Summary of the U.S.-Korea FTA
The United States and the Republic of Korea signed a bilateral free trade agreement on June 30, 2007. This comprehensive trade agreement will eliminate tariffs and other barriers to trade in goods and services, promote economic growth, and strengthen economic ties between the United States and Korea.
Korea is a $1 trillion economy and is the United States' 7th largest trading partner. In 2008, U.S. goods exports to Korea were $34.8 billion. In 2007, U.S. foreign direct investment in Korea totaled roughly $27.2 billion and was concentrated largely in the manufacturing, banking, and wholesale trade sectors. Korea currently enjoys broad access to the U.S. market and the United States is Korea's 3rd largest market.
New Market Access for U.S. Consumer and Industrial Products
Nearly 95 percent of bilateral trade in consumer and industrial products becomes duty-free within three years of entry into force of the agreement, including many key U.S. exports such as industrial and consumer electronic machinery and parts, auto parts, power generation equipment, the majority of chemicals, medical and scientific equipment, motorcycles, and certain wood products. Most remaining tariffs will be eliminated within 10 years.
Increased Access for U.S. Autos
The Administration has expressed concerns about the automotive provisions of the FTA, and is reviewing the Agreement and consulting with Congress and other stakeholders to ensure that a level playing field is established for U.S. cars competing in the Korean market. The FTA contains numerous provisions designed to open Korea's market to U.S. autos:
Eliminates Korean tariffs on most U.S. priority passenger vehicles and trucks. Korea has also agreed to overhaul its system for taxing cars based on "engine displacement", including the Special Consumption Tax, the Annual Vehicle Tax, and the Subway/Regional Development Bond. In addition, commits the Korean government not to impose any new engine displacement taxes and to maintain non-discriminatory application of those taxes.
Korea agrees to address specific automotive safety and environmental standards to ensure they do not impede the market access of U.S. autos, and to create an Autos Working Group to serve as an early warning system to address regulatory issues that may develop in the future.
o Korea also agrees not to adopt technical regulations that create unnecessary barriers to trade and to cooperate to harmonize standards.
Includes separate motor vehicles dispute settlement procedure that expedites dispute settlement procedures and includes a "snap-back" provision that allows the United States to suspend ("snap-back") tariff concessions on Korean passenger cars should Korea be found in non-conformity with or causing nullification or impairment of its obligations under the Agreement, in a way that materially affects the sale, purchase, or distribution of U.S. vehicles in Korea.
Expanded Markets for U.S. Farmers and Ranchers
Almost two-thirds ($1.6 billion) of current U.S. farm exports to Korea will become duty-free immediately, including wheat, feed corn, soybeans for crushing, hides and skins, and cotton, plus a broad range of high value agricultural products such as almonds, pistachios, bourbon whiskey, wine, raisins, grape juice, orange juice, fresh cherries, frozen french fries, frozen orange juice concentrate, and pet food.
U.S. farm products benefiting from expanded market opportunities with two-year tariff phase-outs include avocados, lemons, dried prunes, and sunflower seeds.
U.S. farm products benefiting from expanded market opportunities with five-year tariff phase-outs include food preparations, chocolate and chocolate confectionary, sweet corn, sauces and preparations, other fodder and forage (alfalfa), breads and pastry, grapefruit, and dried mushrooms.
Other U.S. farm products that will benefit from expanded market access opportunities through tariff rate quotas include skim and whole milk powder, whey for food use, cheese, dextrins and modified starches, barley, popcorn, and soybeans for food use.
Market access was also expanded for beef and pork products, pears, apples, grapes, and oranges.
Textiles and Apparel - Promoting Cooperation and Benefits
Adopts the "yarn forward" rule, meaning that, generally, apparel using yarn and fabric from the United States and South Korea qualifies for preferential tariff treatment.
Provides reciprocal duty-free access immediately for most textile and apparel goods.
Contains strict customs enforcement provisions. U.S. and Korean customs authorities may conduct unannounced site visits to Korean producers and the United States is authorized to undertake a variety of enforcement actions (up to and including denying entry for suspect goods).
Contains a special textile safeguard, allowing the United States to impose tariffs on certain goods should injury occur due to import surges.
