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KORUS FTA : Action or Inaction?
Choi, Jong-hyun
Minister for Economic Affairs
Introduction
1. Korea’s FTA policy
2. KORUS FTA and its Benefits
3. Cost of Inaction
4. Urgency of Action
Korea’s FTA Policy
Global Expansion of FTAs
0
50
100
150
200
250
300
1960 1970 1980 1990 1995 2000 2005 2009.8
Until July 2009
World Trade Share under FTA
Effective FTAs 253 More than 50%
Korea’s FTA policy
• No FTA until 1997
• First FTA negotiations with Chile in 1998
– Concluded in 2003
• Establishment of the comprehensive “FTA Roadmap” in 2003
• Conclusion of KORUS FTA in 2007
Under preparation
Under negotiation
Negotiation concluded
Effective
EU2009
India2009
USA2007
Chile2004
Singapore2006
EFTA2006
ASEAN2007
Peru
CanadaMexico
GCC
AustraliaNew-
Zealand
ChinaMERCOSUR
Turkey Russia
Japan Colombia
Korea’s FTA Partners
ASEAN
MERCOSUR
GCC
EFTA
EUChina
India
Singapore
Aus.
KoreaJapan
Canada
Mexico
NZ
Chile
Effective or Signed Negotiations Pre-negotiations
proportional to market size
Peru
U.S.
Russia
Global FTA Network
With completion of the FTA network within 5 years,
Korea’s trade ratio with FTA partners will increase up to 76%
7 FTAs (40%)
4 FTAs (11.5%)
5 FTAs (24%)
2008 2010 2010 2013
15 FTAs (76%)
China
Japan
Canada
Mexico
GCC
Australia
New
Zealand
MERCOSUR
Russia
SACU
US
EUIndia
Chile, EFTA, Singapore, ASEAN
Trade Volume under FTAs
KORUS FTA and its Benefits
Eliminates Korean import tariffs on 95% of US industrial products within three years
Current average applied tariff is 7%
Eliminates Korean import tariffs on more than half of US
agricultural exports immediately
Further liberalizes many services sectors
Among those, financial services, telecommunications, broadcasting,
express delivery, legal services etc…
Reforms non-tariff barriers (NTBs) and increases
transparency in Korea’s regulatory system
Enhances investment protection through binding ISD
Strengthens protection and enforcement of copyrights
and other IPRs
What it does…for the US
What it does on Auto
Tariff
Korea will eliminate its 8% tariff immediately
US will eliminate its 2.5% passenger tariff immediately for vehicles up to 3,000
cc and over 3 years for larger vehicles
US pick-up truck tariff(25%) will be phased out over 10 years
Snap-back
Reinstatement of pre-FTA tariffs regardless of the amount of damages done
Tax reform
Korea will reform auto taxes safety and emission standards
Other NTBs will be addressed through Automotive Working Group
2007 USITC study estimates:
US exports by $10-11 billion
US GDP by $10-12 billion
Negligible impact on auto industry
US business estimates
US jobs by 240,000
Impact : Growth estimates
A Stimulus Package without any tax
Trade and Washington
Washington ranked fourth among the 50 states in terms of 2007 exports ($66.3 bn).
Over two-fifths (41%) of all manufacturing workers in Washington depend on exports for their jobs.
Washington’s agricultural exports, valued at $2.6 bn in 2007, supported 27,710 jobs
Korea and Washington
In 2007, Washington exported $2.5 billion worth of products to Korea. Transportation
Equipment(50%), Agricultural Crops(20%), Computers and Electronics(6%)
In 2006, Korean companies invested over $615 million in
Washington enterprises.
Washington Exports to Korea
(millions of dollars)
$2,131.30 $2,056.20
$1,673.20
$2,061.10$1,794
$2,494.60
$0.00
$500.00
$1,000.00
$1,500.00
$2,000.00
$2,500.00
$3,000.00
2001 2002 2003 2004 2005 2006
Washington Exported $3 Billion
in Goods To Korea in 2007
Transportation
Equipment
50%
All Others
20%
Waste & Scrap
4%Computers and
Electronics
6% Crop Production
20%
KORUS FTA works for Washington
Duties on most transportation equipments, including aircraft and related parts, will be eliminated immediately.
