The Trade Effect of Korea-US FTA

Transcription

1 The Trade Effect of Korea-US FTA DoHoon KIM Korea Institute for Industrial Economics and Trade I. AN ASSESSMENT OF THE NEGOTIATION Negotiation Results and Next Agenda # Negotiation Results - In total, 14 months of negotiation period were needed Including 8 rounds of official negotiations, several high level and ministerial level talks - Having attained the initial objective fixed as a high-level and comprehensive FTA 17 negotiation groups and 2 working groups # Next Agenda - Official Signing of the agreement: at June 30 * Checking two official versions of agreements (Korean and English) was needed - Ratification: anticipated around the end of year - In effect: 60 days after reciprocal notice of finalizing domestic procedures Negotiation and Working Groups # 17 Negotiation Groups and 2 Working Groups - Including Market Access, Investment, Service, IPR Category Negotiation Groups Products Service Market Access, Agriculture, Textile, Automobile*, Pharmaceuticals*, Rules of Origin, Customs, Trade Remedy, SPS, TBT Investment, Service, Financial Service, Telecom/e-commerce Others * : working groups Market Access Competition, Government Procurement, IPR, Labor, Environment 100% Tariff Elimination for Manufacturing and Fishery/Forestry Products

2 - Early elimination (in less than 3 years) for more than 94% products at import value * Immediate elimination at product numbers: Kor-Chile 99.9%, Kor- Singapore 68.8%, Kor-EFTA 91.1% Exemption of merchandise processing fee : 47 M US$ annually # Assessment Increased the level of market access substantially - Products expected to immediately increase market shares in the US market: cars, LCD monitors, TV camera, Camcorder, Color TV etc Tariff Reduction Schedule for Major Products immediate 3 years 5 years 10 years other Automobile Korea vehicle(8), xylene(5), airbag(8), optic cable(8), aircraft motor(3), Electronic measuring instrument(8), digital TV(8) rear mirror(8) urea(6.5), polyurethane(6.5), silicon oil(6.5), toothpaste(8), perfume(8) toluene(5), golf clubs(8), razor(8), pesticide(6.5), crayfish(20) penole(5.5), ball bearing(13), contact lens(8) pollack(30), croaker(63), halibut(10), mackerel(10) (tariff in effect: %) US passenger cars(2.5), camcorder(2.1), LCD monitor(5), polystyrene(6.5), synthetic sweater(32), footwear(8.5), jewel accessories(5.5), lamp(2.6), digital TV(5), passenger cars(2.5), golf equipments(4.9), chandelier(3.9), color TV(5) tyre(4), leather clothes(6), speaker(4.9), polyether(6.5) microwave oven(2), pickup truck(25), clothes drier(3.4), polyester(6.5), imitated accessories(11), synthetic knit products(12.3), washing machine(1.4), waterproof footwear(20~37.5) #Main Outcome Tariff US : immediate elimination for passenger cars with less than 3,000cc Korea : immediate elimination for almost all products Amendment of Automobile Tax System - special consumption tax : 3 grades 2 grades, reduced to half in 3 years - registration tax : 5 grades 3 grades, slightly reduced

3 Safety and Environment Standards - possible to select one of two standards for small lots of imported cars - Exempting new regulations (FAS & OBD) until the end of 2008 Special dispute settlement mechanism established #Assessment Korean Cars are expected to gain price competitiveness * Hyundai Grandeur: 27,300$ 26,600$ (Toyota Avalon 29,000$) Resolving several lingering trade dispute issues Textile category Tariff concession Yarn forward rule (YFR) and TPL Safeguard major results immediate elimination for 61% of Korean textile products (import value) several products are exempted from YFR TPL applied for some products applicable for 10 years after tariff elimination TPL (Tariff Preference Levels) : exempted from yarn forward rule for a certain period Assessment Korean textile industry will be able to regain US market share * wool fabrics price : Korean products $/ m2 (Chinese 4.8 $/ m2 ) Trade Remedies Establishing a bilateral committee for trade remedy - bilateral consultation needed before starting investigation - opening the possibility of price undertaking Possibility of excluding from the list of multilateral safeguards # Assessment Expected reduction of trade remedy measures * Korean exports under US trade remedies (1980~2005): 6.8% of total exports Investment Dispute Settlement between State-Investors introduced

