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

CHAPTER 1
Introduction
Scope and Approach of the Report
This report assesses the likely impact of the U.S.-Korea Free Trade Agreement (FTA) on the
U.S. economy as a whole and on specific industry sectors, including the impact the FTA
would have on the U.S. gross domestic product (GDP); exports and imports; aggregate
employment and employment opportunities; the production, employment, and competitive
position of industries likely to be significantly affected by the FTA; and the interests of U.S.
consumers. 1 The assessment is based on a review of all 24 chapters of the text of the
U.S.-Korea FTA, including its annexes and associated side letters. 2 A chapter-by-chapter
summary of the FTA provisions is presented in appendix D of this report.
To assess the impact of tariff and tariff-rate quota (TRQ) liberalization under the FTA on the
U.S. economy, the U.S. International Trade Commission (USITC, Commission) employed
a global computable general equilibrium (CGE) model. 3 The model permits the Commission
to estimate the possible effects of the negotiated liberalization of tariffs and TRQs in the
FTA. The static nature of the model assumes that the FTA will be fully implemented on
January 1, 2008, and not phased in over time; 4 therefore, the estimated impact reflects
long-term adjustments to a fully implemented FTA. Other policy assumptions of the model
are described in chapter 2 and in appendix F of this report.
The Commission supplemented the CGE model-based analysis with sector-specific analysis
of the economic impact of specific market access provisions, including the impact of the
staged reductions of certain tariffs and TRQs. The U.S. product sectors analyzed were grains;
oilseeds; animal feeds; starches; citrus fruit; noncitrus fruit; potatoes; other vegetables; tree
nuts; dairy products; meat; seafood; selected processed foods; nonalcoholic beverages;
textiles and apparel; footwear and leather products; pharmaceuticals; machinery, electronics,
and transportation products; passenger vehicles; and medical devices.
U.S. services sectors analyzed were cross-border services, financial services,
telecommunications, professional services, and audiovisual services. With the exception of
financial (specifically, banking) services, the impact on these service sectors was not
quantified because of limited data availability on the ad valorem equivalent value of service
1 A copy of the request letter from United States Trade Representative (USTR) is in app. A of this report.
These components may not be assessed in every chapter of this report for every product or sector, although
all are assessed, where applicable and feasible, throughout this report.
2 This assessment is primarily based on the text of the U.S.-Korea FTA available at
http://www.ustr.gov/Trade_Agreements/Bilateral/Republic_of_Korea_FTA/Draft_Text/Section_Index.html
as of July 5, 2007.
3 The Global Trade Analysis Project (GTAP) model and database were used in this investigation. GTAP is
a multicountry CGE model with economy-wide coverage of merchandise and service sectors. The GTAP
model framework is described in app. F of this report.
4 Under this FTA, duty elimination on some tariff lines is to be phased in over a period of up to 20 years,
with some TRQs phased out over a period of up to 18 years for U.S. exports and 10 years for U.S. imports;
some TRQs on U.S. exports are subject to in-quota growth rates of 3 percent per year, compounded annually
in perpetuity. Information on the tariff commitments of the United States and Korea is provided in chap. 2 of
this report.
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