91 Goyer, testimony before the USITC, June 20, 2007, 79, 93.
92 Ambassador Lee, testimony before the USITC, June 20, 2007, 13.
93 Audiovisual services refers to terrestrial, cable, and satellite television program broadcasting and motion picture production and distribution.
94 Generally, most broadcasting and film quotas are filled to the maximum allowed level in Korea.
Animation programming, however, is below its full capacity because of the dominance of Korean animation.
U.S. industry representative, e-mail messages and telephone interview with Commission staff, June 19, 2007.
95 USDOC, BEA, Survey of Current Business, October 2006, 69. The U.S. audiovisual services market is already largely open to foreign firms, except with regard to radio and transmission services, where a single company is prohibited from owning a combination of newspapers, radio, and television broadcast stations in a single local market. WTO, “General Agreement on Trade in Services, United States of America, Schedule of Specific Commitments,” April 15, 1994.
96 This screen quota reduction was made prior to the commencement of FTA negotiations. Korea requires that Korean motion pictures must be projected for at least 73 days per year at each Korean screen. USTR,
“Final - United States - Korea FTA Texts,” 2007.
97 Mergent, “The Asia-Pacific Media Sectors,” March 2007, 24–5.
98 USTR, “Final - United States - Korea FTA Texts,” 2007.
4-20
opportunities for U.S. lawyers and law firms to supply legal services in Korea and partner with Korean law firms.91 He asserted that reservations in an annex to the agreement temper opportunities with regard to opening Korea’s legal services market, yet not severely enough to cause the U.S. legal services industry to withhold its support for the agreement. Korea’s ambassador to the United States cited legal services among the service industries for which market access opportunities would expand further under the U.S.-Korea FTA.92
4-21
Box 4.6 Competitive conditions in the Korean audiovisual services market
Broadcasting and Cable
The Korean television broadcasting and cable market is one of the largest and most technologically advanced1 in the Asia-Pacific region. As of early 2006, there were 46 terrestrial television stations, 59 cable operators, and 190 relay cable operators in the country. The top three public broadcasters—Korea Broadcasting System (KBS), Educational Broadcasting System (EBS), and Munhwa Broadcasting Corporation (MBC)—all maintain national coverage. Of the three, KBS maintains the largest market share and produces the most original content. KBS’ programs are also available in the United States, China, France, Japan, the Philippines, Mongolia, and Vietnam.2
Cable, pay TV, and digital satellite operators are also well established in the Korean market. Cable operators, Taekwang, C&M, CJ, and HCN, garnered the largest market shares in Korea, with Taekwang accounting for almost 3 million subscribers or 21 percent of the national cable television market in 2006. Since 2004, the largest cable operators in Korea have been positioning themselves to consolidate the overcrowded market through partnerships with various foreign investors.3 Most recently, in 2006, Korean cable operator HCN, Korea’s fourth-largest cable company, sold a 33.5 percent stake of its shares to the U.S. private equity firm, The Carlyle Group, for $171 million, making Carlyle the second largest shareholder in the company.
Motion Pictures
Overall, the Korean film industry is dominated by domestic, and, to a lesser extent, U.S. motion pictures, with the two combining to account for almost 95 percent of the market share in 2006.4 The top three Korean motion picture companies—CJ Entertainment, Showbox, and Cinema Service—were responsible for producing and/or distributing almost 82 percent of the films seen in Korea in 2006.5 Moreover, seven of the top ten films at the Korean box office in 2006 were domestically produced; the other three were U.S. produced.
Internationally, 208 Korean films were exported to 53 countries in 2006. Japan, the United States, and France were the top three export destinations for Korean films with receipts totaling $10.4 million (42 percent), $2.0 million (8 percent), and $1.3 million (5 percent), respectively.
1 Globally, the Korean broadcasting and cable market is recognized as a leader in the development and commercialization of new media technologies such as IPTV and mobile television. As of 2006, there were more than one million free-to-air mobile television subscribers in Korea.
2 Internationally, Korean drama series and variety shows tend to be most well-received.
3 Foreign investors are currently permitted to hold stakes of up to 49 percent in Korean cable companies and 33 percent in satellite broadcasters. Through the FTA, these quotas would eventually be lifted and 100 percent foreign ownership would be allowed in these sectors.
