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June 14, 2007

What's in the Korea-U.S. FTA?

This post has not been updated since June 18.  All Korea-U.S. FTA material is now being posted to a new topic-specific blog: Korea-U.S. FTA.

I'm going to pull together a set of annotated links to web based materials describing the contents of the U.S. - So. Korea FTA, and evaluating its impacts on the U.S. and Korea.

This post is mean to complement a second post describing the history of the negotiations and ratification processes: KORUSFTA . 

Like the related post, this post is going to be subject to ongoing correction, revision, reorganization, and elaboration. 

Last updated June 14.

Documents

Korean and the U.S. released the text of the agreement at the same time (Friday, May 25 in Korea, Thursday, May 24 in the U.S.): S. Korea publicizes full text of FTA with U.S., criticism expected (Yonhap News, April 25); U.S., S.Korea issue trade text, to sign deal June 30 (Reuters via Washington Post, May 25). 

The text is on the Korean Foreign Ministry web page English text of the agreement, and on the USTR web page: Proposed United States - Korea FTA Texts.

This story from the Chosunilbo points to some of questions rising with respect to the interpretation of elements of the agreement: Doubts Remain as Full Korea-U.S. FTA Becomes Public (May 28).

This text is not necessarily completely final: "Next week, a group of Korean officials will fly to Washington to complete the final wording of the pact both in Korean and English."  Korean parliament to hold hearing on FTA with U.S. (Korea.net, May25)  Moreover, the U.S. is expected to ask for additional negotiations: U.S. to Ask for FTA Renegotiations This Week (Chosunilbo, May 28).  This story discusses the prospects for Korea to get additional concessions during renegotiations: Renegotiate FTA and Win, U.S. Law Firm Tells Korea (May 29).  The Koreans may be interested in a better deal with respect to visas for professionals, and the application of U.S. trade remedy laws.

The USTR web page also has reports from 27 trade advisory committees established pursuant to the Trade Promotion Act of 2002: Advisory Group Reports on Korean Trade Promotion Agreement.  These reports were delivered by the committees in late-April, and released with the text.  Here's a story on the contents of the advisory group reports: U.S. trade committees give mixed reviews to proposed Korea-U.S. FTA (Yonhap News, May 26).  These advisory group analyses are required under the following legislation (quoted from the agricultural group report):

Section 2104(e) of the Trade Act of 2002 requires that advisory committees provide the President, Congress, and the U.S. Trade Representative with reports required under Section 135(e)(1) of the Trade Act of 1974, as amended, not later than 30 days after the President notifies Congress of his intent to enter into an agreement.

Under Section 135(e) of the Trade Act of 1974, as amended, the report of the Advisory Committee for Trade Policy and Negotiations and each appropriate policy advisory committee must include an advisory opinion as to whether and to what extent the agreement promotes the economic interests of the United States and achieves the applicable overall and principal negotiating objectives set forth in the Trade Act of 2002.

On May 10, the Administration and Congress reached an agreement on new guidelines for U.S. trade negotiations.  These guidelines may have a bearing on the U.S. Korea agreement.  I've posted on them here: The content of changes in U.S. trade negotiating policy (posted May 11 - revised since), and here: The Administration's trade treaty with Congress (posted May 24 - revised since).

Early commentary (Between April 1 and May 24-25)

Claude Barfield of the American Enterprise Institute saw pros and cons, and hard ratification fights coming up in the U.S. and Korea: Tout Seoul (America.com, April 5).  Among the cons:

On the down side, Korea insisted that rice be kept off the negotiating table. For the United States, most of the so-called “WTO-plus” template for FTAs is trade-liberalizing. The exceptions—which the U.S. has refused to compromise on in this and other agreements—include rules of origin (rules to stop trans-shipment of goods from third countries into FTA partners’ economies) that are arcane and deeply protectionist; anti-dumping regulations that arbitrarily discriminate against imports; large subsidies for agricultural crops that the U.S. insists must be handled in the WTO; and questionable discriminatory rules against short-term capital controls. Labor and environmental issues, so controversial in other pending U.S. FTAs, did not loom large in these negotiations as Korea has strong (indeed, too strong) labor rights’ laws and increasingly strict environmental regulations.

