BILL ANALYSIS �
AB 2713
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Date of Hearing: April 22, 2014
ASSEMBLY COMMITTEE ON JOBS, ECONOMIC DEVELOPMENT AND THE ECONOMY
Jose Medina, Chair
AB 2713 (Quirk-Silva) - As Amended: April 10, 2014
SUBJECT : South Korea Trade Promotion
SUMMARY : Requires the Governor's Office of Business and Economic
Development (GO-Biz) to establish a public-private partnership to help
guide state activities related to the export of California products to
South Korea and the attraction of employment-producing foreign
investment by South Korean investors.
EXISTING LAW establishes GO-Biz within the Governor's Office and
designates it as the state's lead entity on international trade and
foreign investment activities, excluding agricultural trade.
FISCAL EFFECT : Unknown
COMMENTS :
1)Author's Purpose : According to the author, "In recent years, the
U.S.-South Korea alliance has expanded into a deep, comprehensive
global partnership, and South Korea's role as a regional and global
leader continues to grow. South Korea is the 12th largest economy in
the world, 11th in purchasing power parity, and third largest
economy in Asia (Behind China and Japan). Majority of South Korea's
trade is with USA and with Pacific Rim State, California. In 2012
South Korea was in the five top trading partners of California.
Over the past several decades, South Korea has achieved a remarkably
high level of economic growth and is now the United States'
sixth-largest goods trading partner with a trillion-dollar economy.
Major U.S. firms have long been leading investors in South Korea,
while South Korea's top firms have made significant investments in
the United States. There are large-scale flows of manufactured
goods, agricultural products, services, and technology between the
two countries. The landmark Korea-U.S. Free Trade Agreement (KORUS
FTA) entered into force on March 15, 2012, underscoring the depth of
bilateral trade ties. The agreement is expected to boost exports by
billions of dollars annually for both sides and create new
export-related jobs in both South Korea and the United States.
This bill would grant greater access for Korean and California
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companies to extend their services and products beyond their
borders, and create an opportunity for economic development."
2)Framing the Policy Issue : This bill directs GO-Biz to establish a
public-private partnership to guide the expansion of California
trade and investment with the state's fifth largest trade partner,
South Korea. If enacted, it would be the state's first partnership
solely focused on one country. This bill is consistent with the
state's International Trade and Investment Strategy including the
goals and activities related to engagement with private and other
public sector stakeholders, implementation of a more proactive
outreach agenda, and development of an interactive website to assist
California companies wanting to export and attract foreign
investment.
In deliberating the merits of the measure, Members may wish to
consider the importance of South Korea to the California economy and
the potential opportunities of a focused trade work-group to
leverage opportunities that may arise from the KORUS FTA and the
Trans-Pacific Partnership. The analysis includes information on the
California trade economy, the KORUS FTA, and related legislation.
Comment 7 includes amendment recommendations.
3)Trade Partner Background : South Korea is located in Eastern Asia
and occupies the southern half of the Korean Peninsula, bordering
the Sea of Japan and the Yellow Sea. The country is comprised of
mostly hills and mountains with wide coastal plains in the west and
south. South Korea has a population of 49 million with 47% of the
people between the ages of 25 to 54 years old. Over 83% of the
population lives in urban areas, 15% of land is cultivated in annual
crops, and 2% is planted in permanent crops. Given the small size
of the country and limited agricultural capacity, imports of food
and other resources for industrial production are particularly
important to the overall economy and the quality of life of South
Korea's residents.
Over the past four decades, South Korea has experienced significant
growth and global integration to become a high-tech industrialized
economy. The U.S. Central Intelligence Agency (CIA) reports, that
in the 1960s, GDP per capita was comparable with levels in the
poorer countries of Africa and Asia. In 2004, South Korea joined
the trillion dollar club of world economies, and is currently the
world's 12th largest economy.
GDP in 2013 was $1.6 trillion making South Korea the 13th largest
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economy in the world. Approximately 58% of South Korea's GDP was
attributable to services, 39% to industry, and 2% to agriculture.
Key industrial production includes: electronics,
telecommunications, automobile production, chemicals, shipbuilding,
and steel.
