[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]



 
                             THE U.S.-KOREA
                   FREE TRADE AGREEMENT NEGOTIATIONS

=======================================================================

                                HEARING

                               before the

                         SUBCOMMITTEE ON TRADE

                                 of the

                      COMMITTEE ON WAYS AND MEANS
                     U.S. HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                               __________

                             MARCH 20, 2007

                               __________

                           Serial No. 110-26

                               __________

         Printed for the use of the Committee on Ways and Means




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                      COMMITTEE ON WAYS AND MEANS

                 CHARLES B. RANGEL, New York, Chairman

FORTNEY PETE STARK, California       JIM MCCRERY, Louisiana
SANDER M. LEVIN, Michigan            WALLY HERGER, California
JIM MCDERMOTT, Washington            DAVE CAMP, Michigan
JOHN LEWIS, Georgia                  JIM RAMSTAD, Minnesota
RICHARD E. NEAL, Massachusetts       SAM JOHNSON, Texas
MICHAEL R. MCNULTY, New York         PHIL ENGLISH, Pennsylvania
JOHN S. TANNER, Tennessee            JERRY WELLER, Illinois
XAVIER BECERRA, California           KENNY HULSHOF, Missouri
LLOYD DOGGETT, Texas                 RON LEWIS, Kentucky
EARL POMEROY, North Dakota           KEVIN BRADY, Texas
STEPHANIE TUBBS JONES, Ohio          THOMAS M. REYNOLDS, New York
MIKE THOMPSON, California            PAUL RYAN, Wisconsin
JOHN B. LARSON, Connecticut          ERIC CANTOR, Virginia
RAHM EMANUEL, Illinois               JOHN LINDER, Georgia
EARL BLUMENAUER, Oregon              DEVIN NUNES, California
RON KIND, Wisconsin                  PAT TIBERI, Ohio
BILL PASCRELL JR., New Jersey        JON PORTER, Nevada
SHELLEY BERKLEY, Nevada
JOSEPH CROWLEY, New York
CHRIS VAN HOLLEN, Maryland
KENDRICK MEEK, Florida
ALLYSON Y. SCHWARTZ, Pennsylvania
ARTUR DAVIS, Alabama

             Janice Mays, Chief Counsel and Staff Director

                  Brett Loper, Minority Staff Director

                                 ______

                         SUBCOMMITTEE ON TRADE

                  SANDER M. LEVIN, Michigan, Chairman

JOHN S. TANNER, Tennessee            WALLY HERGER, California
JOHN B. LARSON, Connecticut          JERRY WELLER, Illinois
EARL BLUMENAUER, Oregon              RON LEWIS, Kentucky
BILL PASCRELL JR., New Jersey        KEVIN BRADY, Texas
SHELLEY BERKLEY, Nevada              THOMAS M. REYNOLDS, New York
JOSEPH CROWLEY, New York             KENNY HULSHOF, Missouri
CHRIS VAN HOLLEN, Maryland
KENDRICK MEEK, Florida

Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public 
hearing records of the Committee on Ways and Means are also published 
in electronic form. The printed hearing record remains the official 
version. Because electronic submissions are used to prepare both 
printed and electronic versions of the hearing record, the process of 
converting between various electronic formats may introduce 
unintentional errors or omissions. Such occurrences are inherent in the 
current publication process and should diminish as the process is 
further refined.


                            C O N T E N T S

                               __________

                                                                   Page

Advisory of March 13, 2007, announcing the hearing...............     2

                               WITNESSES

The Honorable Karan K. Bhatia, Deputy U.S. Trade Representative, 
  Office of the U.S. Trade Representative........................     8

                                 ______

Stephen E. Biegun, Vice President of International Governmental 
  Affairs, Ford Motor Company....................................    16
Stephen J. Collins, President, Automotive Trade Policy Council...    24
Alan Reuther, Legislative Director, International Union, United 
  Automobile, Aerospace and Agricultural Implement Workers of 
  America........................................................    30

                                 ______

Tami Overby, President and Chief Executive Officer, American 
  Chamber of Commerce in Korea, on behalf of the U.S. Chamber of 
  Commerce, the U.S.-Korea Business Council, the American Chamber 
  of Commerce in Korea, and the U.S.-Korea FTA Business Coalition    60
Bob Stallman, President, American Farm Bureau Federation.........    68
Robert Vastine, President, Coalition of Service Industries.......    81
J. Patrick Boyle, President and Chief Executive Officer, American 
  Meat Institute.................................................    84
Geralyn S. Ritter, Vice President of International Affairs, 
  Pharmaceutical Researchers and Manufacturers of America........    88
Berton Steir, Executive Vice President, Paramount Farms, Los 
  Angeles, California............................................    92
Calman Cohen, President, Emergency Committee for American Trade..    95

                       SUBMISSIONS FOR THE RECORD

American Council of Life Insurers, statement.....................   112
American Iron and Steel Institute, statement.....................   113
Automotive Trade Policy Council, statement.......................   114
California Farm Bureau Federation, statement.....................   119
Center For Policy Analysis on Trade and Health, statement........   121
Korea International Trade Association, statement.................   125
Korea Policy Institute, statement................................   128
Korean Alliance against Korea-U.S. FTA, Seoul, Korea, statement..   133
Korean Confederation of Trade Unions, Seoul, Korea, statement....   135
National Corn Growers Association, statement.....................   135
National Pork Producers Council, statement.......................   136
The Honorable William J. Jefferson, statement....................   143
Walter B. McCormick, Jr., statement..............................   143


                             THE U.S.-KOREA
                   FREE TRADE AGREEMENT NEGOTIATIONS

                              ----------                              


                        TUESDAY, MARCH 20, 2007

             U.S. House of Representatives,
                       Committee on Ways and Means,
                                     Subcommittee on Trade,
                                                    Washington, DC.

    The Subcommittee met, pursuant to notice, at 2:48 p.m., in 
room 1100, Longworth House Office Building, Hon. Sander M. 
Levin (Chairman of the Subcommittee), presiding.
    [The advisory announcing the hearing follows:]

ADVISORY FROM THE COMMITTEE ON WAYS AND MEANS

                         SUBCOMMITTEE ON TRADE

                                                CONTACT: (202) 225-6649
FOR IMMEDIATE RELEASE
March 13, 2007
TR-3

               Chairman Levin Announces a Hearing on the

              U.S.-Korea Free Trade Agreement Negotiations

    Ways and Means Trade Subcommittee Chairman Sander M. Levin today 
announced a hearing on negotiations to complete a free trade agreement 
between South Korea and the United States. The hearing will take place 
on Tuesday, March 20, in the main Committee hearing room, 1100 
Longworth House Office Building, beginning at 2:00 p.m.
      
    Oral testimony at this hearing will be from invited and public 
witnesses. Any individual or organization not scheduled for an oral 
appearance may submit a written statement for consideration by the 
Committee and for inclusion in the printed record of the hearing.
      

FOCUS OF THE HEARING:

      
    The purpose of the hearing is to examine ongoing negotiations to 
conclude a free trade agreement between South Korea and the United 
States and to assess the state of the negotiations going into their 
final week.
      

BACKGROUND:

      
    The Republic of Korea has the tenth-largest economy in the world, 
with a GDP per capita of over $24,000. Korea is also the United States' 
seventh-largest trading partner, accounting for over $78 billion of 
bilateral trade in 2006. United States goods exports to Korea were $32 
billion in 2006, while imports were $46 billion, resulting in a $13 
billion U.S. goods trade deficit with Korea in 2006. Sixty percent of 
this deficit reflects the imbalance in U.S.-Korea automotive trade 
alone. Korea is a major destination for U.S. chemicals, petroleum 
products, and semiconductor machinery. Korea is a major exporter to the 
United States of automobiles, semiconductors, and steel. The United 
States is the largest source of foreign direct investment to Korea.
      
    On February 2, 2006, United States Trade Representative (USTR) 
Robert Portman and South Korean Trade Minister Kim Hyun-chong announced 
the countries' intention to negotiate a free trade agreement (FTA). 
Negotiations began formally in May 2006. The eighth round of 
negotiations is scheduled to conclude today. Since May 2006, the two 
sides have reported progress in some areas such as some industrial 
tariffs, customs administration, some anti-corruption measures, and 
foreign investment; however, sharp differences remain over trade in 
autos, pharmaceuticals, and agricultural products and over Korean 
demands that the United States change its antidumping law. Both sides 
are still aiming to complete the negotiation before the end of March to 
comply with deadlines under the Trade Act of 2002.
      
    A free trade agreement with Korea would be the second largest FTA 
in which the United States is a participant and the largest in which 
Korea is a participant.
      
    The hearing will focus on the major outstanding issues in the 
negotiation. These include opening Korea's automotive market, which 
remains a sanctuary market essentially closed to any significant import 
competition almost 20 years after Korea lifted its formal ban on 
imports. Korea's successful import substitution policy, before 1988 and 
since, has resulted in a market with marginal import penetration of 3.6 
percent, virtually all of it concentrated in one segment of the 
market--luxury sedans--for which there is essentially no competition in 
Korea. Korea's is the lowest level of import penetration of any major 
automotive producing economy in the world.
      
    The hearing will also focus on key agricultural benefits of 
increasing market access for U.S. farmers and also lingering issues 
such as Korea's largely closed rice market and Korea's repeated efforts 
to close its market to exports of U.S. beef. Additional issues to be 
explored will be concerns raised on pharmaceuticals, services, and 
investment and how the FTA will address these concerns.
      

DETAILS FOR SUBMISSION OF REQUESTS TO BE HEARD:

      
    Requests to be heard at the hearing must be made by telephone to 
Katherine Wang at (202) 226-7215 no later than the close of business 
Thursday, March 15, 2007. The telephone request should be followed by a 
formal written request faxed to Janice Mays, Chief of Staff, the 
Committee on Ways and Means, U.S. House of Representatives, 1102 
Longworth House Office Building, Washington, D.C. 20515, at (202) 226-
0158. The staff of the Committee will notify by telephone those 
scheduled to appear as soon as possible after the filing deadline. Any 
questions concerning a scheduled appearance should be directed to the 
Committee staff at (202) 225-1721.
      
    In view of the limited time available to hear witnesses, the 
Committee may not be able to accommodate all requests to be heard. 
Those persons and organizations not scheduled for an oral appearance 
are encouraged to submit written statements for the record of the 
hearing in lieu of a personal appearance. All persons requesting to be 
heard, whether they are scheduled for oral testimony or not, will be 
notified as soon as possible after the filing deadline.
      
    Witnesses scheduled to present oral testimony are required to 
summarize briefly their written statements in no more than five 
minutes. THE FIVE-MINUTE RULE WILL BE STRICTLY ENFORCED. The full 
written statement of each witness will be included in the printed 
record, in accordance with House Rules.
      
    In order to assure the most productive use of the limited amount of 
time available to question witnesses, all witnesses scheduled to appear 
before the Committee are required to submit 200 copies, along with a CD 
ROM of their prepared statement for review by Members prior to the 
hearing. Testimony should arrive at the Subcommittee office, 1104 
Longworth House Office Building, no later than close of business on 
Friday, March 16, 2007. The 200 copies can be delivered to the 
Subcommittee staff in one of two ways: (1) Government agency employees 
can deliver their copies to 1104 Longworth House Office Building in an 
open and searchable box, but must carry with them their respective 
government issued identification to show the U.S. Capitol Police, or 
(2) for non-government officials, the copies must be sent to the new 
Congressional Courier Acceptance Site at the location of 2\nd\ and D 
Streets, N.E., at least 48 hours prior to the hearing date. Please 
ensure that you have the address of the Subcommittee, 1104 Longworth 
House Office Building, on your package, and contact the staff of the 
Subcommittee at (202) 225-6649 of its impending arrival. Due to new 
House mailing procedures, please avoid using mail couriers such as the 
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this facility, it will be opened, screened, and then delivered to the 
Committee office, within one of the following two time frames: (1) 
expected or confirmed deliveries will be delivered in approximately 2 
to 3 hours, and (2) unexpected items, or items not approved by the 
Committee office, will be delivered the morning of the next business 
day. The U.S. Capitol Police will refuse all non-governmental courier 
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encounter technical problems, please call (202) 225-1721.
      

WRITTEN STATEMENTS IN LIEU OF PERSONAL APPEARANCE:

      
    Please Note: Any person(s) and/or organization(s) wishing to submit 
for the hearing record must follow the appropriate link on the hearing 
page of the Committee website and complete the informational forms. 
From the Committee homepage, http://waysandmeans.house.gov, select 
``110th Congress'' from the menu entitled, ``Hearing Archives'' (http:/
/waysandmeans.house.gov/Hearings.asp?congress=18). Select the hearing 
for which you would like to submit, and click on the link entitled, 
``Click here to provide a submission for the record.'' Once you have 
followed the online instructions, completing all informational forms 
and clicking ``submit'' on the final page, an email will be sent to the 
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submission for the record. You MUST REPLY to the email and ATTACH your 
submission as a Word or WordPerfect document, in compliance with the 
formatting requirements listed below, by close of business Tuesday, 
April 3, 2007. Finally, please note that due to the change in House 
mail policy, the U.S. Capitol Police will refuse sealed-package 
deliveries to all House Office Buildings. Those filing written 
statements who wish to have their statements distributed to the press 
and interested public at the hearing can follow the same procedure 
listed above for those who are testifying and making an oral 
presentation. For questions, or if you encounter technical problems, 
please call (202) 225-1721.
      

FORMATTING REQUIREMENTS:

      
    The Committee relies on electronic submissions for printing the 
official hearing record. As always, submissions will be included in the 
record according to the discretion of the Committee. The Committee will 
not alter the content of your submission, but we reserve the right to 
format it according to our guidelines. Any submission provided to the 
Committee by a witness, any supplementary materials submitted for the 
printed record, and any written comments in response to a request for 
written comments must conform to the guidelines listed below. Any 
submission or supplementary item not in compliance with these 
guidelines will not be printed, but will be maintained in the Committee 
files for review and use by the Committee.
      
    1. All submissions and supplementary materials must be provided in 
Word or WordPerfect format and MUST NOT exceed a total of 10 pages, 
including attachments. Witnesses and submitters are advised that the 
Committee relies on electronic submissions for printing the official 
hearing record.
      
    2. Copies of whole documents submitted as exhibit material will not 
be accepted for printing. Instead, exhibit material should be 
referenced and quoted or paraphrased. All exhibit material not meeting 
these specifications will be maintained in the Committee files for 
review and use by the Committee.
      
    3. All submissions must include a list of all clients, persons, 
and/or organizations on whose behalf the witness appears. A 
supplemental sheet must accompany each submission listing the name, 
company, address, telephone and fax numbers of each witness.
      
    Note: All Committee advisories and news releases are available on 
the World Wide Web at http://waysandmeans.house.gov.
      
    The Committee seeks to make its facilities accessible to persons 
with disabilities. If you are in need of special accommodations, please 
call 202-225-1721 or 202-226-3411 TTD/TTY in advance of the event (four 
business days notice is requested). Questions with regard to special 
accommodation needs in general (including availability of Committee 
materials in alternative formats) may be directed to the Committee as 
noted above.

                                 