4 U.S. films accounted for about 35 percent of the films shown in Korea.
5 CJ Entertainment is also a majority shareholder in Cinema Service.
Sources: Korean Film Council, “Review of the Korean Film Industry in 2006”; Mergent, The Asia-Pacific Media Sectors, March 2007; and Screen Digest, Global Cinema Exhibition Trends, October 2006.
99 Multigenre programming refers to a program provider that offers a combination of news, entertainment, drama, movies, music programming, etc. USTR, “Final - United States - Korea FTA Texts,” 2007.
100 The United States also made this reservation under Annex II. In addition, under Annex I, the United States made a single reservation, which restricts investment in U.S. radiocommunications firms by foreign governments. These were the only two NCMs the United States specified with regard to audiovisual services in the FTA.
4-22
Summary of Provisions
The provisions that directly address audiovisual services are found in the NCMs for services and investment in Annexes I and II and also in two side letters under chapter 18 (intellectual property rights) of the FTA. Under Annex I, Korea has included two current NCMs relating to broadcasting services and motion picture services. Under the detailed broadcasting services reservation, foreign or Korean nationals may not serve as a principal senior officer for both a foreign enterprise and a terrestrial, satellite, or cable broadcasting operator or a similar type of program provider in Korea. All members of the boards of directors of public broadcasters Korea Broadcasting System and Educational Broadcasting System must be Korean nationals, and licenses to operate terrestrial, cable, or satellite broadcasts may only be granted to or held by the Government of Korea or local Korean governments or persons.
Additionally, Korea stipulates various foreign equity limits for broadcasting and cable operators and sets varying local content quotas for their programming. Examples of such requirements include the following: no foreign government or person may hold an equity interest in a terrestrial broadcaster, cable operator, or program provider that is engaged in multigenre programming99 or news reporting; 80 percent of quarterly programming hours for terrestrial broadcasters or program providers must be Korean content; 45 percent of a terrestrial broadcaster’s annual animation programming hours must be Korean content; and 20 percent of a cable system or satellite operator’s annual movie programming must be Korean content. Under the motion picture services reservation, Korea would require that Korean motion pictures must be projected for at least 73 days per year at each Korean screen.
Under Annex II, Korea has included broad NCMs for potential future measures relating to audiovisual services. For example, Korea has reserved the right to adopt or maintain any measure that accords differential treatment to persons of other countries involving the sharing of direct-to-home and direct broadcasting satellite television services.100 Korea has likewise reserved the right to limit cross-ownership across media sectors and to adopt or maintain any measure with respect to a supplier of subscription-based video services. Korea has also listed potential reservations with regard to coproduction arrangements for film or television productions, criteria to determine whether audiovisual programs are “Korean,”
measures dealing with digital audio or video services, and measures with respect to motion picture promotion, advertising, or postproduction. Lastly, the U.S. and Korean governments would also agree to two relevant side letters under chapter 18 (intellectual property rights) of the FTA that impose unilateral obligations on the Korean government to prevent online piracy, whether by amending its law or dedicating additional resources.
Views of Interested Parties
U.S. industry representatives are generally satisfied with the FTA provisions on audiovisual services. The ITAC on Services and Finance Industries (ITAC 10) report said that the FTA will provide a more favorable environment for cross-border trade and investment in Korean audiovisual services by minimizing or freezing most quotas pertaining to local content
101 ITAC (10) on Services and Finance Industries, Advisory Committee Report, April 25, 2007.
102 ITAC (15) on Intellectual Property Rights, Advisory Committee Report, April 27, 2007.
103 Time Warner, “Comments of Time Warner, Inc., United State-Korea Free Trade Agreement Investigation TA-2104-24,” written submission to the USITC, June 21, 2007, 2.
104 These quotas are applied on a quarterly basis, with no specific time-of-day broadcast requirements.
U.S. industry representative, e-mail messages and telephone interview with Commission staff, June 1–5, 2007.
105 Frazier, “Korea-U.S. Free Trade Agreement: Benefits to America's Entertainment Industries,” written submission to the USITC, June 6, 2007, 8.
106 These program providers or channel operators must not be engaged in multigenre programming.
USTR, “Final - United States - Korea FTA Texts,” 2007.