As in past free trade agreements, ensures visible linings originate from the United States or Korea. The agreement contains mechanisms that allow the Parties to modify the rules of origin to address the availability of fibers, yarns, and fabrics.
Important New Protections for U.S. Investors
Establishes a stable legal framework for U.S. investors operating in Korea. All forms of investment will be protected under the agreement, including enterprises, debt, concessions and similar contracts, and intellectual property. With very few exceptions, U.S. investors will be treated as well as Korean investors (or investors of any other country) in the establishment, acquisition, and operation of investments in Korea.
Draws from U.S. legal principles and practices to provide U.S. investors in Korea with substantive and procedural protections that foreign investors currently enjoy under the U.S. legal system. These include due process protections and the right to receive fair market value for property in the event of an expropriation.
The investor protections are backed by a transparent, binding international arbitration mechanism, under which investors may, at their own initiative, bring claims against a government for an alleged breach of the provisions of the Chapter. Submissions to investor-state arbitral tribunals will be made public, and hearings will generally be open to the public. Tribunals will also be authorized to accept amicus submissions from non-disputing parties.
In addition, in the FTA's preamble the Parties agree that "foreign investors are not hereby accorded greater substantive rights with respect to investment protections than domestic investors under domestic law where, as in the United States, protections of investor rights under domestic law equal or exceed those set forth in this Agreement." This provision reflects one of the negotiating objectives of the Trade Act of 2002 to ensure "that foreign investors in the United States are not accorded greater substantive rights with respect to investment protections than United States investors in the United States." This preambular language does not impose any obligations on the United States or Korea beyond those set forth in the substantive provisions of the agreement.
Open Services Markets
Korea improved upon its WTO commitments in services, providing meaningful market access commitments that extend across virtually all major service sectors and include services supplied both cross-border (such as through electronic means) as well as through a commercial presence.
Korea's commitments provide U.S. service suppliers with new opportunities and greater assurance of their rights and privileges in the Korean market. In the area of express delivery services, Korea provided greater and more secure access to international delivery services and charted a course for future reform on domestic services.
Korea also agreed to open for the first time to foreign legal consulting services and committing to phase in additional liberalization that will permit foreign lawyers to more freely associate with Korean lawyers and offer a broader range of services. Similar steps were taken for accounting services.
Korea also provided meaningful commitments in the areas of health care and education services, guaranteeing that current health care reforms in special economic zones will be maintained and extending new market access commitments in the areas of higher education and distance adult education.
Other areas where Korea offered improved access include research and development services, services incidental to mining, maintenance and repair of equipment, and environmental services.
Improved Financial Services
Under the agreement, the U.S. financial institutions:
have full rights to establish or acquire financial institutions in Korea to supply a complete range of financial services;
may establish branches of U.S. banks, insurance companies, and asset managers; and
have rights to supply cross-border a specified list of financial services, including portfolio management services for investment funds in Korea.
Korea committed to ensure regulatory reforms in the financial services sector, such as increasing the allowance of foreign currency reserves, bancassurance reform, more regularized and transparent regulatory procedures, adoption of a negative list approach to financial sector regulation, and regional integration of data processing. In addition, Korea agreed to begin the process to ensure that the same rules and regulations apply equally to both cooperatives selling insurance and Korea Post, and to private insurers.
A more open broadcast market for U.S. audio-visual products
Ensures improved market access for U.S. broadcasting and audiovisual service providers, including through a commitment by Korea to allow within three years 100 percent foreign ownership of program providers for U.S. firms that establish a Korean subsidiary.
Agreement by Korea to decrease Korean TV content quotas for film and animation and to increase the allowable content from a single country.
Locks in all other Korean content requirements at the least restrictive level allowed under current law, including the motion picture screen quota.
Contains a commitment by Korea to permit U.S. investment in IPTV and to bind Korean content quotas in the platform.
An Open and Competitive Telecommunications Market
Includes a commitment by Korea to permit U.S. companies within two years to own up to 100 percent of a telecommunications operator in Korea.
Ensures U.S. operators cost-based access to the services and facilities of dominant Korean phone companies, including their submarine cable stations, facilitating U.S. companies' ability to build competing networks to serve customers in Korea.
Limits restrictions that regulators can impose on operators' technology choice, particularly in wireless technologies, where U.S. service and equipment suppliers have strong competitive advantages.