    Chairman LEVIN. We'll begin. Let me briefly describe the 
structure of this hearing. We've tried to structure it--I felt 
strongly about this and I talked to the Ranking Member--to see 
if we could have a somewhat lively discussion that took on the 
outstanding issues--and there are a good number of them 
relating to the U.S.-Korea Free Trade Agreement.
    Sometimes hearings tend to be kind of segmented, and I 
think as a result we don't have enough of a real discussion. 
So, here's what we're going to do this time. Ambassador Bhatia 
will go first and give us his opening remarks. We're going to 
ask everyone to try to keep to 5 minutes except maybe the 
Ambassador.
    Then we'll have the second panel, which is going to focus 
in on one of the issues that's outstanding. Perhaps the most 
visible, but there are many--there are several other 
outstanding issues as well as automotive. This panel will be on 
automotive issues.
    Then the Ambassador has agreed that he'll come back here, 
having heard that testimony, and be open to questions on what 
he heard from that panel but everything else, the other issues, 
the agricultural issues, the service issues, the industrial, 
the intellectual property issues, and so forth. Then we'll call 
the panel back, the three who testified on automotive to answer 
Q&A from the Members here.
    Then we'll have the third panel, and if you've seen the 
list, it covers other outstanding issues. I mentioned them, and 
there are several others, and then we'll have the Q&A.
    We have about 3 hours, I think, before the next vote; it's 
not sure. The Ambassador has to leave after perhaps an hour-
and-a-half, so we'll try to adhere to the 5-minute rule.
    So, I'll give an opening statement. Mr. Herger will. Then, 
Ambassador, if you will, take over.
    The negotiation of the U.S.-Korea Free Trade Agreement 
(FTA) is indeed significant, and I want to underline that. 
Korea is the United States' seventh largest trading partner and 
the world's eleventh largest economy. The U.S.-Korea Free Trade 
Agreement would be the largest and most commercially 
significant bilateral FTA negotiated by this Administration.
    As the Administration completes its eighth round of 
negotiations, several outstanding issues remain, including 
services, telecommunications, intellectual property and 
agriculture; including beef and rice.
    That's a lot to chew on. Most challenging is Korea's 
massive Non-Tariff Barriers (NTBs), to America's industrial 
products in general and automotive products in particular. 
Since the outset, Korea has had an economic iron curtain 
against these products, using a combination of tariffs, taxes 
and regulations.
    The U.S.-Korea Free Trade Agreement is a key test of the 
approach we take to trade policy. It's a test whether we need 
to shape the terms of expanded trade or assume, no matter how 
imbalanced, that leaving it alone to work it out on its own is 
the best approach. It is a test specifically of whether we will 
be active or passive in the face of longstanding harmful 
practices of the Korean government to discriminate against our 
products in their domestic market. It is also a test of our 
willingness to stand up for our domestic industry.
    Today we will hear compelling testimony on the history of 
our trade relationship with Korea as I mentioned in the 
automotive sector. The facts tell a real life story. Korea is 
the fifth largest producer and the ninth largest consumer 
automotive market in the world. We now have in our country an 
$11 billion deficit in auto trade, which is 82 percent of the 
total deficit between our two countries.
    Last year, Korea sold 700,000 vehicles in the United States 
The United States sold only 4,000 in Korea. The significance of 
Korea's non-tariff barriers--and I want to emphasize this--even 
goes beyond this important FTA. If U.S. Trade Representatives 
(USTR) fails to deal with it decisively it will reinforce the 
lack of active consideration of NTBs in the World Trade 
Organizations (WTO) Doha Round negotiations, which have to date 
made no real progress on outstanding NTB issues in the entire 
global trading system.
    We know through experience, two previous Korean commitments 
in Memorandum of Understanding (MOUs), that they were not worth 
the paper they were written on, what will not work to end these 
non-tarrif barriers to U.S. exports. We need a very new 
approach.
    At the beginning of March a broad, bipartisan group of 
legislators, House and Senate, transmitted to the President the 
specific negotiating position that moves beyond previous 
negotiating strategies and embarks on such a new approach, the 
conditions Korea is obtaining addition access to the U.S. 
market on reciprocal opening of the Korean automotive market.
    There are two key components to the bipartisan 
congressional proposal. The first part addresses the phase out 
of the 2.5 percent U.S. passenger vehicle tariff and creates a 
positive incentive for Korea to open its market to U.S. autos. 
The second part addresses Korea's current non-tariff barriers 
and creates a mechanism available to all industries for the 
United States to take action against future non-tariff 
barriers.
    So, far there has been no meaningful movement by the Korean 
government. It clings to its persistent denial that there has 
been a government policy to shelter its market, a denial that 
flies in the face of facts on the ground over the decades. The 
response by USTR has included so far another form of denial, a 
denial that Korea cares very much about the 2.5 percent tariff, 
thereby undercutting U.S. leverage, and a denial that the one-
way street will continue to be harmful because it's believed 
Korea will be shifting far more production to the United States
    Since the Korean government has made it clear that the 
early elimination of the United States. 2.5 percent passenger 
vehicle tariff is a top priority, I have no idea why we would 
be conceding any leverage. As I have communicated, and the 
Ambassador knows, to USTR, a focus of future Korean increases 
in U.S.-based production is speculative and in any event misses 
the point.
    Increased domestic production will not necessarily result 
in fewer exported autos from Korea. Just look at the Japanese 
experience. Over the last 10 years, as Japanese production in 
the United States has increased, their exports to the United 
States have doubled from 1.2 to 2.4 million. From 2005 to 2006, 
Japan exported an additional half a million cars to the United 
States. Eighty percent were Toyotas. Nearly half of all Toyotas 
sold in the United States last year were exported to the United 
States.
    It also misses the point that a large portion of the 
content of Korean cars assembled in the United States comes 
from Korea, and it also misses the point that the FTA must be 
structured to assure that the Korean market becomes fully open 
to U.S. automotive and, I emphasize this, other industrial 
goods.
    Congress cannot do the negotiating to end one-way streets 
in trade with Korea, but we can make it clear the type of 
agreement that we can support. My hope is that the message is 
becoming clear to USTR. We need a shift in negotiating strategy 
to an active, results-oriented approach that demands and 
measures commitments by the Korean government. To do less would 
be to do more of the same, and that should not and cannot 
result in an FTA acceptable to this Congress in my judgment and 
to the American people.
    Mr. Herger, for your opening statement.
    Mr. HERGER. Thank you, Chairman Levin. There's no doubt 
that the U.S.-Korea FTA negotiations that we are here this 
afternoon to discuss is a huge opportunity for both of our 
countries. Korea is the world's tenth largest economy and our 
seventh largest goods trading partner, with an annual Gross 
Domestic Product (GDP) rapidly approaching $1 trillion and a 
per capita income over $20,000.
    Bilateral trade between our countries already tops $70 
billion. An agreement will reduce trade barriers for export of 
U.S. services, agriculture and manufactured goods as well as 
increase IPR protection. Expanded commercial ties will 
strengthen our political partnership with this critical ally in 
Northeast Asia. Indeed, USTR has described this FTA as the most 
significant trade negotiation in the past 15 years.
    As we approach the concluding days of these negotiations, 
Ambassador Bhatia, I know you will not rest unless this huge 
opportunity translates into a great deal for the United States. 
To that end, I will make four brief points.
    First, Korea needs to put rice on the negotiating table so 
that our farmers can put their rice on Korean dinner tables. 
U.S. exports of rice are subject to a harsh quota system and 
industrial use restrictions in Korea. Of the small amount that 
even makes it into Korea, the overwhelming majority sits in the 
food processing warehouses not in retail stores.
    This FTA must have comprehensive product coverage including 
meaningful access for rice. Anything less would be a terrible 
disappointment.
    Second, the U.S. beef industry has worked tirelessly to 
implement Bovine Spongiform Encephalopathy (BSE) safeguards to 
ensure the safety of U.S. beef. We know that U.S. beef and beef 
products are safe regardless of age so long as specified risk 
materials have been removed, and we expect the international 
standard will be formally established shortly.
    Reports that Korea does not plan to reopen its markets to 
bone and beef products, notwithstanding scientific evidence, 
are deeply troubling. Korean officials should commit to 
implementing the Operational Independent Evaluator (OIE) 
recommendation instead of using U.S. beef as a negotiating 
ploy.
    Furthermore, I strongly urge USTR to reject out of hand any 
offer from Korea to allow beef access only in exchange for U.S. 
abandonment of its rice demands. The exclusion of either rice 
or beef from this important agreement will risk Congressional 
passage.
    Third, the U.S.-Korea FTA should include a robust investor 
state dispute settlement mechanism, and I urge the 
Administration to resist any efforts to limit this vital tool. 
The model investment provisions that we have developed in prior 
agreements are essential to preserving the rights of U.S. 
investors abroad. At the same time, they are well balanced, so 
that they do not threaten the ability of our Federal or State 
governments from regulating.
    Finally, I remain very concerned about the lack of market 
access for U.S. autos in Korea. Our market is open with no non-
tariff barriers and minimal duty, however Korean duties, taxes 
and stealthy and pervasive non-tariff barriers created by an 
opaque and discriminatory regulatory process combine to 
effectively foreclose market access for our companies. I reject 
the claim that Koreans just don't like American cars. The very 
existence of the barriers proves that the Korean industry knows 
Korean consumers will buy our cars.
    That said, we have to carefully consider the right approach 
to breaking down these barriers on autos. Managing trade 
through the establishment of market access quotas is not the 
answer and will create a dangerous precedent that we can't 
sustain. We must be able to show U.S. automakers and their 
workers that Korea won't establish disguised trade barriers and 
will instead utilize transparent regulations and standards. 
Korea's overtures on this issue thus far have been completely 
unsatisfactory.
    Finally, I would like to welcome Mr. Berton Steir, 
representing Paramount Farms of California, which is seeking 
duty-free treatment on pistachios in Korea. Paramount's 
situation is a prime example of the benefits U.S. interests 
stand to gain with a robust and comprehensive agreement.
    Mr. Bhatia, thank you for appearing before us today. I look 
forward to your testimony.
    Chairman LEVIN. Ambassador, welcome. Take over.
    We discussed your time limit is 4:30. I think we can 
accomplish your testimony, the testimony of the first panel and 
a chance for all of us to talk with you. Welcome.

   STATEMENT OF KARAN K. BHATIA, DEPUTY U.S. REPRESENTATIVE, 
            OFFICE OF THE U.S. TRADE REPRESENTATIVE

    Mr. BHATIA. Thank you. Thank you very much Chairman Levin, 
Ranking Member Herger, distinguished Members of the Committee. 
I'm really delighted to be able to join you here today to 
discuss our FTA negotiations with South Korea.
    Mr. Chairman, I appreciate your recognition of the time 
constraints that we're under. This week we have both the 
Koreans in town to continue the negotiations and obviously a 
short period of time, so I appreciate that.
    However, I wouldn't want to suggest--leave anyone with the 
impression that, by virtue of the way this hearing has been 
structured of my being able to be here for the questions after 
the auto panel, that somehow we place less importance on the 
other outstanding issues that will be addressed in the third 
panel.
    I want you to know that we will certainly have people here 
to witness that third panel, and I want you to know that I 
personally have met with many members of the third panel as 
well, and I just leave that out there.
    It has been a little more than a year since our FTA 
negotiations were launched here on Capitol Hill with strong 
bipartisan support. Today, 13 months later, we are nearing the 
end of the negotiating process. While a number of critical 
issues remained outstanding, it's our hope that those issues 
can be resolved and that by the end of this month we will be in 
a position to notify Congress of our intent to sign the Korea-
U.S. Free Trade Agreement.
    Let me start with a brief word of background about South 
Korea for the panel. As many of you may know, 40 years ago 
Korea was among the poorest countries in Asia. It possessed a 
largely agricultural economy and a per capita GDP barely over 
$100. Politically, from the period following the Korean war 
until the late eighties, it was ruled by a string of 
authoritarian governments.
    Today, after a period of extraordinary economic growth, 
Korea is the world's 11th largest national economy with 
approximately a trillion dollars in GDP. Its economy is 
diversified and dynamic. It is the world's 11th largest import 
market. It is our seventh largest trading partner and seventh 
largest export market, and it's also one of our faster growing 
major trading partners with U.S. goods exports to Korea growing 
by approximately 17 percent last year.
    Korea today enjoys a vigorous, multi-party democracy, 
strong public participation in its political system, strong 
labor unions and an independent judiciary.
    I would also note that we and Korea, the U.S. and Korea, 
enjoy a close military relationship. We have been strong 
partners in the war on terrorism and have been working closely 
together to promote a safe and secure Korean Peninsula.
    Against that backdrop, let me briefly outline the benefits 
that I believe the U.S. potentially stands to reap from a high 
quality, comprehensive, free trade agreement with South Korea. 
From an economic perspective, the U.S.-Korea FTA offers us an 
opportunity to grow our already significant bilateral trade and 
investment relationship.
    Just to place that relationship in perspective, the $78 
billion in bilateral goods trade that we currently have with 
Korea is more than 70 percent of the total bilateral trade that 
we enjoy with all 10 trading partners with whom we have 
implemented FTAs since 2000 combined. That's the case even 
though Korea's current average tariff for industrial goods is 
approximately 7 percent and for agricultural products is 
approximately 52 percent.
    So, when you think about the greater market access that 
would accrue under an FTA, under which U.S. exports would be 
expected to grow significantly, one can see the benefits that 
could potentially accrue from the U.S.-Korea FTA. Studies have 
estimated that the potential income gains to the U.S. economy 
from the FTA range from $17 billion to $43 billion.
    However, the benefits for the United States would go beyond 
market access. The FTA would also eliminate trade distorting 
barriers to investment and increase the protections enjoyed by 
American investors in Korea, strengthen intellectual property 
rights of American innovators, address anti-competitive 
business conduct, reduce non-tariff barriers and enhance the 
transparency of the Korean regulatory system.
    By establishing a stronger economic relationship, a KORUS 
FTA would also broaden and modernize our strategic alliance 
with Korea. It will help ensure that the U.S. partnership with 
Korea, which has been centered on defense ties for more than 
half a century, remains a vital force for stability at a time 
of change and challenge on the Korean Peninsula and in the 
broader Northeast Asia region.
    Now it bears noting that the KORUS FTA would offer a unique 
preferential advantage to American companies doing business in 
the Korean market at a time when many of our global competitors 
are actively seeking to lock up East Asia's fast growing 
economies into economic relationships that exclude the United 
States and U.S. firms.
    It's worth reflecting for a moment on that trend. Today 
there are 176 free trade agreements in existence in the Asia-
Pacific region alone and many more either under consideration 
or negotiation. China, Japan, India and the European Union 
(EU), among others, have concluded or are actively pursuing 
FTAs with East Asian trading partners. A number of these FTAs 
unfortunately do not constitute high standard, comprehensive 
FTAs of the variety that the United States negotiates.
    They do however afford preferential trading positions to 
the companies of those countries and do have the effect of 
placing U.S. businesses, workers and farmers at a relative 
disadvantage in accessing fast-growing East Asian markets. One 
potential effect of this web of arrangements is to encourage 
U.S. companies seeking to compete in these markets to relocate 
production to those countries.
    Now against that backdrop, I would submit, the KORUS FTA 
takes on added significance. To date we have concluded two East 
Asian FTAs with Singapore and Australia, important but smaller 
economies in this important region. A successful FTA with Korea 
could provide an important boost to U.S. efforts to remain an 
active economic presence in a strategically vital region that 
accounted last year for over 37 percent of total world GDP, 26 
percent of global trade flows and 29 percent of U.S. exports. 
It would establish a model that we believe could be replicated 
with other East Asian economies and could help us expand trade 
liberalization throughout the region.
    Let me finally turn briefly to the status of the KORUS 
negotiations. As the Chairman mentioned, we have concluded 
eight rounds of negotiations. I am pleased to report that the 
most recent round in Seoul did result in good progress with the 
successful closing of competition, government procurement and 
customs chapters and important progress in areas including 
investment, market access, telecommunications, services 
generally and financial services in particular.
    A group of Korean negotiators, as I mention, is in 
Washington this week to continue work toward resolution on the 
outstanding issues. Let me be clear. A final agreement has not 
yet been reached. Significant issues remain in a number of 
chapters, but I do believe that there is a strong commitment on 
both sides to work hard in the time remaining to conclude a 
high quality, comprehensive, balanced and ultimately successful 
FTA.
    While I'd be happy to discuss the elements of a successful 
FTA in greater detail during the Q&A period, let me just 
identify a few elements up front, including the following. 
First, a unique and unprecedented array of strong, enforceable 
commitments designed to level the playingfield for American 
auto manufacturers seeking to access the Korean market, a 
strong agricultural market access package that affords 
America's farmers and ranchers greater access to Korea's 
agricultural markets, a strong industrial good market access 
package that affords America's manufacturers, consumers and 
industrial goods greater access to Korea's market, a strong 
investment chapter that contains key protections for American 
companies seeking to invest in Korea, a strong pharmaceutical 
chapter that ensures Korea's pricing and reimbursement system 
for drugs and devices is transparent, non-discriminatory and 
promotes access to innovation, a strong services chapter that 
ensures American services suppliers can compete in the Korean 
market on a level playingfield in a wide range of sectors, and 
strong chapters on labor and the environment.
    In sum, Mr. Chairman, I believe this FTA offers us the 
opportunity to establish a unique relationship, a partnership 
with one of the world's fastest growing and most dynamic 
economies while solidifying our competitive presence in Asia. 
We are working hard in the time remaining to achieve this 
outcome by concluding a fair, comprehensive and strong 
agreement that will significantly benefit American workers, 
farmers, manufacturers and service providers.
    Thank you.
    [The prepared statement of Mr. Bhatia follows:]

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    Mr. LEVIN. Thank you, Ambassador. All right. We'll now, 
according to the procedure outlined ask Steve Biegun, the vice 
president of international government affairs, Ford Motor 
Company; Steve Collins, president of the Automotive Policy 
Trade Council and Allen Reuther, the legislative director for 
the United Automobile Workers if you'll come forth. As is 
always true your full statement will be placed in the record, 
and if you could try to sum up your testimony within 5 minutes.
    Welcome. Welcome. I guess we're going alphabetically. 
That's an advantage of Biegun starting with a B. Welcome, and 
please proceed.