4 - exceptions : health, environment, safety, real estate policy & tax - both Korean and English are accepted as official language Improved investment climate with increased transparency - national treatment/non-discrimination from the initial stage - no obligations (export ratio, domestic content ratio) # Assessment Expecting increase of US investment in Korea Expecting also investment from other countries such as EU, Japan II. Trade Effect of the KORUS FTA 1. Framework of Impact Assessment # Impact Paths on Korea s Manufacturing Sector (Trade) - Tariff Elimination of Korea -> Increase of Korea s Import from US including Trade Creation Effect and Trade Diversion Effect - Tariff Elimination of US -> Increase of Korea s Export to US - Productivity Improvement -> Increase of Korea s Export & Decrease of Korea s Import # How to read the assessment results - Annual average numbers over 10 years after becoming in effect (other things being equal) - Base year: the average of 3 years trade figures between 2003 and 2005 (present value) - Total figures: the sum of tariff reduction effect and productivity improvement effect 2. Trade Effect of the KORUS FTA # Total Effect Tariff effect plus productivity effect - Exports to world : US$ 2,342 M (1,078 (tariff)+1,264 (productivity)), Trade surplus US$ 2,125 M - Exports to US: US$ 1,327 M (1,078 (tariff)+ 249 (productivity)), Trade surplus US$ 745 M

5 3. Impact on 7 Major Industries A. Total Effect on Manufacturing Sector # 7 major industries expecting a surplus of US$ 1,955 M Exports to the US: US$ 1,227 M, Imports US$ 434 M (in million US$) industry Export Increase Import Increase Trade balance World US World US World US Automobile 1, Textile Electronics Machinery Steel Chemistry Other light major 2,099 1, , Total 2,342 1, , B. Effect on Individual Industries # Automobile Total effect: trade surplus US$ 996 M (exports US$ 1,035 M, imports US$ 38 M) * with US : US$ 741 M surplus (exports US$ 813 M, imports US$ 72 M) * another factor: market opening for pickups will have a positive effect Expected export increase of parts and components * increased local production of Korean car makers * increased alliances with US car makers # Textile Total effect: trade surplus US$ 200 M (exports US$ 212 M, imports US$ 12 M) * tariff effect with US: US$ 153 M surplus (exports US$ 176 M, imports US$ 23 M) * especially clothing exports are expected to increase strongly * US tariff reduction for fabrics (11%), clothes (15%) : new advantage for Korea Cost reduction effect for Korean textile industry from tariff reduction * imported materials from US: high-functional fiber, industrial fiber

6 # Electronics Total effect: trade surplus US$ 544 M (exports US$ 552 M, imports US$ 12 M) * surplus with US: US$ 22 M (exports US$ 147 M, imports US$ 125 M) Non-ITA Products (LCD module, battery) will gain price competitiveness import surge expected for medical equipments, measuring instruments # Machinery Total effect: trade surplus US$ 52 M (exports US$ 91 M, imports US$ 40 M) * deficit with US: US$ 55 M (exports US$ 31 M, imports US$ 86 M) imported machines from US are in general used as capital goods so reduced price will have a positive impact on Korean industries Reduced price for US machines will give pressure on competitors from Japan and EU Korean machinery industry may benefit from enhanced access to the US procurement market import surge expected for infant domestic industries # Steel Total effect: trade surplus US$ 18 M (exports US$ 16 M, imports US$ 2 M ) * balanced impact with US (exports US$ 2 M, imports US$ 2 M) * almost all important products are already traded with zero tariff Korean exports & investments to the US may be increased with a positive impact from the negotiation results on trade remedies # Chemistry Total effect: trade surplus US$ 134 M (exports US$ 168 M, imports US$ 34 M) * deficit expected with US: US$ 71 M (exports US$ 31 M, imports US$ 103 M) * trade diversion from Japan & EU may be large for silicon & polyamide fiber Import surge may be large for colorants, urea and toluene # Miscellaneous Products Total effect: trade surplus US$ 11 M (exports US$ 24 M, imports US$ 13 M) * deficit expected with US: US$ 1 M (exports US$ 21 M, imports US$ 22 M) Share-regaining effect expected for footwear & musical instruments Import surge expected for jewels & precious metals