-sector liberalization. Korean insurance
companies are unlikely to compete directly with more sophisticated U.S. insurers in the
highly competitive U.S. market.
31 Federal Reserve Board, “Structure and Call Report Data for U.S. Offices of Foreign Entities by
Country,” December 31, 2006.
32 USDOC, BEA, Survey of Current Business, October 2006, 74.
33 Ibid., 57.
34 This figure represents the sum of reinsurance ($207 million) and primary insurance ($26 million)
premiums received, minus losses paid ($161 million). The figures do not total exactly because of rounding.
USDOC, BEA, Survey of Current Business, October 2006, 60.
35 USDOC, BEA, Survey of Current Business, October 2006, 60.
36 Smith, testimony before the USITC, June 20, 2007, 64.
37 USDOC, BEA, Survey of Current Business, October 2006, 60 and 74.
38 Ibid., 57.
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