STATEMENT OF STEPHEN E. BIEGUN, VICE PRESIDENT OF INTERNATIONAL 
            GOVERNMENTAL AFFAIRS, FORD MOTOR COMPANY

    Mr. BIEGUN. Thank you, Mr. Chairman. My name is Steve 
Biegun and I'm a vice president with Ford Motor Company. I'd 
like to thank you, Ranking Member Herger and the other Members 
of the Subcommittee for the opportunity to testify today on 
this crucially important issue. On behalf of the entire Ford 
Motor Company, I would also like to thank all of you for the 
close scrutiny you give to these trade issues, which are hugely 
consequential for the American automotive industry.
    Ford Motor Company is a world leader in the manufacturing 
and sale of automotive products with 280,000 direct employees 
worldwide and over 100,000 employees here in the United States. 
We have a long and proud history. Founded in 1903, we actively 
compete in over 200 markets worldwide and our brand is among 
the most recognized and respected around the globe.
    Ford has been operating in South Korea since 1995. Today we 
have one dealership. We have 14 showrooms and 24 service 
centers countrywide selling both the Ford and Lincoln models of 
our cars. The majority of the vehicles that we sell in South 
Korea are manufactured in the United States of America.
    Unfortunately today, after 12 continuous years of effort 
and investment, Ford Motor Company sells less than 1,700 
vehicles per year in South Korea. That's fewer vehicles than we 
sold a decade ago and the equivalent number of vehicles that we 
sell in a single year at an average dealership in northern 
Virginia.
    Why is this the case? Is it the quality of the imported 
cars? We have done a comparison of quality among the imports 
and the Korean-made vehicles and found that case by case the 
quality of imports equals or exceed the Korean vehicles in the 
Korean market.
    Is it the cost? Certainly the Korean tax and tariff 
structures are specifically designed to make imports more 
costly. Still this cost is not enough to explain the relative 
absence of imported vehicles.
    Are Korean consumers so particular that they prefer a 
different mix or type of vehicle than U.S., European and 
Japanese customers? Again, we have done side by side comparison 
of the major volume vehicles sold in the South Korean market 
today, and we found that in every case there is a comparable 
and better non-Korean choice available on the global 
marketplace.
    Or is there something more insidious occurring, something 
that keeps imports out of the market? Now let me be clear from 
the start. Ford Motor Company supports trade liberalization. We 
have supported every single free trade agreement negotiated by 
the United States Government since this process began in the 
sixties. In fact, our industry provided the original impetus 
for United States free trade policy. When joined by General 
Motors and Chrysler, we successfully pushed for the U.S.-Canada 
Auto Pact in 1965. This free trade agreement with our close 
ally and neighbor Canada became the foundation for the U.S.-
Canada Free Trade Agreement, which itself soon expanded to 
become the North American Free Trade Agreement.
    Mr. Chairman, as much as the United States automobile 
industry has supported open, global trade in our products, 
there are some competitors who are noteworthy exceptions to 
this rule. The government of Japan has, for decades, kept tight 
restrictions on those who sought to invest in the Japanese 
automotive industry and they virtually blocked the entry of 
imports for quite a long time.
    While today with the Japanese industry so well developed 
that it is a market that is difficult to penetrate for other 
reasons, the Japanese government still provides large scale 
assistance to its automotive exporters by keeping the value of 
the yen deeply discounted to provide a price advantage over 
U.S.-built vehicles in our own market.
    However, as bad as Japan's history has been on automotive 
trade issues, it does not hold a candle to the record of the 
Korean government. While I spoke earlier about Ford's lack of 
access into the Korean market, it's important to note that we 
are not alone. Let me emphasize this point. No manufacturer 
from any country can make significant sales into the Korean 
market, not Ford, not General Motors, not Toyota, not 
Volkswagen, nobody can get significant vehicles into this 
market.
    While total import penetration into the Korean market 
remains low, Korean manufacturers today freely export 70 
percent of their own production around the globe including into 
this market. In 2006 alone Korean auto producers exported 
700,000 vehicles into the United States while we in turn 
exported 4,000 into Korea. As a result, and to no one's 
surprise, 80 percent of the $13 billion U.S. trade deficit with 
South Korea is automotive products.
    Real market access for imported vehicles into Korea is 
prevented not by price, quality or consumer preference but by 
an elaborate layering and ever changing presence of non-tariff 
barriers that work effectively to block our products. The 
witness to my left, Mr. Collins, will get into a little bit 
more detail on that, so I won't repeat what he's going to say 
in a moment.
    Mr. Chairman, I stated at the outset that Ford Motor 
Company supports free trade. I suppose we may be old fashioned 
though in one respect. When our government negotiates a free 
trade agreement we want the other party in the negotiation to 
support free trade too. Nothing in Korea's approach to this 
negotiation suggests to the automobile industry that the Korean 
government has the slightest intention to open the market to 
our products.
    U.S. manufacturers proposed early on in these FTA 
negotiations a non-traditional approach to gain real, sustained 
and meaningful access to the Korean market. We are convinced a 
traditional approach simply will not work. The method we 
propose would place the burden on Korea to first open its 
market and identify the techniques it has used to block imports 
and then come up with the solutions.
    In the past, it's felt a bit like the old arcade game Wac-
A-Mole. New regulations pop up each time we whack one down. I 
would hope the United States Trade Representative has had 
enough of that game and will insist that the Korean government 
come up with solutions, remove the obstacles and allow 
consumers in Korea the same full range of choices that the 
American consumer has.
    In short, the Koreans broke their market and it's their 
responsibility to fix it. Earlier this month, a letter from 
several Members of Congress was sent to the President, a 
bipartisan group of 15 Members proposed an innovative and 
thoughtful approach on dealing with the longstanding issue of 
lack of market access. We fully support this proposal.
    While press accounts suggest that automotive trade issues 
have been put off virtually to the end of this negotiation, the 
possibility of finding an agreement on this vitally important 
issue does not appear to be promising. Korean government 
representatives deny that any steps are currently being taken 
to impede imports into their market, a statement that is on its 
very face ludicrous.
    Mr. Chairman, the United States automobile industry is in 
the midst of a difficult restructuring. We have made painful 
decisions to shed jobs and idle plants in order to become more 
competitive and restore profitability to our business in the 
face of tough competition.
    Yet you have not heard us ask for protectionist policies to 
close off opportunity for anyone in our market. To the 
contrary, all we ask is the same level of access to their 
market. The United States passenger car market is today the 
most free and open in the world. Anyone can do business here. 
As a company that operates and competes in 200 markets 
globally, Ford sees the real and tangible benefits of such 
policies.
    Free trade lowers transaction costs. It improves efficiency 
and enables us to more effectively meet the demands of our 
customers here in the United States and abroad. However, free 
trade must truly be free, not encumbered by the layers of 
restrictions that are set up only to protect domestic 
industries. That is why we are hopeful that this negotiation, 
our last best chance, will result in real and meaningful market 
access for American automotive products in Korea. If it does 
not, then it is our view that it should not be approved.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Biegun follows:]

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    Chairman LEVIN. Thank you very much.
    Mr. Collins.

          STATEMENT OF STEPHEN J. COLLINS, PRESIDENT,

                AUTOMOTIVE TRADE POLICY COUNCIL

    Mr. COLLINS. Thank you, Mr. Chairman. Mr. Chairman; Mr. 
Herger, Ranking Member; Members of the Committee, I am Stephen 
Collins, the president of the Automotive Trade Policy Council, 
and I appreciate the time to talk this afternoon about the 
importance also of automotive trade issues during the U.S.-
Korea FTA.
    I am testifying today on behalf of our member companies, 
General Motors Corporation, Ford Motor Company, and 
DaimlerChrysler, whose views I am representing here today. I 
want to make a few general comments in opening.
    Number one, U.S. auto companies have supported U.S. trade 
liberalization initiatives by Republican and Democratic 
Administrations for decades. This includes all the bilateral 
FTAs that have been presented to this Congress and previous 
congresses since 2000. Association of Tin Producing Countries 
(ATPC) and our companies hope to see the U.S. reach a strong, 
solid and credible agreement with Korea that will eliminate all 
tariff and non-tariff barriers and allow U.S. auto companies to 
fully participate in that market.
    Number two, as has been noted, and if you would look at the 
chart there, it's very clear. Auto trade is the huge factor in 
our trade relationships. It's 82 percent of the deficit with 
Korea. That's up from 35 percent 5 years ago. It's $11 billion. 
It's 30 percent of Korea's exports to the U.S. It is the 
biggest traded product. Therefore, by itself, that defines a 
major degree of attention. It's also now become a huge problem 
that is unresolved, one with a week and a half to go in this 
negotiation.
    The Korean government however has created this problem, and 
it is the Korean government that has the responsibility and is 
the party that has to resolve this. The U.S. auto industry has 
earned a seat at this table for this discussion. In simple 
numbers, U.S.-Korean auto trade is so lopsided that it cannot 
be seriously justified by any credible, objective economic or 
market-based rationales.
    I'd like to you look in your material there on chart number 
two. Chart number two shows that this is not just a U.S. issue, 
that--if you look at it, it will show--these are the sales--
it's in your packet as well--of all foreign cars from Japan and 
Europe in Korea and the U.S. in Korea last year. It shows that 
nobody is doing well in Korea. There is no automaker that is 
selling in serious numbers in Korea.
    Korea unacceptably and unjustifiably restricts sales of 
foreign automobiles across the board. Next, I want to say that 
U.S. auto companies have worked together with USTR for a 
decade. We have been at this for over 10 years to deal with 
this huge blot on our country's trade relationship, and we have 
not together been able to succeed in opening the Korean market.
    All past efforts including two bilateral U.S.-Korea auto 
agreements in 1995 and 1998 have failed to open that market 
although negotiated in good faith. So, we have to try something 
different. I'd like to explain our position briefly.
    The position of ATPC is--well, first I'd like to say we 
understand there have been some mischaracterizations both in 
Seoul and here in Washington about what we are asking for and 
seeking in this negotiation as a remedy to Korea's closed 
market. Let me be very clear. We are not seeking managed trade. 
We are not seeking guaranteed sales in Korea as some have 
suggested.
    These are incorrect but quite quick and simple labels that 
have been used to gloss over the serious efforts by many trade 
practitioners to an innovative approach to deal with a unique 
and intractable problem that we have faced. We believe that the 
standard trade negotiating approach, which was reminiscent and 
which we pursued together with USTR in the 'nineties through 
two bilateral agreements, which is apparently being used now by 
U.S. negotiators, will result in a one-way, one-sided agreement 
that benefits only Korea.
    ATPC has consistently recommended that opening the Korean 
auto market will require the willingness to take new 
approaches. Given Korea's dismal past record, we have 
recommended that preferential access to the U.S. auto market be 
provided when the Administration and the Congress can 
reasonably be satisfied that all trade barriers to auto imports 
have been removed and the Korean market is seen to be fully 
open to the sale of the U.S. and other imported cars.
    Mr. Chairman, I have put in my statement a discussion of 
the multiplicity of non-tariff trade barriers that have been 
used by Korea for many years. You'll have a chart in your 
materials and one here. They range from some years back 
outright bans on imports of automobiles to the use of high 
tariffs, discriminatory taxation, the use of tax audits on 
people who purchased imported cars, a shifting maze of 
overlapping regulatory and endless regulatory barriers that 
have effected imports more than any other factor.
    This is--we try to capture this in one chart here, but just 
to give you a sense of--there is a maze here of things that no 
one has been able to cut through, and it is not accidental.
    My time is up. I want to summarize with just 30 seconds of 
comments on where we see the current status.
    Where are we now 2 weeks before the deadline? ATPC, number 
one, has offered on behalf of the industry a comprehensive 
proposal for addressing the totality of the problem. The USTR 
appears not to have accepted our recommendations. Number two, 
the Korean government, to our knowledge has not, in a year, 
come forward with a proposal that addresses the closed 
automotive market.
    Number three, as has been mentioned, a bipartisan group of 
Congress this month has offered a comprehensive auto proposal 
which we believe has been very helpful and constructive, and we 
commend those, including Chairman Levin, who have been 
instrumental in that. We appreciate the effort.
    I want to just leave you with one thought, and then I'll 
stop. Last week it came to our attention--and I can't 
corroborate this personally, but others can--that the Korean 
government has indicated that its number one objective now from 
the United States in this negotiation is the immediate removal 
of U.S. automobile tariffs, its number one negotiating 
objective.
    I find that rather fascinating and amazing as a negotiating 
strategy, but that's where we are. After all of this where we 
feel all of the impetuses on the Korean side, the Koreans are 
saying, our number one objective is that you, the United 
States, give us immediate access, preferential access to your 
market. We haven't seen anything offered back.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Collins follows:]

              Statement of Stephen J. Collins, President,
                    Automotive Trade Policy Council

I. Introduction
    Mr. Chairman/Members of the Committee:
    Thank you for the time to discuss the importance of automotive 
trade issues in the ongoing U.S.-Korea FTA negotiations. I am 
testifying today on behalf of General Motors Corporation, Ford Motor 
Company and DaimlerChrysler Corporation--who are the members companies 
of the Automotive Trade Policy Council and whose views I am presenting 
today.
    I want to begin with several comments relating to the current 
situation:
    1. The U.S. auto companies have supported U.S. trade liberalization 
initiatives by Republican and Democratic Administrations for decades. 
This includes all the bilateral FTAs presented to the Congress since 
2000. We have also offered extensive support to USTR in this Korean 
initiative from the beginning of this negotiation. These three 
companies have spent many years trying to open the Korean auto market. 
ATPC's hope is to see the U.S. reach a strong, solid and credible 
agreement with Korea that will eliminate all tariff and non-tariff 
barriers and allow U.S. auto companies to fully participate in that 
market.
    2. Auto trade is a large portion of U.S.-Korea trade and has now 
become a big problem in this negotiation. But the Korean government 
created this problem and the Korean Government is the party that has to 
resolve it. The auto industry has earned a seat at this table. The U.S. 
now has an $11 billion deficit in auto trade with Korea, which is 82% 
of the total deficit between our two counties. In simple numbers, U.S.-
Korean auto trade is so lopsided that it cannot be seriously justified 
by any credible economic or market--based rationales.
    Last year, Korea exported about 700,000 cars, vans and SUVs to the 
United States. Our market is open and Korean competitors have been 
welcomed and given a fair shot a success here. On the other side, U.S. 
auto exports to Korea totaled just over 4,000 last year. Amazingly, 
auto imports from the entire world represented just 3.6% of the Korean 
market. This is not a picture of a healthy, mature, and mutually 
beneficial trading relationship
    3. A Free Trade Agreement is primarily about trade. There have been 
changes in investment patterns in the auto business, both here and in 
Korea. Recently, Korea has opened up to foreign investment in its auto 
sector. In 2002, General Motors invested in Korea, acquiring certain 
assets of the bankrupt Daewoo Motors and creating a new company which 
produces cars there.
    On the U.S. side, Hyundai/Kia has also made investments here, with 
one assembly plant operating and another under construction. But auto 
investment is not the topic of this FTA. It's all about trade and 
market access.
    4. Korea's auto market is not just closed to the U.S. auto 
industry. European and Japanese automakers are doing no better in Korea 
and share the same view--that Korea unacceptably and unjustifiably 
restricts sales of foreign automobiles.
    5. The U.S. auto companies have worked together with USTR for over 
a decade to deal with this serious and glaring blot on our countries' 
trade relationship and have not succeeded in opening the Korean auto 
market. However, all past efforts, including two bilateral auto trade 
(MOU) agreements negotiated in good faith by USTR in l995 and l998 
using the strongest U.S. trade policy tools, have failed to open the 
Koran auto market. That is not the fault of past UTSR efforts, or the 
efforts of U.S., European or Japanese companies to get access to that 
market. The reason is the refusal of the Korean government to remedy 
and reverse these blatantly unfair and self-serving policies.
II. The Position of ATPC on the U.S. Korea FTA
    We understand that there has been some mischaracterization in Seoul 
and in Washington about what we seek in this negotiation as a remedy to 
the closed Korean auto market. Let me be very clear: We are not seeking 
`managed trade' or `guaranteed sales in Korea', as some have suggested. 
These are incorrect, yet quick and simple labels that have been used to 
gloss over the serious efforts by many trade practitioners to an 
innovative approach to deal with a unique and intractable problem.
    We believe that the standard trade approach, reminiscent of the old 
U.S.-Korea MOUs of the l990s, which is apparently being used by our 
U.S. negotiators, will result in a one--sided agreement that benefits 
only Korea. We believe that the U.S.-Korea FTA is the absolutely last 
chance for USTR, in close consultation with the Congress, to get this 
right. Otherwise one of the largest and most active auto markets in the 
world will remain closed to access by the U.S.
    ATPC has consistently recommended opening the Korean auto market 
will require the their willingness to take new approaches. Given 
Korea's dismal past record, we have recommended that preferential 
access to the U.S. auto market be provided when the Administration and 
the Congress can be reasonably satisfied that all trade barriers to 
imported autos have been removed and the Korean market is seen to be 
fully open to the sale of U.S. and other imported cars.
III. Why is the Korean Auto Market Closed?
    Let me summarize the major facts about this case, and explain how 
Korea?s system of tariffs, taxes, and particularly nontariff barriers 
that keep foreigners restricted in the market.
    Chart #1 shows the sales by all foreign automakers in Korea last 
year. In a country that produced 3.8 million cars, and had domestic 
sales of 1 million last year, Korea imported a total of 40,000 cars and 
trucks from the rest of the world. I would draw your attention in Chart 
#1 to the fact that this is a grand total of a 3.6 % market share for 
all imported cars. In comparison, of the 30 OECD industrialized 
countries where the average level of imports for autos is over 40%, 
Korea ranks 30th out of 30.
    Chart #2 shows the breakdown of the sale of imports in Korea by 
automaker. As you can see, no one is selling any respectable volume in 
Korea. The vast majority of those imported car sales are in the 
highest-end luxury segment. While our companies' sales in Korea were 
small, you will notice that high volume European automakers sales were 
also minimal while the Toyota, and Nissan brand, which are the number 
one and two automakers in Japan, did not sell a single car in Korea. 
This is not a picture of a normal, healthy, competitive automotive 
market.
    So what is the problem?
IV. What Specifically Causes the Problem of Selling Imported Cars in 
        Korea?
    Chart #3 summarizes the story and the continuing problem. For a 
long time, Korea has very effectively used a whole arsenal of trade 
tools, starting with outright imports bans, high tariffs, 
discriminatory taxes and a stifling maze of overlapping and never 
ending regulatory nontariff barriers to keep placing hurdles for 
imported cars.
Bans on Imported Autos
    Prior to l995, as this chart shows, the Korean government was quite 
clear about its policy:

