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

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observed GDP for model regions). These 2005 values were then projected to 2008, when the FTA is estimated to take effect, based on current economic trends as described in appendix F. Consequently, the simulation results discussed below are relative to the estimated 2008 base, measured in 2005 dollars. This analysis ties together many of the interrelated effects of the agreement. It shows, among other things, how prices of U.S. exports and imports change because of tariff and TRQ liberalization, how increased U.S. exports to Korea of some commodities are linked to increased U.S. imports, how industries that grow in response to increased export opportunities draw resources from other industries, and how all of these effects can be summarized in a measure of the net benefit (i.e., welfare) to the U.S. economy resulting from the agreement. The model results are not intended as a forecast of what will happen to trade and output in 2008, or after full implementation of the FTA’s tariff and TRQ liberalization schedules. 5 Rather, they are estimates of the marginal effect on the economy, relative to the constructed baseline, of the removal or reduction of tariffs and TRQs as specified in the FTA. For example, a negative effect, such as a decrease in a commodity price or decrease in a sector’s output, does not imply that the overall value will be negative as a result of the FTA. Rather the marginal effect of the FTA would buttress or suppress existing economic trends, which may be positive or negative. 6 Additional information for interpreting the model results is presented in box 2.1. It is also important to note that model results reflect long-term adjustments of supply, demand, and resource allocations to the FTA. The model does not consider interim or phased effects that might be felt as different provisions of the agreement enter into force, nor does it consider various adjustment costs (such as temporary unemployment or changes in asset prices) that may occur over time. 7 The simulation results presented in this report are given as ranges. 8 Korea’s average ad valorem equivalent tariffs (AVE tariffs) 9 for manufacturing imports from the United States are typically less than 10 percent, although tariffs and TRQs on many U.S. agricultural and food products exceed 30 percent (figure 2.1). In contrast, most of the U.S. average AVEs for imports from Korea are less than 5 percent, with five sectors—dairy products (16.8 percent), wearing apparel (16.5 percent), textiles (11.0 percent), sugar (8.8 percent), and paddy and processed rice (7.5 percent)—exceeding 5 percent. 5 For a summary of the tariff and TRQ liberalization schedules, see chap. 1 of this report. 6 In addition, the model results presented in the discussion below depend on a wide array of assumptions about the economic structure and relationship of variables (parameters that reflect how consumers and producers respond to price changes) in the model. Altering these variables, and the underlying assumptions they reflect, changes the resulting estimated effects accordingly, as shown by the sensitivity analysis conducted in this report. 7 See chap. 3 of this report, which discusses short- and medium-term effects for certain selected products. 8 These ranges are established by conducting systematic sensitivity analysis using the simulation framework and information from the econometric estimates of a key model parameter, the elasticity of substitution between foreign and domestic varieties, also known as the Armington elasticity. This technique yields estimates of the mean and standard deviation for reported model statistics. Ranges are established as ±2 standard deviations of each reported result. A full discussion of this technique is found in app. F. 9 The U.S. AVE tariffs for some Korean products such as vegetables, fruits, and dairy products include the estimated effects of TRQs. Korean AVE tariffs on some U.S. agricultural products include the effects of agricultural price support programs. Table 2.2 reports current average AVEs for aggregate industry sectors. 2-2