Estimates of income, employment, and welfare impacts of the agreement

Computable general equilibrium studies done prior to the agreement are listed in the post KORUSFTA.

This next story may be connected to the preceding one.  On April 22, Yonhap News distributed a story a story under the headline: Economic effects of S. Korea-U.S. FTA may differ from early estimates: think tanks.  The thrust of it was that, new estimates of the benefits from the FTA were lower than earlier, pre-agreement, estimates, because actual liberalization in the agreement was less than had been anticipated earlier.  The think-tank estimates were to be submitted, by the government, to an FTA committee of the National Assembly on April 30.

The Chosun Ilbo reported that a forecast published by "by 11 state-run think tanks including the Korea Institute for International Economic Policy (KIEP)" projected that the agreement would increase the Korean growth rate by 0.6% a year over the next ten years: Korea-U.S. FTA 'to Boost Growth by 0.6 Percent a Year' (May 1).  Here's another story on this topic: GDP Could Increase to 80 Trillion Won; 340,000 New Jobs Could Be Added (Dong-A Ilbo, May1). The forecast was released on Monday, April 30 in Seoul.

The following day, Tuesday, May 1, in Washington, the Korea Economic Institute (KEI) and the Peterson Institute co-sponsored a conference on the economic impacts of the FTA.  Here's the conference agenda: Policy Forum: Static and Dynamic Effects of the KORUS FTA .  The KEI released a new computable general equilibrium study of a Korea-U.S. FTA by Kiyota and Stern: Economic Effects of A Korea-U.S. Free Trade Agreement .  Here's a brief Chosunilbo story on the conference: Korea to See 1.26% Jump in GDP After FTA with the U.S. Goes (May 4).

The U.S. International Trade Commission has begun an investigation into the economic impacts of the FTA, pursuant to the requirements of the Trade Act of 2002: ITC Begins Assessment of U.S.-Korea FTA (PressZoom, May 28):

The Trade Act of 2002 requires the ITC to prepare a report that assesses the likely impact of proposed free trade agreements on the U.S. economy as a whole and on specific industry sectors and the interests of U.S. consumers. The ITC's report, which will be public, is due to the President and the Congress no more than 90 days after the President actually signs the agreement, which he can do 90 days after he notifies the Congress of his intent to do so. The President notified the Congress on April 1, 2007, of his intent to enter into the FTA with Korea.

A public hearing in connection with this investigation is scheduled for June 30 (this was originally scheduled for June 7, but was rescheduled). Here is the ITC's web page for this investigation: U.S.-Korea 90/90 Free Trade Agreement (2104-024).  It has a copy of the April 1 letter from the USTR requesting the investigation, a press release, the original Federal Register notice, and the notice for the rescheduling of the public hearing.  The notices tell you how to arrange to submit testimony.

The Korean Development Institute released a report arguing that the agreement will be good for Korean productivity, and will do more for smaller firms than larger ones: Free trade deal with U.S. to help enhance local productivity: KDI (Yonhap News, June 3):

The proposed South Korea-U.S. FTA calls for import tariff cuts of between 0.6 and 0.9 percentage points. It means that the deal will help local companies enhance productivity by 0.9 percent to 1.4 percent, the report said....

"However, market opening serves as an incentive that prompts fiercer competition and prompts individual firms to focus more on efficiency in production and management," he added.

By the size of business, companies with 50 to 100 employees will see their productivity improve by 2.2 percent, the largest among those surveyed. The corresponding figure for companies with 100 and 300 workers were forecast to increase 1.6 percent.

Agriculture

Chapter 3 deals with Agriculture: 3. Agriculture; an annex deals with safeguard measures: Annex 3-A: Agricultural Safeguard Measures .