E-Commerce - Free Trade in the Digital Age
Ensures non-discriminatory and duty-free treatment of all digital products (e.g., software, audio-visual products, etc.), whether imported in physical form or over the Internet.
Includes principles that ensure consumers' reasonable access to the Internet for electronic commerce.
Contains commitments by both Parties to facilitate the use of electronic authentication in their respective markets.
Pharmaceuticals and Medical Devices: A Shared Commitment on Access to Innovative Medicines
Contains principles on facilitating high-quality health care and improving access to safe and effective innovative and generic pharmaceutical products, biologics, and medical devices.
Commitments to ensure fair, reasonable, and non-discriminatory treatment for pharmaceutical products and medical devices.
Commitments to provide predictability and transparency in the pricing and reimbursement process for pharmaceutical products and medical devices.
Agreement to adopt, maintain, and enforce measures to promote ethical business practices by prohibiting improper inducements by pharmaceutical product and medical device manufacturers.
Agreement to establish a Medicines and Medical Devices Working Group to provide for continued dialogue between the United States and Korea on emerging health care policy issues.
Agreement by Korea to establish and maintain an independent body to review recommendations or determinations regarding the pricing and reimbursement of pharmaceutical products and medical devices.
State-of-the-Art Protection for U.S. Trademarks
Provides trademark protection for sound and scent marks, as well as certification marks.
Requires a system to resolve disputes about trademarks used in Internet domain names, which is important to prevent "cyber-squatting" with respect to high-value domain names.
Applies principle of "first-in-time, first-in-right" to trademarks and geographical indications, so that the first person who acquires a right to a trademark or geographical indication is the person who has the right to use it.
Provides for an on-line system for the registration and maintenance of trademarks, as well as a searchable database and requires transparent procedures for the registration of trademarks, including geographical indications.
Prevents requirements for license recordation in order to establish the validity of that license.
Protection for Copyrighted Works in a Digital Economy
Protects music, videos, software, and text from widespread unauthorized sharing via the Internet by giving copyright owners the ability to maintain rights over temporary copies of their works.
Provides extended terms of protection (e.g., life of the author plus seventy years) for copyrighted works, including phonograms, consistent with emerging international standards.
Establishes anti-circumvention provisions to prohibit tampering with technologies (such as embedded codes on discs) that are designed to prevent piracy and unauthorized distribution over the Internet.
Requires that government agencies use only legitimate computer software, setting a positive example for private users.
Requires rules to prohibit the unauthorized receipt or distribution of encrypted satellite signals to prevent piracy of satellite television programming.
Provides rules for the liability of Internet Service Providers (ISPs) for copyright infringement, reflecting the balance struck in the U.S. Digital Millennium Copyright Act between legitimate ISP activity and the infringement of copyright.
Patents & Regulated Products
Provides for the extension of patent terms to compensate for delays in granting the original patent.
Permits inventors to publish their inventions in journals and still have 12 months before their own publication will prevent patenting that invention.
Protects against arbitrary revocation of patents and assures protection for newly developed plant varieties and animals.
Clarifies that test data submitted to a government for the purpose of product approval will be protected against unfair commercial use for a period of five years for pharmaceuticals and 10 years for agricultural chemicals.
Requires measures to prevent the marketing of pharmaceutical products that infringe patents and to provide notice when the validity of a pharmaceutical patent is to be challenged. During the first eighteen months following entry into force of the Agreement, the Parties have agreed not to initiate formal dispute settlement concerning compliance with this obligation, but would instead consult about any compliance-related concerns.
Tough Penalties for Piracy and Counterfeiting
Criminalizes end-user piracy, providing strong deterrence against copyright piracy and trademark counterfeiting.
Requires parties to authorize the seizure, forfeiture, and destruction of counterfeit and pirated goods and the equipment used to produce them.
Provides for customs enforcement against goods-in-transit, to deter violators from using ports or free trade zones to traffic in pirated products.
Streamlines customs procedures to increase efficiency of enforcement.
Permits customs officials and prosecutors to bring an IPR enforcement action without having to wait for a formal complaint from the right holders, providing for more effective enforcement.
