Taking Advantage of the Korea-U.S. Free Trade Agreement

Kelley Drye Client Advisory

March 15, 2014 was the second anniversary of the implementation of the Korea-U.S. Free Trade Agreement (“KORUS”).  This agreement provides an opportunity for companies trading between many countries or only between the U.S. and Korea.  Currently, this agreement is the largest agreement since NAFTA.  South Korea is the seventh largest trading partner of the U.S. and the U.S. is the third largest trading partner of South Korea.  As with all free trade agreements, there have been some growing pains as to origin verifications, however the potential benefits for industrial and consumer goods are significant.  Customs duties are eliminated on 95% of qualifying goods within the first five years and the remainder by year fifteen.

The requirements to qualify are the following: 1) The merchandise must be shipped directly between South Korea and the U.S.;1 2) The goods must qualify under the rules of origin;2 3) The importer must have a written certification that the claimed goods are originating; and 4) The importer must maintain records for five years.  Either U.S. or Korean Customs can initiate a verification on eligibility, so it is crucial that the importer can verify the origin prior to production.

How can importers and exporters take advantage of KORUS?  Some best practices include developing a process for the origin documents and amending supplier contracts to provide for the delivery of required documentation, including the origin certification and bills of material.  The importer’s staff must be trained to understand the rules of origin and properly classify the goods.  Finally, it is crucial that government requests for supporting information be responded to in a timely manner.

While a claim for KORUS can be made up to one year after date of importation, it is more efficient to organize the merchandise for duty free entry prior to production.  With an understanding of the rules of origin and a process in place for the flow of the required documentation, importers that take advantage of KORUS can enhance their bottom lines.

1 An exception is for unloading and reloading in a third country, but it must be done under Customs control.

2 The merchandise must be wholly obtained or produced entirely in the U.S. and/or Korea exclusively from originating goods or the product is produced entirely in the U.S. and/or Korea and the non-originating materials undergo a tariff shift or the regional value content, if applicable, is satisfied.