      All imported cars were legally banned in Korea until 
1989, while the country was furiously building its own auto industry
      Japanese cars remained banned until l999
      Very high tariffs (50%) were applied
Tax Audits on Purchasers of Imported Cars
    After those outright bans were dropped, Korea switched to other 
NTBs that were very effective. Korea employed one of the most effective 
tools when it directed that all purchasers of imported cars would 
automatically have their taxes audited. After the U.S. repeatedly 
complained, these automatic tax audits stopped, but the perception and 
a lingering fear remains
    Just last year in a highly publicized move, Korean tax authorities 
ordered all of the country's import car dealers to report to their 
federal tax agency the names, addresses and relevant personal 
information of the purchasers of all foreign cars. Now I ask, if you 
were thinking about buying a new car, wouldn't you find that 
intimidating?
High, Discriminatory Taxes on Imported Autos
    Korea has also freely used its tax structure to make it far more 
expensive to purchase an imported car. Korea has nine different layers 
of tariffs and taxes on autos. With an overall tax burden of over 70% 
for imports versus 56% for domestic autos, the effects of cascading 
taxes on top of the tariff puts imports at a 14% percentage point price 
disadvantage vis-`-vis domestic vehicles.
    To make matters worse, many of the taxes are applied at a rate much 
higher for imported cars, based on engine size, configuration or other 
artificial means. The end result is that much higher taxes are added to 
imported cars, on top of the 8% import tariff.
The Web of Regulatory NTBs
    When compared to other partners with whom the U.S. has engaged in 
Free Trade Agreements, Korea is unique in the both the scope and 
intensity of its use of Non Tariff Barriers to restrict imports. This 
pervasive use of NTBs in restricting trade calls for different kinds of 
solutions than U.S. trade negotiators have faced before.
    This is the most complex and most difficult issue to summarize for 
those outside of the business. But all foreign automakers are in 
consensus that Korea pursues a rolling series of regulatory NTBs that, 
de facto, severely restrict the ability to market imported cars into 
Korea. These include regulations that are often trivial, imposed 
without warning and developed with no input from foreign automakers. 
They have the effect of knocking out or severely limiting the ability 
of foreign automakers to get cars to the market in Korea.
    Every year, the issue is different--tinted windshields, frequencies 
for remote keyless entry systems, bumper configurations, power window 
requirements, and license plate sizes. Just last week, we were notified 
of a change in the auto insurance policies that arbitrarily placed 
imported vehicles are in the highest risk classification. The result is 
owners of imported vehicles will pay the highest premium possible for 
their auto insurance, (both Ford and DaimlerChrysler were placed in 
Class #1, the most expensive), as well as a totally unacceptable 
process foreign companies must use to certify compliance with these 
regulations.
    The NTBs vary from one wave to another, but the result is the same: 
a revolving set of costly hurdles placed in front of any foreign 
automaker trying to sell in Korea.
    I want to share with you the conclusion of the European Auto 
Manufacturers Association (ACEA) in their statement to European 
Governments and the EU Commission describing the situation:
    ``Korea has a number of nontariff barriers in place which prevent 
market access of European vehicles to the Korean market. In general, 
the import situation is characterized by a lack of transparency, little 
or no lead-time and adoption of unique standards and inadequate action 
of EU or U.S. standards in the fields of safety and environment--As a 
result no foreign automakers--E.U., U.S. or Japan--has been able to 
achieve a significant market share''.
    Over the past nine years, following the l998 U.S.-Korea bilateral 
auto MOU agreement, Korea has introduced more than 15 new auto 
technical regulations that have served as barrier to auto imports.
    Here are three quick examples of a few of the past and current 
NTBs:
    1. License Plate Size--The Korean government proposed a new 
regulation that would change the size and shape of a car's license 
plates, with little notice or opportunity to comment. License plates in 
Korea have traditionally been the same size as found in the United 
States.
    At first blush, this may appear to be a minor nuisance with little 
impact on U.S. automakers. However, given the fact that the front and 
back bumpers of cars are designed around the size and shape of a 
license plate, this type of requirement would lead to almost a million 
dollars per model being spent to meet the new requirement. Domestic 
automakers that are selling hundreds of thousands per vehicle model can 
afford the cost spread over a large number of sales, but importers that 
are lucky to sell a few hundred of a particular model would not be able 
to justify the cost and would have necessitated pulling most U.S. 
models out of the Korean auto market, or taking a heavy loss on every 
vehicle sold.
    The Korean authorities were forging forward with this regulation, 
despite the devastating impact it would have on imports, and that it 
would not have any societal benefit. Fortunately efforts were made, 
including the intervention by USTR Zoellick, to get the Korean 
government to drop the proposed regulation. Although successful, the 
fact that a U.S. cabinet official had to personally intervene with the 
highest levels of the Korean government to resolve a license plate 
issue demonstrates the level of the NTB problem.
    2. Self-Certification Investigation Change--After the current FTA 
negotiations began, Korea proposed making a major change to its auto 
safety certification process that would reverse commitments and 
progress made in past agreements with the United States to ``not take 
any new measures that directly or indirectly adversely affect market 
access for foreign passenger vehicles''.
    The proposed change would:

      adversely impact import automakers, but have no impact on 
Korean automakers;
      significantly increase the certification burden, with no 
societal benefit, and;
      withdraw commitments made under the two previous U.S.-
Korea bilateral auto agreements.

    This is a transparent effort to further thwart import automakers to 
the benefit of the Korean automakers, and should be permanently dropped 
as part of this FTA
    3. Korea's new auto emissions regulations (K-ULEV)--now effective 
2009.
    While this proposed new rule is based on California's stringent 
emissions regulations, Korea made some significant changes in its 
implementation that results in a disproportionate burden being placed 
on importers, over domestic automakers. This is what is called ``cherry 
picking'' from regulations. The immediate result is while Korea's 
emissions regulations offers no higher level of emissions containment, 
some imported cars will be withdrawn from sale in the market and fewer 
new import models will be exported.
    The California and Korean regulations achieve the same emissions 
outcome, but the Korean regulation does not provide the flexibility 
that was purposely designed into the California program. U.S. 
automakers meet the California regs, but will not be able to offer 
their vehicles for sale to consumers in Korea. The U.S. Government has 
tried to help U.S. automakers with this barrier, but to no avail.
    In advance of the launching of the U.S.-Korea FTA negotiation, 
Korea agreed to delay full implementation of the K-ULEV regulation 
until 2009. Although somewhat helpful, the two-year delay only puts off 
the problem until a later date. It did not the fix the problem. Korea's 
K-ULEV regulations should be modified to allow vehicles that meet 
California regulations to meet the Korean regulations.
    The importance of eliminating the current auto NTBs cannot be 
overstated. Full access will not be achieved unless this is 
accomplished. But equally important is getting a commitment from Korea 
that will avoid the implementation of future auto NTBs.
    For more than a decade, the U.S. auto industry has worked with 
various USTRs and their staff who have spent many months negotiating 
with the Koreans to eliminate one after another unnecessary NTB. The 
persistence of USTR efforts to get rid of a single NTB--as minor as 
license plate sizes--has succeeded, but at a high cost in U.S. 
government resources, both politically and financially. Inevitably, 
within weeks of the resolution of one ?show stopper' NTB, another one 
pops up to replace it.
    Korea's track record of using NTBs to protect its auto market is 
endless and has no equal in any other OECD country. And its does not 
deserve to be glossed over or tacitly accepted by the United States in 
formalizing an FTA with one of America's largest trading partners.
V. What has the U.S. done about this situation?
    The seriousness of problems caused by Korea's closed auto market is 
not new. They were recognized as severe enough a decade ago that USTR 
filed a Section 301 unfair trade practices case against Korea's auto 
policies, one of the rare uses of that powerful tool in U.S. trade law. 
USTR then negotiated two specific auto trade MOU agreements with Korea 
(in l995 and l998) in which Korea clearly and formally committed to 
eliminate anti--import policies, as well as tax and regulatory NTBs 
that discriminated against U.S. auto products.
    Chart #4 highlights just some of the still current goals and 
commitments of those l995 and l998 agreements that were not achieved. 
These were two solid, if traditional, trade agreements designed to 
reduce market barriers. They looked outstanding on paper. But they did 
not work, because Korea countered with a new strategy to implement a 
powerful mix of non-tariff barriers. The results: Despite two tough 
negotiations and auto trade agreement with Korea in l995 and l998, 
exports of U.S. autos to Korea barely moved from 4000 in 1995 to 4,500 
in 2006. Imports from all countries are also dismal.
    ATPC believes that Korea's obvious failure to meet its commitments 
and promises to the U.S. in these two formal trade agreements is both a 
loud warning and a legitimate basis for insisting that we not repeat 
the same mistake a third time. This is why we have urged that any FTA 
with Korea must be creative, assertive and reflect the reality of auto 
trade with Korea. We have urged USTR to look beyond the traditional 
negotiating strategy, not because our industry inherently deserves 
something better or special, but because there is such a clear, 
unquestionable trail of evidence of the failure of Korea to live up to 
previous agreements with the USG.
VI. The Current Status of the Negotiations
    So where are we now, less than two weeks before the deadline for 
completing these negotiations?
    1. Immediately after the launch of these talks, ATPC offered a 
comprehensive proposal to USTR for addressing the totality of barriers 
that have prevented access to the Korean market and the failure of two 
prior U.S. trade auto agreements. This proposal placed the 
responsibility fully on the Korean government to demonstrate that 
commitment by results and not just promises. The USTR appears not to 
have accepted this approach.
    2. The Korean Government, to the best of our knowledge, has not 
come forward with a proposal that fully addresses the closed market 
issue.
    3. Earlier this month, a bipartisan group of members of the House 
and the Senate, including Chairman Rangel and Chairman Levin, sent a 
letter to the President presenting a ``Congressional Proposal to Open 
Korea Automotive Market''. The members proposed ``moving beyond 
previous negotiating strategies and embarking on a new approach that 
addresses the United States' legitimate concerns that Korea will not 
obtain additional access to the U.S. market unless there is reciprocal 
opening of the Korean auto market''. The Congressional proposal deals 
with both the respective countries' automotive tariffs and a system for 
addressing both current and future NTBs in Korea auto market, and other 
sectors as well''.
    4. ATPC deeply appreciates this effort by Members to offer a 
constructive proposal to secure a fair trade deal for the U.S. auto 
industry in an FTA with Korea. ATPC said that this Congressional 
proposal ``captured the industry's frustration with Korea's refusal to 
abide by past auto trade commitments by ensuring that the Korean 
government will have to provide U.S. automakers with real and 
meaningful access to Korea's auto market if they are to be given 
preferential access to our market''. We are not aware of whether U.S. 
negotiators have accepted any or all of the recommendations contained 
in this Congressional proposal to resolve the auto issue.
    5. The latest information we have received concerning the 
negotiations is most disturbing. It is now widely reported that the 
Korean Government has demanded the immediate elimination of the U.S. 
auto tariffs as their number one priority in this negotiation.
    Finally, Mr. Chairman, ATPC does not know what will happen over the 
next two weeks. But we do know with certainty the record of Korea over 
the past two decades.
    I would like to leave you, and the U.S. negotiating team, with what 
President Roh of Korea told his negotiators last week in his Cabinet 
meeting as they prepared for the final stretch of these talks, as 
publicly reported in the Korea Times on March 15:
    President Roh told his team:
    ``I will give you some instructions in principle: Please consider 
real economic benefits--act just like merchants. And do not consider 
security or other non-economic factors.''
    Thank you

                                 

    Chairman LEVIN. Thank you very much.
    Mr. Reuther.

STATEMENT OF ALAN REUTHER, LEGISLATIVE DIRECTOR, INTERNATIONAL 
 UNION, UNITED AUTOMOBILE, AEROSPACE AND AGRICULTURE IMPLEMENT 
                       WORKERS OF AMERICA

    Mr. REUTHER. Mr. Chairman, my name is Alan Reuther. I am 
the legislative director of the UAW. We appreciate this 
opportunity to testify on the negotiations between the United 
States and Korea on a free trade agreement.
    Korea is the fifth largest producer and third largest 
exporter of vehicles in the world. In 2006, the U.S. had an 
$11.6 billion automotive trade deficit with Korea. U.S. exports 
of automotive products to Korea represented just 6 percent of 
Korean imports into the U.S. of similar products. Historically, 
Korea has kept its market almost completely closed to U.S.-
built automotive products. This has been accomplished through a 
combination of tariff and non-tariff barriers. Despite previous 
agreements and memoranda of understanding with Korea to 
eliminate its barriers to imports of automotive products, the 
Korean market remains essentially closed to any significant 
import competition. Meanwhile, the U.S. automotive trade 
deficit with Korea soared from $1.3 billion in 1994 to $11.6 
billion last year.
    At the outset of the U.S.-Korea negotiations, U.S. 
producers urged the Bush Administration to insist that Korea 
first meet concrete benchmarks for opening its auto market to 
imports before the U.S. allows any further access to our 
market. Regrettably, USTR flatly rejected this position.
    Recently a broad bipartisan group of Members of Congress 
sent a comprehensive proposal to President Bush on how any 
Korea free trade deal should treat automotive trade between the 
two countries. This proposal contained incentives for Korea to 
open its market to U.S. autos, a mechanism to dismantle Korea's 
non-tariff barriers and safeguards against a surge in 
automotive imports from Korea. Most importantly, it stipulated 
that the U.S. tariff on imported pickup trucks should be left 
for resolution to multilateral WTO negotiations.
    Unfortunately we understand USTR also has rejected this 
bipartisan auto proposal. Instead, USTR appears to be pursuing 
an agreement that would eliminate U.S. automotive tariffs, 
thereby giving imports from Korea even greater access to our 
auto market.
    At the same time, USTR seems to be content with an 
agreement that would allow the Korean government once again to 
make meaningless promises about eliminating its non-tariff 
barriers with no guaranteed outcome. As a result, the agreement 
being negotiated by USTR is likely to exacerbate our auto trade 
deficit with Korea and jeopardize tens of thousands of 
additional automotive jobs in the U.S.
    Since Korea is already a major global producer and exporter 
of automotive products, the elimination of our automotive 
tariffs could quickly lead to a ramping up of production 
capacity by traditional Korean companies for exports to our 
market. In addition, foreign auto companies would be encouraged 
to locate production in Korea to take advantage of the 
elimination of U.S. automotive tariffs.
    Our fear of a surge in automotive imports from Korea is not 
alleviated by the fact that Korean companies will be sourcing 
some vehicles from facilities located in the U.S. Korean auto 
companies sold about 750,000 vehicles in the U.S. last year. 
550,000 of these vehicles were imported. The U.S. market share 
of the Korean companies is expected to grow in the coming 
years. Thus notwithstanding any expected investments by Korean 
automakers in the U.S., most Korean vehicles will still be 
imported from Korea.
    It is also important to recognize that vehicles assembled 
in the U.S. by Korean auto companies still have very high 
levels of parts imported from Korea. Production and employment 
at traditional, U.S. auto parts suppliers is threatened by 
these Korean parts imports.
    The damage that would be done by a surge in Korean 
automotive imports cannot be offset by toothless promises by 
the Korean government to address non-tariff barriers that keep 
U.S.-built automotive products out of their market. There is 
every reason to expect that Korea will continue to use a 
variety of measures to keep its market closed to automotive 
imports notwithstanding any promises about the elimination of 
non-tariff barriers.
    UAW believes the only way to ensure that this situation 
changes is to insist on results oriented auto provisions in any 
trade deal with Korea. Simply stated, we must insist that Korea 
make tangible progress in opening its automotive market before 
the U.S. allows additional access to our market.
    For USTR to give away the economic benefit of access to our 
market without requiring the Korean government to first 
implement concrete changes necessary to alter our automotive 
trade imbalance is nothing more than continuing to conduct 
business as usual and irrationally expecting different results.
    In conclusion, the UAW continues to be deeply concerned 
that the U.S.-Korea Free Trade Agreement being negotiated by 
USTR could have an extremely negative impact on U.S. automotive 
production and employment. We urge you and your colleagues in 
the House to reject any trade deal that fails to include at 
least the requirements in the bipartisan Congressional auto 
proposal. Thank you.
    [The prepared statement of Mr. Reuther follows:]

