US And South Korea Conclude Historic Trade Pact

by Mike Godfrey, Tax-News.com, Washington

04 April 2007

The United States and the Republic of Korea on April 1 successfully concluded a free trade agreement that will see tariffs on the import of virtually all industrial and agricultural goods phased out.

“This is a historic moment for our two countries," declared US Trade Representative Susan C. Schwab. "The United States-Korea Free Trade Agreement (KORUS FTA) will provide US farmers, ranchers, manufacturers, and service providers exciting new market opportunities in a growing, dynamic country. It will contribute to Korea’s successful transformation to a 21st century economic power."

"The completion of this landmark agreement is testimony to the industriousness, creativity and determination of our two peoples," she added. "It demonstrates that two countries with large, complex economies and robust public involvement in policy debates can work through great challenges to build stronger trade and investment ties."

The KORUS-FTA represents the United States’ most commercially significant FTA in over a decade. The Republic of Korea is the world’s tenth largest economy, with a GDP of nearly $1 trillion.

Historically, Korea has been one of the most protected agricultural markets in the world. The KORUS FTA will create highly valuable new export opportunities for American farmers and ranchers by eliminating and phasing out tariffs and quotas on a broad range of products. Under the agreement, over $1 billion worth of US farm exports to Korea will become duty-free immediately. Most remaining tariffs and quotas will be phased out over the first ten years the agreement is in force.

Nearly 95% of bilateral trade in consumer and industrial products becomes duty-free within three years of entry into force of the agreement, with most remaining tariffs eliminated within 10 years.

The KORUS FTA will eliminate discrimination in engine displacement-based taxes, long a significant impediment to market access in Korea. The agreement contains strong commitments to addresses the specific standards-related concerns raised by US auto manufacturers and to create a working group to review auto-related regulations being developed as an early warning mechanism to prevent new problems from arising and to promote good regulatory practice in Korea. The agreement also contains a special enhanced dispute settlement mechanism for auto-related measures, with strong remedies to deter actions on autos that are inconsistent with the agreement.

With the inclusion of the “yarn forward” rule of origin, the KORUS FTA will give apparel products from Korea preferential access to the US market while supporting US fabric and yarn exports and jobs. Textile and apparel makers in both countries will benefit from a special textile safeguard and strong customs enforcement requirements.

The agreement also ensures that US investors in Korea will have the same rights and enjoy equal footing with Korean investors. These rights will be backed by a stable, transparent legal framework. The agreement will expand market access and investment opportunities in a number of service sectors, including telecommunications and e-commerce. The agreement will also expand market opportunities for US audio-visual products.

The FTA provides high-level standards for protection and enforcement of intellectual property rights, including trademarks, copyrights and patents, consistent with US standards.

The accord also requires that both countries enforce their own labor and environmental laws, ensures access to legal enforcement mechanisms, and establishes mechanisms to enhance cooperation in efforts to safeguard labor rights and environmental protections.

The KORUS FTA was launched on February 2, 2006, and the first of eight formal negotiating rounds took place in June 2006.

Korea was the world’s seventh largest goods exporter ($284 billion) and importer ($261 billion) in 2005 – the fourth largest in Asia. Korea was also the world’s tenth largest services exporter ($44 billion) and sixth largest services importer ($58 billion) in 2004. Over the past ten years, Korea’s real average annual growth rate in trade was two and a half times the pace of its GDP growth.

Recommended