ADV I SO RY
An Overview of the US-Korea, US-Colombia, and
US-Panama Free Trade Agreements
On October 21, 2011, following approval by the United States Senate and House of
Representatives, US President Barack Obama signed legislation implementing free
trade agreements (FTAs) between the United States and South Korea, Colombia, and
Panama. The legislatures of Colombia and Panama had previously ratified their respective
agreements. Despite serious resistance from South Korean opposition parties, the South
Korea National Assembly also recently approved the US-Korea FTA. These FTAs have a
long history—the original agreements were signed in 2006 (Colombia) and 2007 (South
Korea and Panama)—but were not ratified for more than four years. Before the agreements
enter into force, the US undertakes consultations with each foreign government to ensure
each nation is in compliance with the FTA terms that will be given immediate effect. The
agreements then enter into force after an exchange of diplomatic letters. The US and Korea
have completed their exchange of diplomatic letters and the US-Korea FTA entered into
force on March 15, 2012.
Contemporaneous with the legislation implementing the FTAs, President Obama signed a bill
renewing the Generalized System of Preferences (GSP) and extending the Trade Adjustment
Assistance Act (TAA). That bill reinstates the GSP with retroactive effect to the date of its
lapse on January 1, 2011, and extends it through July 31, 2013. While the bill provides for
refunds of duties deposited on GSP-eligible goods during the period of lapse (from January
1, 2011- November 4, 2011), such refunds are not automatic and eligible importers must file
either a request for liquidation without duties (or a request for reliquidation for entries already
liquidated) not later than April 18, 2012. The precise refund filing mechanism depends on the
manner in which the importer filed the original entry. Refunds will be paid without interest.
The three free trade agreements (FTAs) are comprehensive—eliminating a majority of
tariffs, allowing broader access for US investors and service providers, and strengthening
protections for intellectual property. The agreements are expected to expand significantly
exports of US goods to these three nations, particularly in the agricultural and manufacturing
sectors. If your business involves the import/export of goods between the US and South
Korea, Colombia, or Panama, you may be eligible for reduced tariffs under the FTAs. If you
have a US business and are interested in investing or providing services in South Korea,
Colombia, or Panama, the FTAs may grant your business improved access to these markets.
This Advisory provides an overview of how the FTAs are expected to affect current trade
relations and the areas in which the FTAs are expected to have greatest impact.
arnoldporter.com
March 2012
Contacts
Lawrence A. Schneider
+1 202.942.5694
Michael T. Shor
+1 202.942.5732
Matthew S. Roessing
+1 202.942.5845
Effect on Current Trade Relations
The FTAs build upon strong existing trade relationships
between the US and South Korea, Colombia, and Panama:
South Korea
In 2010, trade between the US and South Korea totaled
US$113.6 billion. South Korea was the seventh largest
source of US-imported goods, and the seventh largest
market for US-exported goods. Key imports to the US
from South Korea include televisions, wireless equipment,
automobiles, and semiconductors. Key exports from
the US to South Korea include semiconductors and
semiconductor machinery, chemicals, and aircraft. The
FTA will eliminate tariffs on 95 percent of US exports of
consumer and industrial products to South Korea within five
years of implementation. However, the Agreement will have
limited impact on the trade of semiconductors and most
other electronics products, as these goods already enjoy
duty-free treatment under the Information Technology
Agreement—a multilateral WTO Agreement signed by the
US and South Korea in 1996. The FTA will provide greater
access to South Korean markets for US service providers,
particularly banking, insurance, telecommunications, and
legal services, and will improve market access for US
investors. The Agreement is expected to assist the US
in competing with exports to Korea from countries with
existing trade agreements—such as the EU-South Korea
Free Trade Agreement that went into effect on July 1, 2011.
Colombia
Colombia is currently the largest foreign supplier of coal
and the eighth largest supplier of oil and oil products to the
US. The two nations have a complementary manufacturing
trading relationship, with US exports focused on high
value-added products such as chemicals, electronics,
machinery, and equipment, and Colombian exports focused
on lower value-added products such as apparel, plastics,
metal, and cement products. The two countries also have
a complementary agricultural trading relationship, with US
exports focused on temperate-zone products such as corn,
wheat, and soybeans, and Colombian exports focused on
tropical-zone products such as coffee, flowers, fruits, and
sugar. The FTA is expected to have the greatest impact on
US exporters, as 90 percent of US imports from Colombia
already enter duty-free under pre-existing unilateral US trade
preference programs such as the GSP and the Andean
Trade Preferences Act (ATPA). However, the US-Colombia
Agreement will extend the preferential duty treatment under
ATPA to Colombia indefinitely, as well as renew ATPA with
retroactive effect to its expiration on February 12, 2011.