South Korea exported $557.3 billion in goods in 2013 including
semiconductors, wireless telecommunications equipment, motor
vehicles, computers, steel, ships, and petrochemicals. Top export
markets in 2012 included China 24.5%, the U.S. 10.7%, Japan 7.1%,
Hong Kong 6%, and Singapore 4.2%.
South Korea imported $516.6 billion in goods making it the 8th
largest importer in the world in 2013. Top imported commodities
included machinery, electronics and electronic equipment, oil,
steel, transport equipment, organic chemicals, and plastics.
Largest import markets in 2012 included China 15.6%, Japan 12.4%,
the U.S. 8.3%, Saudi Arabia 7.6%, Australia 5%, and Australia 4.4%.
In 2013, President Park Geun-hye took office and is South Korea's
first female leader. South Korea holds a non-permanent seat
(2013-14) on the UN Security Council and will host the 2018 Winter
Olympic Games.
According to the CIA Fact Book, serious tensions with North Korea
have punctuated inter-Korean relations in recent years, including
the North's attacks on a South Korean ship and island in 2010,
nuclear and missile tests in 2012 and 2013, and its temporary
withdrawal of North Korean workers from the inter-Korean Kaesong
Industrial Complex in 2013. Key economic challenges for South Korea
in 2014, according to the CIA, are balancing the country's heavy
reliance on exports with developing domestic-oriented sectors, such
as services.
4)U.S. Trade Agreements : Within a globally connected economy, trade
agreements create the framework by which a significant number of
businesses and workers must compete, collaborate, and create
economic value. The U.S. is currently negotiating two major trade
promotion agreements, the Trans-Pacific Partnership and the
Transatlantic Trade and Investment Partnership. In their current
iterations, these trade agreements will cover 21% of the world's
population, with the U.S. at the nexus. These agreements are
especially important to local and regional governments which have
been proactive in using trade promotion activities as a springboard
for their own economic program.
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The U.S. has trade agreements in force with 20 countries, including
Australia, Bahrain, Canada, Chile, Colombia, Costa Rica, Dominican
Republic, El Salvador, Guatemala, Honduras, Israel, Jordan, Korea,
Mexico, Morocco, Nicaragua, Oman, Panama, Peru, and Singapore. In
addition to trade agreements, the U.S. maintains a number of trade
preference programs that allow special access to U.S. markets for
countries that are considered developing markets and/or where the
U.S. wants to cultivate a stronger relationship. The Andean Trade
Preference Act (ATPA) and the Andean Trade Promotion and Drug
Eradication Act (ATPDEA) are examples of two such trade programs
which assist Bolivia, Colombia, Ecuador, and Peru in promoting
"broad-based economic development, diversification of exports,
consolidation of democracy, and to help defeat the scourge of drug
trafficking by providing sustainable economic alternatives to
drug-crop production in beneficiary countries."
The most recently approved U.S. trade agreement is the KORUS FTA,
which was ratified by the U.S. and South Korea in 2011 and went into
force in March 2012. On the effective date of the agreement, the
USTR reports, 80% of U.S. industrial goods exported to Korea became
duty-free including aerospace equipment, agricultural equipment,
auto parts, building products, chemicals, consumer goods, electrical
equipment, environmental goods, travel goods, paper products,
scientific equipment, and shipping and transportation equipment.
5)U.S. Trade Promotion Agreement with South Korea : The U.S.
International Trade Commission estimated that the reduction of South
Korean tariffs and tariff-rate quotas on goods would add $10 billion
to $12 billion to annual U.S. GDP and up to $11 billion in annual
merchandise exports to South Korea. The agreement was also expected
to support tens of thousands of American jobs.
Under the KORUS FTA, over 95% of bilateral trade in consumer and
industrial products will become duty free over a five year period
following the date the agreement enters into force, and most
remaining tariffs are scheduled to be eliminated within 10 years.
For agricultural products, the KORUS FTA eliminates or phases out
tariffs and quotas on a broad range of products, with almost
two-thirds (by value) of South Korea's agriculture imports from the
United States becoming duty free upon entry into force. The KORUS
FTA would also open South Korea's $560 billion services market to
American companies, which could result in jobs for U.S. workers in
sectors ranging from delivery and telecommunications services to
education and health care services.
