Economic Rationale and Diplomatic Implications

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4 Background At the External Economic Coordination Committee meeting held in November 1998, the Korean government decided to actively pursue bilateral and regional free trade agreements while maintaining the spirit of multilateralism in trade in the context of the principles of the World Trade Organization. For effective implementation of the nation s FTA policies, the Korean government announced its FTA Negotiation Roadmap at the meeting of the External Economic Cooperation Committee in August 2003 and presented the report to the Cabinet Council in September Revision of the Roadmap After the issuance of the Korean government s FTA roadmap, changes of circumstances such as the breakdown of the WTO meeting in Cancun in September 2003, which fueled the expansion of regionalism as an alternative form of global trade liberalization to replace multilateralism, and the entry into force of the Korea-Chile FTA in April 2004 prompted the revision of the roadmap. The revised FTA roadmap included views and resolutions of the External Economic Coordination Committee in May 2004, which reflected the need to accelerate the various FTA negotiations based on the foundation laid by the Korea-Chile FTA. The revised roadmap called for an expeditious launch of joint research projects for Korea s FTAs with Mexico, EFTA, Canada, and etc., the first stage of the FTA process. This would act as a springboard for Korea to enter the markets in Central America, North America, and Europe. It is also noteworthy that the Korean government reclassified Korea s FTAs with newly emerging markets from its intermediate-to-long-term goal to a short-term goal. - Joint Research with Small Economies (First Stage) Major Economies (Second Stage) Chile Central/South America, Singapore ASEAN, EFTA EU, Canada, U.S. The strategy purports to pioneer the newly emerging markets like India and China in order to make the most of their economic potential. Economic Rationale and Diplomatic Implications Short term: Japan, Singapore, ASEAN, EFTA, Mexico, Canada, India Intermediate/Long term: U.S., EU, China, Korea-China-Japan, and others

5 - 1) Korea-Chile FTA -

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7 - Korean export to Chile expanded to 1,200 mil. by the 2 nd year of the effectuation from $500 mil. of pre-fta period. Korean market share of the major export items, such as automobile and mobile phones, increased by more than 1.5 times - 2) Korea-Singapore FTA

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9 - - 1) The KORUS FTA Negotiation: From Launch to a Deal A. Launch - -

10 To reach a balance of interests acceptable to both countries; To promote early market access in areas where Korea has comparative advantages such as manufactured goods; To minimize negative effects on and promote restructuring of less competitive industries; To liberalize services sectors to enhance competitiveness and maintain public nature of basic services; and To produce substantial benefits to consumers. B. Negotiation Process -

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13 Negotiations 1 st round 2 nd round 3 rd round 4 th round 5 th round Date/Location Jun. 5-9, 2006 Washington D.C. Jul , 2006 Seoul Sep. 6-9, 2006 Seattle Oct , 2006 Jeju Dec. 4-8, 2006 Montana Main Events of Negotiation -Exchange of positions on the draft FTA texts and producing consolidated texts -Agreement on basic framework for tariff negotiations -Exchange of Services and Investments reservation lists -Exchange of tariff schedules (Aug.15) -Clarification of Services and Investments reservation lists -Improvement of tariff schedules to achieve the balance of the benefits -Pruning away of non-core issues -Trade Remedy became a key issue of negotiation -Substantial progress in the areas of tariff schedules, Rules of Origin, Services, Financial Services, and Intellectual Property Rights Notes Certain negotiating groups suspended due to pharmaceutical issues Following the 3 rd round, the U.S. offered revised tariff schedules on non-agricultural goods and textiles The U.S. side offered the 2 nd revised tariff schedules on nonagricultural goods *Negotiations in the areas of Trade Remedies, Automobiles, Pharmaceuticals and Medical Devices suspended *Exchange of revised Services and Investments reservation lists 6 th round Jan , 2007 Seoul -Series of chief negotiators meetings held to make breakthroughs on key issues -Progress made in areas such as Market Access and Financial Services *Suspension of negotiations on Trade Remedies, Automobiles, Pharmaceuticals and Medical Devices 7 th round Feb , 2007 Washington D.C. -Improvement of tariff schedules in MA group (immediate elimination reached 85%) -Consolidated basis for conclusion of negotiations in Labor, Environment and Competition *All negotiating groups were held -Active consultations among chief negotiators plus leads of each negotiating group (2+2) 8 th round Mar. 8-12, 2007 Seoul -Conclusion of negotiations in Competition, Customs Administration, and Government Procurement groups -Substantial progress made in key areas

