USTR Compares Pending U.S.-Korea FTA with EU's Recently Initialed Korea FTA

USTR notes that the EU-Korea FTA, initialed on October 15, 2009, is both similar to and different from the KORUS FTA. The Office of the USTR will carefully consider similarities and differences as it continues its review of the KORUS FTA.

(Though the KORUS FTA was signed in 2007, it still requires Congressional approval to take effect. USTR is engaging in a thorough review of the KORUS FTA to ensure meaningful market access for U.S. goods and services. In response to a recent call for public comments, USTR received more than 300 submissions on the range of issues under review, some of which expressed support for the agreement and others that raised specific concerns. Key U.S. automakers continue to express concern over Korea's historic, longstanding use of trade barriers in this sector.)

EU-Korea FTA Overall Tariff Package for Industrial Goods is Comparable to KORUS FTA

With respect to tariff commitments, the overall tariff package for industrial goods under the EU-Korea FTA appears to be comparable in ambition and comprehensiveness to the KORUS tariff schedule. In the EU-Korea FTA, 92% of Korean tariffs will be eliminated in three years, and in the KORUS FTA, 94.5% of Korean tariffs will be eliminated. However, there are key differences as well.

EU-Korea FTA Has Slower Elimination of Car Tariffs, No "Snap Back" Mechanism

For motor vehicles, both the EU and Korea will eliminate tariffs on cars in three or five years, depending on engine size. Under KORUS, Korea's eight percent auto tariff will be eliminated immediately. The U.S. would eliminate its 2.5% tariff on small cars immediately and on large cars (3000cc and greater) over three years.

The KORUS FTA contains some key features lacking in the EU-Korea FTA with respect to autos. In particular, KORUS has a specific enforcement mechanism that includes the ability to "snap back" U.S. tariffs on Korean cars if Korea takes measures that impair the Agreement's expected benefits. Korea also committed to eliminate many aspects of the discriminatory effect of its current automotive tax system. The EU-Korea FTA does not allow for a "snap back" remedy, and with respect to taxes, simply affirms that any modifications to Korean autos taxes will be made on a most-favored nation (MFN) basis.

Trucks. With respect to trucks, under KORUS FTA, Korea will eliminate its 10% tariff immediately, and the U.S. will phase out its 25% tariff over ten years. In the EU-Korea FTA, Korea will eliminate tariffs on most trucks immediately. The EU will eliminate its 22% truck tariffs over 3 or 5 years, depending on specific type.

EU-Korea FTA Requires Korea to Harmonize Its Auto Standards to EU Standards

The two agreements take a different approach to address the issue of unique Korean automotive safety standards. In KORUS, the U.S. obtained an exemption that allows each U.S. automaker to sell up to 6,500 vehicles a year in Korea that are built to U.S. safety standards (i.e., do not need to be modified for Korea). Instead of such an exemption, the EU-Korea FTA contains provisions committing Korea to harmonize some of its standards to European standards over time. USTR will look into this issue further and consult with stakeholders to fully understand the commercial implications of this difference.

EU-Korea FTA Gives Less Emphasis to Regulatory Transparency, Etc.

On areas of interest to manufacturers, the KORUS FTA appears to contain more detailed and extensive provisions on regulatory transparency and stakeholder input into the process of developing standards and other regulatory measures, to address concerns that non-transparent procedures result in measures that act as non-tariff barriers to goods. Also, the KORUS FTA contains specific provisions to ensure that remanufactured goods - a key component of the U.S. manufacturing industry -qualify as originating goods.

EU-Korea FTA Has No Investment Chapter or Investor Protections

There is no investment chapter or investor-state dispute settlement provisions in the EU-Korea FTA (competency for investment matters rests with the individual EU Member States), whereas KORUS features investor protections.

Labor & Environmental Provisions in EU-Korea FTA Not Subject to Binding Dispute Settlement

Unlike the EU-Korea FTA, KORUS labor and environment provisions are subject to the same binding dispute settlement mechanism as the KORUS agreement's trade provisions. Labor and environment provisions in the EU-Korea agreement are not similarly subject to binding dispute settlement.

EU-Korea Uses Positive List Approach to Services/Financial Services Markets

KORUS uses a negative list approach for opening Korea's services and financial services market, adding certainty that new services will be covered automatically. The EU-Korea FTA instead uses a positive list approach.

USTR Background on U.S. and EU Trade Relationships with Korea

USTR states that the U.S. was Korea's fourth-largest goods trading partner in 2008, with two-way goods trade close to $85 billion in 2008. According to Korean trade data, the EU is Korea's second-largest goods trading partner, with total two-way goods trade in 2008 reaching $98.4 billion. EU exports to Korea reached nearly $40 billion (approximately $1.6 billion more than the U.S. exported to Korea), while it imported $58.4 billion worth of goods from Korea.

(See ITT's Online Archives or 10/16/09 news, 09101699 2, for BP summary of the initialing of the EU-Korea FTA.

See ITT's Online Archives or 07/27/09 news, 09072715, for BP summary of USTR seeking comments on how the KORUS FTA would achieve certain purposes and objectives.

See ITT's Online Archives or 05/14/07 news, 07051405, for BP summary of the 2007 Agreement reached between Congressional leaders and the Bush Administration on incorporating labor and environmental standards into FTAs.

See ITT's Online Archives or 07/05/07 news, 07070520, for BP summary of the U.S. and Korea signing the FTA, but still requiring Congressional approval.)

USTR press release (dated 10/19/09) available at http://www.ustr.gov/about-us/press-office/press-releases/2009/october/ustr-releases-preliminary-analysis-korea-eu-free-t