Figure 2.1 U.S.-Korea FTA: Bilateral GTAP sector benchmark ad valorem equivalent tariffs (percent) Dairy products Sugar Vegetables, fruit, nuts Beverages and tobacco products Bovine meat products Wearing apparel Meat products n.e.c. Fishing 0.0 Textiles 8.3 11.0 Leather products 6.2 8.8 Food products n.e.c. 4.6 10.0 Motor vehicles and parts 2.4 7.9 Mineral products n.e.c. 2.1 7.8 Chemical, rubber, plastic products 3.0 6.7 Vegetable oils and fats 5.4 4.1 Metal products 2.4 6.8 Manufactures n.e.c. 3.4 5.3 Petroleum, coal products 2.1 5.6 Paddy and processed rice n/a 7.5 Crops n.e.c. 1.1 5.6 Machinery and equipment n.e.c. 1.3 5.2 Metals n.e.c. 3.7 2.4 Cattle, sheep, goats, and horses 0.0 5.9 Wood products 0.5 4.8 Animal products n.e.c. 0.5 3.3 Cereal grains n.e.c. 2.2 1.1 Sugarcane, sugar beet 0.0 3.0 Paper products, publishing 0.3 2.4 Oilseeds 0.0 2.5 Forestry 2.0 0.2 Minerals n.e.c. 0.0 1.9 Plant-based fibers 1.0 0.5 Ferrous metals 1.2 0.2 Transport equipment n.e.c. 0.9 0.1 Wool, silkw orm cocoons 1.0 0.0 Wheat 1.0 0.0 Electronic equipment 0.6 0.2 Oil and gas 0.0 0.0 Coal 0.0 0.0 Raw milk 0.0 0.0 0.7 0.4 2.4 3.3 8.8 12.4 16.8 16.5 19.6 0 5 10 15 20 25 30 35 40 45 50 U.S. AVE Tarif f Korean AVE Tariff Source : Commission calculations and GTAP version 6.1. 2-3 24.8 35.1 38.5 38.0 39.6 43.5
Page 2 and 3: U.S. International Trade Commission
Page 4 and 5: This report was prepared principall
Page 6 and 7: CONTENTS-Continued Chapter 3. Secto
Page 8 and 9: CONTENTS—Continued Chapter 5. Imp
Page 10 and 11: CONTENTS-Continued Chapter 7. Liter
Page 12 and 13: CONTENTS-Continued Tables—Continu
Page 15 and 16: Abbreviations and Acronyms 3G third
Page 17 and 18: Abbreviations and Acronyms—Contin
Page 19: Abbreviations and Acronyms—Contin
Page 22 and 23: vehicles) would likely be diverted
Page 24 and 25: Sector-specific Assessments The U.S
Page 26 and 27: total increased fish imports from K
Page 28 and 29: Korea would likely limit the impact
Page 30 and 31: Intellectual property rights (IPR):
Page 32 and 33: sector barriers. 5 These merchandis
Page 34 and 35: Table 1.1 U.S.-Korea FTA: Location
Page 36 and 37: Table 1.2 Korean tariff rates on im
Page 38 and 39: Table 1.4 U.S.-Korea FTA: Summary o
Page 42 and 43: Box 2.1 Interpreting the model resu
Page 44 and 45: Table 2.1 U.S.-Korea FTA: Simulated
Page 46 and 47: 2-8 This page has been updated to r
Page 48 and 49: Figure 2.2 U.S-Korea FTA: Simulated
Page 50 and 51: As shown in figure 2.2, the largest
Page 52 and 53: 2-14 This page has been updated to
Page 54 and 55: Economy-wide Impact of Implementing
Page 56 and 57: Grain (Wheat, Corn, and Other Feed
Page 58 and 59: Korea imported 3.8 million mt of wh
Page 60 and 61: U.S. oilseed product exports to Kor
Page 62 and 63: Table 3.2 U.S. oilseed product expo
Page 64 and 65: Table 3.3 Animal feed exports to Ko
Page 66 and 67: consumed domestically by the U.S. l
Page 68 and 69: ates. For corn starch, the United S
Page 70 and 71: quota rates have been effectively e
Page 72 and 73: Noncitrus Fruit 87 Views of Interes
Page 74 and 75: 3-20 Table 3.9 U.S.-Korea trade and
Page 76 and 77: Korean grapes are much more costly
Page 78 and 79: Potato Products 122 Assessment The
Page 80 and 81: ate is 304 percent ad valorem. 141
Page 82 and 83: Other Vegetables 162 Assessment The
Page 84 and 85: U.S. exports of other fresh and pro
Page 86 and 87: tariff concessions that could accru
Page 88 and 89: 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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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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