14 Negotiations Higher-Level Talks Higher-Level Talks Additional Consultations Date/Location Mar , 2007 Washington D.C. Mar. 26-April 2, 2007 Seoul Jun , 2007 Seoul Jun , 2007 Washington D.C. C. Key Outcomes and Assessment Main Events of Negotiation -2+2 meetings continued -Narrowed down differences on outstanding issues -Announcement of conclusion of negotiations on April 2, Consultation on the U.S.- proposed (June 16) texts regarding New Trade Policy -Signing of the final Agreement including the result of additional consultations on June 30, 2007 Notes *Key proposals by the U.S. were related to strengthened obligations in the Labor and the Environment Chapters *Korea s additional proposals to allay concerns were also reflected in the final Agreement

15 - Negotiating Groups Market Access / National Treatment Agriculture Textiles Contents Enhanced market access for industrial goods (automobiles, digital TV, machinery, etc.) Tariffs on 94% of imports to be eliminated within 3 years U.S. Merchandise Processing Fee to be removed (worth $47 million annually) Rice exempted from any obligation regarding tariffs Sensitivity reflected by various measures including agricultural safeguards - certain tariffs remain at base rate oranges (harvesting season), prepared dry milk, natural honey, potato, soybean (15 tariff lines based on 10 digit HS code) - beef 15-year phase out + safeguards - Others TRQ (Tariff Rate Quotas), seasonal tariffs Elimination of tariffs (immediate removal of tariffs by the U.S. on 61% of textile and apparel goods in terms of import value) Exceptions to yarn forward rule of origin for items of Korea s interest Basis for additional exception to rules of origin provided Strengthened customs cooperation for the purpose of anti-circumvention Separate safeguards provision for textile and apparel Automobile Pharmaceuticals/ Medical Devices Elimination of U.S. tariff on imports of Korean autos - Passenger vehicles immediate elimination (3,000cc and under), elimination in three years (over 3,000cc) - Auto parts immediate elimination - Tires elimination in five years - Pick-up trucks elimination in ten years Revision of engine displacement tax system and resolution of standards issues Strengthened dispute settlement procedures for auto-related measures Established mechanisms to discuss mutual recognition An independent review process to be made available Ethical business practices promoted Establishment of a Committee on Medicines and Medical Devices

16 Negotiating Groups Trade Remedies Outward Processing Rules of Origin / Customs Administration Technical Barriers to Trade (TBT) Sanitary and PhytoSanitary (SPS) Investment Services Contents Following Korean proposals adopted in AD/CVD area - Pre-investigation notification/consultations - Undertakings based on price or quantity (CVD) - Establishment of a Committee on Trade Remedies Permissible exclusion from global safeguard actions Bilateral safeguards adopted Established a mechanism to extend preferential tariff treatments to products manufactured in Outward Processing Zones - Committee on Outward Processing Zones on the Korean Peninsula shall designate outward processing zones when certain criteria are met Expedited customs procedures - Expedited release of imported shipments, simplified procedures for express shipments, and the advance rulings of origins Strengthened anti-circumvention measures Visits to the premises of an exporter or producer in the territory of the other Party. Clarified rules to determine origins for preferential treatment Participation of persons of the other Party in the development of standards, technical regulations, and conformity assessment procedures National Treatment in the designation of conformity assessment bodies Establishment of a Committee on TBT Establishment of a Committee on SPS SPS technical cooperation Introduction of ISD (Investor-State Dispute Settlement Procedures) Narrowing down the scope of indirect expropriation - Public health, environment, safety, real estate price stabilization, and taxation are, in principle, excluded from the scope of indirect expropriation Phased liberalization of legal and accounting services Partial liberalization of broadcasting services - Indirect investment by foreigners to be allowed in program providers (excluding home shopping, general programming, and news channels) within three years - Commitment to reduce domestic content quota for animation and film, and commitment to increase the level of content from a single country - As for convergence services between broadcasting and telecommunications, Korea to retain full authority to legislate new regulations Partial liberalization of telecommunications services - Commitment to allow foreign ownership of telecom operators (excluding KT and SKT) through a Korean subsidiary within two years Commitment to bind screen quota at present levels of 73 days per year

