Free Trade Agreement

Korea has become a major player in the global markets by entering into the Free Trade Agreement (FTA, 자유무역협정/自由貿易協定) with a number of trading partners.

At present, Korea has entered into FTAs with: (Date next to the country denotes the entry into force date.) FTAs with Persian Gulf Cooperation Council (GCC), New Zealand, Mexico, Canada, Columbia and Australia are in the process of negotiation. The Korean government is studying FTAs with Mercosur, South Africa Customs Union (SACU), Russia, Viet Nam, Israel, Japan, China, Central America, Korea-China-Japan, Indonesia and Malaysia.
 * Chile 2004.04.01
 * Singapore 2006.03.02
 * European Free Trade Association (EFTA) 2006.09.01
 * Association of Southeast Asian Nations (ASEAN) 2007.06.01
 * India (called "Comprehensive Economic Partnership Agreement": CEPA) 2010.01.01
 * European Union (EU) 2011.07.01
 * Peru 2011.08.01
 * United States of America 2012.03.15
 * Turkey: expected to be effective in the first half of 2013

Key words
Free Trade Agreement (FTA), Comprehensive Economic Partnership Agreement (CEPA), Most-Favored-Nation (MFN) treatment, National Treatment, discrimination

Korea-U.S. FTA
Take an example of the Korea-United States FTA (hereinafter the "KorUS FTA"). For further information, see the Korea-U.S. FTA.

The KorUS FTA was first signed by representatives of both countries on June 30, 2007. And, after painstaking efforts to activate the dormant FTA, the parties agreed to a supplemental agreement in December 2010 (the “December Supplement”) specifying items in the June 30th KorUS FTA to be amended or updated. By most accounts, the KorUS FTA was expected to enter into force in both Korea and the United States in the year 2012 subject to each country’s ratification process.

As the KorUS FTA covers almost all sectors including trade in goods and services, it is expected to significantly contribute to expanding and developing their economic relationship in quality and in quantity. With regard to goods, trade between the two countries will have innovative liberalization and facilitation because tariffs on nearly all goods will be abolished and non-tariff barriers will be eliminated. Moreover, concerning the service sector, almost all service markets such as financial services, telecommunications, and legal services of both parties will be opened such that competition will be promoted and market integration will be accelerated.

Ratification of both countries
On November 22, 2011, the KorUS FTA was finally ratified by the National Assembly with a surprise floor vote while opposition groups staged Anti-KorUS FTA campaign in the National Assembly halls as well as on the street. Likewise, US Congress approved FTA with Korea in an unusually speedy legislative process seven weeks earlier in October, on the occasion of the state visit of President Lee Myung-bak.

On November 29, 2011, despite continued opposition protests in South Korea, President Lee signed the fourteen bills that would enable the implementation of KorUS FTA. Across the Pacific Ocean, the United States enacted the United States-Korea Free Trade Agreement Implementation Act (H.R. 3080: USIA) in October 2011, which will authorize the U.S. President to proclaim specified tariff modifications.

Continuing Controversy
In the meantime, the controversial ISD issue was reignited as regards the interpretation of provisions of Article 102 of USIA. To make matters worse, the opposition parties vowed to nullify the KorUS FTA because of its poisonous clauses when they win the general and presidentional elections in 2012. Subject to the preparatory negotiations between both parties, however, KorUS FTA came into force on March 15, 2012. To weather the anti-KorUS FTA sentiment among the young generation, however, the government made efforts to explain its contents and implications on the Korean economy.

Benefits of FTA
Then how can we appropriately utilize the benefits of the KorUS FTA’s non-tariff provisions such as those related to the service industry or Technical Barriers to Trade (“TBT”)?

As the benefits from the non-tariff areas of the FTA are not automatically ensured, they may have to be actively sought in the implementation stage of the FTA. Simply put, we must know how the KorUS FTA would legally work since, even after entry into force, it would be a regime interwoven with international trade laws and domestic laws, and the interplay between all applicable laws is what will determine its legal effect. For better understanding, it is necessary to locate FTA under the World Trade Organization (WTO) multilateral trade regime. Two pillars of the WTO multilateral trade regime are the principles of Most-Favored-Nation treatment (“MFN”) and National Treatment (“NT”). So to speak, MFN prohibits "horizontal discrimination" (i.e., one member country discriminating amongst goods and services provided by other member countries) while NT prohibits "vertical discrimination" (i.e., one member country discriminating against goods and services of other member countries in favor of their goods and services.)

In short, MFN usually matters when border measures like customs duties are imposed, and NT is at issue when internal measures like internal tax or domestic laws and regulations are applied. As these two principles cooperate with each other, all WTO member countries and their nationals are, in principle, ensured to have a certain level of equal rights in external and internal business activities.

Relationship with WTO
However, under the WTO multilateral trade regime, an FTA is the single most salient exception to the principle of MFN. Despite membership to the WTO, signatories to an FTA are legitimately allowed to treat the products and services of their FTA counterparty country more favorably, in terms of tariffs and market access, than those of countries with whom there is no FTA.

Bearing the above understanding in mind, we should further note that parts of the GATT or WTO agreements are incorporated into the KorUS FTA as they are in almost all other FTAs.

In the meantime, the KorUS FTA affirms certain rights and obligations arising under other WTO agreements such as the SPS Agreement (SPS: Sanitary and Phytosanitary), the TBT Agreement, the Safeguards Agreement, the Anti-Dumping Agreement, and the Subsidies Agreement and incorporates parts of those agreements as well. Accordingly, it is necessary to fully comprehend the multilateral trade laws such as GATT and the WTO agreements in order to navigate and appropriately utilize the KorUS FTA.

Once ratified by their respective legislatures, the KorUS FTA may have the same effect as domestic law. However, in practice, an FTA generally undergoes a transformation process in which relevant domestic laws and regulations are enacted or amended to reflect the substance of the FTA.

Conclusion
As FTAs operate in connection with the WTO multilateral trade regime and domestic legal and regulatory systems, it is important to comprehend not only the relevant FTA itself, but also the GATT and WTO agreements and domestic laws and regulations which are operated especially by executive branch agencies. In sum, the detailed implementation of the KorUS FTA will generally be constructed in the form of government measures like administrative rulemaking and adjudication. As such, even though ex post countermeasures such as litigation and arbitration are available for dispute settlement, in light of the importance of timeliness in business activities, it will be necessary to proactively participate in such rulemaking and adjudication processes.