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US, S Korea Reach Agreement on FTA

by Mike Godfrey, Tax-News.com, Washington

07 December 2010


Following further negotiations, the United States Trade Representative, Ron Kirk, and the South Korean Minister for Trade, Kim Jong-hoon, declared on December 3 that they had successfully resolved the outstanding issues of the proposed United States-South Korea free trade agreement (KORUS FTA).

After their meeting, Kirk and Kim announced that “substantial progress” had been made in their discussions, and that “it's time now for the leaders to review this progress before we move forward." Subsequently, positive statements were made by both governments.

President Barack Obama said that he was “very pleased" that the US and South Korea have reached agreement on a landmark trade deal that is expected to increase annual exports of American goods by up to USD11bn and support at least 70,000 American jobs. "Last month in Seoul I directed our negotiators to achieve the best deal for American workers and companies, and this agreement meets that test,” he remarked.

“Today’s agreement is an integral part of my Administration’s efforts to open foreign markets to US goods and services, create jobs for American workers, farmers and businesses, and achieve our goal of doubling of US exports over five years,” he added.

South Korea’s President Lee Myung-bak confirmed his belief that the accord is significant because it lays the groundwork for a ‘win-win’ relationship by reflecting the national interests of South Korea and the US in a balanced manner. "This result was made possible because both sides worked hard to find acceptable alternatives that would allow for the ratification and effectuation of the FTA,” he observed.

“The KORUS FTA will certainly bring enormous economic benefits to both our countries,” he added. “Once the KORUS FTA comes into effect, South Korea will become the only country that has free trade agreements with all three of the world’s largest economic blocs—the US, European Union and the Association of Southeast Asian Nations. The KORUS FTA will also be instrumental in boosting Korean exports significantly, and the Korean economy will have an opportunity for yet another growth surge.”

The KORUS FTA would eliminate tariffs on over 95% of industrial and consumer goods within five years. The US government has emphasized that, under the agreement, US exports of aerospace, automotive, consumer goods, electrical/electronic goods, metals, scientific equipment, and shipping and transportation equipment will gain duty-free access to the South Korean market.

However, in addition, the KORUS FTA would address non-tariff barriers to US exports. The agreement deals with existing barriers and establishes new rules on how South Korea will develop its regulations applied to US exports in the future, whilst also containing protection on intellectual property rights.

In particular, President Obama said that the US auto sector, whose problems in exporting to South Korea have been a main discussion point in the re-negotiation of the original 2007 agreement, would gain more access to the South Korean market and a level playing field to take advantage of that access.

For example, the agreement would improve market access for US auto companies by addressing ways South Korea’s system of automotive safety standards have served as a barrier to US exports. Similarly, the agreement addresses proposed South Korean environmental standards that could serve as a barrier to US exports – striking, it was said, a balance “that respects our shared desire to reduce the environmental impact of automobiles, but alleviates a real burden placed on American auto companies importing smaller volumes into Korea.”

Furthermore, South Korea has agreed to match the openness provided by the US in a host of services sectors, ranging from energy and environmental services to financial services and distribution. The agreement’s provisions on cross-border services, telecommunications, and electronic commerce would offer particular advantages to the information and communications technology service sector, while the financial services chapter in the KORUS FTA agreement would provide significantly improved market access into South Korea for US financial services firms.

It is planned that the agreement will now pass to the two countries’ respective legislatures for approval before it might come into effect. President Obama said that he "looked forward to working with Congress and leaders in both parties to get this done,” while President Lee hoped that “the legislatures of [the] two countries will be able to ratify the agreement as promptly as possible.”

Ratification of the KORUS FTA by Congress has been long-delayed, but the US auto industry is reportedly now said to be reasonably content with the revised terms of the agreement. It is also hoped that the new Republican majority in the House of Representatives may be more amenable to passing free trade legislation.

The US Chamber of Commerce has stressed that “now it’s time for the new Congress to make passage of the KORUS FTA a top priority in January. We will do everything in our power to round up the votes.”

However, President Lee may have his own problems in the South Korean parliament. While there has been some business support for the new agreement, the main opposition party has voiced criticism that the government has made too many concessions, particularly with regard to the auto sector, and has received too little in recompense. It has called the final deal “humiliating”.

TAGS: tax | free trade agreement (FTA) | law | intellectual property | financial services | tariffs | agreements | manufacturing | legislation | Korea, South | United States | import duty | standards | trade | services

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