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

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Table F.2 U.S.-Korea FTA benchmark tariffs and elasticities of substitution, estimates for 2008 Tariffs on Korea's Tariffs on U.S. Elasticity of substitution imports from the imports from between foreign and domestic Sector United States Korea varieties (σD) Percent σD Standard deviation Paddy and processed rice ............... N/A a 7.5 5.05 2.00 Wheat ............................... 1.0 0.0 4.45 2.10 Cereal grains n.e.c...................... 2.2 1.1 1.30 0.55 Vegetables, fruit, nuts ................... b 38.5 0.7 1.85 0.20 Oilseeds ............................. 2.5 0.0 2.45 0.40 Sugarcane, sugar beet .................. 3.0 0.0 N/A N/A Plant-based fibers ..................... 1.0 0.5 2.50 1.20 Crops n.e.c. .......................... 5.6 1.1 3.25 0.20 Bovine cattle, sheep and goats, horses ..... 5.9 0.0 2.00 0.35 Animal products n.e.c. .................. 3.3 0.5 1.30 0.15 Raw milk ............................. 0.0 0.0 N/A N/A Wool, silkworm cocoons ................. 1.0 0.0 6.45 1.35 Forestry ............................. 2.0 0.2 2.50 0.35 Fishing .............................. 19.6 0.0 1.25 0.30 Coal ................................ 0.0 0.0 3.05 1.20 Oil and gas ........................... 0.0 0.0 5.20 1.90 Minerals n.e.c. ........................ 1.9 0.0 0.90 0.15 Bovine meat products ................... 38.0 0.4 3.85 0.95 Meat products n.e.c. .................... 24.8 2.4 4.40 0.45 Vegetable oils and fats .................. 5.4 4.1 3.30 0.35 Dairy products ......................... 39.6 16.8 3.65 0.40 Sugar ............................... 43.5 8.8 2.70 1.00 Food products n.e.c. .................... 10.0 4.6 2.00 0.05 Beverages and tobacco products .......... 35.1 3.3 1.15 0.15 Textiles .............................. 8.3 11.0 3.75 0.05 Wearing apparel ....................... 12.4 16.5 3.70 0.10 Leather products ....................... 6.2 8.8 4.05 0.15 Wood products ........................ 4.8 0.5 3.40 0.10 Paper products, publishing ............... 2.4 0.3 2.95 0.10 Petroleum and coal products ............. 5.6 2.1 2.10 0.55 Chemical, rubber, plastic products ......... 6.7 3.0 3.30 0.05 Mineral products n.e.c. .................. 7.8 2.1 2.90 0.10 Ferrous metals ........................ 1.2 0.2 2.95 0.15 Metals n.e.c. .......................... 3.7 2.4 4.20 0.20 Metal products ........................ 6.8 2.4 3.75 0.10 Motor vehicles and parts ................. c 7.9 2.4 2.80 0.15 Transport equipment n.e.c. ............... 0.9 0.1 4.30 0.20 Electronic equipment ................... 0.6 0.2 4.40 0.10 Machinery and equipment n.e.c. ........... 5.2 1.3 4.05 0.05 Manufactures n.e.c. .................... 5.3 3.4 3.75 0.10 Services ............................. 0.0 0.0 N/A N/A Average ............................. 4.4 1.6 N/A N/A Source: Commission calculations and GTAP version 6.1. a There is “no change in treatment” for rice and rice products under the FTA. b Vegetables, fruit, and nuts are subject to partial liberalization. The simulated tariff after liberalization is 6.7 percent. c The motor vehicles and parts sector is also subject to reduction of the 10 percent excise tax on all passenger vehicles with a displacement in excess of 2 liters to 5 percent. For the United States, this is the equivalent of an additional tariff reduction of 0.14 percent. F-8
The simulation results presented in the report are given as ranges. These ranges are calculated by performing a systematic sensitivity analysis of the model with respect to two of its key parameters, the elasticities of substitution between domestic and imported varieties of goods (the GTAP parameter ESUBD) and between different foreign suppliers of goods (the GTAP parameter ESUBM). 7 The parameter ESUBM used in the model is drawn from an econometric study of the elasticity of substitution. 8 Commission staff varied these parameters to provide a range for the estimated impact of the tariff and TRQ liberalizations. 9 It should be noted that this exercise in systematic sensitivity analysis pertains to only one pair of parameters—the elasticities of substiution—employed within the model. There are a number of other behavioral parameters that have a substantial bearing on the outcome of the model. 10 Conducting a similar analysis on these parameters would likely lead to wider reported ranges throughout the report. As is typical of experiments conducted in the standard GTAP framework, this analysis measures the long-term effects of a one-time, full implementation of an agreement. 11 The model assumes that sufficient time is allowed to let the full effect of the agreement work its way through the economy. Reported figures show the marginal effects of a trade policy shock as it would have appeared in the base year of the data. Said differently, effects are expressed in terms of proportional effects relative to the projected 2008 economy, although those effects would take several years to be actually felt. Implementation of Immediately Duty-Free Tariff Lines In order to assess the liberalization effect of tariff lines subject to immediate duty-free treatment (see chapter 2 of this report), it is necessary to establish a trade-weighted measure for each of the GTAP sectors reflecting the degree to which each of these aggregates is immediately liberalized. This task is accomplished by developing a trade-weighted aggregation of all the lines in the agreement to the concordance level for the GTAP data set (HS 6-digit) for all lines and separately using a tariff of 0 for those with an “A” code. 12 The resulting data are then concorded to GTAP sectors to establish a measure of the baseline tariff and the level of protection once those lines slated for immediate duty-free treatment are implemented. The proportion of liberalization thus obtained is then applied to the baseline tariffs and simulation process identified above. 7 These parameters determine the degree to which purchasers substitute between different foreign sources, and between domestic and foreign sources. 8 Hertel, et al., “How Confident Can We Be in CGE-Based Assessments of Free Trade Agreements?,” 2004. 9 This study provides the mean values used in the simulation for ESUBM, and the associated standard deviations for ESUBM those values, which are employed by the sensitivity analysis. ESUBD and ESUBM are held in a fixed relationship, the so-called “rule of two.” In the sensitivity analysis, these two parameters are set to covary, with each sector’s elasticity pair drawn from a uniform distribution constructed to have the same standard deviation as that estimated by Hertel et al. The entire process is conducted using Stroud’s method of Gaussian quadrature, a computation technique that is far more computationally parsimonious than the Monte Carlo method. The ranges for reported model results are ±2 standard deviations from the mean result of the systematic sensitivity analysis. See also Jomini, et al., SALTER, vol. 1, 1991. 10 Dimaranan, et al., “Behavioral Parameters.” 11 See, for example, USITC, The Impact on the U.S. Economy; or USITC, Overview and Analysis of the Economic Impact of U.S. Sanctions. 12 The code “A” in the U.S. and Korea tariff liberalization schedules indicates a tariff line that is subject to immediate duty-free treatment upon implementation of the FTA. F-9