A report was received from an overall Agricultural Advisory Policy Committee for Trade, and from six more product-specialized technical committees:

The Agricultural Policy Committee likes the deal (in general):

It is the opinion of the APAC that the U.S.-Korea Free Trade Agreement (KORUS FTA) will clearly benefit U.S. farmers and ranchers by increasing export opportunities through the elimination of tariff and non-tariff barriers.

This agreement covers virtually all agricultural products and will immediately eliminate all duties for almost two-thirds of current Korean imports from the U.S. Korea is currently the 5th largest agricultural export market at $2.9 billion in 2006 for the United States. Korea, which currently offers duty-free access to only $14 million of U.S. agricultural imports, will immediately eliminate duties on wheat, corn, soybeans for crushing, hides and skins, cotton, almonds, frozen potatoes, and other products. The KORUS FTA will eliminate over 90 percent of Korea’s tariffs within 15 years, including many in 5 years or less (e.g. orange juice, alfalfa, sweet corn, chocolate and chocolate confectionary, prunes, wine, and pistachios). In addition, many U.S. farm products will benefit from expanded market access opportunities that will provide immediate duty-free access within tariff-rate quotas, including skim milk powder, whey for food use, cheese, dextrins and modified starches, barley, popcorn, and soybeans for food use. However, confirmation of all concessions agreed to by Korea, including the full TRQ negotiated for corn starch, must be resolved satisfactorily.

The Committee was concerned about the need for satisfactory progress on resolving the sanitary concerns on beef and was disappointed that rice had been left out of the agreement.  They were also concerned about oranges:

APAC members are further concerned about the 50% duty on U.S. oranges (September 1 - March 1). It is essential that negotiators work within the WTO to phase this duty out and/or work to increase the volume of U.S. oranges allowed by the TRQ beyond its annual 3 percent expansion from the current small base.

The South Koreans did not liberalize access to their rice market.  Modeling had suggested that this would have been a big source of welfare gains for the Koreas, not so much (and perhaps even a loss because of subsidies - for the U.S.).  On these modeling results, see Jeffrey Schott, Scott Bradford, and Thomas Moll, Negotiating the Korea–United States Free Trade Agreement (Peterson Institute, June 2006), page 6.

This article discusses the safeguard measures from the Korean viewpoint: Korea to keep import safeguards on 30 farm goods under U.S. trade deal (Korea.net, May 26).

Dermot Hayes, of the University of Iowa, thinks the agreement will be a good thing for U.S. pork producers: NPPC: U.S.-South Korea Trade Deal Best Ever For Pork (CattleNetwork. com, May 25):

South Korea – where pork constitutes 44 percent of daily meat protein consumption – already is the fourth largest market for U.S. pork and pork products. According to Iowa State University economist Dermot Hayes, by the end of the FTA phase-in period, total U.S. pork exports to the Asian nation will rise to nearly 600,000 metric tons. That’s about twice as much as the amount currently shipped to Japan, the No. 1 export market for U.S. pork. Hayes also estimates that the agreement will increase U.S. live hog prices by $10.

Under terms of the deal, tariffs will be eliminated on all frozen and processed pork products by 2014. Fresh chilled pork will be duty-free 10 years after implementation, with a safeguard. In addition to ambitious market-access gains, the Republic of Korea has agreed to accept all pork and pork products from USDA-approved packing facilities.

There's good news for U.S. pistachio growers (almost all of whom are in California) according to this Paramount Farms press release: U.S. Pistachio Growers Welcome Successful Conclusion of South Korea-U.S. Free Trade Agreement, Reports Paramount Farms (PR newswire, April 5):

"We are very pleased by the announcement," said Stewart Resnick, president, Paramount Farms. "While South Korea represents an estimated $38 million in revenue per year for America's pistachio growers, the existing 30 percent tariff on pistachios was a significant hurdle to realizing that market. We understand that once it goes into effect, the free trade agreement provides for immediate duty-free treatment of U.S. pistachios.