Businesses that imported Colombian goods into the US
after February 12, 2011 may be able to apply for refunds
on duties paid on ATPA-eligible goods during the period of
lapse (February 13, 2011 - November 4, 2011) by filing a
request not later than April 18, 2012. The FTA is expected
to assist the US in competing with exports from countries
that have existing trade agreements with Colombia, such
as Argentina, Brazil, and Canada.
Panama
Primary exports from the US include refined petroleum
products, aircraft and aircraft parts, automobiles, and
construction machinery. Primary imports to the US from
Panama include seafood and re-imports of repaired US
goods. The most significant anticipated benefits of the FTA
to US businesses relate to the Panama Canal, with greater
access to be provided by the FTA for US services and
investments at a time of planned Canal expansion. Many US
imports from Panama already enter the US duty-free under
prior trade agreements, including the GSP, the Caribbean
Basin Economic Recovery Act, and the Caribbean Basin
Trade Partnership Act. The FTA will replace the duty-free
treatment that was offered under those programs and further
reduce tariffs—most notably the tariff-rate quota (TRQ)
on sugar imports to the US, which quota will be gradually
increased annually under the Agreement.
Areas of Greatest Impact
The FTAs are expected to have the greatest impact on the
following:
Agricultural Products
Almost two-thirds of current US agricultural exports to South
Korea will become duty-free, with almost all remaining tariffs
An Overview of the US-Korea, US-Colombia, and US-Panama Free Trade Agreements | 2
to be phased out over the next ten years. In particular, US
exports of meat, dairy, vegetables, fruit and nuts are expected
to increase. As part of the negotiations leading up to the
agreement, South Korea agreed to substantially remove
barriers to the import of US beef, which had been put in place
in 2003 in response to an outbreak of mad cow disease.
However, US beef exports remain a contentious issue, and
a number of restrictions remain -- e.g., all US beef must be
certified as being from cattle over 30 months old, and the
FTA will provide South Korea with a safeguard mechanism
to respond to any surges in US beef imports above certain
levels. One notable exception to duty elimination is rice, which
will maintain its current tariffs. US exports of milk powders,
oranges, honey, and certain potatoes and soybeans will
receive special treatment under the Agreement, and will be
subject to quotas that expand over time.
More than half of current US agricultural commodities
exported to Colombia will become duty-free upon
implementation, with almost all remaining tariffs to be
phased out within 15 years. In particular, US exports of
rice, corn, and wheat are expected to increase under
the Agreement. All TRQs on agricultural products will be
gradually phased out, with the exception of the quota on
US sugar imports, which will be raised.
Most tariffs on agricultural products traded between the
US and Panama will be reduced or eliminated. Notable
exceptions include a tariff on US rice exports (which are
subject to TRQs that will be raised but not eliminated until
20 years after implementation) and US sugar imports (also
subject to TRQs which will be raised annually, with a cap
for certain types of sugar). The FTA provides for a sugar
compensation mechanism, which will give the US the
option to directly compensate Panamanian sugar producers
instead of reducing tariffs.
Manufacturing
More than 95 percent of tariffs on industrial and consumer
exports to South Korea will be eliminated in the first five
years of the FTA. Industries expected to see significant
export increases include chemicals, motor vehicles and
parts, medical devices, and pharmaceuticals. In addition
to reducing tariffs on automobile exports to South Korea,
the Agreement will allow imported automobiles certain
exceptions from South Korea’s safety and emissions
standards. The Agreement is expected to increase trade
in automobiles both to and from the US, but with a much
greater increase in that of automobiles exported to the US
from South Korea. A special vehicle safeguard mechanism
will be available to the US should a surge in automotive
imports threaten to injure domestic production, as well as
a “snapback” provision that will allow the US to reinstitute
automotive tariffs if South Korea is found to be in violation
of the Agreement. Over 90 percent of medical devices
exported from the US to South Korea will receive reduced
tariffs under the Agreement.
More than 70 percent of machinery exports to Colombia will
become duty free within five years. US exports of equipment
for oil and gas exploration, agriculture, construction, mining,
and electronics are expected to increase in volume. As part
of the FTA, Colombia agreed to join the WTO’s Information
Technology Agreement and remove both tariff and nontariff
barriers to information technology products. The FTA will
also facilitate trade in remanufactured goods, such as
computers and cellular telephones.
