The U.S.-Korea Free Trade Agreement

By: William F. Bresee, Esq.

The United States-Korea Free Trade Agreement (“KORUS FTA”) was passed by the United States Senate and House on October 12, 2011 and signed into law by President Obama on October 21, 2011. The National Assembly of South Korea ratified it on November 22, 2011 and President Lee Myung-bak signed it into law November 29, 2011. Generally agreed for the past four years, but suffering in its finalization, the KORUS FTA is the largest trade deal for the United States since the 1994 North American Free Trade Agreement, and will potentially serve as a model for new trade agreements with other countries in the Asia-Pacific region. It also represents the continuing and strengthening relationship between the U.S. and the Republic of Korea.

Under the KORUS FTA, nearly 95 percent of bilateral trade in consumer and industrial products becomes duty-free within three years of entry into force of the KORUS FTA, including many key U.S. exports such as industrial and consumer electronic machinery and parts, automobile 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. The agreement also:

(i) Abolishes the tariffs and quotas on most agricultural products immediately upon entry into force,

(ii) Eliminates Korea’s tariffs on most U.S. passenger vehicles and trucks and addresses the Korean “engine displacement” taxes and safety and environmental standards to remove impediments to U.S. manufacturer access to the Korean automobile market,

(iii) Requires stronger protection and enforcement of intellectual property rights,

(iv) Provides that U.S. investors in Korea will be treated as well as Korean investors (or investors of any other country) in the establishment, acquisition, and operation of investments in Korea,

(v) Opens the Korean services market for competition from American service providers, and

(vi) Grants U.S. suppliers rights to bid on more Korean government procurement actions and Korean suppliers access to more government entity purchases.

With South Korea already the seventh largest market for U.S. exports, analysts at the U.S. International Trade Commission and U.S. Chamber of Commerce expect that opening up the Korean economy will result in the growth of the American economy by $10 billion annually and add tens of thousands of American jobs. On the other hand, Korea desires greater access to foreign markets due to its national emphasis on trade, and has a good chance of enjoying a first-mover advantage in the United States by concluding the FTA before other Asia-Pacific countries enter into similar agreements. Korea’s Institute for International Economic Policy has estimated that Korea’s exports to the U.S. will rise by 12%, or $5.4 billion, per year; other projections have the Korean economy’s growth rate increasing by 6% per year over the next ten years, employment of an additional 336,000 people, and lower prices on U.S. goods, as a direct result of the KORUS FTA.

The KORUS FTA will provide a great opportunity for many businesses in Western Pennsylvania and elsewhere in the U.S. to expand their exporting of goods and services into the Korean market, and serving the needs of Korean businesses outside of Korea in the U.S.  Although broad-based, the KORUS FTA’s provisions specifically address the automotive, apparel and textile, investment, service supply, health care, educational, telecommunications, environmental services, maintenance and repair industry sectors.  For example:

• Manufacturers will benefit by being able to import raw materials from Korea at a cheaper rate and export their finished goods at a lower price,

• Third party logistics providers and domestic/international delivery services will have greater opportunities to provide supply chain and delivery services with the likely increase in traded goods,

• More than 43 percent of U.S. medical equipment exports to Korea would receive duty-free treatment immediately upon implementation of the trade agreement; providing market access to Korea’s medical equipment market, which is currently valued at $2.5 billion and is forecast to grow 10-15 percent annually in the next several years,

• Measures would promote ethical business promotion of pharmaceutical products and medical devices, and transparency in their pricing and reimbursement processes,

• The professional services sector will have new opportunities to assist Korean companies and individuals in their business planning, financial planning, and data processing needs through the outsourcing and offshoring of services formerly prohibited from transfer outside Korea,

• Telecommunications companies will be able to access Korean phone companies’ facilities to build competing networks; and e-commerce providers will be able to sell products imported in physical form or over the Internet, and

• Trademarks and copyrighted works will be better protected, patents and regulated products will not suffer delays in processing, and test data submitted for regulatory approval will be better protected against unfair commercial use by others.

Through the two nations’ implementation of the KORUS FTA, consumers in both countries will benefit from the greater availability of higher quality goods and services at cheaper prices. At the same time, workers in each country will benefit from the undertaking by both countries of obligations related to labor laws and occupational health and safety compliance.

Overall, the KORUS FTA is a big step forward in relations between the U.S. and Korea, and has potential for having a strong positive impact on both countries’ economies. We at Leech Tishman look forward to our Korean and American clients and friends entering into business relationships and agreements made possible through the KORUS FTA.

William F. Bresee is a partner at Leech Tishman and chairs the firms’ Energy and International Practice Groups. Bill can be reached at 412.261.1600 x 261 or wbresee@leechtishman.com. Recognition is extended to Justin Stark, a Summer/Fall Associate with Leech Tishman, for his assistance and research in preparing this article. For any further analysis of how the FTA will affect your interests, or if you have any questions about this article, please feel free to contact Bill.

Leech Tishman is a firm dedicated to providing full-service commercial legal services to individuals, businesses, and institutions. We combine a deep understanding of our clients’ and their businesses with skilled legal counsel to find solutions. We offer legal services in alternative dispute resolution, bankruptcy & creditors’ rights, construction, corporate, employment, energy, environmental, safety & toxic torts, estates & trusts, government relations, insurance coverage & corporate risk mitigation, litigation, real estate, and taxation. For more information call 412.261.1600 or visit www.leechtishman.com.