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

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Box 6.1 Foreign investment in Korea The United States is the world’s largest destination for FDI, with 2005 inbound direct investment stock of $1.6 trillion, representing 16 percent of total worldwide inbound investment stock. Inbound FDI accounts for 13.0 percent of the U.S. GDP. Korea, with a smaller economy, registered $63.2 billion in inbound direct investment stock in 2005, equal to 8.0 percent of Korea’s GDP. 1 United States and Korea: Investment data, 2005 6-6 Korea United States Inbound global investment stock (million dollars) 63,199 1,625,749 Inbound stock as percentage of GDP (percent) 8.0 13.0 Outbound global investment stock (million dollars) 36,478 2,051,284 Outbound stock as percentage of GDP (percent) 4.6 16.4 Investment inflows (million dollars) 7,198 99,443 Bilateral outbound investment stock (million dollars) 6,203 18,759 Sources: Data on total investment stock and investment inflows: UNCTAD, World Investment Report 2006. Data on U.S.-Korean bilateral investment: USDOC, BEA, Survey of Current Business, September 2006. Note: Bilateral outbound investment stock reflects U.S. government statistics for U.S. outbound direct investment position in Korea on a historical-cost basis, and U.S. inbound direct investment position from Korea on a historical-cost basis. Korean data for Korea’s outbound investment position in the United States are not available. Korea has become more welcoming to foreign investors since reforms were instituted following the 1997–98 Asian financial crisis. As of 2005, however, foreign investors still note problems related to public and media objections to foreign investment, transparency regarding the interpretation of relevant regulations and corporate governance, intellectual property protection, and labor-management relations. 2 Restrictions on foreign investment in cable television and satellite broadcasters are particularly troublesome for U.S. investors. 3 The United States holds the largest singlecountry share of FDI stock in Korea, with 30 percent, compared with 30 percent for the combined EU-25 countries and 15 percent for Japan. 4 By operating revenue, the largest U.S.-owned companies in Korea are Halla Climate Control, owned by Visteon, and the Korean affiliates of Citigroup, 3M, Delphi, and IBM. The largest Korean-based companies operating in the United States include Samsung Electronics, LG Corp. (a chemicals manufacturer), Hyundai, LG Electronics, and POSCO (Korea-based steel manufacturer). 5 The United States is the world’s largest destination for FDI, with 2005 inbound direct investment stock of $1.6 trillion. The following are the framework legal provisions governing foreign investment in Korea: • Foreign Investment Promotion Act, Enforcement Decree, and Enforcement Rules, most recently amended in April 2007 • Regulation on Foreign Investment or Technology Introduction (as notified by the Ministry of Industry and Energy) • Integrated bulletins on foreign investment (as notified by the Ministry of Industry and Energy) • Tax Abatement Regulations for Foreign Investment (as notified by the Ministry of Finance and Economy) • Tax Abatement Restriction Act (Chapter 5: Tax Abatement for Foreign Investment), Enforcement Decree, and Enforcement Rules. 6 1 UNCTAD, World Investment Report 2006, annex tables B.2 and B.3. 2 USFCS, “Doing Business in Korea: A Country Commercial Guide for U.S. Companies,” 2005. 3 ITI, “ITI Submission on the United States-Korea Free Trade Agreement,” written submission to the Trade Policy Staff Committee, Office of the USTR, March 24, 2006. 4 USFCS, “Doing Business in Korea: A Country Commercial Guide for U.S. Companies,” 2005. Reflects official Korean government FDI statistics, which may not match U.S. government statistics from the Department of Commerce. 5 Bureau van Dijk Electronic Publishing, Orbis Database. 6 Invest Korea.
