Publication Number: 3949

Report Title: U.S.-Korea Free Trade Agreement: Potential Economy-wide and Selected Sectoral Effects

Author's name(s): Nannette Christ, Project Leader, Queena Fan, Deputy Project Leader

Date Published: September 2007

Report Description/Introductory Text: If fully implemented, the U.S.-Korea Free Trade Agreement (FTA) is expected to affect the U.S.-Korea trade and investment relationship substantially, including bilateral trade in goods and services, procedures governing trade and investment, and the regulatory environment. Tariffs and TRQs applied to U.S. exports to Korea are, on average, substantially larger than those applied to U.S. imports from Korea. The Commission estimates that the FTA would result in the following effects.

• U.S. GDP would likely increase by $10.1–11.9 billion as a result of tariff
and tariff-rate quota (TRQ) provisions related to goods market access.
• Merchandise exports to Korea would likely increase by an estimated
$9.7–10.9 billion as a result of tariff and TRQ provisions.
• Merchandise imports from Korea would likely increase by an estimated
$6.4–6.9 billion as a result of tariff and TRQ provisions.
• U.S. services exports would likely increase as a result of the FTA, given
the increase in levels of market access, national treatment, and
regulatory transparency that would be afforded by the FTA in excess
of the current General Agreement on Trade in Services (GATS) regime.
• Aggregate U.S. output and employment changes would likely be
negligible, primarily because of the size of the U.S. economy relative to
that of the Korean economy.

Sector-specific exports: Agricultural exports to Korea that would be likely to increase primarily because of the removal of high tariffs and TRQs, include grains, oilseeds, animal feeds, fruit (especially oranges, apples, and pears), vegetables (such as potatoes, tomatoes, sweet corn, and lettuce), nuts, dairy products, meat products (beef, pork, and poultry), seafood, and various processed foods and nonalcoholic beverages. Exports of machinery, electronics, and transportation equipment and of passenger vehicles and parts would likely experience relatively large increases, primarily as a result of small tariff changes to large pre-existing trade flows. Certain high technology products, such as pharmaceuticals and medical devices, would likely also experience increased exports as a result of FTA-induced improvements in the regulatory environment in Korea.

Sector-specific imports: Imports of textiles, apparel, leather products, and footwear from Korea would likely increase due to a reduction in the relatively high U.S. tariffs. Potential increases in U.S. imports of machinery, electronics, and transportation equipment, including passenger vehicles, would be driven by small tariff changes to pre-existing large import volumes.

Services sector: Services sector exports to Korea would likely increase as a result of the FTA, because Korea has agreed to provide levels of market access, national treatment, and regulatory transparency that would exceed levels currently afforded the United States by Korea under GATS obligations. Although increases in market access would vary by industry, the FTA would expand access to Korea's services market and would provide substantial opportunities for financial, telecommunications, professional, and audiovisual services.

Regulatory environment: Changes in trade facilitation and the regulatory environment provisions could substantially increase U.S.-Korea trade and investment by reducing transaction costs, increasing transparency, and improving the regulatory environment. For example, a more secure and stable investment environment and enhanced implementation of intellectual property rights enforcement would likely increase trade and investment in a wide array of goods and services.

Topics Covered: FTA, TPA, free trade, foreign trade, international trade, trade agreement, trade dispute

Countries: United States, Korea (South)

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