Promoting the Competitive Process
Obliges both Parties to have competition laws and an authority to enforce those laws, and to take appropriate action against anticompetitive conduct.
Provides strengthened due process protections in the investigation and decision-making stages of administrative enforcement actions, including an opportunity to present evidence and to be heard, to review and rebut information, and to cross examine any persons who testify in administrative hearings of antitrust agencies.
Facilitates efficient and market-based resolution of antitrust investigations by ensuring that the antitrust agencies have the authority to enter into settlement agreements with respondents in administrative and civil enforcement actions.
Improves the transparency of decision-making processes by antitrust agencies.
Ensures that anticompetitive practices by private parties and activities by government established monopolies or state enterprises do not undermine the benefits of the FTA.
Provides important disciplines on the operation of designated monopolies and state enterprises.
Protection and Promotion of Worker Rights
The labor provisions reflect the provisions agreed to in the May 10, 2007 Bipartisan Agreement on Trade Policy.
The Parties reaffirm their obligations as members of the International Labor Organization (ILO).
The Parties agree to adopt and maintain in their laws and practice the five fundamental labor rights, as stated in the 1998 ILO Declaration on Fundamental Principles and Rights at Work, and including a prohibition on the worst forms of child labor. Neither Party may waive or otherwise derogate from the laws that implement this obligation in a manner affecting trade or investment between the Parties.
The Parties also agree to effectively enforce labor laws related to the fundamental rights, plus acceptable conditions of work with respect to minimum wages, hours of work, and occupational safety and health.
All obligations in the Chapter are subject to the same dispute settlement procedures and enforcement mechanisms as commercial obligations.
Procedural guarantees in the agreement will ensure that workers and employers will have fair, equitable, and transparent access to labor tribunals or courts.
The agreement includes a cooperative mechanism to promote respect for the principles embodied in the 1998 ILO Declaration, and compliance with ILO Convention 182 on the Worst Forms of Child Labor. Cooperative activities include:
o Law and practice related to the principles and rights of the ILO Declaration;
o Compliance with ILO Convention 182 on the Worst Forms of Child Labor;
o Methods to improve labor administration and enforcement of labor laws;
o Social Dialogue and Alternative Dispute Resolution;
o Occupational Safety and Health compliance; and
o Mechanisms and best practices to protect and promote the rights of migrant workers.
Commitments and Cooperation to Protect the Environment
Commits parties to effectively enforce their own domestic environmental laws and to adopt, maintain, and implement laws, regulations and all other measures necessary to fulfill obligations under covered multilateral environmental agreements (MEAs).
Includes provisions reflecting agreements reflected in the May 10, 2007 bipartisan trade consensus including commitments by both parties to establish high levels of environmental protection, and to not weaken or reduce environmental laws to attract trade and investment.
Promotes a comprehensive approach to environmental protection. Procedural guarantees that ensure fair, equitable, and transparent proceedings for the administration and enforcement of environmental laws are complemented by provisions that promote voluntary, market-based mechanisms to protect the environment.
Highlights the importance of public participation in the successful implementation of the agreement and requires that the United States and Korea to maintain a process for receiving and responding to public submissions.
Builds on the history of collaboration and cooperation between the United States and Korea on bilateral, regional, and multilateral environmental matters under a parallel Environmental Cooperation Agreement.
Expanded Access to Government Procurement Contracts
Grants U.S. suppliers rights to bid on more contracts to supply Korean government ministries, agencies, and other central government entities than are covered under the WTO Agreement on Government Procurement (GPA), to which both countries are a party. Covers the purchases of more than 50 Korean central government entities, nine more than are covered under the GPA. The United States added one more entity than it covers under the GPA (the Social Security Administration).
Expands the procurements to which U.S. suppliers will be ensured non-discriminatory access by reducing by nearly half the threshold applied by the GPA. Procurements above the threshold become open under the FTA. Low-value procurements are excluded from the FTA.
Builds and expands on the WTO Agreement on Government Procurement by incorporating important improvements that reflect the emerging practices in procurement, such as:
o Reducing the tendering period where procurement notices and other procurement information are made available electronically;
o Reducing the tendering period for commercial goods and services (off-the-shelf goods and services); and
o Encouraging use of electronic procurement.
