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

oughly one-half from the Uruguay Round to the FTA. This decline in the TE represents
both the lowering of barriers to entry and operation for U.S. firms in Korea as well as the
lowering of the price of intermediation services (NIMs) facing Koreans. 23 The drop in the
TE from the GATS Uruguay Round commitments reflect decreased barriers to the
acquisition of existing Korean firms, reduced residency requirements for senior executives,
and the elimination of minimum investment restrictions for FDI. Further reductions in the
TE from the GATS Doha Round offers compared to the FTA reflect the reduction of
restrictions in the cross-border supply of certain financial information services, the
elimination of Mode 2 restrictions on the provision of a service in the country of the supplier
to a consumer from another country, and the increased ability of foreign banks to offer a full
range of financial products. The reduction of these barriers would decrease the costs of entry
for U.S. banks wishing to establish a presence in Korea and enhance the operating
environment for U.S. banks already located in the country. The lower NIMs that result from
the increased level of liberalization under the FTA should promote more lending and
economic growth in Korea, both of which should benefit U.S. banks in the country. Since
the FTA is a bilateral as opposed to a multilateral agreement, the lower TE calculated for the
FTA reflects a lower entry barrier for U.S.-based firms, but not necessarily for firms from
other foreign countries. Banks from other countries would still face the higher TE when
attempting to do business in Korea, unless they receive the same treatment as U.S. banks by
making investments in Korea via U.S. affiliates. 24
23 NIMs will vary across countries even for countries with identical TEs due to nontrade policy factors
such as macroeconomic climate and country-level risk.
24 If non-U.S. foreign banks are unable to enter the Korean market via U.S. affiliates, the decline in NIMs
may be smaller than otherwise.
H-9