Sunkist likes it too: US: Sunkist Growers pleased with success of US-Korea FTA negotiations (Fresh Plaza):

Until the last few days of the negotiations, Korea was adamant about maintaining its tariffs on all citrus, particularly on oranges. In fact, the final decision on oranges was made at the cabinet level. “Although it was a real battle to keep fresh citrus on the table, we did secure some terms that will improve our market opportunities in the future,” said Wootton. Among the agreed upon provisions that will go into effect upon implementation of the agreement:

Seven-year phase out of the current 50% duty on U.S. oranges imported into Korea between March 1 and August 31, with immediate 20% reduction of the 50 % tariff in the first year of implementation to 30 % ad valorum, followed by a 5% reduction each year thereafter to zero duty in year seven.

Korea will continue to maintain permanently its 50% tariff on orange imports from the U.S. for the period September 1 to March 1(subject to any WTO mandated reduction ), but agreed during that protected period to a duty free tariff rate quota (TRQ) starting at 2,500 metric tons and increasing annually by 3% in perpetuity.

This increasing quota will, in time, supersede the protective tariff and eventually result in a year-round duty free market for fresh oranges.   The current 30% tariff on U.S. Lemons will be phased out over two years.  The current 30% duty on U.S. Grapefruit will be phased out over five years.  The current 144% over quota duty on U.S. origin Mandarins will be phased out over 15 years with incremental reductions of 9.6% per year.

Services

The Seoul Digital Forum this year had a panel discussion on "Korea-US FTA and its Impact on Media Market."  Blogger Doug Crets reports: Dateline: Korea, The Seoul Digital Forum (May 29).

Jordan Hatcher at the Free Trade Blog, compares the electronic commerce provisions of the Korea-U.S. FTA with those in CAFTA: KORUS - DRCAFTA ecommerce compared (June 14).

Manufactures

Automotive

The USTR fact sheet on automobiles: FACT SHEET ON AUTO-RELATED PROVISIONS (April 3).  The advisory committee report is here: ITAC 2 - Automotive Equipment and Capital Goods (April 27).

Lee Hae-yeong, professor of International Relations at Hanshin University, is not happy with the agreement (After revealing the FTA text: how much did Korea give up?, Hankyoreh, May 28).  Here's his take on the automotive sections:

The so-called "balance of interests" the government makes so many claims about is illuminated best by looking at the automobile sector. Let us take a look at the actual agreement. The U.S. is going to immediately get rid of its 2.5 percent import tariffs on automobiles and Korea in exchange will give privileges in non-tariff areas such as taxation, the environment, safety, and technology standards. By promising that Korea is not going to implement taxes based on automobile emissions, we gave up our sovereignty in the area of taxation. Korea agreed to go along with the Automotive Working Group, something one might as well call a U.S. industry lobbying body that will deal with all sorts of issues relating to automobiles (Annex 9-B). The worst of it is seen in the "alternative procedures for disputes concerning automotive products," particularly the so-called "snapback provision" (Annex 22-B). In this, Korea agreed to something unprecedented in the history of world trade agreements, that when there is "nullification or infringement" of "expected profit," the condition for "non-violation complaints," or when there are actual violations, the U.S. can re-impose its 2.5 percent tariff. Given how all of Korea’s car ‘exports’ to the U.S. will actually be produced in factories in that country by two years’ time, the economic effect of having the 2.5 percent tariff gone is going to be nothing or next to it. In exchange, Korea has handed over its domestic automobile market. Just which country is the Korean government working for when it calls this a "balance of interests"?

