Benefits by Industry/Sector - Textiles
Workers and Consumers Will Benefit from KORUS FTA Textile and Apparel Provisions
With the KORUS FTA, more than 60 percent of two-way trade in textiles and apparel would 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 bipartisan federal agency, estimates that the KORUS FTA will lead to an increase in U.S. exports of textiles of $130 million to $140 million, and of apparel of $39 million to $45 million.
South Korea was once the fourth largest exporter of textiles and apparel to the United States, with an eight percent market share in 1991. Since that time, Korea’s share of the U.S. textiles and apparel market has dwindled, as has the U.S. trade deficit with Korea in recent years. In its publication, “U.S.-Korea Free Trade Agreement: Potential Economy-wide and Selected Sectoral Effects,” the USITC estimates that increased imports from Korea would have a negligible economic impact on output and employment in the textile and apparel sector.
- Between 2004 and 2009, U.S. textiles and apparel exports to Korea increased by 41.7 percent (by value) and U.S. imports of textiles and apparel from Korea decreased by 64.5 percent (by value).
- While the United States has a longstanding trade deficit in textiles and apparel with the world, Korea only accounted for 1.3 percent and 1 percent of the total U.S. trade deficit in 2008 and 2009, respectively. In contrast, China constituted 43.4 percent (2008) and 47.8 percent (2009) of the total U.S. trade deficit in textiles and apparel.
Tariff Elimination and Reduction*
- The KORUS FTA will immediately eliminate Korean tariffs on 77 percent (by value) of U.S. exports of textiles and apparel, and will phase out tariffs on 13 percent over three years and the remaining 10 percent over five years.
- The U.S. will immediately eliminate tariffs on 52 percent of Korean textiles and apparel, and will phase out tariffs on 18.6 percent over five years. The remaining 20.2 percent 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 United States and Korea by ensuring that apparel made only from these materials qualifies for preferential tariff treatment. The rule also restricts many Korean suppliers from outsourcing their components to low-cost suppliers.
- Between 2007 and 2009, on average 71 percent of value of the total imports in textiles and apparel from Korea were products subject to the “yarn forward” or more stringent rule.
- While the United States has allowed concrete exemptions to the “yarn forward” rule in the CAFTA-DR agreement, it did not in the KORUS FTA.
- In comments to the U.S. Trade Representative in 2007, U.S. 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 some of the most effective customs enforcement provisions of any U.S. FTA in historyconcerning illegal transshipment of textile and apparel goods, including allowing U.S. customs authorities to conduct unannounced site visits to Korean apparel and textile producers. The Korean government has also pledged to strongly enforce the agreement, including through sharing confidential information.
Under the agreement, the United States is authorized to undertake a variety of enforcement actions (up to and including denying entry for suspect goods) if the FTA is violated.
*Source: U.S. International Trade Commission (USITC) publication, "U.S.-Korea Free Trade Agreement: Potential Economy-wide and Selected Sectoral Effects," as released on September 2007 and updated on March 2010.