17 Negotiating Groups Services Financial Services Tele- Communications Electronic Commerce Competition Contents Korea to retain full authority with respect to educational services, health services, and social services Mechanisms established to facilitate mutual recognition through Professional Services Working Group Introduction of temporary safeguards Exclusion of government-affiliated financial institutions from coverage of Financial Services Chapter Market access in limited cross-border financial services sectors Allowance of new financial services under certain conditions Acknowledgement of the government s authority to implement policies on technical standards, while ensuring a transparent standards-setting procedures by giving due consideration to respective operators opinion Establishment of fair and competitive practices in the telecom sector Duty-free treatment for originating digital products fixed on a carrier medium or a digital product transmitted electronically Cooperation on the activities related to electronic commerce in order to protect consumers and enhance their welfare Introduction of consent order Responsibilities of monopolies and state enterprises Cooperation on consumer protection Intellectual Property Rights Government Procurement Labor / Environment Extension of copyright protection term to 70 years within two years Extension of patent terms to compensate for delays in granting the original patent: four years after filing of application, three years after request for examination of application Non-violation complaints for Intellectual Property Rights not allowed until a relevant WTO decision made Introduction of pre-established damages Abolished recordation requirement for trademark licenses to be valid Limited linkage between marketing approval and patent Infringement for a pharmaceutical product Reduction of minimum value for government procurement ($200,000 $100,000) Exemption of regional/local governments and state enterprises Prohibited requirements for records of previous contract awards Exceptions for school feeding programs and small and medium sized businesses Strengthened obligation to observe international labor and environment standards and enforcement of relevant domestic laws Introduction of Public Communication (labor)/public Participation (environment) system Application of normal dispute settlement procedures Labor/Environmental consultation mechanism

18 Negotiating Groups Transparency / Institutional Provisions Contents Extension of public comment period for proposed regulations from 20 to 40 days Efficient dispute settlement procedures Korean and English texts equally authentic D. Expected Effects of the KORUS FTA -

19 E. Tasks after Conclusion of the Negotiation

20 What is the TPA (Trade Promotion Authority) It is the authority for trade negotiations vested in the U.S. Administration. Because Congress has the authority to negotiate for trade in the U.S., a TPA must be vested in the Administration by Congress in order that the Administration could negotiate with responsibility. Once the TPA is bestowed, Congress is supposed to vote only for or against the Agreements. The TPA vested in the U.S. Administration expired on June 30, Relationship between the KORUS FTA and the U.S. TPA The Korean government stressed during the negotiation that it would conclude the Agreement only when it is beneficial to Korea and has substantial positive effects on Korea s economy, regardless of the time limit of the TPA. Because even a successful Agreement could have difficulties in ratification if the TPA expires, both sides took this into account and concluded the Agreement before the expiration of the TPA. 2) Korea-EU FTA

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22 3) Korea-ASEAN FTA: Agreement on Trade in Goods and Negotiations on Service & Investment

23 ) Korea-Canada FTA Negotiations

24 - 5) Korea-India CEPA Negotiations

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26 1) Korea-China FTA Joint Study ) Korea- MERCOSUR FTA Joint Study -

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28 - - Exports Major Export Items Investment Accumulated Amount of Investment $43.22 billion automobiles, mobile phones, semiconductors $2.15 billion $20.67 billion Korea $33.65 billion semi-conductors, DRAMmanufacturing equipments, aircraft & aircraft parts $1.7 billion $36.63 billion United States - -

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39 - - Compiling industry positions on every stage of the trade remedy investigations The Task Force holds occasional meetings for every step of the investigation (e.g. anti-dumping, countervailing duty) process: before and during the investigation and also before and after the final decision. The meetings are held with related industries and associations in order to better understand their positions and formulate effective countermeasures. Holding consultations with the government authorities The Task Force holds consultations with the appropriate authorities in each country. It actively represents Korean industries and the government. Conveying government correspondence and positions When the importance of a particular issue is great, the Korean government meets with its counterpart to raise attention. The Korean position on the issue is also represented at high-level bilateral talks.