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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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services as a substantial improveme
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Box 4.2 Financial services: Competi
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Summary of Provisions Chapter 13 of
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national treatment, full establishm
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Box 4.4 Competitive conditions in t
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and cross-connect links 70 are more
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Box 4.5 U.S. legal services trade w
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establish offices in Korea to provi
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Box 4.6 Competitive conditions in t
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equirements and foreign ownership r
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CHAPTER 5 Impact of Trade Facilitat
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publication and administration of t
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Views of Interested Parties In its
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Summary of Provisions This chapter
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use of TBTs to protect Korea’s au
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conformity assessment procedures el
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FTA Chapter 15-Electronic Commerce
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Views of Interested Parties The U.S
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quantities as to be a substantial c
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that such transshipment could imped
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Box 6.1 Foreign investment in Korea
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in the FTA. The awards made by any
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Table 6.1 U.S.-Korea FTA: Industry
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(ITAC 5) report cited as particular
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Section C of Chapter 11 and the lac
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practices, and violations of consum
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FTA Chapter 17—Government Procure
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Both the United States and Korea ar
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8) 87 also expressed support for th
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Box 6.2 Recent conditions of IPR pr
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protection to life of the author pl
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Views of Interested Parties A numbe
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GPHA stated in testimony before the
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Box 6.3 Labor market conditions in
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FTA Chapter 20—Environment 131 As
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trade measures are the least disrup
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FTA Chapter 22-Institutional Provis
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Views of Interested Parties The Ind
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CHAPTER 7 Literature Review and Sum
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7-3 Table 7.1 Model, liberalization
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terms. Much of the increase in U.S.
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Liberalization generated small incr
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Sander Levin, Member of the U.S. Ho
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Regarding footwear and travel goods
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Korea’s establishment as a region
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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
Page 307: APPENDIX C Hearing Participants
Page 310 and 311: ORGANIZATION AND WITNESS: PANEL 1 (
Page 313: APPENDIX D U.S.-Korea FTA: Chapter-
Page 316 and 317: fees and charges on trade in goods
Page 318 and 319: determines the tariff classificatio
Page 320 and 321: The transparency provisions would a
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Page 336 and 337: parties’ rights and obligations u
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Page 344 and 345: not limited to, policies on commerc
Page 347 and 348: Economic indicators 2002 2006 Popul
Page 349 and 350: Table E.1 Leading U.S. exports to K
Page 351: APPENDIX F GTAP Model
Page 354 and 355: Updating the GTAP Database The curr
Page 356 and 357: Key Assumptions Agency. 4 The price
Page 360 and 361: Measuring the Impacts of the FTA an
Page 363 and 364: General Effects of Trade Agreements
Page 365: APPENDIX H Tariff Equivalents in Ko
Page 368 and 369: Previous Literature The method for
Page 370 and 371: For the purposes of this report, a
Page 372 and 373: Table H.1 Tariff equivalents in Kor
Page 375: APPENDIX I Services Nonconforming M
Page 378 and 379: Table I.1 U.S.-Korea FTA: Korean se
Page 381: APPENDIX J Description of Possible
Page 384 and 385: are in effect import prices, and th
Page 387: APPENDIX K Overview of Agricultural
Page 390 and 391: Additionally, although current regu
Page 392: About This Report The United States
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