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    Chairman LEVIN. Thank you very much. All right. If you 
would recess and the Ambassador will come forth, we have 55 
minutes of his time. That means that if each of us, including 
myself and the Ambassador, if we take 5 minutes, we'll all have 
a chance. So, let's do that.
    Ambassador, welcome back. Thank you. As you said, and I 
said the same, there are lots of issues that are going to be 
presented to you. We wanted the automotive panel to have a 
crack at this because of its importance and their other 
important issues, but also to try to have some meaningful back-
and-forth and not kind of the sometimes very segmented and not 
always productive discussion.
    Let me just say preliminarily, if I might, because we're 
going to be talking not only about automobiles but these other 
issues, as I heard you and listened to this panel and have gone 
over the materials, with only a week-and-a-half, we have 11 
days before, if that's the decision, you would present to us a 
notification and an agreement itself under the present Trading 
Partners Agreement (TPA). It strikes me--I just want to say 
this more generally -that if there's any chance of success 
there's going to have to be a different approach than is 
usually employed, that there's going to have to be enough back 
and forth with this Congress as it's now constituted that 
there's basic agreement before rather than after notification, 
because otherwise, if there isn't and the determination of the 
Administration is to present something that it thinks that it 
knows has some very considerable difference of opinion, hoping 
to play one against another or to squeeze out a majority, I 
don't think, under present circumstances, as important as the 
U.S.-Korea FTA is, that it will work.
    So, I want to say to you, if I might, that I hope that 
there will be a different approach than is usually employed. It 
means a much more intense back and forth because we can now 
probe with you each of these areas and try to get you publicly 
to commit to where you're going. I don't think that will work, 
but the question is whether between the Congress and the U.S. 
government there can be enough back and forth so that the 
content is not only well known but essentially basically agreed 
to before notification because--look, you laid out on page four 
what a successful FTA would be, what the elements are, and you 
talk about a strong Ag Marx-Ex agreement, a strong industrial 
goods market agreement, an enforceable commitment regarding 
automobiles, a strong investment chapter, a strong services 
chapter.
    I don't think your testimony would ever say we're going to 
come forth with a weak industrial market access or a weak 
investment package or weak services, and so forth on Ag. So, 
essentially what you've done is to leave out the gist of the 
agreement in each of these critical areas, and here we are 10 
days away.
    So, let me just ask you, and I'll conclude--they didn't run 
the clock on me, but they should on the Chairman in this case 
anyway. Was there anything said before by the auto panel or by 
Mr. Herger or myself that you disagreed with?
    Mr. BHATIA. Well, Mr. Chairman, there's been a lot said in 
the course of the various testimonies. Let me--maybe I could 
start out just by touching on the point that you just made and 
then talk a little bit about some of the auto panel testimony, 
which I listened to very carefully.
    As you know, Mr. Chairman, we have been coordinating with 
the Congress on the Korea FTA since its outset. The FTA was 
launched here in a very bipartisan way with Members, both 
Republicans and Democrats, lending their support to the 
launch--and have been intimately involved in briefings with 
staffers, and that has continued.
    Indeed just last week, or I guess it was the week before, I 
had the pleasure of coming and visiting with you. I've had the 
pleasure of visiting with other members of this Committee on 
automotive and other issues, and I will commit to you to 
continue to do that.
    I think that is important. I think it is important that we 
bring home an FTA that is a strong FTA that all the Members of 
this Committee feel confident that we have negotiated as strong 
an agreement as possible. Let me, if I may----
    Chairman LEVIN. Let me just ask you, will that mean--
because I think we have to do differently than has been true 
under this Administration and sometimes previous. Are you going 
to show to us, discuss with us what you're tabling?
    We have--there is a standard process, as you know, Mr. 
Chairman, whereby we show the Committee text before we table it 
and we give the Committee Members an opportunity to respond 
back. We have been doing that from the very beginning. I don't 
see the reason why that will change. Now there is a point here 
obviously where at the end of the negotiation we're going to 
have to figure out a method of coordinating, but I have, as a 
matter of fact, with the anticipation of negotiations 
potentially next week in Seoul, I have already asked our staff 
to make sure that we have telephone numbers for all of the key 
staff members on the Committee.
    So, I don't anticipate an end to that coordination. Indeed, 
I look forward to it continuing. Perhaps, if I may spend a few 
moments just on the automobile subject because this is one that 
has from the very beginning, Mr. Chairman, been a singular 
focus of mine and of ours at USTR. We have paid a great deal of 
attention to many subjects in this FTA, but we've been aware 
from the very beginning that the automobile area is going to be 
an important one.
    I can tell you that I have spent a substantial amount of 
time studying and researching both the Korean automotive market 
as well as the U.S. automotive market and penetration into that 
market. Let me, if I can, briefly describe what we're seeing 
and then why I believe the strategy that we are approaching 
makes sense.
    On the Korean automotive market there is no question that 
you have seen, going back from the '70s and '80s up until 
certainly the beginning of the 2000 period, an array of 
problems for American companies and for foreign manufacturers, 
foreign Open Ended Markets (OEMs) generally accessing the 
Korean market.
    You have seen that in terms of a number of factors. When we 
have spoken--I've spoken with independent analysts; I've spoken 
with investment bankers. I've spoken with management 
consultants to try and get the clearest picture possible, as 
well as our industry, I should point out, to try and get the 
clearest picture possible of what are the key impediments.
    I come up with four, generally four areas of impediments 
you come up with. Indeed, these are reflected, I would note, in 
Steve Collins's testimony and previous things that have been 
submitted to us by the auto companies. You see tariffs. You see 
taxes. There is a tax structure that applies to automobiles in 
Korea that through its application has effectively penalized 
large engines, large cars, which tend to be what we produce 
more. You have seen non-tariff technical regulations serve to 
impede market access, and last you've got sort of a catch-all 
that's described as everything from consumer preferences to 
anti-import preferences or biases.
    So, that is the realm of things that we have seen, and we 
have seen, notwithstanding recent growth, fairly substantial 
recent percentage growth in the import penetration into Korea, 
you have seen it over a very low base. So, the total numbers 
remain low.
    On the other side of the equation, in here into the United 
States, you've seen substantial Korean car penetration going in 
the neighborhood of 700,000 to 800,000 cars last year. An 
interesting feature of this is that you have seen the 
manufacturing--is the change that you are seeing take place in 
Korean sales in the United States.
    So, right now, today, about 22 percent of Korean cars sold 
in the United States are made in the United States, principally 
in a factory in Alabama. Three years from now you are going to 
see probably 60 to 70 percent of Korean cars sold in the United 
States manufactured in the United States. So, we are seeing a 
strong shift in Korean production into the United States, and 
this is consistent with what we're seeing Hyundai and Kia doing 
globally.
    Chairman LEVIN. Mr. Ambassador, I promised everybody----
    Mr. BHATIA. I apologize.
    Chairman LEVIN. No, no. I just want to say then to you 
because you mentioned that to me a week or so ago----
    Mr. BHATIA. Yes.
    Chairman LEVIN. Number one, when you say that, essentially 
you say that the problem is likely in part to solve itself.
    Mr. BHATIA. No.
    Chairman LEVIN. Also, I just want to tell you, those 
projections are pure speculation. Number two, they assume a 
stagnant amount of overall Korean production. As has been true 
of Japan, as it has increased production here there has 
continued to be a major flow of exports from there.
    So, when you assume 60, 70 percent of the cars that Kia 
sells will be made here, I challenge that.
    Mr. BHATIA. Mr. Chairman, I'm just going by the numbers 
that I'm seeing based on every independent survey that I've 
seen.
    Chairman LEVIN. Well, talk to the U.S. auto industry.
    Mr. BHATIA. Also, if I may, Mr. Chairman, if I could just 
sort of summarize here. So, our strategy with respect to the 
Korean automotive market has been to say, all those barriers 
and things that have been keeping our cars out, the tariffs, 
the eight percent tariffs, the tax differential, the non-tariff 
barriers and all of the other anti-import and other things, 
those need to be addressed in this FTA and those will be 
addressed in this FTA. We will have those addressed.
    What we have not adopted, and I will be clear about this, 
what we have not adopted is an approach--and I use the term 
that Mr. Reuther from the UAW used is an approach that seeks 
``a guaranteed outcome'' because----
    Chairman LEVIN. Okay. Let me just interrupt so others--our 
proposal that was done on a nonpartisan basis doesn't include 
that. So, don't label a proposal for what it is not. It isn't, 
so you--and in these next 10 days we need to sit down--if 
you're going to have a chance of passing it, I think, as to any 
of these products, to have a much more active involvement of 
this Congress, otherwise I think you're headed for failure.
    Mr. Herger.
    Mr. HERGER. Thank you, Mr. Chairman. Mr. Bhatia, I would 
like to focus your attention on rice for a moment.
    Mr. BHATIA. Yes.
    Mr. HERGER. The U.S.-Korea FTA must be comprehensive and 
its product coverage such that provisions on rice are included 
in the agreement's final terms. I believe this is critical not 
only as a substantive issue but also from a procedural 
standpoint product exclusion and FTAs make bad policy.
    To this end, I'm troubled by reports that the Koreans 
continue to be unwilling to engage with U.S. negotiators on 
rice issues. Do I have your commitment not to exclude rice from 
this FTA?
    Mr. BHATIA. Mr. Chairman, we have been dealing with the 
rice issue from the very outset, and at the very launch of the 
negotiations, we made clear to the Korean government that this 
deal must be a comprehensive one and it must be comprehensive 
in the agricultural area.
    We have maintained that position up to this point, and I 
can assure you that we are maintaining that position all the 
way to the very end, that we are pushing them for this to be a 
comprehensive agricultural deal.
    Mr. HERGER. Thank you. I am also a strong supporter of the 
investment provisions in our prior agreements, including the 
investor-state dispute settlement mechanisms because they give 
U.S. investors access to substantive and procedural rights they 
might not otherwise have in the course of our trading partners.
    Given the lack of transparency that pervades the Korean 
system, I believe it is especially important in this FTA to 
maintain the model provisions that we've used in prior 
agreements. I understand that Korea wants to protect it's 
ability to protect low income housing and real estate values, 
and I believe we can do so without loopholes and without 
undermining the core protections.
    Mr. Bhatia, do I have your commitment to protect our 
investors abroad by utilizing these comprehensive model 
provisions and not straying from them?
    Mr. BHATIA. Mr. Herger, this is another area where, from 
the very outset, we have been clear with the Koreans that we 
believe a principal benefit not only to the United States but 
also to Korea is greater investment flows that will flow from 
the FTA. However, those will only happen with very strong 
investment provisions, including investor-state dispute rights.
    We have been pushing that steadfastly with the Koreans, and 
I can assure you that we are continuing to do so.
    Mr. HERGER. Thank you. I also understand that you're using 
this potential agreement as leverage to push Korea on a 
parallel track on sanitary and phytosanitary issues such as 
beef.
    As you know, Peru and Colombia, through a similar parallel 
track recently lifted their restrictions to allow imports of 
U.S. bone-in and boneless beef regardless of age and to 
recognize U.S. inspections as equivalent.
    I would expect to see implementation of this international 
standard by Korea. Could you comment on whether there has been 
progress in these negotiations?
    Mr. BHATIA. The beef issue and ensuring that the Korean 
market is open to beef consistent with international standards, 
OIE standards has been a consistent message that we have 
delivered to Korea.
    We have made it very clear that we don't believe this 
Congress will approve any FTA that does not--in the event Korea 
were not employing those practices, was not open to American 
beef consistent with international standards. Thus far, I 
cannot tell you that there has been a resolution to this issue, 
but I can tell you our team, our Ag team is in Korea right now, 
as we speak, addressing this issue. It's my hope that there 
will be a satisfactory resolution.
    Mr. HERGER. Thank you very much. Thank you, Mr. Chairman.
    Chairman LEVIN. Thank you. Mr. Tanner.
    Mr. TANNER. Thank you very much, Mr. Chairman. Ambassador, 
thank you for your time.
    I guess I'm as big a believer in engagement and trade as 
anybody on the panel, but it's becoming harder to follow USTR's 
regimen with respect to some of the enforcement mechanisms as 
well as just the negotiation itself.
    The regulatory excesses that we hear about in the Korean 
government with respect to automobiles is very troubling, and 
it makes it harder and harder for those of us who believe in 
trade to sell these agreements. Also there's, I'm told, an 
issue about telecommunications and ownership--49 percent versus 
virtually unfettered access here.
    How close are you to resolving some of these so that we can 
truly represent to the American people that we have, one, a 
fair deal to America and second that it's enforceable? Thank 
you.
    Mr. BHATIA. Thank you, Congressman. We're not done with the 
FTA yet, and one of the outstanding issues that remains to be 
resolved is this issue of foreign direct investment in 
telecommunications. We have been addressing with the Koreans 
this week, and we've got negotiations ongoing right now, but I 
can't--as of the beginning of this hearing I can't tell you 
that issue has been resolved, but we have made very clear to 
Korea that all of our FTAs here to date have contained 
liberalization, opening of the telecommunications sector. 
That's our expectation in this agreement as well.
    So, this is in the process of negotiation, but we are 
pushing very hard. If I may make a point, just the point about 
regulator fairness and openness, because believe me, this is a 
key area for us across the board. It's not just automobiles; 
it's other areas as well. We recognize that there is concern 
about the transparency, about the fairness of the Korean 
regulatory process. We have been at the forefront of that.
    We have been negotiating with the Koreans for many years. 
Also, the reason we believe in this FTA, Congressman, is we 
believe this offers us an opportunity through overriding 
commitments, commitments to make sure that, for instance the 
Korean government doesn't treat Korean firms through regulatory 
or other processes more favorably than foreign firms by making 
sure that there's transparency by setting up processes whereby 
there can't be private deals cut between the government and 
industry but rather there has to be regulations published and 
opportunity for people to comment, Committees for government 
and industry to work in a transparent way.
    Those possibilities coming from this FTA, I believe, could 
radically benefit, dramatically benefit both our industry but 
also Korea as it's trying to move on a path of reform. So, the 
question at the end of the day is how do we move Korea and the 
bilateral U.S.-Korea relationship to a more successful place to 
address these kinds of regulatory issues?
    I would submit to you that a strong FTA, a fair FTA, which 
is what you were talking about--and that is the only kind of 
FTA we will bring back--would be an FTA that did that and that 
ensured that we had not only strong commitments but also strong 
dispute settlements in the event that there was ever a problem.
    Chairman LEVIN. Thank you very much. Mr. Lewis.
    Mr. LEWIS. Thank you, Mr. Chairman. Mr. Ambassador, I've 
got a small but it's a very important issue for my state and my 
district specifically.
    As you know, Korea is a leading importer of bourbon, and we 
have worked with USTR in the past to ensure that other FTAs 
include a provision recognizing bourbon as a distinctive 
product of the United States. This has been an important anti-
counterfeiting tool. Do you anticipate in this FTA to include 
this provision?
    Mr. BHATIA. Yes, Congressman, I do. We're very familiar 
with the issue. I think we've made clear to Korea that all of 
our FTAs to date have addressed that issue satisfactorily. 
Although I don't believe we're quite there yet, I'm optimistic 
that we will be.
    Mr. LEWIS. Listen, I appreciate it. I yield back my time.
    Mr. BHATIA. Thank you.
    Chairman LEVIN. Thank you very much, Mr. Lewis.
    Mr. Larson.
    Mr. LARSON. Thank you, Mr. Chairman and thank you, Mr. 
Chairman for setting up this panel in the manner that you have 
to provide us with an opportunity to have our USTR respond to 
the panelists. Let me cut right to the chase.
    As part of the FTA that you'll bring back, will that 
include as the--I believe the panelists were seeking and asking 
for--minimally the bipartisan congressional auto proposal?
    Mr. BHATIA. Mr. Congressman, we have reflected carefully 
upon the bipartisan proposal that has been submitted and there 
are some elements of the bipartisan proposal that----
    Mr. LARSON. Is that a ``yes'' or a ``no''?
    Mr. BHATIA. Well, I think it depends what you mean. I think 
there are some elements that we are pushing very hard for. For 
instance there is clearly a strong focus on a strong dispute 
settlement system. There is a strong focus on NTBs, but there 
are a couple of features that I think both--that we do not 
believe is the most effective way to address the problem of 
U.S. market access into Korea nor would they frankly be--they 
would be deal-killers with Korea, I believe, nor at the end of 
the day do we believe they're necessary to be able to address 
the problems that we've talked about.
    Mr. LARSON. Also, how about a deal-maker or-breaker with 
the U.S. Congress?
    Mr. BHATIA. Congressman, I believe, and I would ask you to 
believe, to hope, that we will bring home a deal, including a 
deal on autos----
    Mr. LARSON [continuing]. What you had to say to Mr. Tanner 
with respect to the FTA agreement, but then there seems to be a 
lot of ambiguity. Let me ask a second question, then. With 
regard to labor standards, where are we with respect to that, 
what kind of FTA agreement are we going to get with this?
    Mr. BHATIA. I think you will have a very strong FTA with 
respect to labor standards with Korea, Congressman. Korea is 
perhaps a little different from some of the other trading 
partners we've negotiated FTAs with in that it is a developed 
or very close to being developed economy. It has vigorous labor 
unions, vigorous labor activity, strong industrial relations 
regime, strong labor laws.
    Korean strikes and so forth are probably more commonplace 
in Korea than they are in the United States. I don't believe we 
have the same set of concerns there, and I'm confident that 
we'll bring back a very strong chapter on labor.
    Mr. LARSON. Well, as Chairman Rangel often points out, 
sometimes we're taken aback in Congress because we think that 
the USTR should really be out there progressively advocating on 
our behalf. I don't doubt your sincerity, but there seems to be 
a lot of ambiguity in the negotiation process with respect to--
especially as it relates to automobiles.
    Mr. BHATIA. Congressman, a couple of things. First of all 
we're right in the midst of this negotiation. We have a lot 
still to go on. We have a public audience here, so there are 
certain things that I would probably not prefer get transferred 
to our negotiating partners who are doubtless watching this. 
So, but I will say that there is no ambiguity and there should 
be no ambiguity in terms of our commitment to make sure that 
the deal that we bring back on autos addresses what we believe 
are the key impediments that have prohibited and barred thus 
far--let's put it this way, that are the reason that you see 
far lower foreign OEM penetration into Korea than you do into 
other Organization for Economic Co-operation and Development 
economies.
    Mr. LARSON. I just wanted you to know, as our 
representative, that there's no ambiguity up here either.
    Mr. BHATIA. Thank you.
    Chairman LEVIN. Thank you. Mr. Brady.
    Mr. BRADY. Thank you, Mr. Chairman, Ambassador 
[continuing]. If you care about finding new customers for 
American products and services, and especially customers who 
can afford to buy our products and services, it's easy to get 
excited about the possibility of this agreement. The potential 
for a U.S.-Korean free trade agreement, it has potential to a 
blockbuster agreement, both from an economic standpoint because 
of the major market and from a strategic standpoint in our 
entry in competition in the Asian region.
    I say potential, because clearly, 2 weeks from now I think 
if Korea doesn't come forward with strong positions in autos 
and rice and beef, and just as importantly, in other services 
areas where we are running a strong surplus today in Korea but 
we need regulations, investments and lifting of restrictions to 
allow us to be in there in telecommunications, for example. 
Clearly, this could be a missed opportunity, which would be a 
shame.
    In the area beyond auto and rice and beef, as we look at 
telecommunications, which you addressed, in the area of 
biopharmaceuticals, where there's been real concerns about the 
regulatory process, not being able to really see the 
reimbursement and pricing mechanisms that are so important to 
that, we can compete. We've got the innovative health care or 
health products for Korea.
    What is your approach, what is your plan to make sure we've 
got not only more market access in biopharmaceuticals but real 
commitment to transparency within the pricing and reimbursement 
structure?
    Mr. BHATIA. Thank you, Congressman. The pharmaceutical area 
is one that, like automobiles, like some of the others, have 
been flagged from the very beginning as being an area of, 
that's going to be a major focus in this FTA. We have had a 
number of rounds of discussions with the Koreans now in the 
pharmaceuticals area. The agreement is not concluded in the 
pharmaceuticals area.
    We have been basically approaching this on a--there are 
several core issues in the pharmaceuticals area. One is 
obviously the set of intellectual property rights and 
protections that our pharmaceutical companies value highly and 
that we believe are important not only for the U.S. to be able 
to compete effectively in those markets, but also for Korea to 
be able to step up with its own IPR regimes. That's an area 
that we have been pushing very hard on.
    The second is an array of commitments that have to do with 
making sure that Korea's system for pricing and reimbursement 
is transparent, is fair, that it appropriately values 
innovation, that there is effectively a system that our 
companies feel confident in doing business, so they feel 
confident in doing business there. So, we have been pushing 
very hard on that leg as well.
    At this point, I can't tell you we've got it resolved, but 
I can tell you that we have been pushing it very hard, and it's 
my hope that we'll have a satisfactory resolution in that area.
    Mr. BRADY. I wish you well in the negotiations these next 
10 days, because, some of the criticisms we've heard in this 
Committee has been that we need to pursue trade agreements in 
meaningful markets.
    Mr. BHATIA. Absolutely.
    Mr. BRADY. We need to pursue them with countries that have 
strong labor standards and enforcement. This agreement meets 
both those criterias if--if, again, Korea comes to the table in 
a substantial way. So, I wish you the best of luck.
    Mr. BHATIA. Absolutely. Thank you very much.
    Chairman LEVIN. Thank you. Thank you. Mr. Blumenauer.
    Mr. BLUMENAUER. Thank you, Mr. Chairman. I do appreciate 
the special focus that has been made on the disparity in terms 
of treatment with the automobile industry. I look forward to 
some positive result that comes from that. I also--I've got 
another hearing I'm going to be slipping off to, so I'm not 
going to be able to be forward with the agricultural testimony 
that's coming, but I, too, am interested in that.
    Two observations. One, I don't need an answer now, but 
just, the U.S.-Australia agreement only included government-to-
government investor dispute resolution, not investor-state 
relations.
    Mr. BHATIA. Yes.
    Mr. BLUMENAUER. It seems, given that Korea is a functioning 
democracy now with a more mature legal system, it's much more 
comparable to what the Australian model was versus one in Latin 
America. I would hope that we are going to focus on the state-
to-state investor protections that are much less likely to 
undercut environmental protections. At some point if you have 
some feedback there, I would be interested.
    In addition, since my time is limited, I wanted to focus on 
one area, somewhat narrow perhaps, but we've watched the United 
States, your predecessors in the 'eighties in USTR be very 
aggressive in dealing with opening up the cigarette market to 
American tobacco products. There was a zeal in the Reagan 
Administration to do that, and they were quite successful. 
Also, in that time, we've seen an explosion in cancer-related 
deaths in South Korea. We've seen I think it was in 1988, just 
1 year, we watched smoking rates of male teen Koreans increase 
more than 10 percent, and they quadrupled for young female 
smokers. Now we're looking at two-thirds of the males in Korea 
who are smoking.
    I'm curious if you can talk about what specifically is the 
tobacco measures that are included here. Is this being pursued 
aggressively to undermine the ability of the Korean government 
to provide some protection to try and push back on what is 
their number one health problem?
    Mr. BHATIA. Congressman, I apologize. I may have to get 
back to you with more specifics. My general understanding is 
that we are not treating, we certainly have not treated tobacco 
differently from other commodities in the agricultural 
negotiations. Also, if I may, because I'm just not up to speed 
with where we are.
    Mr. BLUMENAUER. Well, we were pretty aggressive, and it was 
301 provisions that were pursued. Also, this is one area where 
I think the world would suggest relax. Let's not undermine 
their ability to try and deal with something that is lethal, 
that with the explosion of American product, imported tobacco 
into Korea over the last 20 years, it has made a huge impact on 
the health of average Koreans and undermined their ability to 
perhaps be a little protectionist, but protectionist in a way 
that saves Korean lives. This is something that I would be 
keenly interested in. I think hopefully this Congress we've 
even taken away the ashtrays in the House of Representatives 
finally, so that the pages aren't subjected to second-hand 
smoke. Maybe we can cut the Koreans a little slack.
    Mr. BHATIA. Again, if I may, perhaps I can get back to 
you----
    Mr. BLUMENAUER. Great.
    Mr. BHATIA [continuing]. On the subject of where we--what 
the posture is on tobacco.
    Mr. BLUMENAUER. Great. I would really appreciate it.
    Mr. BHATIA. Good. Thank you.
    Mr. BLUMENAUER. Thank you very much, sir.
    Mr. BHATIA. Thank you.
    Mr. BLUMENAUER. Thank you, Mr. Chairman.
    Chairman LEVIN. Thank you. Mr. Pascrell.
    Mr. PASCRELL. Thank you, Mr. Chairman. I don't know really 
where to start, Mr. Bhatia. I was waiting for an answer, still 
waiting for an answer from the Chairman's question to you. You 
know what? I think it needs to be very clear, because we've 
gone through this ritual many times since 1996 or '97, and we 
need to commit, I think, ourselves to not finalizing one more 
job-killing trade agreement.
    You know what we're doing? We're telling UAW workers--I 
want to talk about telecommunications and pharmaceuticals, but 
I've got to--I have to respond to this, if you don't mind. 
We're telling them that you're going to be laid off because of 
specific imports, but you will be rehired at a later time when 
we begin to manufacture those same cars here in the United 
States which will lay off Korean workers. You know, I feel like 
