Business Risk Management USA vs. Canada

According to the agreements agreed upon by Korea and ASEAN, in theory, both parties shall abolish tariffs on 90% of their imports (based on tariff lines) from each other by 2010 and cut tariffs on 7% of imports (sensitive items) by 0-5% in 2016. For the remaining 3% of imports, which are ultrasensitive commodities, a variety of protective measures have been implemented, including permit exclusion, long-term tariff reduction, and the establishment of a tariff quota. The problem is that Korea's principal export items are among the remaining 3% ultrasensitive items. As a result, ASEAN's tariffs on such commodities were not reduced, despite Korea's expectations that exports would expand dramatically. The difference between the Korea-ASEAN preferential tariff and the MFN duty is more or less than 1%, and firms experience a modest level of FTA preferentiality. Furthermore, the expenses required to comply with the regulations of origin are a burden on the firms. Because the firms do not see the need to use the existing FTAs, they will undoubtedly refuse to incur the burdens connected with the norms of origin. Respondent enterprises in the 2008 KOTRA survey cited two similar-numbered reasons for not utilizing the FTA preferential tariff: "having had no substantial tariff preference or having had no actual benefits from such" (39.0%) and "lack of information about the conditions of the existing FTAs or about how to utilize them" (37.3%). The poll results also suggest that Korean firms are particularly interested in Korea's free trade agreements with the United States and the European Union

but because the Korea-US FTA has yet to be passed by the National Assembly of Korea and the United States Congress

the enterprises are unable to use it. The FTA negotiations with the EU are nearing completion, but the agreement will take more than a year to ratify and implement. Although the number of Korean firms using existing FTAs is small, the number of Korean enterprises aiming to use existing FTAs is significant. This can be linked to Korean companies seeking free trade agreements with major economic blocs such as the United States and the European Union. The survey results suggest that even SMEs are particularly interested in the conclusion of the Korea-US FTA. Similar survey results may be found in the Korea Small Business Institute's report from 2007. According to the survey, the vast majority of SMEs viewed the Korea-US FTA favorably. Textile, image/sound/communication equipment, transportation equipment, other machinery and equipment, and furniture manufacturing industries received "positive effects" responses. The most commonly mentioned reason for the response's "positive effects" is "expansion of exports to/easy advance into the US." Furthermore, responding firms cite "enhancement of price competitiveness through imports from the US" (23.8%) and "active inducement of investment from nonmember countries" as the primary reasons for the "positive effects."25 The firms that highlighted "negative effects" expressed the greatest concern about reduced product competitiveness. 

Meanwhile, Korean businesses have undervalued the benefits of free trade 

agreements with Chile, the European Free Trade Association, and ASEAN. The FTA with the United States has yet to be ratified, FTA negotiations with the EU, Canada, and India have been stalled, and FTAs with Japan and the PRC are expected to affect Korean companies. Thus, although the consequences of previously concluded FTAs are not completely realized, and it is believed that the driving force to promote new FTAs would wane due to the weight of restructuring, the promotion of FTAs remains a critical trade strategy.26 The results of the poll on the recognition of origin regulations reflect, in part, the fact that Korean firms are prepared to use existing FTAs. When asked whether they understood the ROO of the FTAs that the Korean government had enacted, 72 of the 120 businesses polled said they were well aware of them. Of these 72 firms, 39 indicated that they fully understood the ROO, including those for their own products, and 33 of these 39 enterprises were deemed to be exempt from additional costs imposed by the FTA ROO. 

On the other hand, 40% of the questioned firms were unaware of the rules of origin

and while it may appear that there are significant variances in ROO awareness among enterprises, this can be interpreted differently. First, it should be noted that SMEs' perceptions of the Korean government's FTA policies tend to become politicized. Many businesses still do not understand the ROO, and the majority of those that do are evaluating the costs of complying with such rules. Next, many Korean SMEs anticipate the implementation of free trade agreements with major economic blocs. Although Korean firms have no desire to use the FTAs that the Korean government has implemented thus far, they believe it is beneficial to use such FTAs to advance into the large domestic market or to expand their exports. The manufacturing businesses in Korea are particularly interested in the Korea-US FTA since it is a comprehensive deal that will eliminate tariffs on the majority of the items that Korea exports within three years of its implementation. Because the FTA with the EU is modeled after the Korea-US FTA, it has the potential to boost Korea's exports to the EU.

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