40 Country China India U.S. Australia EU Turkey Malaysia South Africa Pakistan Canada Anti-dumping Countervailing duty Anti-dumping / Countervailing duty Safeguard measures Total

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42 - Petitioner Country United States Australia EU China New Zealand South Africa Argentina Brazil Canada H Section Steel Stainless Steel Angle Diamond Cutting-Tool Copper Tube (pipe) Steel Pipe 3.5 inch Floppy Disk Polyester Film Side-by-side Refrigerator CRT for Color-TVs 37) Craft-Liner board 38) EPDM 39) Refrigerator Washing Machine PVC 40) Petitioned Product Carbon Black Acetate Dyed Textiles Nylon Bicycle Conclusion Date March June June March December February August August November January February June June November July June June September Classification Regulation Terminated Regulation Terminated No Dumping Margins Regulation Withdrawn Investigation Terminated Regulation Withdrawn Regulation Terminated Regulation Terminated/ Dumping Margins Minimized Investigation Terminated Regulation Withdrawn Investigation Terminated Regulation Terminated Regulation Terminated Retroactive Termination Regulation Terminated Regulation Terminated Regulation Terminated Regulation Terminated - Petitioner Country Russia Indonesia Petitioned Product Sodium Cyanide Disposable Lighter Cast Glass & Rolled Glass Conclusion Date July January September Classification Investigation Terminated Investigation Terminated Investigation Terminated -

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46 - U.S. Gradual reform of agricultural domestic support Drastic reform of agricultural domestic support Real cut in NAMA tariffs Substantial reduction of agricultural tariffs Real cut in trade distorting agricultural support 2) Non-Agricultural Market Access (NAMA) Real cut in NAMA tariffs India, Brazil Meaningful special and differential treatment in NAMA tariff reduction Substantial and real market access to developed countries market - - EC Less than full compensation in exchange for sensitive products

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60 - - Region Nigeria OPL Zhambyl, Kazakhstan West Kamchatka, Russia Aral Sea, Uzbekistan Azerbaijan Details Conclusion of main contract (March 2006) Conclusion of protocol negotiations of the joint exploitation agreement (September 2006) Completion of contract details (December 2006) Conclusion of main contract (September 2006) Secured negotiation rights for proprietary quota (May 2006) Estimated Oil Reserves (Korean Ownership) 2 billion barrels (1.2 billion barrels) 1.6 billion barrels (0.45 billion barrels) 3.7 billion barrels (1.5 billion barrels) 1.4 billion barrels (0.28 billion barrels) 2 billion barrel (max of 0.4 billion barrels)

61 1) Establishing Energy Security Dialogues Overseas - - 2) Energy Cooperation with Russia, Africa, and the Middle East - - A. Strengthening Resources Cooperation with Russia

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64 4) Support for Overseas Energy Exploration The South America Center for Resources Cooperation was established on April 2006 within the Korean Embassy in Argentina after President Roh Moo-hyun s visit to South America. Created in order to follow up on various cooperative projects, this Center is currently providing Korean enterprises in South America with consulting services and investment information in the fields of agriculture, stockbreeding, forestry and fishery as well as energy resources. In May 2007, the Center published several detailed reports on the natural resources of 10 South American countries, the condition of 23 types of resources in Argentina, and the results of the 2006 International Mining Conference in Argentina. It also established a database for information related to South American resources. Useful information is provided on its website (

65 1) Strengthening Cooperation in Logistics (Aviation Services, Shipping, and Railroad Transportation)

66 Sector Passenger and Freight Liberalization Freight Liberalization Counterpart U.S. (1998), Maldives (1990), Chile (2001), Peru (2002), Vietnam (2004), Thailand (2006), China (Shandong Province only, 2006), Cambodia and Myanmar (2006) India (1991), Austria (1996), Sri Lanka (1997), Australia (1998), Germany (2001), Norway, Sweden and Finland (2002), Kenya (2005) - -

67 2) Strengthening Cooperation in the Field of Science Technology (S&T) and Space -