I'm in a dental chair, the dentist chair. There's Muzak in the 
background, beautiful music about globalization, as the dentist 
prepares to work on me. We need to come to the reality of what 
is happening.
    No one is against trade, but no trade is free. It comes 
with a price. We want it therefore to be fair. I hope you'll 
eventually answer the Chairman's question sometime this 
century. Also, I want to talk about two things. I want to talk 
about telecommunications, and I want to talk about 
pharmaceuticals. Some real issues that are outstanding before I 
can come even remotely close to lending my support to the so-
called Korea Free Trade Agreement.
    From the Iron Curtain Korea has imposed on our automotive 
market, to the gaps in certain basic international labor 
organization standards that exist, there's some real problems 
here. There are many industries that feel that the USTR--
Korea's not the problem. You're the problem. USTR is the 
problem. They haven't really taken our interests in mind, kept 
them in mind while we're negotiating.
    Let's take a look at the telecommunications sector. An 
important objective of the Korea FTA should be to improve the 
market access to the telecommunications sector. Korea currently 
restricts foreign equity in that sector to 49 percent, open 
to--in contrast, the U.S. telecommunications market is totally 
open to Korean carriers. Totally open to Korean--that's got to 
matter for something. Korea's largest wire line carrier, Korea 
Telecom, already has an Federal Communications Commission (FCC) 
license as a facilities-based telecommunications carrier, as 
well as a capacity on the China-U.S. undersea cable that it can 
use end-to-end.
    Korea's largest wireless carrier, SK, provides services in 
the United States in conjunction with Earthlink. U.S. carriers 
should have the same opportunities to provide their customers 
in Korea with the full range of products and services as Korea 
companies enjoy here in the United States. If this 49 percent 
equity restriction has not yet been removed, how will USTR make 
clear to the Korean government representatives that addressing 
this concern is critically important? Would you give me two 
sentences, three sentences in response to that very specific 
question?
    Mr. BHATIA. We have done it. We have done it. I have met 
last week with the U.S. industry on this question. I have 
raised this issue directly at senior levels with the Korean 
government. We are pushing them on it on an almost-constant 
basis.
    Mr. PASCRELL. Mr. Bhatia, would you put that in writing to 
my office this week?
    Mr. BHATIA. Happy to do so.
    Mr. PASCRELL. I would like to see it in writing. I want to 
get to the pharmaceuticals now if I may, Mr. Chairman.
    Chairman LEVIN. Okay. There isn't much time because----
    Mr. PASCRELL. I still have a few seconds left.
    Chairman LEVIN. You do.
    Mr. PASCRELL. According to the latest statistics from the 
Health Institute in New Jersey, a lot of pharmaceuticals in New 
Jersey. Sixty-five thousand people are employed. It's important 
to me. I should not have to ask whose ox is going to be gored 
next, from textiles to whatever to widgets. I'm concerned about 
everybody. I want to be concerned. You should be concerned. I 
would like your assistance that you're giving the 
pharmaceutical industry the same priority that is given to 
automobiles, cattle ranchers. Can you assure me that USTR is 
going to do that also?
    Mr. BHATIA. Congressman, we have been in contact with the 
pharmaceutical industry from the outset of these negotiations. 
I have conducted--I can't count how many conference calls with 
senior executives from the pharmaceutical industry on this 
subject. I have been involved in negotiations directly with the 
trade minister on the subject of the pharmaceutical industry. I 
can assure you that it remains a high priority for us and will 
remain a high priority for us----
    Mr. PASCRELL. Would you also put that in writing----
    Mr. BHATIA. Absolutely.
    Mr. PASCRELL [continuing]. With an explanation to my 
office?
    Mr. BHATIA. Absolutely.
    Mr. PASCRELL. Mr. Chairman, before I bow out here, can I 
have also from the representative today, sometime during this 
week, and to the entire Committee, I want him to explain to us 
the core labor rights that are being forwarded in this 
negotiation so that we have a good handle before they make this 
quote/unquote ``deal.'' I want him to explain to us and address 
the issue of where it's taking place within the negotiations.
    Chairman LEVIN. You should prepare a question and we'll 
send it to him. So, now Mr. Meek and Mr. Weller, you each have 
5 minutes. I guess under the rules, Mr. Meek, you're next, 
because you were here.
    Mr. MEEK. You can go to Mr. Weller.
    Chairman LEVIN. Pardon?
    Mr. MEEK. You can go to Mr. Weller if he wants.
    Chairman LEVIN. Okay. Mr. Weller?
    Mr. WELLER. Thank you, Mr. Chairman, and thank you, Mr. 
Meek. Appreciate the opportunity, Ambassador. Thank you for 
coming before the Committee today.
    Mr. BHATIA. Thank you.
    Mr. WELLER. I represent a very trade-dependent district. 
Exports are the reason we're seeing growth in the economy, the 
Joliet area that I'm representing. I would note that just this 
past year, there was about $35 million worth of manufactured 
goods that left my district were exported to Korea. We've seen 
in Illinois overall exports to Korea go up about 16 percent.
    So, Korea is a very important market for Illinois, and 
particular for my district, in manufactured goods as well as 
agricultural goods. The International Trade Commission projects 
that if you're successful in negotiating a good, fair and 
balanced agreement, we could see about a 37-percent increase in 
exports coming from Illinois----
    Mr. BHATIA. Yes.
    Mr. WELLER [continuing]. To Korea. So, I encourage you to 
continue moving forward. I share the concerns that several 
colleagues have raised about telecommunications. Appreciate 
your working to address that. You know, when I talk with my 
manufacturers that serve the Korean market, they tell me that 
their chief competition in Korea is China. We always had a lot 
of debate in this Committee and in this Congress about whether 
or not there's any merit in having a free trade agreement with 
anyone.
    We've seen with the, frankly, the failure of the Doha round 
of the WTO to make progress and increased effort by our 
competition, global competition, for various markets for 
bilateral agreements. Can you tell us where the Chinese and 
also where the Europeans are with--in the type of trade 
agreement, this framework that they currently have and where 
they are with any future bilaterals?
    Mr. BHATIA. Yes, Congressman. This actually is the subject 
of some not insubstantial concern for us. I touched on this 
briefly in my opening remarks. We are seeing a very aggressive 
effort by China, increasing effort by the EU, increasing effort 
by Japan to conclude preferential trade agreements with trading 
partners in the region. Korea, for instance, has----
    Mr. WELLER. Of course, we're seeing that here in Latin 
America----
    Mr. BHATIA. Absolutely. Absolutely. The danger, needless to 
say, of this is that we will be late to the game or not in the 
game at all, that the template will have been set by another 
trading partner, or that we'll never be able to get into that 
market because the deal will have been struck between China and 
a trading partner or Japan and a trading partner.
    In today's globalized world, needless to say, the 
competitive dynamic is so--it's so strong that not having the 
ability to compete in Korea on a level tariff basis or a level 
regulatory basis with a trading partner from another major--
from another country, is a real, real disadvantage to our 
trading partners.
    So, that's the reason why I believe, and I believe, we, the 
U.S. Trade Representative's Office, believes we need to be 
active out there. We need to have a major trading agreement 
with major--we need to have major trading agreements with major 
trading partners in Asia, because it is such a dynamic region. 
There are many people who have told me similar stories about 
the importance of Korea as an export market for their 
districts. It's important that we be able to secure that 
position in the future.
    Mr. WELLER. Korea represents for us the first major Asian 
FTA for the United States in an Asian country. Is that correct?
    Mr. BHATIA. Yes. We've concluded agreements with Singapore 
and Australia, but this would be the first major industrial----
    Mr. WELLER. Economically, Korea is larger than Canada or 
Mexico combined?
    Mr. BHATIA. Yes. It's larger than either Canada or Mexico 
in terms of GDP. That's right.
    Mr. WELLER. Economically, it has huge potential. Just 
review for me again. China, does it currently have a bilateral 
agreement with Korea?
    Mr. BHATIA. It's in the process of negotiating.
    Mr. WELLER. They're negotiating one. Japan, do they have a 
bilateral agreement?
    Mr. BHATIA. Again, in the process of negotiating one. The 
EU has indicated that they are about to.
    Mr. WELLER. Have the Europeans begun, or they're----
    Mr. BHATIA. They're about to this spring. I think a lot 
of--in Korea, there's a sense that if this doesn't come 
together, they would probably turn their attention to some of 
those other FTAs.
    Mr. WELLER. Well, thank you, Mr. Chairman. Ambassador, I 
encourage you to continue pursuing this negotiation. It is 
very, very important in my district and the manufacturers and 
the farmers that----
    Mr. BHATIA. Thank you very much, Congressman.
    Mr. WELLER. Thank you.
    Chairman LEVIN. Mr. Meek, thank you for your courtesy. You 
have the last 5 minutes.
    Mr. MEEK. Thank you, Mr. Chairman. We're very friendly from 
Florida, so we're used to being nice to folks. Mr. Ambassador, 
it's a pleasure having you before the Committee, and as you 
know, many of us here have a lot of unanswered questions. We 
don't know exactly what we're going to get by the end of the 
month, but we hope it is a product that we can hopefully 
endorse.
    I have two questions. One is automotive, one is 
telecommunications. I'm just hoping that you could give the 
Committee some sort of estimate on the potential of job 
creation and also economic impact if we were to open Korea's 
automotive market, what Korea's automotive market will have on 
the U.S. Can you give me a little insight of how many jobs and 
how will it impact our economy?
    Mr. BHATIA. Congressman, it's difficult to do any 
predictions, because there are a number of different variables. 
Also, let me--maybe I could just point you to some examples 
from prior FTAs, what we've seen happen in the automotive 
industry in previous FTAs.
    First of all, let me take the example of Chile, which was a 
partner that had a tariff roughly comparable, I think it was 6 
percent rather than 8 percent. It also had taxes, a domestic 
tax structure that our industry felt was a barrier to effective 
entry into the Chilean market.
    The FTA that we concluded in Chile came into effect in 
2004. From 2004 to '06, exports have increased by more than 200 
percent, from 46 million to 139 million dollars. Jordan is 
another example. Jordan-U.S. passenger car and truck exports 
have gone from really a de minimis amount, $4 million, to more 
than $100 million, $102 million since the FTA came into effect 
in '01. Australia has also been a positive example. Car and 
trucks exports went up 47 percent.
    So, I think there is a history of FTAs being successful in 
opening markets. Now in this case, with Korea, we obviously 
have a more complex situation and have come up with a much more 
or are pursuing a much more complex, detailed answer to that.
    Mr. MEEK. Well, Mr. Ambassador, that's the reason why I 
asked the question, because here we have a number of new 
Members that are Members of Congress, and they have to go back 
home, including myself, and explain to their constituents how 
this agreement will increase jobs. So, I guess a number of 
potential jobs that can be created will be helpful for us.
    I know that you're in the middle of negotiating, but I 
think that using the numbers or potential of what could happen 
in other examples, we need some hard numbers. Apparently, 
you're not there yet.
    Mr. BHATIA. Well, it just, in terms of increased exports, 
we can--how those exports translate into jobs is a complex 
equation, but we can work on that.
    Mr. MEEK. Let me ask the second question. An important 
objective in the Korea FTA is improving market access for the 
telecommunications sector. Korea currently restricts foreign 
equity in that sector to 49 percent in contrast to the U.S. 
telecommunications market that is totally open to Korean 
carriers.
    In a free trade agreement, the U.S. carriers could have the 
same opportunities that are provided to customers in Korea with 
a full range of products and services as Korean companies enjoy 
in the U.S. Again, dealing with the 49 percent issue I think is 
very, very important. I've been talking with my staff a lot 
about this. It's, again, we have these free trade agreements. 
Who are we representing? Are we representing Koreans, or are we 
representing the great U.S. of A? Can you talk to me a little 
bit about that and shed some light on it?
    Mr. BHATIA. I can assure we are representing the great U.S. 
of A and not only those sectors but others, including others 
that have not gotten as much discussion today, but we are 
pursuing U.S. interests----
    Mr. MEEK. Where are we on the 49 percent?
    Mr. BHATIA. Well, this I had mentioned--the issue had come 
up with a few other questioners. We have been as clear as we 
can be with the Koreans that the model of our FTA is that there 
is an opening to allow for foreign, in this case U.S., 
ownership and control of telecommunication services, and we 
have made that point very clear to the Koreans, and we are 
pushing on it very hard.
    Mr. MEEK. Are we going to get what they will get from us?
    Mr. BHATIA. That's--the goal would be for--the same way the 
U.S. market is open to Koreans today, and the hope is through 
the FTA and the idea is through this FTA to be able to gain 
that same access into Korea.
    Mr. MEEK. So, we would look for parity versus?
    Mr. BHATIA. Yeah. We would look for our companies to be 
able to compete effectively in those markets through addressing 
the FTA restriction among other practices. There are other 
issues in the telecommunications area.
    Mr. MEEK. Thank you, Mr. Ambassador.
    Mr. BHATIA. Thank you.
    Mr. MEEK. Thank you, Mr. Chairman.
    Chairman LEVIN. Well, Mr. Reynolds, I think you said you 
were going to pass? All right. The ambassador--do you want to 
ask a quick question? Please, go ahead.
    Mr. REYNOLDS. Mr. Chairman, I'm just aware of the 
ambassador's time, and I just want to urge him that he just 
take into consideration many of the challenges we've heard 
today on agriculture, auto and some of the things that our 
Ranking Member has outlined in the original opening remarks.
    Chairman LEVIN. Thank you. Thank you so much for being 
here. I think this has been important. As you leave, could I 
just reinforce what I referred to earlier, Ambassador? When you 
talk about bringing home an agreement, in part because of its 
importance, in part because of the time squeeze, though it's 
conceivable it could go beyond, and also because of the dynamic 
within this Congress, let me suggest the notion of bringing 
home won't work. Since that kind of assumes a distance and 
you're bringing it home when we need a much more collaborative 
effort.
    You said it's to be--you warned the Koreans if there's no 
real breakthrough, which I think means no more restrictions--
unless there's a clear health need, Congress won't approve. I 
hope you'll convey and feel the same thing is true in other 
areas. So, it isn't bringing home, and it's not briefing staff, 
as important as that is. It's revising the relationship, 
because what was true perhaps in previous years isn't true 
anymore. I hope that's clear.
    We would like to see a successful negotiation. Congress 
needs to be a much more active, meaningful partner. When it 
comes to the crunch, if Congress isn't part of the crunch, I 
think crunch will lead to failure. So, let me leave it at that. 
I hope we convey that message from people who believe in 
expanded trade but who believe it has to have a shape and 
conditions that would allow this Congress to approve it, and 
we're far, far away.
    Thank you very much.
    Mr. BHATIA. Thank you very much, Mr. Chairman.
    Chairman LEVIN. Now the other panel will join us. We'll see 
how many questions there are. Thanks again, Mr. Ambassador. 
Then is the next panel kind of revving up? It may not be very 
long.
    Thank you for your patience, Mr. Biegun and Mr. Collins, 
Mr. Reuther. I think it was useful to do it this way. All 
right. Who would like to start? Mr. Larson? Mr. Tanner, do you 
want to start? Okay. Mr. Larson, go ahead. Then Mr. Herger and 
then myself and Mr. Meek and maybe I'll come last.
    Mr. LARSON. Thank you very much, again, Mr. Chairman, and 
let me concur that I like the format, because more often than 
not when we have and conduct these hearings, there isn't a 
chance to have the panelists actually to respond themselves to 
what they just heard.
    I had a couple of specific questions as it related to the 
ambassador. They had to deal with the bipartisan agreements, 
minimally embracing those bipartisan agreements, and then also 
living up to and presenting us with an FTA that has labor 
standards. Did you feel that the ambassador adequately answered 
those, and what's your sense of how the USTR is pursuing down 
those lines?
    Chairman LEVIN. Mr. Biegun, do you want to?
    Mr. BIEGUN. I'd be happy to speak to the bipartisan 
proposal for resolving this. Though we've been in close 
communication with USTR on what the industry wants, we've been 
passing each other like ships in the night.
    We don't want guaranteed access to the Korean market. We 
want to see the Korean market look like a normal market, and 
that, in our view, will guarantee that we'll be able to have 
access to it. This is a subtle but important difference. We 
don't seek to sell X number of Fords or X number of U.S. cars, 
but it's our view that if the Korean market is even half the 
level that's the average import penetration for all the rest of 
the automotive markets in the world, then they won't have the 
temptation or the ability to use the tricks they've used to 
keep it closed.
    You can't use nontariff barriers when there's a substantial 
import presence in the market. We could make the changes. We 
can afford to. We can shift with the domestic industry just as 
they do here when National Traffic Safety Administration (NTSA) 
or the Environmental Protection Agency (EPA) require new things 
in the U.S. market. Once you get a critical mass, you're 
impervious to these kind of maneuvers. So, we're not seeking 
guarantees. We're looking for a test to show that the market is 
the same.
    Mr. LARSON. The ambassador kept on referring to the fact 
that they had--it's transparent, their negotiations are more 
transparent than ever, the regulations are more transparent. 
Has that been your experience?
    Mr. BIEGUN. In 1995, the United States had a comprehensive 
agreement to eliminate all such measures. It failed. In 1998, 
the United States had another comprehensive negotiation to 
eliminate all such measures. It failed. We sell less cars today 
as an industry in Korea than we did in 1998 when the last 
agreement was negotiated.
    Mr. REUTHER. Just to reinforce that, I think it was quite 
clear from the ambassador's response that they have no 
intention of meeting the minimum requirements that were set 
forth in the bipartisan Congressional proposal, and we deeply 
regret that. It looks like they're following the same path that 
they did in 1995 and 1998, and we think they're going to get 
exactly the same result.
    On the issue of worker rights, other than saying it's going 
to be a strong proposal, they indicated absolutely nothing. So, 
far on Peru and Colombia, as well as Korea, it's been our 
impression that they're absolutely opposed to including the 
internationally recognized worker rights in the core text of 
the agreement, enforceable just like commercial provisions. So, 
we again expect the agreement to be totally inadequate in that 
area.
    Mr. LARSON. Thank you.
    Chairman LEVIN. All right. Thank you. Mr. Herger.
    Mr. HERGER. Thank you, Mr. Chairman. It seems to me that 
the real problem that's faced by the auto industry is one that 
is encountered by many other U.S. interests seeking access to 
the Korean market, namely the complete lack of transparency in 
Korea for setting rules, regulations and standards.
    The solution we employ must solve this problem not only for 
autos but for these other sectors as well. Maybe starting with 
you, Mr. Collins, what Office of Women's Health do we find a 
solution that addresses the unfair rulemaking process and the 
lack of transparency that systematically slams the Korean 
market shut for U.S. beef, rice, pharmaceuticals as well as 
autos, just to name a few?
    Mr. COLLINS. A very good question, Mr. Herger, for many 
industries. We--and I'll speak with experience of the auto 
industry. I think when you're dealing with a country that has 
decided to use its regulatory system as a method of control, 
controlling trade, or a method of protection and has gotten 
used to that as an active governmental structure using multiple 
ministries, you start with transparency. I think that is a 
start. However, that is just the start. I think it gets you to 
the table. It gets you to at least a minimum of information. 
However, I think you have to go from there.
    Based on our experience, because we've been going round and 
round for 15 years with this problem, what we found was that, 
for example, with Korea, we'd have a new, nontariff barrier 
that would stop us cold. We have one now sitting on the table 
that would shut out 40 percent of our cars in a year that 
happened to pop up this year.
    However, there's one of these every year. Usually, without 
transparency, it comes up suddenly, but then even when it 
becomes transparent, it becomes raised--we have to go to USTR--
it then becomes, one issue becomes a bilateral issue that gets 
raised higher and higher and higher till finally it's up to the 
cabinet level on, in our case, the placement of where you put a 
license plate. It has to go to the cabinet to be resolved. It 
uses huge amount of political capital and energy, and actually 
it's good Korean strategy, because it takes up a lot of our 
time and your time and the USTR's time. You finally get a 
resolution of it. You put that away, and six-- three months 
later, there's another one, and you start the process all over 
again. I'm sure other industries can report the same thing.
    It's more than--transparency is critically important, 
absolutely. However, it's the building blocks from which you 
say we've got to get a system, got to get a handle on looking 
at what's going on here in our industry and other industries 
and how to deal with that if we're having--talking about a 
mature, equal relationship, how we deal with that as a trade, 
the biggest trade barriers that we face in the country 
structurally and systemically, not just with what's up now, but 
what's coming in the future.
    Mr. HERGER. Anyone else want to comment? Yes?
    Mr. BIEGUN. Mr. Herger, I think you also need to get the 
incentive system right, and this is the part of the proposal 
which we as an industry early on engaged with USTR on. We 
propose to go ahead and support the tariff reductions but put 
them 15 years out, and they can come forward if the Korean 
market begins to resemble a normal market.
    We cannot find every trick that they use to keep our 
products out, nor can we in one agreement block every barrier 
that they might propose the day the ink dries on that 
agreement. What we suggest is you get the incentives right; 
that they have an incentive to stop using these tricks, and 
then we have confidence to invest in the Korean market. The 
global industry, we can tell you first hand, is competitive. 
It's good. It's tough.
    They'll get into the Korean market, and it will become a 
normal market, not through managed trade, not through 
guaranteed opportunity, but by the routine access that global 
automotive makers have in our own market where about 50 percent 
of the market will be owned by nondomestic brands by the end of 
this year.
    Mr. HERGER. Would you like to distinguish between the 
controlled market and the other kind of market that you're?
    Mr. BIEGUN. In what respect, sir?
    Mr. HERGER. How you would do it. You know, we can say we're 
going to say that you have to sell X thousand number of cars, 
but that could be looked at as controlled market. How would you 
look at opening this market without having it actually 
setting----
    Mr. BIEGUN. You see, it's not USTR's job to open the Korean 
market to Japanese cars. In addition, if the Koreans continue 
to block Japanese cars, then the same tools will block our 
cars. If they continue to block European cars, BMWs and 
Volkswagens and all the rest, they'll continue to block our 
cars.
    We actually think that there does have to be an agreement, 
a comprehensive agreement on the Korean side, to completely 
open its market. Also, there has to be some sort of guarantee, 
some sort of incentive that they don't reinstitute those 
mechanisms the day after the agreement is signed. That's what 
we experienced in '95 and '98.
    It's a little bit like Charlie Brown coming at Lucy while 
she's holding the football. We took a kick at it '95, and we 
fell flat our back. We took a kick at it in '98 and fell flat 
on our back. There's that football sitting out there on the 
field again, and Lucy's holding it, and we just don't want to 
be Charlie Brown again.
    Mr. HERGER. Very good [continuing]. Thank you.
    Chairman LEVIN. All right. I was going to ask about the 
USTR's notion that the Korean production was going to shift 
dramatically to the United States
    There are other panelists waiting. I treated this in my 
opening statement. I think it is an excuse. It is an excuse for 
essentially ending up with nothing or a very weak agreement.
    Mr. Biegun.
    Mr. BIEGUN. I really did want to comment on that, Mr. 
Chairman. We do not want to stop them from manufacturing here. 
Do not get me wrong. It does not make our business easier when 
they manufacture here. We do not want to stop them.
    We want access to their market. What possible bearing does 
their investment here have on our access to their market? I do 
not care if they make all their cars here. We still want to get 
in their market. That is all we ask in this negotiation.
    We do not want to limit that. We think that is just a 
distraction.
    Mr. REUTHER. Mr. Chairman, as you indicated in your opening 
statement, even with additional production facilities in this 
country, as the Korean share of the U.S. market rises, we are 
still likely to see increased imports from Korea.
    On the top of that, if the pick-up truck tariff is 
eliminated, we will probably see foreign producers from other 
countries locating production capacity in Korea to take 
advantage of the duty free access to pick-up trucks.
    We think the trade balance will get even worse between our 
two countries.
    Chairman LEVIN. Mr. Collins, very briefly.
    Mr. COLLINS. To follow on my two colleagues, yesterday in 
Automotive News, which is dated March 19, ``Hyundai Plans 
Luxury Car for the United States in 2008.'' Hyundai Motor says 
it will launch a luxury car in the United States next year, 
built in Korea.
    The point that you made in your statement and the others 
have made that this is not a static situation, that the Korean 
auto makers are going to grow and build on it, probably much 
like the Japanese model has verified by this.
    Chairman LEVIN. We have urged that the 25 percent tariff 
should not be determined bilaterally but through the 
discussions.
    Thanks very much. We appreciate your comments.
    Now, let's have the next panel. Thank you all for your 
patience. Thanks again.
    Thank you so much. Mr. Herger and I just had a brief chat. 
We are going to make sure that your testimony reaches 
everybody. The second panels always bump into this. We are 
going to send a note to all of the Members, not only of the 
Subcommittee, but the Full Committee, with your testimony.
    Furthermore, you are going to raise some very important 
issues, we do not mean for a second these are secondary issues. 
We assure you of that. We are going to have a very active back 
and forth with USTR as to these issues, as well as the others.
    When I commented about ``bringing home,'' I do not like 
that figure of speech. I think it does not involve Congress or 
yourselves effectively enough.
    I guess we will go with Ms. Overby with the American 
Chamber of Commerce in Korea, and Mr. Stallman, you are the 
President of the American Farm Bureau Federation.
    Mr. Vastine, you are with the Coalition of Service 
Industries. Mr. Boyle, you are President and chief executive 
officer of the American Meat Institute.
    Ms. Ritter, you are Vice President of International Affairs 
for the Pharmaceutical Research and Manufacturers of America. 
Mr. Steir, Executive Vice President of Paramount Films.
    Mr. STEIR. Farms.
    Chairman LEVIN. What did I say?
    Mr. STEIR. Films.
    Chairman LEVIN. Paramount Farms. You wish you were head of 
Paramount Films. It is Paramount Farms. That is pistachio's, is 
it not?
    Mr. STEIR. Yes, sir.
    Chairman LEVIN. We have a lot back in the room, by the way. 
We like pistachio's on this Committee.
    Cal Cohen, we welcome you.
    If each of you would take 5 minutes, and go forth. Thanks.