Pharmaceuticals

Lee Hae-yeong, professor of International Relations at Hanshin University, on rules governing pharmaceutical pricing (After revealing the FTA text: how much did Korea give up?, Hankyoreh, May 28):

The government boasts that it got "A-7 pricing" on so-called "innovative pharmaceuticals" excluded from the negotiations, that being something that could render irrelevant Korea’s procedures for determining appropriate pharmaceutical prices. However, in Article 5.2, which is about "Access to Innovation," however, there is no mention of that. Instead, under the name "competitive market-derived prices," you have the "A-7 pricing" still there under a different name. The new commerce policy agreed upon by the Bush administration and the U.S. Democratic Party wants key parts of the document Korea yielded on about pharmaceuticals - such as data exclusivity, extending patent periods, and approval-patent linkage - changed because they excessively restrict the general public’s access to pharmaceuticals. The government calls this an "improvement" in how things work. Just what kind of government says, "This is how they do it in fully advanced and industrialized nations," when in fact even the other nation party to the trade deal thinks this section is a problem?

Textiles

Investment

Seong-Bong Lee, Kwan-Ho Kim, Junkyu Lee, and Hea-Jung Hyun of the Korea Institute for International Economic Policy (KIEP) looked at the issues to be dealt with in the investment chapter last December: Issues and Assessment of the KORUS FTA Investment Chapter, Policy References  06-06).

Lee Hae-yeong, professor of International Relations at Hanshin University, on rules governing expropriation (After revealing the FTA text: how much did Korea give up?, Hankyoreh, May 28):

"Annex 11-B: Expropriation" is also problematic. This annex was included at the demand of the U.S. Korea had requested discussion of indirect expropriation as it relates to real estate and taxation in part 3.B of Annex 11-B, but all it got was mention of "real estate price stabilization" and even that is limited to "measures to improve the housing conditions for low-income households." Previously, the government claimed that real estate policy would be excluded from indirect expropriation. However, looking at the actual document, who could possibly claim that key parts of Korean real estate policies - like the designation of certain areas as "speculative investment zones," the permit system for land transactions, claiming development profits, and various "reconstruction" allotments - are not going to be part of the sections on indirect expropriation and investor-state disputes?

Intellectual Property

Here's the report of Report of the U.S. Industry Trade Advisory Committee on Intellectual Property Rights (ITAC-15) (April 27).

According to Yonhap News, "The United States kept South Korea on its intellectual property rights (IPR) "watch list" in this year's annual report Monday but noted a recently concluded trade pact will lead to significant improvements.... Special 301 Report," issued by the U.S. Trade Representative (USTR), categorizes trading partners according to effectiveness of IPR protection..."  (U.S. keeps S. Korea on IPR 'watch list' but welcomes expected improvement from FTA (May 1).

Here is the link to the USTR press release and the Special 301 report itself: Special 301 Report (April 30).  Here's the relevant text from the report:

On April 1, 2007, the United States concluded negotiations on the United States-Korea Free Trade Agreement (KORUS FTA). The KORUS FTA includes provisions on market access for pharmaceutical and medical devices that go beyond those in any other U.S. FTA. Specifically, the FTA includes commitments to improve access to innovative products and to ensure the transparent, predictable, and non-discriminatory pricing and reimbursement of innovative and generic pharmaceutical products, medical devices, and biologics. In addition, the Agreement contains provisions to promote ethical business practices, establish a Medicines and Medical Devices Committee to monitor implementation of commitments in this area, and create an independent mechanism to review pricing and reimbursement decisions. (page 14).

The Republic of Korea (Korea) will remain on the Watch List in 2007. The United States welcomes the strong and far-reaching IPR commitments that Korea agreed to undertake under the U.S. – Korea Free Trade Agreement (KORUS FTA) concluded in April 2007. In the areas of patents, trademarks, copyrights, protection against unfair commercial use for data generated to obtain marketing approval, and enforcement, Korea has agreed to considerably strengthen its IPR protection and enforcement regimes. The United States believes that adherence to these commitments will lead to a significant improvement in IPR protection as well as a reduction in piracy and counterfeiting in the Korean market. The United States looks forward to working closely with Korea as it implements these important provisions in the KORUS FTA. (page 39)

The May 10 agreement between the U.S. Administration and Congress contained provisions on patent protection for medicines.