Clarifies that government agencies may include technical specifications to promote environmental protection and requirements that suppliers must comply with core labor laws in the country where they make a product or perform a service.
Establishes a working group on government procurement to address any related issue, in particular those related to information technology.
Includes multiple transparency obligations, both in a separate chapter devoted to regulatory transparency and spread throughout other chapters of the agreement, including commitments that the national governments of both the United States and Korea will publish proposed regulations in advance, allow a reasonable opportunity to comment on the proposed regulations, address significant substantive comments received, and publish final regulations in an official journal of national circulation.
Additional transparency provisions apply in the areas of customs administration, pharmaceutical pricing and reimbursement, technical regulations, services, financial services, and telecommunications.
Requires transparency in the operation of the FTA. The agreement's dispute settlement mechanisms provide for open public hearings, public access to documents, and the opportunity for third parties to submit views.
Strengthened Protection against Technical Barriers to Trade
Strengthens disciplines to promote transparency in the way governments develop and apply technical regulations and related conformity assessment procedures (e.g., testing and certification). For example, Korea agreed to:
o provide national treatment to U.S. persons for participation in the development of standards, technical regulations, and conformity assessment procedures;
o publish criteria it uses to recognize conformity assessment bodies;
o explain objectives and how proposed regulations will address those objectives when regulations are notified for comment and again when they are adopted as final;
o make available to the public all comments received on proposals;
o notify proposals for comment, even if they are based on international standards;
o allow 60 days for written comments on proposals;
o publish notice of proposed and final regulations in a single official journal; and
o when publishing a final regulation, include responses to significant comments received along with an explanation of the revisions made to the proposal.
Requires Korea to make binding the WTO TBT Committee Decision to promote reliance on international standards that are consensus-based.
In areas where Korea recognizes non-governmental bodies to perform testing and certification for compliance with its technical regulations, commitment to provide national treatment to U.S. conformity assessment bodies and otherwise for Korea's government authorities to provide national treatment when testing and certifying U.S. products.
Establishes a bilateral committee to strengthen FTA and WTO commitments on TBT. This committee will monitor implementation, promote cooperation, and facilitate discussion of such topics as good regulatory practice and alternative regulatory approaches to facilitate the cross-border acceptance of conformity assessment results.
Customs Procedures and Rules of Origin
Agreement on significant commitments on customs administration, rules of origin, and origin procedures that will ensure that the U.S. and Korean private sector stakeholders lock-in and maximize the benefits of the FTA.
Agreement on transparency and publication commitments that will ensure our respective private sectors have access to each others customs laws and regulations, and have an opportunity to comment on proposed changes to customs laws/regulations before they are implemented.
Agreement to streamlined and trade facilitative customs procedures for the timely and efficient release of goods that will facilitate the "just-in-time" supply chain logistics systems utilized by each party's private sector. The United States and Korea also agreed to allow for advance electronic submission of manifests and trade data to ensure that goods are cleared with a minimum of delays; in many cases goods can clear customs before they physically arrive at the importing party's port.
Agreement to maximize the use of automation and electronic clearance to expedite the release of goods.
Agreement to establish expedited customs procedures for express shipments through the electronic submission of manifest and the release of express shipments before they physically arrive. These commitments reflect the importance of the express shipment industry to the functioning of our respective industrial and service sectors.
Agreement to allow importers, exporters and producers the ability to obtain binding advance rulings from each side's respective customs authorities on matters such as tariff classification, whether a good qualifies for preferential tariff treatment and country of origin marking, among a list of items. This provision will provide unparalleled transparency, predictability, and certainty to bilateral trade between the United States and Korea.
Agreed to trend-setting origin procedure commitments governing how importers will make claims for preferential tariff treatment. These trade facilitative customs procedures rely on importers to make claims for preferential tariff treatment, while allowing importers, exporters and producers the flexibility of issuing certifications that need not be in a specific, stylized format. The United States and Korea also agreed to allow importers to make claims based on the importer's knowledge that the good is originating, which reflects the fact that importers today have intimate knowledge of the production process, and the source of the inputs/components from which comprise their goods, and therefore possess the necessary information to make a claim for preferential treatment.
Agreement to clear and comprehensive product-specific rules to determine which products can benefit from the preferential tariff treatment of the FTA.