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Many areas of the KORUS FTA are relevant to the California economy.
The chart below are highlights from the USTR website on the
anticipated benefits from the KORUS FTA to California.
Computers and Electronics Products - California businesses
exported on average $1.8 billion per year in computers and
electronics products to South Korea between 2008 and 2010. Top
U.S. exports in this sector included digital integrated
circuitry, semiconductors, semiconductor manufacturing equipment,
telecommunications equipment, radio and television parts, static
converters, and magnetic tape.
Machinery Manufactures - Machinery manufactures exports from
California to South Korea averaged $1.4 billion per year between
2008 and 2010. Many machinery manufactures received duty-free
treatment immediately upon entry into force of the agreement,
including products such as refrigeration compressors, valves,
renewable energy equipment, air pollution control equipment
(pumps), water filtering and purifying equipment, and piston
engines and engine parts.
Transportation Equipment - In 2008-2010, California exported
$581 million in transportation equipment to Korea on average.
U.S. exports include transportation equipment, including autos,
auto parts, aircraft, fishing vessels, locomotives, and other
transportation manufactures.
With the KORUS FTA only in effect since March 2012, it is difficult
to specifically assess its impact on the California economy. The
chart below does show total exports to South Korea and the
comparative percentage of South Korean exports as compared to total
California exports for 2010 through 2013.
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1)California's Trade Economy : International trade and foreign
investment serve as critical components of California's $2.0
trillion economy. If California were a country, it would be the
17th largest exporter and the 14th largest importer in the world.
Merchandise exports from California ($168 billion) accounted for
over 10.6% of total U.S. exports in goods, shipping to over 220
foreign destinations in 2013. California's land, sea, and air ports
of entry served as key international commercial gateways for the
$538 billion in products entering and exiting the U.S. in 2012.
Statewide, 4.4 million California jobs are dependent on foreign
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trade. Over 562,700 California workers benefit from jobs with
foreign-owned firms, which accounts for 5.1% of all private sector
jobs in the state.
California's significance in the global marketplace results from a
variety of factors, including: its strategic southwest and coastal
location offering direct access to growing foreign markets in
Mexico, Latin America, and Asia; its nine diverse regional
economies; its large, ethnically diverse population, representing
both a ready workforce and significant consumer base; its access to
a wide variety of venture and other private capital; its broad base
of small- and medium-sized businesses; and its culture of innovation
and entrepreneurship, particularly in the area of high technology.
Mexico is California's top trading partner, receiving $23.9 billion
(14%) in goods in 2013. The chart on the next page shows export
data on the state's top five trade partners. Other top-ranking
export destinations not shown on the chart include Hong Kong,
Taiwan, Germany, the Netherlands, and the United Kingdom.
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| California Export based on Movement of Goods 2012 and 2013 |
--------------------------------------------------------------------
|--------------+--------------+--------------+--------------+--------------+--------------+--------------|
| Rank | Country | 2012 Value | 2013 Value | 2012 % Share | 2013 % Share | % Change, |
| | | | | | | 2012 - 2013 |
|--------------+--------------+--------------+--------------+--------------+--------------+--------------|
| --- |Total | 161,880| 168,128| 10.5| 10.6| 3.9|
| |CALIFORNIA | | | | | |
| |Exports and % | | | | | |
| |Share of U.S. | | | | | |
| |Total | | | | | |
|--------------+--------------+--------------+--------------+--------------+--------------+--------------|
| --- |Total, Top 25 | 143,671| 149,020| 88.8| 88.6| 3.7|
| |Countries and | | | | | |
| |% Share of | | | | | |
| |State Total | | | | | |
|--------------+--------------+--------------+--------------+--------------+--------------+--------------|
| 1 |Mexico | 26,370| 23,933| 16.3| 14.2| -9.2|
|--------------+--------------+--------------+--------------+--------------+--------------+--------------|
| 2 |Canada | 17,424| 18,819| 10.8| 11.2| 8.0|
|--------------+--------------+--------------+--------------+--------------+--------------+--------------|
| 3 |China | 13,970| 16,359| 8.6| 9.7| 17.1|
|--------------+--------------+--------------+--------------+--------------+--------------+--------------|
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| 4 |Japan | 13,033| 12,711| 8.1| 7.6| -2.5|
|--------------+--------------+--------------+--------------+--------------+--------------+--------------|
| 5 |South Korea | 8,246| 8,394| 5.1| 5.0| 1.8|
--------------------------------------------------------------------------------------------------------
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|Source: tradeport.org |
| |
| |
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California's largest industry sector by employment is Trade,
Transportation, and Utilities, which encompasses everything from
major retail outlets, to import-export businesses, to transportation
and warehousing. California leads the nation in export-related
jobs. The U.S. Department of Commerce estimates that for every one
million dollars of increased trade activity, 11 new jobs are
supported. Workers in trade-related jobs earn on average 13% to 28%
higher wages than the national average.