Immediate elimination of current 15% -45% tariffs on many fruit and fruit products 3,000 ton duty-free quota for fresh potatoes alongside immediate
elimination of duties on many vegetables and potato products
Immediate duty-free access for double the current export volume of total dairy products Cheese , skim/whole milk powder, food whey, butter etc.
Cost of Inaction: Why Korea-EU FTA Deal Matters
Korea-EU FTA : Similarity
Almost the same level of ambition in sum Immediate tariff elimination on 90% of EU industrial goods, additional 6% within 3
years
Agricultural products’ market access similar to KORUS
Almost the same level of market access for EU service providers as for US providers, except for environmental and telecom
Similar NTB and IPR measures to KORUS
Number of
tariff lines (%)
Import
value (%)
Number of
tariff lines (%)
Import
value (%)
Number of
tariff lines (%)
Import
value (%)
Number of
tariff lines (%)
Import
value (%)
Entry into Force 90.7 69.4 97.3 76.7 90.6 81.2 87.9 87.2
3 years 5.1 22.4 2.1 16.6 6.7 13.2 5.2 7.4
Subtotal 95.8 91.8 99.4 93.3 97.3 94.4 93.1 94.6
5 years 3.7 6.9 0.6 6.7 1.3 1.4 2.6 2.3
7 years 0.5 1.3
10 years 1.5 4.3 4.1 3.2
12 years 0.3 0
Total 100 100 100 100 100.1 100.1 100.1 100.1
Korea-EU FTA
Staging
category
Korea EU
Korea-US FTA
Korea US
Balnce of Tariff Concessions on Industrial Products
Small differences No snap-back in auto sectors for EU
No ISD(Investor State Dispute) settlement mechanism or investment protection
A separate mediation process for NTB-related disputes in EU deal
Added protection for GI(geographical indication)
Big Differences : Europeans will come first, and be served first
Korea-EU FTA : Differences
Preliminary Consultation
Start of Negotiation
Signing
Start of Negotiation
May 2007
Oct. 2009Jun. 2007Feb. 2005 Jun. 2006
Initialing
Going into
Effect !!
Early 2010
???
US is already loosing its ground
0
500
1000
1500
2000
Billion
Dollars
2000 2008
Year
Trade With Korea
US
China
EU
Japan
Ranking # 1
Ranking # 4
Nationwide loss 345,017 jobs
$20.3 billion manufactured goods export
$40.4 billion output
* Chamber of Commerce study, If the KORUS FTA is not implemented while the EU and Canada FTAs with Korea move forward.
Costs of Inaction to US
US and EU compete in Korea in 11 out of 20 top exports
- Chemicals, Pharmaceuticals, Machinery, Meat…
Washington’s loss 7,489 jobs
$ 700 million manufactured goods export
$9 billion output
Geopolitical Implications
More than Economic Benefits
Strengthening Alliance
US is weakening its footprint
China’s rapid emergence as regional and global power
Proliferation of regional agreements in the fastest growing regionIndia-Singapore(2005), India-ASEAN(2009) and possible ASEAN+3(?)
Japan-Singapore(2002), Japan-Chile/Thailand/ Indonesia/Brunei/Philippines(2005~2008)
China-Chile(2005), China-Pakistan(2006), China-ASEAN(2005/2007)
North Korea’s nuclear
threat
Closer cooperation in global issues : Afghanistan, Climate Change…
Conclusion : Urgency of Action
Window of opportunities
ConstraintsHealth care reform is crowding out any other agendaMidterm election not conducive to the pursuit of any
politically controversial issues like trade
Window will be opened early next year President Obama’s renewed commitment to
KORUS FTA on November 19Needs to be translated into action by Administration and Congress
All the stakeholder should push forward8 comments submitted to USTR on KORUS FTA from
Washington are all supportive
Thank you