    STATEMENT OF TAMI OVERBY, PRESIDENT AND CHIEF EXECUTIVE 
 OFFICER, AMERICAN CHAMBER OF COMMERCE IN KOREA, ON BEHALF OF 
THE U.S. CHAMBER OF COMMERCE, THE U.S.-KOREA BUSINESS COUNCIL, 
           AND THE U.S.-KOREA FTA BUSINESS COALITION

    Ms. OVERBY. Thank you. Good afternoon. My name is Tami 
Overby. I am speaking on behalf of the U.S. Chamber of 
Commerce, the U.S.-Korea Business Council, the American Chamber 
of Commerce in Korea, and the U.S.-Korea Free Trade Association 
Business Coalition.
    Due to of the shortness of time, we are submitting our more 
detailed FTA papers for the record.
    Chairman LEVIN. It will be so introduced and the same will 
be true for all of you. Thank you.
    Ms. OVERBY. Thank you. Our organization strongly support an 
FTA with Korea that is comprehensive in scope and fully 
consistent with the WTO's framework for liberalized trade.
    We urge negotiators to ensure that the agreement eliminates 
tariff and non-tariff barriers in the Korean market as rapidly 
as possible.
    We also call for an FTA that provides for transparent and 
predictable regulatory and rulemaking procedures across all 
sectors in the Korean economy.
    We are now at a critical moment in the FTA negotiations 
with Korea. We call on leaders of both countries to make 
completion of these negotiations a top priority. A gold 
standard FTA with Korea would serve as a new model for future 
FTAs in the important Asia Pacific region, and would bring 
substantial and tangible benefits in a number of ways, create 
new access in a dynamic market.
    Korea is already our seventh largest two way trading 
partner, our second largest market for U.S. services in Asia, 
our seventh largest market for U.S. agriculture goods, our 
ninth largest destination for U.S. Information and 
Communications Technology (ICT) exports.
    Studies by several leading United States and Korean experts 
have indicated that a comprehensive FTA will stimulate U.S. 
exports to Korea to the benefit of U.S. businesses, farmers, 
and workers, and will create new opportunities for U.S. goods 
and services.
    Enhancing regulatory transparency. The FTA provides a 
landmark opportunity to enhance regulatory transparency in 
Korea, one of the most significant market access barriers 
affecting U.S. companies in Korea in virtually all sectors.
    Leveling the playingfield. There are numerous non-tariff 
barriers affecting U.S. companies across all sectors.
    This FTA is an opportunity to obtain strong commitments by 
Korea to address these barriers in a meaningful way.
    Promoting liberalization and regional trade leadership. A 
comprehensive FTA with Korea will be the United States' first 
FTA with the Northeast Asian economy. This deal gives the 
United States a preferential position with the world's tenth 
largest economy, one in which the United States has been losing 
market share to China and the EU in recent years, and would 
also provide an opportunity for the United States to shape the 
future trade agenda in Asia.
    Outstanding FTA negotiation priorities. While progress has 
been made, a number of priority issues for our organizations 
remain to be fully addressed.
    In the area of agriculture, an agreement must be 
comprehensive, and the Korean market must be fully re-opened to 
U.S. beef imports.
    Automobiles. Korea remains the most closed auto market in 
the industrialized world, and our organizations have called for 
an FTA that addresses in a comprehensive manner the 
longstanding tariff and non-tariff barriers that have been 
effective in keeping the Korean auto market closed, and that 
includes special measures to ensure real and meaningful import 
market access.
    Pharmaceuticals. Our organizations continue to view the FTA 
as an ideal means to address longstanding issues and to enhance 
the access of Korean patients to leading U.S. medical products, 
to further improve the transparency and accountability of 
Korea's national health insurance system, and to secure better 
and lasting recognition of the value of innovative U.S. 
biomedical discoveries.
    Investment. We believe that an FTA with Korea must include 
strong investment protections and investor state dispute 
settlement procedures.
    Further, the agreement should guard against investment caps 
and limitations on majority ownership by U.S. companies.
    If an FTA with Korea is not concluded, not only would these 
and other critical issues remain, but resolving them could 
become even more challenging.
    Moreover, if we miss this opportunity to complete an FTA 
with Korea, American manufacturers and farmers would lose the 
chance to gain new access in the Korean market, and also could 
lose market share as Korea concludes other bilateral trade 
agreements with other countries.
    Korea is already negotiating FTAs with Japan and Canada, 
among others, and has announced its intention to launch 
negotiations with the EU in May, and is studying possible FTA 
talks with China.
    In conclusion, while issues remain, we are optimistic that 
a commercially meaningful agreement can be concluded in time 
for Congress to consider it under the current TPA.
    An agreement would bring real benefits for the U.S. and 
Korean workers and businesses, and will reinforce our two 
countries' economic leadership in the region.
    Our organizations are firmly committed to working with 
Congress and the Administration to secure a successful U.S.-
Korea free trade agreement.
    Thank you very much for the opportunity to testify today.
    [The prepared statement of Ms. Overby follows:]
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    Chairman LEVIN. I want to thank you very much.
    Mr. Stallman.

