CRS Reports on Textile & Apparel Provisions of KORUS FTA

(The proposed KORUS FTA was signed in 2007, and if implemented, would eliminate tariffs on over 95% of industrial and consumer goods within five years. According to the report, the White House has indicated that it would like to see Congress approve the KORUS FTA implementing legislation by July 1, 2011, the date when the FTA between the European Union and South Korea is expected to go into effect. However, the Administration has said that it will not submit the pending FTAs (including the KORUS FTA) until it reaches an agreement with Congress on renewing Trade Adjustment Assistance consistent with the 2009 expansion to service workers, etc.)

KORUS Would Immediately Eliminate Certain U.S. & Korean Textile Tariffs

According to the report, the KORUS FTA would eliminate U.S. tariffs immediately on 52% (in terms of value) U.S. imports of South Korean textiles and apparel, and would phase out U.S. tariffs on 21% over five years and on the remaining 27% over 10 years. The KORUS FTA would also eliminate South Korean tariffs immediately on 77% (by value) of U.S. exports of textiles and apparel and would phase out tariffs on 13% over three years and the remaining 10% over five years.

Would Mostly Use “Yarn-Forward” Rule of Origin for Apparel Imports

The KORUS FTA, with some exceptions, would use the yarn-forward rule of origin for apparel imports. This yarn-forward rule provides that apparel made from yarn or fabric originating in either the U.S. or South Korea would be eligible for duty-free treatment under the FTA.

No Cumulation Provisions, but “Commercial Availability” Provisions Provided

According to the report, members of the industry are divided on the lack of cumulation provisions in the FTA, i.e., provisions which allow preferential treatment for limited amounts of apparel woven from components outside the FTA area. Textile producers supported the lack of such cumulation provisions while apparel producers wanted them included.

However, KORUS FTA would allow some fibers, yarns, and fabrics originating outside the U.S. and South Korea to become eligible for preferential treatment if it is not available domestically in commercial quantities in either country.

The FTA would also provide for the establishment of a Committee on Textile and Apparel Trade Matters to raise concerns under the FTA regarding mutual trade in these products.

Includes Safeguard Provision to Reduce Impact of Import Surges

The FTA also includes a special safeguard provision whereby, if imports of textiles or wearing apparel to one KORUS FTA 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 increase the duty on the imported product to (the lesser of) the Normal trade Relations (NTR) rate applicable at the time the action was taken, or the NTR duty that was in force when the FTA went into effect.

The safeguard action could be in place for two years with a possible extension of two years, but no more than a total of four years.

Note that if the importing country implements the safeguard, it would have to compensate the exporting country by making additional trade liberalizing concessions equivalent in value to the additional duties expected to result from the safeguard action. The concessions would be limited to textiles and apparel unless the two countries agree otherwise.

(See ITT's Online Archives or 05/27/11 news, 11052726, for BP summary of the Administration discussing KORUS textile safeguards at a Senate Committee hearing.

(See ITT's Online Archives or 12/06/10 news, 10120628, for BP summary of the December 2010 modifications to the KORUS FTA.

See ITT's Online Archives or 06/14/11 news, 11061422, for BP summary of this CRS report on the auto-specific provisions of the KORUS FTA.)

(CRS RL34330, dated 03/24/11)