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

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U.S. oilseed product exports to Korea in 2006 accounted for 2 percent of total U.S. oilseeds exports to all countries. 22 The United States was the world’s leading soybean exporter in marketing year 2005/06, and supplied 43 percent of Korea’s 1.2 million mt of soybean imports. 23 In that year, Brazil overtook the United States as the leading soybean supplier to Korea with a 52-percent share of Korean imports. 24 Korea had a global TRQ of 1.2 million mt of soybeans imports in marketing year 2005/06. 25 Food-grade soybeans are IP, high valued (non-GM and IP) soybeans; nearly all Korean domestic production of soybeans consists of food-grade beans. 26 About 50 percent of U.S. soybean exports to Korea consisted of food-grade soybeans in marketing year 2005/06. 27 By comparison, nearly all the Chinese soybeans and only about 10 percent of the Brazilian soybean exports to Korea are food-grade. The U.S. share of food-grade soybean imports into Korea has declined sharply over the past 2 years. A state trading entity (STE), the Korea Agro-Fishery Trade Corporation (“aT”), imported most food-grade soybeans into Korea during marketing year 2005/06, purchasing mostly U.S. soybeans. However, in marketing year 2006/07, “aT” purchased more soybeans from China and Canada, and less from the United States because U.S. food-grade soybeans either were considered too highly priced or were unavailable. 28 The “aT” has reportedly marked up the price of imported food-grade soybeans sold in Korea by $250 per mt. For comparison, the average import price for foodgrade soybeans in 2006 without the mark up was $330 per mt. 29 The United States supplied 5 percent of Korea’s 265,000 mt of soybean oil imports in marketing year 2005/06. 30 Argentina (with a 91-percent share) dominated Korean soybean oil imports and Brazil followed with the remaining 4 percent. Soybean oil from the United States, Argentina, and other suppliers has been facing declining demand in Korea owing to a consumer shift (because of trans fats dietary issues) to palm oil and other vegetable oils. 31 In addition, the Korean government, in late 2006 and early 2007, imposed antidumping duties on imports of U.S. and Argentine soybean oil. 32 Korea is likely to implement a biosafety protocol against genetically modified organism (GMO) soybeans which may 22 Compiled from official statistics of the U.S. Department of Commerce. 23 The marketing year begins October 1, and ends September 30. In marketing year 2005/06, 70 percent of Korean soybean imports was crushed into soybean oil and meal; most of the remaining 30 percent was consumed directly in food use (tofu, miso, soybean paste, sprouts, and soybean seasonings). Soybeans imported into Korea for crushing can include GM soybeans, whereas those for direct food uses must be non- GM and IP soybeans. USDA, FAS, “Korea Biotechnology Agricultural Biotechnology Report 2006,” July 6, 2006, 5. 24 USDA, FAS, “Korea Oilseeds and Products Annual 2007,” February 26, 2007, 9. 25 The in-quota MFN rate was 1 percent on soybeans for crushing, and 5 percent on soybeans for food use. USDA, FAS, “Korea Oilseeds and Products Annual 2007,” February 26, 2007, 15. 26 Korean production of soybeans was 183,000 mt in marketing year 2005/06. Ibid. 27 The marketing year begins October 1, and ends September 30. USDA, FAS, "Korea Oilseeds and Products Annual 2007," February 26, 2007, 12. 28 USDA, FAS, "Korea Oilseeds and Products Annual 2007," February 26, 2007, 4. 29 USDA, FAS, "Fact Sheet U.S.-Korea Free Trade Agreement Benefits for Agriculture," June 2007, 5. 30 Based on official Korean import data. USDA, FAS, "Korea Oilseeds and Products Annual 2007," February 26, 2007, 25. 31 Soybean oil is often hydrogenated thereby increasing its transfats content, whereas palm oil is not. 32 The antidumping duty on U.S. soybean oil was initially 17.5 percent in February 2007, but was then lowered to 4.69 percent in March 2007. USDA, FAS, "Korea Oilseeds and Products Annual 2007," February 26, 2007, 3; and USDA, FAS, “Oilseeds and Products Korean Soybean Oil Antidumping Petition Preliminary Determination 2007,” April 2, 2007, 2–3. 3-6