4-23
requirements and foreign ownership restrictions. The ITAC 10 report, however, stated that it is not entirely satisfied with the FTA’s NCMs, because multiple restrictions continue to remain in virtually all levels of the industry.101 Nonetheless, the ITAC 10 report states that it is encouraged by the progress made in several key areas, including in the area of protection of intellectual property rights, requiring that Korea adopt an anticamcording law that makes camcording, or the illicit recording of movies at movie theaters, a criminal offense.
The Intellectual Property Rights (ITAC 15) report said that it is encouraged by the provision that requires Korea, within 2 years of the FTA entering into force, to extend the term of its copyright laws from 50 years to 70 years (the report notes that protected works that come into the public domain during this transition period will not be recaptured).102 In a written submission to the Commission, Time Warner Inc., said that the FTA would implement “gold standard” intellectual property rights provisions, Time Warner noted that the FTA includes language committing Korea to World Intellectual Property Organization (WIPO) digital treaty implementation, the establishment of ex officio authority for customs officials to seize pirated goods, and the guarding of technological protection measures.103
With regard to local content requirements, the ITAC 10 report indicates that the FTA will provide a modest relaxation in quotas for two key genres—the broadcast of animation, where the local content quota declines from 35 percent to 30 percent, and the broadcast of films, where the quota declines from 25 percent to 20 percent. According to an industry representative, within these two genre quotas, Korea also restricts the amount of programming from any single country. Through the FTA, however, this single-country quota increases from 60 percent to 80 percent. For example, pre-FTA conditions for animation programs dictate that within a 24-hour programming schedule, a minimum of 8 hours must be dedicated to Korean content with U.S. content limited to a maximum of 9 hours. Post- FTA, a minimum of 8 hours of programming must remain Korean, while the U.S. content limits are raised to 13 hours.104
The Entertainment Industry Coalition, in a written submission to the Commission, said that it is encouraged by Korea’s commitments with regard to foreign ownership in the broadcasting sector.105 Based on the FTA text, over a 3-year period, the Korean government will permit U.S. firms that establish Korean subsidiaries to have 100-percent ownership of program providers. The FTA would commit the Korean government to permit U.S.- controlled companies to invest up to 100 percent of the equity in Korean broadcast program providers after 2 years.106 According to Time Warner, this provision will permit U.S.
investment in IPTV, which will be increasingly important as the delivery of interactive television programming through broadband grows and provides new distribution
107 Time Warner, “Comments of Time Warner, Inc., United State-Korea Free Trade Agreement Investigation TA-2104-24,” written submission to the USITC, June 21, 2007, 2.
108 U.S. industry representative, e-mail messages and telephone interview with Commission staff, June 1–5, 2007.
4-24
opportunities for U.S. content providers in Korea.107 Moreover, according to an industry representative, Korea has agreed to provide duty-free treatment of digital audiovisual products, whether imported in physical form or over the Internet.108
1 These provisions cover FTA chapters 7–9 and 15.
2 For example, the Korean Customs Service (KCS) employs the UNI-PASS system, which is a one-stop electronic customs clearance service. Korea IT Times, “KCS, Global Leader in Customs Administration,”
November 1, 2006. In July 2003, the KCS announced a 3-year reform project to improve cargo management and the duty payment system, to restructure the organization, and to create a business-friendly atmosphere.
APEC, Subcommittee on Customs Procedures, “Recent Reforms in Korea Customs Service.” KCS has also implemented several measures to reduce goods clearance times, which is a key goal of the organization.
Korea IT Times, “KCS to Speed Up Customs Clearance Processes,” July 2004. Additionally, the KCS employs the Electronic Data Interchange (EDI) system for paperless import clearance, which allows importers to submit electronically an import declaration without visiting the customs house. USFCS, “Korea Trade Regulations and Standards.”
3 For an in-depth discussion of the effect of trade facilitation on transaction costs, see OECD, “The Economic Impact of Trade Facilitation,” October 12, 2005, 26.
4 According to the U.S.-Korea Business Council, Korea’s complicated and time-consuming Customs procedures impose costs on U.S. exporters and service providers. Reis, testimony before the USITC, June 20, 2007, 25.
5 OECD, “The Economic Impact of Trade Facilitation,” October 12, 2005, 26.
6 The agreement provides for advanced electronic submission of paperwork, requires timely goods clearance, and increases transparency. Reis, testimony before the USITC, June 20, 2007, 29.
5-1