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

Aggregate U.S. trade with the world may increase somewhat as a result of the increased
market access under the U.S.-Korea FTA. The last row in table 2.3 reports the simulated
changes in total U.S. trade in sectors analyzed in this simulation. Total U.S. exports of these
commodities is expected to be higher by $4.8–5.3 billion, and total imports of commodities
in this analysis is expected to be higher by $5.1–5.7 billion, an increase of about 0.4 percent
for exports and 0.3 percent for imports. As a result of the U.S.-Korea FTA, factors of
production in the United States become more efficient within the simulation, thus attracting
increased investment, which in turn is financed through changes in the trade balance. It
24
should be noted that, without a full quantitative analysis of services trade and international
investment patterns, these simulation results should not be interpreted as changes in total
imports and exports, or as implying meaningful information about the balance of trade
impact of the entire U.S.-Korea FTA.
U.S. Gross Output and Employment Effects
Full implementation of tariff and TRQ elimination or liberalization under the FTA may
result in expansion of those U.S. industries that experience higher export demand as a result
of Korea’s removal of tariffs and reduction of TRQs on imports from the United States. In
addition, the reallocation of resources and direct competition from Korean goods that are
given preferential import treatment into the United States may cause the output of other U.S.
industries to be lower. As is suggested by the percentage changes for total U.S. sectoral trade
in table 2.4, these marginal changes, whether positive or negative, are likely to be very small
in most sectors and modestly positive in bovine meat products, cattle, meat products n.e.c.,
and animal products n.e.c.
According to the model estimates, there is likely to be only a modest effect on output or
employment for most sectors in the U.S. economy. The sectors exhibiting the largest
increases in output (quantity or revenue) relative to the 2008 baseline are bovine meat
products (0.7–2.0 percent), cattle (0.7–2.0 percent), meat products n.e.c. (0.5–0.9 percent),
cereal grains n.e.c. (0.2–0.7 percent), dairy products (0.2–0.5 percent), and animal products
n.e.c. (0.4–0.8 percent). Eight sectors show a decline of more than 0.1 percent in output,
revenue, or employment—paddy and processed rice, oilseeds, plant-based fibers,
manufactures n.e.c., electronic equipment, wearing apparel, wheat, and textiles. Most of
these changes are due to the direct effects of removal of Korean tariffs and TRQs, while
other effects are induced by liberalization in related sectors. For example, although the
output contraction in some sectors is driven primarily by increased imports from Korea (such
as textiles and wearing apparel), in other sectors (such as wheat and rice), output contraction
is driven primarily by the reallocation of resources toward sectors experiencing relatively
greater liberalization. In addition, the raw milk sector is not liberalized in the simulation;
rather, the 0.1–0.5 percent increase in output is due to Korea's liberalization of the dairy
products sector. A similar explanation holds for the live cattle sector, which expands to
supply the downstream bovine meat products sector.
24 See literature review in chap. 7 of this report for a description of other studies that include assumptions
regarding service sector liberalization in the context of a U.S.-Korea FTA.
2-13
This page has been updated to reflect corrections to the original publication.