Industry by the Numbers
With enactment of the U.S.-Korea Free Trade Agreement (KORUS FTA), more than 60 percent of two-way trade in textiles and apparel will become duty-free immediately – benefiting industry, workers and consumers in both the United States and South Korea. The U.S. International Trade Commission (USITC), a non-partisan federal agency, estimates that the KORUS FTA will lead to an increase in U.S. textile exports of $130 million to $140 million, and in apparel exports of $39 million to $45 million, and that increased imports from Korea would have a negligible economic impact on output and employment in the textile and apparel sector
KORUS FTA Provisions Designed to Preserve Competitiveness of Domestic Industries
Special safeguard mechanisms to reduce the impact of textile and apparel import surges are part of the KORUS FTA. If imports of textiles or apparel to one partner country from the other increases at such a rate as to cause or threaten to cause serious injury to the domestic industry of the importing country, the importing country can suspend further reduction of tariffs, or it can restore the level of tariff as most favoured nation (MFN) on the imported product.
Tariff Elimination and Reduction
- The KORUS FTA will immediately eliminate all Korean tariffs on 77% (by value) of U.S. exports of textiles and apparel, will phase out tariffs on 13% of exports (by value)over three years and phase out the remaining 10% (by value) over five years.
- The U.S. will immediately eliminate tariffs on 52% (by value) of Korean textile and apparel imports, and will phase out tariffs on 18.6% (by value) over five years. The remaining 20.2% of U.S. tariffs will be phased out in 10 years – a phase-out liberalization tier that is not afforded to Korea.
Rules of Origin
- By incorporating the “yarn forward” rule as the basic rule of origin, the KORUS FTA promotes the use of yarn and fabric from the U.S. and Korea by ensuring that only apparel made from these materials qualifies for preferential tariff treatment. The rule also restricts Korean suppliers from outsourcing their components to low-cost suppliers.
- Between 2007 and 2009, on average71% of value of the total imports in textiles and apparel from Korea were products subject to the “yarn forward” rule or a more stringent rule.
- While the United States has allowed concrete exemptions to the “yarn forward” rule in the CAFTA-DR agreement, it allowed no such exceptions in the KORUS FTA.
- In comments to the U.S. Trade Representative in 2007, the U.S.textile industry noted that “most textile members were pleased that KORUS did not include the majority of what they view as contentious rule of origin loopholes in the CAFTA-DR, such as tariff preference levels and cumulation.”
- The KORUS FTA contains the most effective customs enforcement provisions of any U.S. FTA concerning illegal transshipment of textile and apparel goods. It allows U.S. Customs the authority to conduct unannounced site visits to Korean apparel and textile producers and access to certain confidential information the Korean government has pledged to share.
- Under the agreement, the U.S. is authorized to use a number of different enforcement actions (up to and including denying entry for suspect goods) if the FTA is violated.