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US-Korea FTA (2007): US summary of agreement

Office of the United States Trade Representative | April 2007

Free Trade with Korea: Summary of the KORUS FTA

The United States concluded an historic agreement with the Republic of Korea on April 1, 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.

A Gateway to Significant Markets

Korea is a $1 trillion economy and is the United States’ 7th largest goods trading partner. In 2006,
U.S. goods exports to Korea were $32.5 billion, an increase of 16.9 percent from the previous year.
In 2005, U.S. foreign direct investment in Korea totaled roughly $18.8 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 second largest market, importing 17
percent of Korea’s worldwide exported goods.

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, with virtually all remaining tariffs
    eliminated within 10 years.
  • • Agreement to allow trade in remanufactured goods under the agreement. This will provide
    significant export and investment opportunities for U.S. firms involved in remanufactured
    products such as medical equipment, machinery, and auto parts.

Increased Access for U.S. Autos

  • • The agreement includes a broad range of focused provisions designed to open up Korea’s auto
    market to U.S. cars and ensure that U.S. cars have a fair opportunity to compete in Korea.
  • • Eliminates the discriminatory aspects of Korea’s Special Consumption and Annual Vehicle
    Taxes. 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 auto non-tariff barriers 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.
  • • Contains innovative expedited dispute settlement process for auto-related measures that violate
    the FTA, with a full snapback of MFN car tariffs in the case of a violation.
  • • Establishes an Autos Working Group to address regulatory issues that may develop in the future.
    Korea also agrees not to adopt technical regulations that create unnecessary barriers to trade, and
    to cooperate to harmonize standards.

Expanded Markets for U.S. Farmers and Ranchers

  • • More than half ($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
  • • 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

  • • The agreement 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.
  • • The agreement provides reciprocal duty-free access immediately for most textile and apparel
  • • The agreement 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).
  • • The agreement 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, there is a provision to ensure visible linings that 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.
  • • Pursuant to the Trade Promotion Authority (TPA) statute, the agreement 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
  • • 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 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.

Open Services Markets

  • • Korea vastly 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
  • • Korea’s commitments provide U.S. service suppliers with new opportunities and greater
    assurance of their rights and privileges in the robust Korean market. Significant progress was
    made in the area of express delivery services, where Korea provided greater and more secure
    access to international delivery services and charted a course for future reform on domestic
  • • Korea also made great strides on legal services, opening 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
  • • 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:
    • o have full rights to establish or acquire financial institutions in Korea to supply a complete
      range of financial services;
    • o may establish branches of U.S. banks, insurance companies, and asset managers; and
    • o 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, regional integration of data processing, and leveling the playing field between private
    insurers and Korea Post and cooperatives selling insurance services.

A more open broadcast market for U.S. audio-visual products

  • • Improved market access concerning broadcasting and audiovisual services, including a
    commitment to phase-in over three years 100 percent foreign ownership of program providers
    for U.S. firms that establish a Korean subsidiary.
  • • Commitment to lock in all other content requirements at the least restrictive level allowed under
    current law, including the motion picture screen quota.
  • • Commitment to decrease Korean TV content quotas for key audiovisual products (film and
  • • Commitment to allow U.S. controlled companies to invest up to 100 percent in Korean broadcast
    program providers (channel operators) after two years.
  • • Commitment to permit U.S. investment in IPTV and to bind Korean content quotas in the

An Open and Competitive Telecommunications Market

  • • The agreement includes a commitment by Korea to permit U.S. companies to own up to 100
    percent of an operation in Korea.
  • • It also 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.
  • • The FTA also includes groundbreaking safeguards on 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

  • • Agreed to 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.
  • • Agreed to principles ensuring consumers’ reasonable access to the Internet for electronic
  • • Agreed to commitments facilitating the use of electronic authentication in their respective

Pharmaceuticals and Medical Devices: A Shared Commitment On Access to Innovative Medicines

  • • Agreement on common principles on facilitating high-quality health care and continued
    improvements in public health for nationals.
  • • Commitment to increase access to innovative products, including through ensurance the fair,
    reasonable, and non-discriminatory treatment for pharmaceutical products and medical
  • • Commitments on transparency in the pricing and reimbursement process for pharmaceutical
    products and medical devices.
  • • Agreement to adopt and maintain measures to prohibit improper inducements by
    pharmaceutical products and medical device manufacturers and to enforce such measures.
  • • Agreement to establish a Medicines and Medical Devices Working Group that will 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 that reviews
    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 to 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 strong anti-circumvention provisions to prohibit tampering with technologies (like
    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
  • • 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.

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.

Protection and Promotion of Worker Rights

  • • Both parties reaffirm their obligations as members of the International Labor Organization
    (ILO), and shall strive to ensure that their domestic laws provide for labor standards consistent
    with internationally recognized labor rights. The agreement makes clear that it is inappropriate
    to weaken or reduce domestic labor protections to encourage trade or investment between the
    United States and Korea.
  • • Requires Korea and the United States to effectively enforce their own domestic labor laws, and
    this obligation is enforceable through the agreement’s dispute settlement procedures.
  • • Contains procedural guarantees that ensure that workers have access to fair, equitable, and
    transparent proceeding for enforcement of labor rights.
  • • Establishes a process for further cooperation on labor matters, including possible joint
    cooperative activities to advance common objectives and work on labor law and practice in the
    context of the ILO Declaration on Fundamental Principles and Rights at Work.

Commitments and Cooperation to Protect the Environment

  • • Requires each party to effectively enforce their own domestic environmental laws, and this
    obligation is enforceable through the agreement’s dispute settlement procedures.
  • • Commits each party to establish high levels of environmental protection and to strive to ensure
    that it does 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 a public submissions process to ensure that views of civil society are
    appropriately considered.
  • • 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 are
    opened 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 current 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.
  • • The FTA provides for a working group on government procurement to take up any issues, in
    particular, those related to information technology.

Increased Transparency

  • • Includes strong transparency obligations, including commitments that the national governments
    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
    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 will be obliged 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 landmark, cutting-edge 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
  • • 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.

 source: USTR