In today's globally linked economy, manufacturing utilizes products
from across the U.S., as well as from other nations. In 2012, 61%
($1.3 trillion) of the products imported into the U.S. were inputs
and components intended for use by American producers. In addition,
U.S. imports often include components or benefited from services
provided by U.S. firms, including many California companies. The
Wilson Center estimates that Mexican imports and Canadian imports
contain 40% and 20% U.S. components, respectively.
Trade and foreign investment support new job creation, bring new
technologies and skills to California workers, generate local and
state revenues, and generally strengthen the state's economic base.
In the future, California's economy will become increasingly reliant
on accessing foreign markets where a majority of global economic
growth is expected to occur.
2)Implementing Amendments : Committee staff has been working with the
author's office on amendments to more specifically operationalize
the objectives of the bill. Below is a list of amendments that
staff understand will be offered in Committee:
a) Expand the scope of the bill by authorizing GO-Biz to
establish one or more trade related public private partnerships
to help guide state activities. Partnership may be based on
geography or industry sector.
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b) Direct GO-Biz when establishing a trade-related public private
partnership to also create a subaccount within the Economic
Development and Trade Promotion Account for donations of private
funds that are earmarked for the specific trade partner or
industry sector.
c) Name the public private partnership which will focus on trade
with South Korea the "South Korean Trade Promotion Advisory
Committee."
d) Specify that among the issues that the public private
partnerships may consider are the implementation of the state
International Trade and Investment Strategy including funding of
these activities which may include attracting private donation
and the establishment of a market order.
e) Require public private partnerships to meet at least three
times in the calendar year. Meeting may be by phone, over the
internet, or in person, at the discretion of GO-Biz.
3)Related Legislation : Legislation related to this measure includes
the following:
a) AB 1032 (Blumenfield) International relations: Israel
Memorandum of Understanding: This bill would have required the
Governor to establish a memorandum of understanding to formalize
a relationship between California and the State of Israel for the
purpose of fostering technology and business development and
educational opportunities in the area of clean technologies
including, but not limited to, solar energy. Status: Held under
submission in the Assembly Committee on Appropriations, May 2009.
b) AB 1088 (Muratsuchi) GO-Biz Trade Office in Japan: This bill
would have directed GO-Biz to establish a trade office in Tokyo,
Japan by 2016. Status: Held under submission in the Assembly
Committee on Jobs, Economic Development, and the Economy, 2014.
c) AB 2012 (John A. P�rez) Economic Development Reorganization:
This bill transferred the authority for undertaking international
trade and foreign investment activities from the Business,
Transportation and Housing Agency to the Governor's Office of
Business and Economic Development. In addition, the bill
transferred the responsibility for establishing an Internet-based
permit assistance center from the Secretary of the California
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Environmental Protection Agency to GO-Biz. Status: Signed by
the Governor, Chapter 294, Statutes of 2012.
d) SB 1525 (Murray) Trade Office in South Africa: This bill
would have required the Governor to instruct the Secretary of the
Building Transportation and Housing Agency to establish, on a
contractual basis, an international trade and investment office
in Johannesburg, Republic of South Africa. Status: Held in the
Assembly Committee on Jobs, Economic Development, and the
Economy, 2006.
REGISTERED SUPPORT / OPPOSITION :
Support
None received
Opposition
None received
Analysis Prepared by : Toni Symonds / J., E.D. & E. / (916) 319-2090