United States-Korea Free Trade Agreement Concluded
On April 1st, the United States and the Republic of South Korea concluded a free trade agreement. Congress now has until June 29th to consider the agreement before the President’s trade promotion authority expires on July 1st. This article highlights a few of the more important aspects of this agreement.
The U.S.-Korea Free Trade Agreement (KORUS FTA) will create economic opportunities for both countries and enhance the economic and strategic partnership between the two states. According to U.S. Trade Representative, Susan C. Schwab, when implemented KORUS FTA will provide U.S. farmers, ranchers, service providers and manufacturers with new market opportunities in a growing, dynamic country, and will contribute to Korea’s successful transformation to a 21st century economic power.
South Korea has the world's 10th-largest economy. It is the United States' 7th-largest trading partner, while the United States represents Korea's 3rd-largest market. Two-way trade in goods between the two states totaled $72 billion in 2006. South Korea’s GDP is nearly $1 trillion with annual imports of nearly $248 billion. Per capita income is over $20,000, and it is the world’s sixth largest market for U.S. agricultural products. In 2004, Korea imported $2.5 billion worth of agricultural products from the US - about one quarter of agricultural products imported by Korea came from the U.S.
Pursuant to KORUS FTA, more than half of U.S. agricultural exports to Korea will immediately enter the country duty free. These products include wheat, feed corn, soybeans, hides and skins, cotton, almonds, bourbon whiskey, wine and grape juice. Tariffs on avocados, lemons, dried prunes and sunflower seeds will be phased out over two years, while tariffs on chocolate, sweet corn, sauces and preparations, other food and forage (alfalfa), and grapefruit will be phased out over a period of five years. Market access will also be expanded for beef, pork products, pears, apples, grapes, and oranges. Without these tariff reductions, Korea's average applied agricultural tariff of 52% - four times higher than the U.S. average of 12% - would be left unchanged.
The agreement includes provisions designed to open Korea’s automotive market to U.S. cars and to ensure that U.S. automakers have a fair opportunity to compete. Duties on key priority passenger vehicles will immediately be eliminated, while duties on other cars will be eliminated over a period of three years. Tariffs on imported trucks will be eliminated over ten years and Korea will eliminate the discrimination aspects of its Special Consumption and Vehicle Taxes. Korea will not impose any new engine displacement taxes. An Auto Working Group will provide a specialized “early warning system” to address regulatory issues that develop in the future by analyzing potential new regulations, and, in order to promote good regulatory practices, provide its views to the Korean government.
Should the agreement be implemented, almost 95% of bilateral trade in consumer and industrial products will become duty free within three years after implementation. U.S. exports such as industrial and consumer electronic machinery and parts, auto parts, power generation equipment, the majority of chemicals, medical and scientific equipment, motorcycles, and certain wood products stand to benefit. Korea also agreed to allow trade in remanufactured goods, which will provide export and investment opportunities for U.S. firms involved in remanufactured products such as machinery, medical equipment, and auto parts.
Other U.S. industries that stand to benefit from the agreement include the services, textiles, pharmaceutical, telecommunications, and medical devices industries. Audio visual products from the U.S. will also enjoy greater market access, if the agreement is implemented. Furthermore, KORUS FTA provides for greater protection of Intellectual Property Rights and open and fair government procurement.
Both the U.S. and Korean economies stand to benefit from implementation of this FTA. For further information, please contact a member of the International Services Group.