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

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are in effect import prices, and the measures in question are usually understood to affect the act of importing in some manner. This report makes use of various comparisons of international trade data in its assessment of potential NTMs in the Korean market. While an effort is made elsewhere in the report to represent NTMs in the modeling of effects of the trade agreement, the direct comparisons of import unit values and import quantities for a small number of products of importance to U.S. exporters may be illustrative of the impacts of these measures. In the presence of NTMs, one would expect either Korean import unit values to be noticeably higher than one might expect, or quantities imported by Korea to be noticeably lower than one would expect, or both. In previous work, analysts at USITC and elsewhere have used a variety of methods to assess the effects of NTMs. 3 Commission staff examined price and quantity data for nearly 40 product categories at the HS-6 level, corresponding to products in the sector-specific analysis (chapter 3 of this report). Staff focused on goods with significant U.S. exports and goods for which common units of measure made international comparisons feasible. In many cases, the analysis of price and quantity data reflect the presence of NTMs. The selected cases for which price and quantity comparisons are reported (certain processed foods, small passenger vehicles, and ultrasonic scanning apparatus) represent cases in which high import prices and/or low quantities, by international standards, coincided with reports of significant NTMs in the Korean market. The indicative quantitative information (IQI) presented in this report is meant to be suggestive rather than dispositive, and does not include a number of factors, such as transportation costs, that would be relevant in a full-blown analysis of individual products. More elaborate methods would produce more focused estimates. IQI is presented only in cases for which the price and/or quantity of information is suggestive of the presence of NTMs, and for which available qualitative information also indicates the potential importance of nontariff policies in limiting Korean import demand. If products were homogeneous (i.e., all countries imported exactly the same type and quality of products within a trade classification), calculating price effects of trade policy measures would be straightforward; comparing a particular country’s import price with that of countries known not to have trade barriers (and adjusting for transportation cost differences) would provide a reasonable estimate of a price differential. Products within a trade category (e.g., the 6-digit HS code), however, are generally more heterogeneous than this; countries do not import the same mix of products, and in addition to differing composition of imports within the category is the possibility of differing quality of products of the same type. In developing IQI for this report we assume initially that the composition of Korean imports within an HS-6 (subheading) category, the finest level at which international comparisons can be made in the Harmonized System of the World Customs Organization, does not vary systematically from that of the average world importer. Averaging unit values over the 3 See Linkins, L.A. and H. M. Arce, (2002) revised, “Estimating Tariff Equivalents of Non-Tariff Barriers,” U.S. International Trade Commission Office of Economics Working Paper 94-06-Ar, Washington, DC: USITC, for a foundational discussion of estimating price gaps of NTMs; Dean, J., R. Feinberg and M. Ferrantino (2005), “Estimating the Tariff-Equivalent of NTMs,” in P. Dee and M. Ferrantino, (eds.), Quantitative Measures for Assessing the Effect of Non-Tariff Measures and Trade Facilitation, Singapore: World Scientific Ltd. for APEC, 289–310, for econometric methods using price data; and M. Ferrantino (2006), “Quantifying the Trade and Economic Effects of Non-Tariff Measures,” OECD Trade Policy Working Paper No. 28, TD/TC/WP2005(26)/FINAL, Paris: OECD, for a broader review including both price and quantity methods by a variety of researchers. J-4
2004–2006 calendar years, we report the percentage by which the Korean import unit value exceeds the trade-weighted import unit value by all countries that report quantities of the product in the same units as does Korea; the latter is a proxy for a world price. 4 Korean import unit values significantly above this are consistent with the view that NTMs may be affecting trade and leading to a price distortion. As a check on this, however we also try to control for the mix of products Korea imports within that trade category, which we do by noting the percentage by which Korea’s unit value of imports from the United States exceeds the U.S. export unit value to the world (this comparison assumes that what U.S. exporters sell to Korea is comparable to what they sell to the world). Some of this discrepancy may be attributable to shipping costs but where the import unit value differences are relatively large, one may infer that some is due to the capture of rents by various parties involved in the international transaction. We also perform quantity comparisons in which average Korean import quantities from the world, at the HS-6 level, are compared with import quantities of other countries. Since one would expect that larger economies import more, the comparisons are made in terms of import quantity per million dollars of GDP. 5 In general, whenever quantity information is included in the analysis, or either the import quantity relative to GDP is less than 25 percent that of the median country, Korean import quantity relative to GDP ranks in the bottom 25 percent of countries with available data, or both. In making quantity comparisons, one should recognize that cross-cultural differences in consumer tastes and preferences may play a role in differences in the quantity imported. This is, however, less likely as the deviation of import quantity relative to GDP from the global average increases. Price and quantity data were taken from Global Trade Analyzer, a product of GTIS, which reports primary-country trade data for a sample of over 60 countries, which include most important traders. Prices are calculated as unit values and averaged over 2004–06. Quantity comparisons are averaged over 2003–05 due to the lag in availability of comparable GDP data. Unit values are in standardized units of measure wherever possible; e.g., metric tons have been converted to kilograms. For some manufactured goods, such as medical devices, units of measure are not standardized internationally and comparisons have been made for the subset of countries with units of measure comparable to those used in Korean trade data. This may affect the quality of the comparisons, and has been noted when applicable. 4 While they used this for a different purpose, the average world import unit value was also taken to be a world price proxy by Gibson, Wainio, Whitley, and Bohman, Profiles of Tariffs in Gobal Agricultural Markets, Agricultural Economic Report No. AER796, USDA, January 2001. The comparison of the Korean import unit value to this world price proxy would be a conservative estimate of the extent to which Korean trade distortions raise their import price if Korea’s imports within the product category were of the same composition and quality as are those of the rest of the world, as the world average import-unit-value is itself likely raised by other countries’ trade distortions. 5 This is equivalent to maintaining the hypothesis that import demand of the representative international consumer is unit-elastic with respect to income; i.e., that a 1 percent increase in income leads to a 1-percent increase in import demand. Exploratory econometrics showed that this is a reasonable assumption for the products under consideration in this study, and in most cases is a conservative assumption. That is, most of the true income elasticities are likely to be somewhat higher than 1. If these were used in the analysis, we would be more likely to find that Korean import quantities appeared unusually low. J-5
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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
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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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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 358 and 359: Table F.2 U.S.-Korea FTA benchmark
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 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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