Publication Number: 3452

Report Title: U.S.-Korea FTA: The Economic Impact of Establishing a Free Trade Agreement (FTA) Between the United States and the Republic of Korea

Investigation Number: 332-425

Author's name(s): Christine McDaniel, Alan Fox

Date Published: September 2001

Report Description/Introductory Text: United States International Trade Commission (USITC) assessment of the economic impact of a possible United States-Korea free trade agreement. This report includes a general overview of the Korean economy; an overview of the current economic relationship between the United States and Korea, including a discussion of the important industry sectors in both countries; an inventory and analysis of the tariff and non-tariff barriers to trade between the United States and the Republic of Korea; the estimated economic effects of eliminating all quantifiable tariff and non-tariff trade barriers on the volume of trade in goods (with special attention to agricultural goods) and services between the two countries, sectoral output and gross domestic product for each country, wages and employment across industry sectors for each country, and final prices paid by consumers in each country; and a qualitative assessment of the effects of removing non-quantifiable trade barriers. USITC employs a multi-country model (a global computable general equilibrium model) based on the Global Trade Analysis Project (GTAP) database for a quantitative assessment of the economy-wide effects of the impact of the tariff and tariff rate quota reductions or elimination.

In this report, the United States International Trade Commission (USITC) assesses the economic impact of a possible United States-Korea free trade agreement. This report includes a general overview of the Korean economy; an overview of the current economic relationship between the United States and Korea, including a discussion of the important industry sectors in both countries; an inventory and analysis of the tariff and non-tariff barriers to trade between the United States and the Republic of Korea; the estimated economic effects of eliminating all quantifiable tariff and non-tariff trade barriers on the volume of trade in goods (with special attention to agricultural goods) and services between the two countries, sectoral output and gross domestic product for each country, wages and employment across industry sectors for each country, and final prices paid by consumers in each country; and a qualitative assessment of the effects of removing non-quantifiable trade barriers. USITC employs a multi-country model (a global computable general equilibrium model) based on the Global Trade Analysis Project (GTAP) database for a quantitative assessment of the economy-wide effects of the impact of the tariff and tariff rate quota reductions or elimination. Non-quantifiable effects of the FTA were assessed using qualitative analysis. Other information was obtained from government, industry, academic, and other public sources; international organizations; and submissions in response to a Federal Register notice.

The USITC report finds that, four years following the implementation of a U.S.-Korea FTA, total U.S. exports and imports are estimated to be approximately 0.8 percent and 1.0 percent higher, respectively, than if the FTA had not been implemented. At the bilateral level, U.S. exports to Korea would likely increase by 54 percent, while U.S. imports from Korea would be an estimated 21 percent higher. The largest gains from an FTA for U.S. exports to Korea are expected in agriculture. The largest gains for Korean exports to the United States are anticipated in textiles, apparel, and leather goods; and other manufacturing (e.g., chemicals and allied products, electronics, and transportation). At the national level, the effects of the FTA on gross domestic product (GDP) are expected to be quite small. This is not unusual given that total trade as a share of GDP in the United States was 26 percent in 2000, and U.S.-Korea trade represents less than 3 percent of total U.S. trade.

USITC prepared this report in accordance with section 332(g) of the Tariff Act of 1930, in accordance with a letter received from the U.S. Senate Committee on Finance on December 18, 2000.

Topics Covered: USITC economic assessment, economic effect, Korea, South Korea, free trade agreement, FTA, U.S.-Korea, U.S.-South Korea

Countries: Korea (North), Korea (South), United States

HTS Numbers: 1006, 04, 0201, 0202, 07, 08, 09, 27, 29, 72, 41, 60, 61, 62, 64

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