them significantly more competitive. 22 The services section of this report (see chapter 4 of this report) provides additional discussion of the impact of the FTA on telecommunications, broadcasting, and financial services. Summary of Provisions The two principal objectives of the FTA investment chapter are to create a welcoming environment for investors from each party by outlining the rights of investors and the rules that govern new cross-border investment, and to provide a clear outline of the investor-state dispute settlement process. Section A of the chapter outlines the rules that would govern new investments, and would set forth the types of investments to which these rules apply. 23 Specifically, the FTA would require each party to give national and MFN treatment to investors and covered investments of the other party. The treatment of investors under the FTA must comply with but need not go beyond customary international law. Other provisions include: 1. Expropriation could be only for a public purpose; it must be nondiscriminatory and accompanied by payment of prompt, adequate, and effective compensation in accordance with due process of law. 2. All financial transfers relating to covered investments, including, but not limited to, contributions to capital, payment of interest, and payments under contracts, could cover the full value of the investment and must be permitted freely and without delay. 3. Neither party could impose or enforce performance requirements as a condition of investment. 24 4. Neither party could require that senior management or boards of directors be of any particular nationality. The benefits of this chapter could only be denied in limited, delineated instances involving persons of a nonparty to the FTA. This section of the chapter also deals with NCMs, and special formalities and information requirements. Section B of this chapter would provide for consultation and negotiation of disputes under the investor-state dispute settlement process, and provides detailed information and procedures for pursuing dispute settlement, including submission of claims to arbitration, selection of arbitrators, conduct of the arbitration, transparency of the arbitral proceedings, governing law, and awards of monetary damages (not including punitive damages) or restitution. Under the terms of the provisions of Section B, each party would consent to claims being submitted to arbitration under specified rules according to the process outlined 22 Ibid., 73–74. 23 Investment related to financial services is covered separately in the financial services chapter (FTA chap. 13). 24 Such provisions may include requirements to export a given level or percentage of goods or services, to purchase goods produced in a party’s territory, or to transfer a certain technology or other proprietary information. 6-7
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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
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Other Vegetables 162 Assessment The
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U.S. exports of other fresh and pro
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tariff concessions that could accru
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Dairy Products 215 Similarly, the p
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TRQ for food whey, 223 based on cur
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potential changes in trade based so
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Figure Figure 3.1 Korea: Beef and v
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Views of Interested Parties The inc
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are subject to the same food safety
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enefit under the provisions of this
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Box 3.2 Potential price and quantit
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50 percent, while the vegetable jui
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and major supplier, and U.S. tariff
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textiles and apparel through 2005.
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U.S. Exports The impact of the FTA
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passage. NCTO indicated that, even
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In its report, the ITAC on Distribu
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of the U.S. footwear market, with C
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of these producers. 362 RPFMA noted
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prohibit improper inducements by ph
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Machinery, Electronics, and Transpo
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U.S. exports of auto parts would be
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imports from and exports to Korea.
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Passenger Vehicles 433 Assessment U
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Table 3.16 Korean passenger vehicle
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import activities have continued
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Box 3.4 Automotive-related FTA Prov
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access. The FTA affirms the parties
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gaining U.S. market share regardles
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keep the products out.” 492 Mr. B
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these vehicles to Korea. The commit
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Brown expressed concern about the r
Page 146 and 147: goods; and high-technology medical,
Page 148 and 149: device pricing, reimbursement, and
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Page 153 and 154: elative to GDP than do China, Japan
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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
Page 183 and 184: use of TBTs to protect Korea’s au
Page 185 and 186: conformity assessment procedures el
Page 187 and 188: FTA Chapter 15-Electronic Commerce
Page 189: Views of Interested Parties The U.S
Page 192 and 193: quantities as to be a substantial c
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Page 198 and 199: in the FTA. The awards made by any
Page 200 and 201: Table 6.1 U.S.-Korea FTA: Industry
Page 202 and 203: (ITAC 5) report cited as particular
Page 204 and 205: Section C of Chapter 11 and the lac
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Page 208 and 209: FTA Chapter 17—Government Procure
Page 210 and 211: Both the United States and Korea ar
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Page 214 and 215: Box 6.2 Recent conditions of IPR pr
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Page 218 and 219: Views of Interested Parties A numbe
Page 220 and 221: GPHA stated in testimony before the
Page 222 and 223: Box 6.3 Labor market conditions in
Page 224 and 225: FTA Chapter 20—Environment 131 As
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Page 228 and 229: FTA Chapter 22-Institutional Provis
Page 230 and 231: Views of Interested Parties The Ind
Page 233 and 234: CHAPTER 7 Literature Review and Sum
Page 235 and 236: 7-3 Table 7.1 Model, liberalization
Page 237 and 238: terms. Much of the increase in U.S.
Page 239 and 240: Liberalization generated small incr
Page 241 and 242: Sander Levin, Member of the U.S. Ho
Page 243 and 244: Regarding footwear and travel goods
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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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