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

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practices, and violations of consumer protection laws with significant cross-border aspects. The parties are to aim at identifying obstacles to effective cross-border cooperation in the enforcement of their own consumer protection laws, and are to consider modifying their domestic frameworks to overcome such obstacles. Upon request, the parties would meet to consult on specific matters raised under the provisions of the chapter, when the requestor indicates how the matter affects bilateral trade or investment. 59 Under the agreement, neither party may challenge through dispute settlement the chapter’s core goals and obligations regarding national competition laws or proscribing anticompetitive business conduct, the chapter’s provisions on cross-border consumer protection, or the chapter’s obligations concerning consultations. 60 Views of Interested Parties The report by the Advisory Committee for Trade Policy and Negotiations (ACTPN) said that the provisions of the competition chapter go beyond antitrust obligations negotiated in any previous U.S. FTA and will provide several major benefits for U.S. business. 61 The ACTPN in particular pointed to the provision that for the first time allows administrative or civil enforcement actions to be resolved by mutual agreement, rather than having to be resolved through the judicial system. Although noting that enforcement actions of a criminal nature would still need to be settled through the courts, the report said that U.S. investors are more concerned about civil cases involving unilateral firm conduct. The report suggested that the language in the agreement on mutual settlements may allow the Korean Assembly to grant this settlement authority to the KFTC, which could in turn resolve an ongoing domestic stalemate in Korea regarding this issue. The ACTPN report characterized the FTA’s due-process provisions as “state-of-the-art,” under which a person or firm will be able to review all documents supporting a charge, remedy, or sanction brought against it and will be able to cross-examine witnesses. The report said that the competition provisions in the agreement will offer U.S. business and foreign investors clear rights and obligations concerning settlement authority in civil cases, due-process mechanisms, and improved transparency regarding necessary procedures, all of which are competition provisions that exceed those in any previous U.S. FTA. The report added that the strong disciplines negotiated in the agreement in favor of a more competitive process could set a substantial precedent for future FTAs with other Asian countries where antitrust law has been applied in a discriminatory manner against foreign investors. The National Association of Manufacturers (NAM) cited both potential benefits as well as possible difficulties that may arise from the agreement’s competition provisions. 62 NAM said that while Korea’s competition policy laws are in themselves nondiscriminatory, their application is not always transparent, and in the past they have been applied in a discriminatory manner against foreign investors. NAM commented that, in the experience 59 Ibid., Article 16.7. 60 Ibid., Article 16.8. 61 ACTPN, Report, April 26, 2007. 62 NAM, “National Association of Manufacturers Post-Hearing Statement,” written submission to the USITC, June 27, 2007. 6-16
of its members, the Korean government historically has failed to enforce its competition laws in any substantive way against its large domestic industrial conglomerates, known as chaebols, 63 which in turn has permitted these firms to engage in anticompetitive practices that have made competition for U.S. investors very difficult or impossible. In addition, NAM noted Korean regulators have at times acted in a nontransparent manner that disadvantages foreign firms, such as investigating U.S. firms that have already been reviewed by U.S. antitrust authorities or courts, and in some instances even imposing penalties on U.S. firms that assist specific Korean competitors but disregard the competition authorities’ goal of Korean consumer protection. NAM stated that it views the antitrust chapter as providing greater transparency in the application and enforcement of competition law in Korea, in particular preventing their discriminatory application and enforcement. In addition, NAM said that the disciplines negotiated in the agreement supporting the competitive process may act as a precedent for other Asian countries where competition policy has in the past been applied in a discriminatory manner against foreign investors, or to advance industrial policy goals that differ from an open and transparent competitive process. In a 2006 report, the U.S.-Korea Business Council and American Chamber of Commerce in Korea stated that the major competition policy issue facing U.S. businesses in Korea was that the KFTC did not actively investigate and discipline anticompetitive practices by Korean firms—including the Korean chaebol conglomerates. 64 They also commented that the KFTC in recent years appeared to be increasing enforcement efforts against U.S. and other foreign firms; for example, targeting U.S. company behavior aimed at creating market efficiencies. Whereas the council and the chamber stated that they recognized that the Korean government has taken steps recently to improve the KFTC’s ability to enforce existing competition law, they added that their U.S. member companies continued to experience nontariff barriers in the marketplace in the form of anticompetitive behavior by Korean firms, particularly the chaebol conglomerates. 63 The term “chaebol” refers in Korea to several dozen large corporate groups, often family-controlled, that dominate the economy as business conglomerates. The largest chaebols in Korea include companies such as Samsung Group, Hyundai Motor Company, LG Group, SK Corporation, Hanjin Shipping, and Hyundai Heavy Industries. Most chaebol firms were established after the Korean war and, assisted by government financing and economic planning, played a central role in rapidly building the South Korean economy in the subsequent decades. Prompted in large part by the 1997–98 Asian financial crisis, the South Korean government instituted a number of structural economic reforms—particularly in the areas of financial markets and competition policy—moving away from the past government-directed industrial policy focused on exports toward a more market-oriented economy based on open private-sector competition in order to attract more foreign investment. As a consequence of these ongoing reforms (e.g. in such fields as merger and acquisitions policy or a program of corporate restructuring intended to make operations of Korean companies more transparent and accountable to shareholders), the chaebols are becoming less influential, more transparent, and more competitive than before, although they nonetheless continue to dominate nearly every area of economic activity in Korea. EIU, “Country Profile 2006: South Korea”; and USFCS, “Doing Business in Korea: A Country Commercial Guide for U.S. Companies,” 2005. 64 USKBC and AMCHAM in Korea, “Competition Policy,” U.S.-Korea Free Trade Agreement Position Paper, 2006, 27. 6-17
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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
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goods; and high-technology medical,
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device pricing, reimbursement, and
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CHAPTER 4 Impact of Market Access P
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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
Page 194 and 195: that such transshipment could imped
Page 196 and 197: Box 6.1 Foreign investment in Korea
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
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
Page 216 and 217: protection to life of the author pl
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
Page 226 and 227: trade measures are the least disrup
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
Page 245 and 246: Korea’s establishment as a region
Page 247 and 248: The California Table Grape Commissi
Page 249 and 250: order activity, and facilitate expa
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Page 253 and 254: Information Technology Industry Cou
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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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