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

Economy-wide Impact of Implementing the Immediate Duty-Free
Tariff Lines
Under the terms of the U.S.-Korea FTA, the phase-in period for liberalization ranges from
immediate duty-free access to 15 years or more, with some products subject to temporaryor
permanent-growth TRQs. In order to assess the relative importance of those products
subject to immediate liberalization under the terms of the agreement, a separate simulation
was conducted for only those products that are liberalized fully and immediately (i.e., subject
to immediate duty-free treatment in the U.S. and Korean FTA tariff schedules).
Approximately 65 percent by value of U.S. exports to Korea will be subject to immediate
duty-free treatment, whereas approximately 55 percent by value of U.S. imports from Korea
will benefit from immediate duty-free treatment. Because of Korea’s higher pre-existing
tariffs, the average level of protection remaining after the implementation of tariffs subject
to immediate duty-free treatment will still be higher for Korea than for the United States. The
average AVE tariff on U.S. imports from Korea falls from 1.8 percent to 1 percent in the
simulation, while the average AVE tariff on Korean imports from the United States declines
from 5.9 percent to 3.4 percent.
In the resulting economy-wide simulation of the elimination of duty for this subset of tariff
lines, U.S. welfare increases by 45–55 percent of full liberalization levels. U.S. imports from
Korea increase by 30–40 percent of the levels observed under full liberalization, and exports
to Korea increase by 45–55 percent of the levels observed under full liberalization. U.S. total
imports from and exports to the world rise by 45–55 percent of the levels observed under full
liberalization. On a sectoral basis, the greatest value increases in U.S. imports from Korea
occur in machinery and equipment n.e.c. (70–80 percent of full liberalization), in motor
vehicles and parts (65–75 percent), and in chemical, rubber, and plastic products
(20–30 percent). These increases are a reflection of the percentage of each sector that is
subject to immediate liberalization: about 70 percent for machinery and equipment n.e.c.;
about 70 percent for motor vehicles and parts; and about 20 percent for chemical, rubber, and
plastic products. U.S. exports to Korea follow a similar pattern, with the machinery and
equipment n.e.c. sector leading in value increase (65–75 percent of full liberalization);
followed by chemical, rubber, and plastic products (50–60 percent of full liberalization); and
motor vehicles and parts (90–100 percent of full liberalization). These increases are also a
reflection of the proportion of each sector that is subject to immediate liberalization taking
place in these sectors—about 65 percent, 60 percent, and almost 100 percent, respectively.
Much of the gain from immediate liberalization is attributable to manufacturing sectors and,
in particular, to those goods with relatively low pre-existing tariffs and relatively significant
trade flows. The rate of liberalization in food and agriculture is, by comparison, relatively
more gradual. Among U.S. agricultural and food sectors, none are expected to see increases
in exports to Korea above $40 million as a result of immediate duty-free treatment. Gains
in these sectors are more gradually spread out, as tariffs are phased out and TRQs expand.
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