Rep. Kim Young-sun of the National Assembly is worried that FTA likely to limit freedom for South Korean Web users: lawmaker (Yonhap News, April 16)

North Korea

The export-processing zone at Kaeseong or Gaeseong in North Korea has been an important part of So. Korea's outreach to the north.   On the other hand, the U.S. is extremely sensitive to the political implications of these goods, and is concerned that the workers producing them are being exploited.  I've taken the text on the agreement's treatment of these issues and placed it in a separate web page: The Treatment of Goods from North Korea in the U.S. - S. Korea FTA .

Trade remedies

The Chosunilbo notes that the trade remedies section imposes constraints on the use of safeguard measures: Korea-U.S. FTA Text Carries Uncomfortable Surprises (May 26):

The text of the Korea-U.S. free trade agreement, which is published Friday, contains some clauses the government at the time chose not to disclose. Thus Korea and the U.S. will apparently be able to trigger safeguards for imports only once in 10 years. The safeguard system is a temporary protection whereby tariffs rise when there is a surge in imports.

The two can use safeguards for critical agricultural products like beef and pork without limit, but they agreed to apply the protective measure only once in 10 years for other agricultural products and all manufacturing goods except for textiles, which account for 94 percent of all trade items. That detail was not revealed when the two countries announced the conclusion of the FTA on April 2.

A Trade Ministry official said the limited use of safeguards is to Korea’s advantage, since agricultural products other than the critical ones actually have no significant impact on the Korean agricultural market and Korea will export more manufacturing goods than the U.S.

This article (already listed under "Agriculture") discusses the safeguard measures from the Korean viewpoint: Korea to keep import safeguards on 30 farm goods under U.S. trade deal (Korea.net, May 26).

Labor

Annex 22-C, which deals with goods made in export-processing zones in North Korea, has labor implications: The Treatment of Goods from North Korea in the U.S. - S. Korea FTA .

Section 2102(c) of the Trade Act of 2002 requires the President to prepare several labor related reports to Congress.  These include a United States Employment Impact Review, a Labor Rights Report, and a report on Laws Governing Exploitative Child Labor Report. The Department of Labor (DOL), in consultation with other federal agencies, has been delegated the responsibility for preparing these three reports.  The DOL's Bureau of International Labor Affairs posts these report to the web here: Labor-Related Reports for U.S. Free Trade Agreements.  The Korea-U.S. FTA reports aren't here yet.

There was a Trade Policy Advisory Committee on labor.  Here is its report: Labor Advisory Committee (April 27).

James Parks describes the AFL-CIO reaction, immediately after the agreement was reached: Korea-U.S. Trade Deal Bad for Workers in Both Countries (afl-cioNOWBLOG, April 2)

Environment

An agreement to reduce barriers to trade can change the levels of production in different industries, and the location of production between the two countries.  Increased trade may lead to increases in air and water pollution from trains, planes, and ships.  Increased trade may also lead to increased movement of invasive species.  Investor protections may interact with domestic regulatory measures for health, safety and the environment.  Unless carefully handled, conflicts may be created between these.  The discussion of environmental issues is here: Environmental impacts of the U.S. - S. Korea FTA .

Public Health

No single one of the U.S. trade policy advisory committees was dedicated to public health issues raised by the FTA (in the sense that there was a dedicated "environmental" committee), however, several of the committees dealt with topics that bear on health issues.  Among these are the committees dealing with -

The Center for Policy Analysis on Trade and Health doesn't think the FTA will improve health outcomes: Korean Trade Agreement: Threat To Public Health (May 30).  One of the authors of the report, Ellen Shaffer, traveled to Korea and spoke at a workshop on health and the FTA: U.S. health expert warns Korea about effects of FTA (The Hankyoreh, June 5):

If the texts come into force, Korean pharmaceutical prices will go up, the country’s public insurance system will collapse, and the government’s control on tobacco and alcohol will take a step back, she said.

June 14, 2007 |

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