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USTR Releases Preliminary Analysis of KOREA-EU Free Trade Agreement

October 19, 2009

Washington, D.C. - The Office of the United States Trade Representative today released a preliminary comparison of the Korea-EU Free Trade Agreement, initialed on October 15 in Brussels, with the pending U.S.-Korea (KORUS) FTA.  An analysis of select provisions is provided below.  The text of the Korea-EU agreement was made public today.

"The recently initialed EU-Korea FTA has similarities to, and differences from, the KORUS FTA.   We look forward to engaging with Korea and the EU to fully understand the agreement and its implications for the United States.  USTR will carefully consider this agreement as it continues its review of the KORUS FTA," said USTR spokeswoman Carol Guthrie.

According to USTR's initial analysis of the text and tariff schedules, the Korea-EU FTA is a comprehensive agreement that in many respects is similar and comparable to KORUS.  With respect to tariff commitments, the overall tariff package for industrial goods under the Korea-EU FTA appears to be comparable in ambition and comprehensiveness to the KORUS tariff schedule, with 92 percent of Korean tariffs eliminated in three years (the KORUS FTA eliminates 94.5 percent).  However, there are key differences as well.  USTR will closely examine these and other issues as it continues its review of the KORUS FTA and consults with Congress and interested stakeholders.

  • 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 United States would eliminate its 2.5 percent tariff on small cars immediately and on large cars (3000cc and greater) over three years. The US-Korea Free Trade Agreement contains some key features lacking in the Korea-EU 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 Korea-EU 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 an MFN basis.  With respect to trucks, under KORUS FTA, Korea will eliminate its 10 percent tariff immediately, and the United States will phase out its 25 percent tariff over ten years.  In the Korea-EU 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.

  • The two agreements take a different approach to address the issue of unique Korean automotive safety standards.  In KORUS, the United States obtained an exemption that allows each U.S. automaker to sell up to 6,500 vehicles a year in Korea built to U.S. safety standards (and which do not need to be modified for Korea).  Instead of such an exemption, the Korea-EU 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.

  • 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.  The KORUS FTA contains specific provisions to ensure that remanufactured goods - a key component of the U.S. manufacturing industry -qualify as originating goods.

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

  • Unlike the Korea EU 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 Korea-EU agreement are not similarly subject to binding dispute settlement.

  • 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 Korea-EU FTA instead uses a positive list approach.

BACKGROUND: U.S. and EU Trade Relationships with Korea

The United States 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 European Union 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 United States exported to Korea), while it imported $58.4 billion worth of goods from Korea.

The Office of the U.S. Trade Representative 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.