further dampen the demand for U.S. soybeans and soybean oil (which are largely derived from GMO soybeans). 33 Table 3.2 outlines the first full year of market access for U.S. oilseed product exports to Korea under the FTA. The 2006 Korean tariff treatment for U.S. products is shown under the column, “Applied rate, 2006.” Upon implementation of the agreement, there would be immediate duty-free treatment for soybeans for crushing. The 5.4 percent tariff on refined soybean oil would be eliminated over 5 years, and the 5.4 percent duty on crude soybean oil would be eliminated over 10 years. U.S. crude soybean oil exports in 2007 were assessed an additional antidumping duty of 4.7 percent. 34 A TRQ would be established for food-grade soybeans; the first-year quota level would amount to about 5 percent of U.S. exports in 2006. The TRQ quantity would expand to 26,523 mt (12 percent of the volume of U.S. exports in 2006) by the fifth year of the FTA, and by 3 percent annually thereafter. The FTA would likely have positive benefits for exports of U.S. soybeans, particularly foodgrade soybeans, entering Korea under the TRQ. This benefit is because the in-quota imports of U.S. food-grade soybeans under the TRQ would likely be sold directly for the first time to the private sector at a reduced price, rather than through “aT,” and would not be subject to the 76-percent AVE mark up. 35 Thus, U.S. exports would likely command a higher price at the border than food-grade soybeans sold into the traditional market system managed by “aT.” 36 U.S. food-grade soybean exports under the TRQ to Korea would likely increase immediately to the maximum allowed quantity. 37 Since above-quota soybeans are imported by the STE, which would continue to apply a very high mark-up fee to soybeans from the United States and all other origins, above-quota food-grade soybeans exports to Korea would remain restricted well into the future. Despite those restrictions, however, the volume of U.S. food-grade soybeans imported by “aT” may well be larger than the volume imported under the ever-expanding TRQ for many years. U.S. soybean exports for crushing would likely benefit immediately from the elimination of the applied 1 percent tariff and may increase in the short term. Over the long term, U.S. soybean oil exports would likely increase substantially as a result of the removal of tariffs under the FTA. In 2007, Korea imposed a 4.7 percent antidumping duty on U.S. crude soybean oil, which would likely affect U.S. exports to Korea. If the antidumping duty were dropped, and the 5.4 percent tariff was eliminated after 10 years, an increase in exports of U.S. soybean oil would likely result from increased soybean oil consumption in Korea stimulated by a lower domestic price; and by slightly lower Korean soybean oil production. 33 USDOS, U.S. Embassy, Seoul, “January 30, 2007 Biotechnology Technical Talks (SEOUL 020217),” January 31, 2007; and USDA, FAS, "Korea Oilseeds and Products Annual 2007," February 26, 2007, 3. 34 USDA, FAS, “Oilseeds and Products Korean Soybean Oil Antidumping Petition Preliminary Determination 2007,” April 2, 2007, 2–3. 35 A private association of Korean food-grade soybean processors will operate the TRQ outside the STE “aT.” USDA, FAS, "Fact Sheet U.S.-Korea Free Trade Agreement Benefits for Agriculture," June 2007, 5. 36 ATAC for Grains, Feed and Oilseeds, Advisory Committee Report, April 25, 2007, 6. The STE charges a $250 per ton markup for food-grade soybeans (an 76 percent AVE mark up) to Korean purchasers which raises the price of the imported soybeans more than the 5 percent MFN duty. USDA, FAS, “Fact Sheet U.S.-Korea Free Trade Agreement Benefits for Agriculture,” June 2007, 5. 37 The fifth year in-quota amount of 26,523 mt of food-grade soybeans is valued in 2006 prices at about $9 million. 3-7
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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
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 40 and 41: observed GDP for model regions). Th
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
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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 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
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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
Page 90 and 91: TRQ for food whey, 223 based on cur
Page 92 and 93: potential changes in trade based so
Page 94 and 95: Figure Figure 3.1 Korea: Beef and v
Page 96 and 97: Views of Interested Parties The inc
Page 98 and 99: are subject to the same food safety
Page 100 and 101: enefit under the provisions of this
Page 102 and 103: Box 3.2 Potential price and quantit
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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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