68 International Institute for Management Development (IMD) of Switzerland has ranked Korea on 6 th and 12 th for the competitiveness in the technology and scientific infrastructure respectively this year, openly acknowledging Korean scientific technology as one of the world best. Despite this, an underlying idea that science is something hard and difficult still exists among the people. Such phenomenon has caused the talented youth to avoid engineering field as a career to the extent of expanding concerns for the possibilities of retarding national scientific technology competitiveness. The government spending of more than 26 billion won ( $22 million) on producing first Korean astronauts well illustrates its determination to breakthrough current engineering avoidance syndrome and, hence, to upgrade national scientific technology competitiveness via generalization of the science. Although there had been critiques denouncing this Astronaut Fostering Project as an administrative one-time event, Korea actually was in desperate needs of a national science affair that could bring the science close to the people, who were departing further from it. In this light, the government has chosen space, the unknown mysterious place admired by the general public, as the theme of the Popularization of Science Project to begin the Space Korea 2006 festival. Various space projects have been enthusiastically pursued in parallel including the launch of Korea s multipurpose Arirang 2 Satellite and the establishment of the first space center in Gohung, South Jeolla Province. The highlight of this Space Korea 2006 festival definitely was the first Korean astronaut fostering project. The project enjoyed national attention to draw 36,206 hopefuls in the admission process. The application, that took place in April 2006 in the form of national festival, was open to every Korean national over 19 and consisted of 9 months four step screening process. The selection procedure alone had been acknowledged to have achieved the popularization of science to some extent. The nation s first astronaut is to lead this government level movement as science ambassador once returning to Earth from the space station. The astronaut selection procedure can be viewed to symbolize the start of the nation s aerospace project, in addition to the promotion of the popularization of science. Korea aims to join the ranks of the world s top 10 aerospace powers by 2015 through intensive research efforts to launch 13 satellites by 2010 and open a space center in Gohung. - Application & Register Korean nationals over 19 (Apr. 21-Jul. 14) First Screening Basic documents screening, 3.5km run, written tests (English, common knowledge) (Sept. 3 - Oct. 15) Second Screening Physical and mental test, In -depth interview (Oct ) Third Screening In-depth physical and metal checkups, Circumstance response ability tests, Space adaptation ability assessment I (Oct Nov. 23) Final Selection Space adaptation ability assessment II, Local adaptation review (Nov Dec. 25) The final two candidates received trainings for the space environment adaptation and aerospace scientific experiment conduct at the Gagarin Cosmonaut Training Center in Russia during March to July The one chosen as the first Korean astronaut will travel to the International Space Station in April 2008 aboard a Russian Soyuz spacecraft, where he will spend 7-8 days to conduct scientific experiments.

69 3) Strengthening Cooperation in Fisheries

70 Cooperation Activities Implementation of Agreements on Fishery Cooperation New Fishery Cooperation 9 th Korea-Japan Joint Fishery Committee (Tokyo, December 2006) 6 th Korea-China Joint Fishery Committee (Seoul, December 2006) 16 th Korea-Russia Fishery Committee (Moscow, December 2006) 4 th Fishery Cooperation Committee Meeting between Korea and Norway (Seoul, February 17, 2006) Established the number of fishing vessels and fishing quota (1,025 vessels, 60,500 tons, respectively) Fixed the number of fishing vessels and quota (Korea: 1,600 vessels, 68,000 tons, China: 1,917 vessels, 71,930 tons) Obtained 34,115 ton fishing quota in the Russia Water Zone for 2007 (Alaska Pollock, Saury, Cods, Squids, Puffer, Herrings, Plaice) Cut fees for Papua New Guinea Water Zone (5.8% lower than previous year) and minimal increase in fishing fees for the Kiribati Water Zone Concluded MOU for long-term access to the Solomon and Nauru water zones (annual five-year term ) Consultation on the implementation of follow-up measures under the Korea-EFTA FTA for cooperation in the field of fishery science and technology between Korea and Norway High-Level Meeting with Australia, Solomon Island and Vietnam Conclusion of the MOU on fishery cooperation with Uruguay and Solomon Island Promoting the conclusion of an MOUs on fishery cooperation with Algeria and Brazil Providing technical assistance to the Pacific Island States (Kiribati, Solomon) and several African countries (Guinea, Guinea Bissau, Angola)