Over 96 percent of machinery exports to Panama, and
over 88 percent of motor vehicles and parts, will be given
immediate duty-free treatment under the FTA. Almost all
exported information technology products will be given
immediate duty-free treatment.
Textiles
About 60 percent of US-Korea textile tariffs will be eliminated
in both directions. For Colombia and Panama, all textile and
apparel exports to the US will be duty free, subject to rules
of origin—which generally mandate that a product originate
from the exporting nation. With some exceptions, each of
the FTAs will impose rule of origin requirements with a
“yarn-forward” standard—meaning that qualifying products
must be produced with yarns and fabrics originating from
either the exporting or importing nation. The yarn-forward
standard, with certain variations, is the basic textile rule
of origin used in almost all US free trade agreements and
An Overview of the US-Korea, US-Colombia, and US-Panama Free Trade Agreements | 3
preferential trade programs. Safeguard mechanisms are
provided in each FTA to protect against any surge in textile
imports that threatens to injure a party’s domestic industry.
Services
The FTAs will provide greater access for US service providers,
particularly in the financial, insurance, and legal sectors. The
FTAs will loosen or eliminate restrictions preventing US firms
from establishing branches and subsidiaries in the foreign
nations and requiring such firms to hire citizens of that
nation. In some cases, the FTAs will permit US companies
to provide portfolio management, financial advice, and legal
consulting services from the US to citizens of the foreign
nations. The FTAs will expand the rights of US companies
to bid on foreign government procurement opportunities,
in many cases placing US companies on equal footing
with local service providers. One notable exception is for
contracts awarded by the Panama Canal Authority (PCA),
which operates independently from the national government.
While US service providers will be granted greater access to
PCA procurement opportunities, the PCA retained the right to
discriminate in favor of local service providers in some cases.
The US-Korea FTA also will open up South Korea’s
telecommunications industry, eliminating, after two years,
most rules that currently prevent US companies from owning
more than 49 percent of facilities-based telecommunications
operators in South Korea.
Investment
The FTAs will facilitate US investment in South Korea
and Colombia by providing greater market access
and enhanced protection against expropriation of
investments, such as the right to receive fair market
value for expropriated investments. National treatment
and most-favored-nation treatment are provided for US
investments, with certain specified exceptions. The FTAs
establish dispute resolution mechanisms for investment
disputes, including binding international arbitration. (For
more information on investment disputes, see section on
“Dispute Resolution Under the FTAs” below.)
Panama and the US already enjoy a relatively open
investment relationship stemming from a bilateral investment
treaty executed in 1991. The FTA will expand this relationship
by clarifying rules for foreign investment, including rules
requiring national and most-favored nation treatment,
compensation for expropriations, and binding arbitration for
investor-state disputes. Notably, the FTA provides for special
treatment of investments that affect the PCA, allowing the
PCA an opportunity to address any alleged breach of an
investment agreement before the allegation can be brought
to an arbitration panel.
Intellectual Property Rights
The FTAs will establish improved standards for protection
and enforcement of intellectual property rights in each
of the three countries. They will strengthen copyright
protections and penalties against copyright piracy, and
establish transparent procedures for trademark registration
and trademark dispute resolution. In general, the FTAs will
increase patent protection for pharmaceutical products,
but a notable exception is the “six-month” rule regarding
data exclusivity under the US-Panama FTA. This provision
establishes an exception to the typical rule that the data used
in clinical trials for the approval of a new drug is protected for
five years after the drug is approved for use in a country’s
market. The “six-month” rule, intended to encourage both
drug companies and foreign governments to expedite
the certification process, provides that if the Panamanian
government relies on the US’s marketing approval as a basis
for its own approval, and Panamanian agencies approve
the drug within six months of the initial filing in the US, then
the data exclusivity term in Panama begins at the time the
drug was approved in the US, not Panama. This provision
effectively will reduce the data exclusivity term in Panama,
and will allow manufacturers of generic versions quicker
access to data—if the Panamanian agencies act quickly in
certifying the drug. Each FTA provides exceptions to data
exclusivity rules for pharmaceuticals in the event of public
health emergencies.
Dispute Resolution Under the FTAs
The FTAs will establish two main types of dispute settlement
procedures: one for state-to-state dispute settlement and
one for investor-state dispute settlement. The state-tostate procedures address disputes between the sovereign
An Overview of the US-Korea, US-Colombia, and US-Panama Free Trade Agreements | 4
parties to the FTA and generally relate to possible disputes
over interpretation of the treaty, and over the application
and enforcement of the FTA’s terms regarding tariffs and
market access. Private parties do not have standing to
bring such disputes. The state-to-state procedures involve
mandatory consultations and the establishment of binational
committees to exchange information and to attempt to settle
trade disputes, and also provide for a dispute settlement
panel to adjudicate disputes that cannot be resolved
through consultations. After consideration of the matter,
the panel will issue a report to the parties with its ruling
and recommendations. The parties must then agree on a
solution, which may include the elimination or nullification
of measures found to be in violation of the FTA. Fines and
suspension of benefits may be imposed upon a party as
temporary measures pending compliance with the parties’
agreed-upon resolution of the matter. Notably, under US law,
results of FTA dispute settlements are not self-executing,
and therefore US legislation may be required to bring the
US into compliance with the parties’ agreed-upon resolution.
The US-Korea, US-Colombia, and US-Panama FTAs
differ from many prior FTAs in that the state-to-state
dispute resolution mechanism also applies to labor and
environmental obligations under the FTA. These FTAs will
allow the prevailing party to impose trade sanctions for
violation of such obligations, whereas, under most previous
FTAs, the remedy for violation of labor or environmental
provisions was limited to imposition of a fine on the party
found in violation—a fine that would then be used to support
relevant labor or environmental initiatives.
The FTAs also include investment chapters featuring investorstate dispute settlement procedures. Such procedures,
including international arbitration, are available to private
parties who are eligible under the investment provisions
of the FTAs. Generally, these procedures are available to
nationals of one country who make investments in the other
country, and provide such investors the right to submit claims
to an arbitral tribunal regarding alleged breach of investment
obligations. The procedures provide for binding arbitration,
with the remedy limited to monetary awards.
The standard trade remedies of antidumping (AD) and
countervailing duty (CVD) actions will remain in place under
each of the new FTAs, but the US-Korea FTA establishes
additional steps to be taken by either nation at the outset of
an AD/CVD claim against the other, including a requirement
that each party must provide due consideration and
adequate opportunity for consultations to the other party
and/or exporters of the other party regarding proposed
price undertakings, which, if accepted, may suspend the
investigation without imposition of AD/CVD duties.
Conclusion
The FTAs between the US and South Korea, Colombia, and
Panama, once they enter into force, will significantly reduce
tariffs and TRQs between the nations, particularly in the
agriculture and manufacturing sectors. The FTAs will also
improve foreign market access for US investors and service
providers. Potential disputes under the trade and investment
provisions of the FTAs will be addressed through transparent
dispute resolution mechanisms, including state-to-state
arbitration (for disputes regarding the FTAs’ tariff and market
access provisions) and investor-state arbitration (for disputes
regarding investments as provided for in the FTAs).
The South Korea and Panama FTAs were the most recent
FTAs signed by the United States (in 2007). While the US
continues to participate in the long-stalled Doha Round of
WTO negotiations, the only currently active FTA negotiation
involving the US is the Trans-Pacific Partnership (TPP),
which also involves Australia, Brunei Darussalem, Chile,
Malaysia, New Zealand, Peru, Singapore, and Vietnam (with
Japan, Canada, and Mexico as other potential participants).
Although the FTAs will establish substantial reductions in
tariffs for goods traded between the US and South Korea,
Colombia, and Panama, these tariff reductions are separate
from duties that may be imposed by either nation under trade
remedy protections, such as antidumping, countervailing
duty, and safeguards proceedings. In fact, the increased
trade that is expected to result from the FTAs may lead to
an increase in antidumping and countervailing duty petitions
brought by domestic producers of certain products against
An Overview of the US-Korea, US-Colombia, and US-Panama Free Trade Agreements | 5
foreign producers/exporters. Likewise, while the FTAs
provide for the liberalization of bilateral investment, an
increase in bilateral investment may lead to an increase in
investment disputes, many of which may be resolved through
international arbitration.
If you have questions about the impact of the FTAs on your
business, including questions about potential import injury
claims or investment disputes that may result from the FTAs,
please contact the attorneys listed below.
We hope that you have found this Advisory useful. If you would
like more information or assistance in addressing the issues
raised in this Advisory, please feel free to contact:
Lawrence A. Schneider
+1 202.942.5694
[email protected]
Michael T. Shor
+1 202.942.5732
[email protected]
Matthew Roessing
+1 202.942.5845
[email protected]
© 2012 Arnold & Porter LLP. This Advisory is intended to be a
general summary of the law and does not constitute legal advice.
You should consult with counsel to determine applicable legal
requirements in a specific fact situation.
An Overview of the US-Korea, US-Colombia, and US-Panama Free Trade Agreements | 6