             STATEMENT OF BOB STALLMAN, PRESIDENT,

                AMERICAN FARM BUREAU FEDERATION

    Mr. STALLMAN. Mr. Chairman, Ranking Member Herger, Members 
of the Committee, I certainly appreciate the opportunity to 
address the U.S.-Korea negotiations today.
    My name is Bob Stallman. I am a rice and beef producer from 
Texas and President of the American Farm Bureau Federation.
    Overall, trade is important to U.S. farmers and ranchers. 
U.S. agriculture is dependant on trade for several reasons.
    First, roughly 25 percent of total market cash receipts for 
agriculture comes from exports. In addition, 96 percent of our 
current or potential customers live outside the borders of the 
United States, and last, agricultural productivity is 
increasing nearly twice as fast as domestic demand for 
agricultural products.
    It is critical for U.S. agriculture that industry, Congress 
and the Administration work together to further open and 
develop world markets.
    USDA estimates that in 2007, the U.S. ag trade surplus will 
rise to $8 billion, but we will not be able to maintain this 
surplus unless action is taken to ensure our international 
competitiveness.
    We believe South Korea is an important component of the 
current trade agenda this Congress will have to address. Other 
important components this Committee and Congress should support 
and vote on as soon as possible are the Peru, Columbian and 
Panama trade agreements.
    We have estimated that these three agreements represent 
more than an additional $1.5 billion per year in U.S. 
agricultural exports after full implementation. We cannot let 
this opportunity slip away.
    In addition, we urge you to support extension of trade 
promotion authority. Without this, our government will be 
locked out of any further trade negotiations allowing our 
competitors ample time and opportunity to increase their 
competitive advantage in markets that are important to us.
    When USTR announced its intent to negotiate a bilateral 
free trade agreement with South Korea, we understood that the 
negotiations would not be easy, but we also recognized the 
potential for growth in this market.
    Korea is a major global market for agricultural products 
and the United States is one of the key suppliers of that 
market.
    South Korea was the fifth largest export market for 
agricultural products in 2004. Of the $10.5 billion in 
agricultural goods that South Korea imported, $2.5 billion of 
that came from the United States. In 2004, the United States 
had an agricultural trade surplus with South Korea of $2.3 
billion.
    Reflecting on the diversity of Korea's import demands, the 
United States supplied a wide range of agricultural products in 
2004, including corn, soybeans, wheat, processed foods, cotton, 
fresh citrus, nuts, and fruit juices. In prior years, Korea was 
a major market for U.S. beef. U.S. exporters supplied nearly 
$790 million in beef and beef staples as recently as 2003.
    While the United States is a significant supplier of the 
South Korean food and fiber market, our market share is 
decreasing. The United States' market share of South Korea's 
agricultural imports has fallen from nearly 45 percent in 1996 
to less than 30 percent in 2004, a 30 plus percent drop.
    Other countries are moving in and increasing their share of 
the South Korean agricultural market. Those are Australia, New 
Zealand, Canada, the EU, and China.
    Korea maintains high import tariffs on many products 
ranging from just over 1 percent to nearly 500 percent, 
depending on the commodity.
    An agreement will give U.S. exporters expanded access by 
removing restrictions due to Korea's tariffs, as well as 
providing a competitive advantage over other suppliers.
    Eliminating or even significantly reducing these high 
tariff rates through this agreement could be extremely 
beneficial to the United States' agricultural sector.
    Mr. Chairman, we understand there is not much time left in 
order to conclude these negotiations. We remain committed and 
hopeful that USTR and Korean negotiators can successfully 
complete negotiations under the terms and existing time line of 
TPA.
    We commend USTR for their dedication to this agreement, and 
appreciate their diligence in working with us and others in the 
ag community.
    There are some very significant issues that have not yet 
been resolved. Currently, Ambassador Crowder and the 
agriculture negotiating team are in Seoul to try to resolve 
these issues.
    Farm Bureau representatives and others from the U.S. ag 
community are there also to convey the importance of these 
negotiations.
    I am sure you are aware of some of the sensitive issues, 
including rice, citrus and beef. We must secure additional 
market access for all commodities, including rice and citrus.
    The issue for beef is a little larger. While it does 
include market access, it also involves SPS issues.
    We remain optimistic that with the recent preliminary OIE 
announcement that the United States is a controlled risk for 
BSE. The Koreans should begin to fully open their beef market 
to the United States.
    Let me be clear. The Farm Bureau will not support passage 
of a Korea FTA without resolution of the beef issue.
    In conclusion, assuming a successful end of the 
negotiations and resolution of the beef issue, the opportunity 
for U.S. agriculture under a U.S.-Korea trade agreement could 
prove as great as or greater than our previous bilateral or 
regional trade agreements.
    Thank you. I look forward to your questions.
    [The prepared statement of Mr. Stallman follows:]
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    Chairman LEVIN. Thank you very much.
    Mr. Vastine.

            STATEMENT OF ROBERT VASTINE, PRESIDENT,

                COALITION OF SERVICE INDUSTRIES

    Mr. VASTINE. Thank you very much, Mr. Chairman, and Members 
of the Subcommittee, for this opportunity to testify on the 
U.S.-Korea FTA on behalf of U.S. services companies.
    Services represent 80 percent of U.S. employment or 92 
million American jobs, and 77 percent of economic output, and 
the United States is the world's largest services trader with a 
surplus of $73 billion last year, its 35th consecutive year of 
surplus.
    In spite of this record of success, our service sector is 
restricted by a host of barriers that block our growth in 
foreign markets. That is why efforts to open up key markets 
such as Korea are so very important, and why CSI and its member 
companies very enthusiastically support this agreement.
    Success for services in this FTA means that Korea will make 
it much easier for our firms to conduct cross border trade, and 
to establish their commercial presence there. That is, to 
invest in Korea.
    On cross border trade, the United States exported $10 
billion of U.S. services to Korea in 2005, a surplus of $4 
billion over imports.
    Separately, sales of services of U.S. affiliates operating 
in Korea were $4.3 billion, more than any other FTA partner 
except the North American Free Trade Agreement (NAFTA).
    We also seek national treatment and domestic regulation. We 
seek the right for our firms to be treated the same as Korean 
firms in that market. Very considerable progress seems to have 
been made in this difficult negotiation to date.
    On financial services other than insurance, Korea is 
expected to bind its already substantially open market so that 
U.S. firms can establish in Korea a direct home office branches 
or in any other legal form suitable to their operations there.
    We believe Korea will commit to greater regulatory 
transparency, including the right to notice and comment, a 
right which we accept as almost proforma here in the United 
States, but which of course is not available to us in Korea.
    We expect Korea to allow U.S. securities and fund 
management companies to perform basic managerial functions at 
their home offices, rather than be required to perform them in 
Korea at much greater expense, and we expect that foreign 
portfolio managers will be allowed to do their jobs from home 
or regional offices, not be required to do them in Korea.
    On insurance, the FTA is expected to permit foreign firms 
to operate much more freely, to increase substantially their 
foreign currency reserves, to allow banks to distribute 
insurance products, to adopt a new approach to regulation that 
will allow firms to offer products in Korea unless explicitly 
prevented from doing so.
    U.S. firms hope this FTA will go beyond other FTAs by 
embracing reforms that Japan and the United States bilaterally 
agreed to in the nineties. Those reforms resulted in 
quadrupling U.S. insurance firms' share of business in Japan.
    There is at least one remaining issue here, however, and 
that is rules ensuring a level playingfield between Korea Post 
and private insurance companies have yet to be agreed. Also, of 
interest to all financial services providers are indications 
that Korea will lift its very onerous restrictions on cross 
border data flows, making it much easier for foreign firms to 
do business from Seoul with the rest of the world.
    On express delivery, we expect the FTA to clarify that the 
Korean Postal Service Act, which could severely impair U.S. 
companies' operations, will ensure a level playingfield for our 
companies, FedEx and UPS, and their 600,000 U.S. employees.
    On telecommunications, of course, a major unresolved issue 
is Korea's 49 percent limit on ownership by foreign telecom 
providers. Much has been said about that. It would be extremely 
unfortunate if the Koreans do not see their way to lifting that 
limit, and we hope and expect that can be accomplished.
    On E-commerce, we expect this FTA to apply the same high 
standards set in other FTAs, to enable our very efficient and 
competitive E-commerce practitioners' businesses to continue to 
do business.
    On audio-visual services, Korea applies many restrictions 
on U.S. suppliers of A/V services, but as a signal of its 
intent at the outset, Korea cut in half, to 73 days, its 
requirement that its movie theaters devote 146 days a year to 
showing Korean films. Much more needs to be accomplished here, 
and we hope that can be done as well.
    To conclude, services negotiations seem to have made very 
considerable progress. More remains to be done. We hope and 
expect that the remaining issues will be resolved. Also, like 
the Farm Bureau, we support the implementation of the Peru, 
Columbia and Panama agreements, as well as passage of TPA.
    Thank you very much, Mr. Chairman.
    [The prepared statement of Mr. Vastine follows:]
Statement of Robert Vastine, President, Coalition of Service Industries
    Mr. Chairman, I would like to thank you for the opportunity to 
testify before the Trade Subcommittee of the House Committee on Ways 
and Means on the U.S.-Korea Free Trade Agreement. My name is Bob 
Vastine, and I am the President of the Coalition of Service Industries 
(CSI). CSI is the leading business organization dedicated to the 
reduction of global barriers to U.S. services exports. Our overriding 
objective is to obtain commercially significant trade and investment 
liberalization in all forums for services trade: financial and payments 
services, express delivery and logistics, telecommunications, energy 
services, computer and related services, travel and tourism, audio-
visual services, accounting, legal, and other professional services. We 
believe such liberalization is a vital U.S. national interest and will 
also contribute to economic modernization and growth in emerging 
markets and the developing world.
    The services sector represents the largest part of U.S. employment 
and economic output, and the U.S. is the world's largest and most 
competitive services trader. However, the service sector is also the 
most restricted, with a host of market access barriers and other 
restrictions that hinder this dynamic sector's growth in foreign 
markets. That is why efforts to open up key markets such as Korea are 
so important to our sector.
    Korea is a very important market for U.S. services, and CSI and its 
member companies enthusiastically support this negotiation. The size 
and potential of the Korean market, combined with the prevalence of 
barriers to U.S. services companies in that market, make this 
negotiation the most commercially significant of all recent FTAs. And 
in those FTAs, USTR has taken a comprehensive approach to market 
access, which gives us the opportunity to achieve new liberalization 
and lock in existing liberal practice across a wide range of service 
sectors in which U.S. companies are world leaders.
    Korea has a population of more than 48 million, with a 2004 GDP of 
$680 billion. The services sector makes up about 55% of Korea's GDP, 
compared with 41% for industry, and 4% for agriculture.\1\ Korea's 
total services exports worldwide were $41.4 billion in 2004, with total 
services imports reaching $50.1 billion the same year.\2\
---------------------------------------------------------------------------
    \1\ World Bank, World Development Indicators Database.
    \2\ OECD Indicators 2006.
---------------------------------------------------------------------------
    U.S. crossborder exports of services to Korea were $10.2 billion in 
2005, while imports were $6.3 billion, netting a U.S. services trade 
surplus of almost $4 billion. Leading U.S. crossborder services exports 
include travel and other transportation services, education, financial 
services, and a broad range of business, professional, and technical 
services, among others. Separately, sales of services by U.S. 
affiliates with a presence in the Korean market in 2004 were $4.3 
billion.\3\ U.S. services trade with Korea is well in excess of that 
with any other recent FTA partner, including Australia and Singapore, 
and is second in Asia only to Japan.
---------------------------------------------------------------------------
    \3\ U.S. Bureau of Economic Analysis, Survey of Current Business, 
October 2006.
---------------------------------------------------------------------------
    This has been a difficult and complex negotiation, and while much 
progress has been made, there are a number of issues yet to be 
resolved. In particular, investment restrictions in telecommunications, 
restrictions in the audiovisual sector, the discriminatory treatment of 
U.S. insurance providers vis-a-vis Korea Post, and other issues must be 
addressed. However, we are optimistic that they can be resolved 
successfully, and we support the continued efforts of our negotiators 
to do so. Successful resolution of the key outstanding issues will 
ensure very broad and active support from the service sector for the 
passage of this agreement by the Congress.
KEY SERVICE SECTORS
    The following is a brief summation of objectives in this agreement 
for several major service industries.
    Financial services (except insurance). We are encouraged by 
progress that has been made to date in the financial services portion 
of the negotiation. Due to Korea's strong desire to become a regional 
hub for financial services, we expect most U.S. negotiating objectives 
to be achieved and anticipate that certain areas of this agreement will 
go beyond previous model FTAs, thereby assuring U.S. financial services 
providers access to this important and growing market. We expect that 
existing liberal practices--such as the right of foreign banks to 
establish as branches or subsidiaries, will be bound in the agreement.
    We anticipate that Korea will address the financial services 
industry's need for regulatory transparency, particularly with regard 
to having administrative guidance in writing and providing more than 20 
days to comment upon proposed regulations, as is the case now. We 
expect that onerous restrictions on cross-border data flows will be 
lifted. Moreover, we are optimistic that restrictions prohibiting the 
performance of certain functions, such as legal, accounting, human 
resource, and other activities, by the U.S. parents of Korean 
subsidiaries will be lifted. In addition, we expect that portfolio 
managers will be permitted to manage their portfolios from their 
regional or head offices outside of Korea.
    While remaining hopeful that the financial services chapter will be 
concluded in a timely manner, it is important to note that Korea has 
yet to indicate its willingness to accept the standard concept of most 
favored nation (MFN), whereby both trading partners agree that if 
either of them liberalizes further in the context of another FTA, then 
that liberalization is offered automatically to the other trading 
partner. We believe Korea should also accept the ``Ratchet Clause,'' 
which means that if in the future it unilaterally liberalizes a measure 
which it had listed as an exception, then that liberalization 
automatically becomes bound in the Agreement; the benefit of that 
liberalization can never be taken away from the U.S.
    Insurance. The life insurance sector is key to the economies of 
both South Korea and the United States, and a substantial outcome for 
life insurance sector in the FTA will be very beneficial for both 
economies. South Korea is the world's eighth largest insurance market 
with total premium volume of more than $65 billion. The South Korean 
insurance and retirement security market would be by far the largest 
insurance market to be included in a FTA with the United States. The 
financial sector reforms that South Korea would undertake as a result 
of the FTA would contribute to a stronger and more resilient economy 
and help it to deepen capital markets and investment for the long term.
    There has been good progress on insurance issues to date. If 
concluded, the FTA will set a new standard for addressing regulatory 
and market access barriers. We are encouraged by progress on issues of 
importance to the insurance sector such as an increase in the allowance 
of foreign currency reserves, bancassurance reform, and adoption of a 
negative list approach to financial sector regulation. We are hopeful 
that the issues of importance to U.S. insurers that remain unresolved, 
including levelling the playing field between private insurance 
companies and the government-owned Korea Post, will be settled 
satisfactorily in the coming days.
    Express delivery. We expect the U.S.-Korea FTA negotiations to 
result in improved conditions for U.S. express delivery companies 
operating in Korea. Currently, U.S. express delivery companies are 
subject to the Korean Postal Service Act, which, if implemented, could 
severely impair their market access in Korea. The agreement should 
clarify existing law and ensure a level playing field for U.S. express 
providers. UPS and FedEx, who together employ over 600,000 Americans, 
will continue to create U.S. jobs through the increased trade that 
liberalization of the Korean market will facilitate.
    Telecom. A major outstanding issue in the negotiation is the 
onerous barrier to entry to its market that Korea imposes by limiting 
foreign direct investment (FDI) in facilities-based telecommunications 
service providers to 49%. U.S. free trade agreements with other 
countries do not have a similar restriction, nor do Korean companies 
face such a restriction in the United States. Failure to resolve this 
issue would enshrine Korea companies' ability to operate in the United 
States while maintaining an unacceptable barrier to entry for U.S. 
companies in Korea. A telecom chapter will be meaningful only if the 
FDI limit is lifted.
    Korea is one of the world's most important markets for 
international telecommunications services. An FTA with a meaningful 
telecommunications chapter will increase investment and trade 
opportunities and will provide substantial benefits to both the United 
States and Korea. We support the continued efforts of our trade 
negotiators to eliminate this barrier.
    E-Commerce. We anticipate that the E-Commerce language in the FTA 
will maintain the high standards set in previous agreements. In 
particular, we expect the agreement to ensure that duties on digital 
products delivered on physical media will be assessed on the basis of 
the value of the carrier medium, and that products delivered 
electronically will not be subject to customs duty. More broadly, we 
expect the agreement to ensure that no significant reservations will be 
taken that will impede the growth of Internet-delivered services.
    Audiovisual services. The U.S. is a world leader in entertainment 
and audiovisual services, yet in many markets around the world, this 
industry is subject to excessive restrictions. Korea is no exception, 
and it is important that the FTA address the myriad restrictions that 
now hamper the industry's ability to compete in the Korean market.
    An important step in this direction was taken prior to the formal 
launch of the negotiations, when Korea announced that its screen quota, 
which protected its domestic film industry by mandating that movie 
theaters devote 146 days per year to showing domestic films, would be 
halved. However, we continue to encourage USTR to address the many 
other barriers in the Korean market, including foreign equity 
limitations in pay TV and in related cable and satellite television 
infrastructure. Korea also imposes a variety of restrictions on foreign 
content in cable and satellite television broadcasting. In addition, 
Korea continues to impose quotas in free-over-the-air broadcasting, 
restrictions on language dubbing of foreign content, and advertising 
restrictions.
    Korea too stands to gain tremendously from additional 
liberalization in the audiovisual sector; combined with its 
exceptionally high broadband penetration rates, further liberalization 
will support and complement Korea's emphasis on the development of its 
information technology sector.
    In short, to date there has been substantial progress in the 
services provisions of the Korea-U.S. FTA. We look forward to further 
progress on the issues outlined above in order that we can fully 
support and advocate Congressional passage of this agreement. I would 
be pleased to answer any questions you might have.

                                 

    Chairman LEVIN. Thank you.
    Mr. Boyle.

 STATEMENT OF J. PATRICK BOYLE, PRESIDENT AND CHIEF EXECUTIVE 
                OFFICER, AMERICAN MEAT INSTITUTE

    Mr. BOYLE. Good afternoon, Mr. Chairman, Ranking Member 
Herger, Congressman Larson and Brady. Thank you for the chance 
to appear before you today.
    The American Meat Institute represents 250 of the Nation's 
most well known meat and poultry companies. Collectively, they 
produce 90 percent of our beef, pork, lamb and veal, and 70 
percent of our turkey products in the United States. They 
employ 500,000 workers and contribute $100 billion to our 
Nation's economy.
    From the U.S.-Israel free trade agreement, through NAFTA 
and Central American Free Trade Agreement (CAFTA), the U.S. 
meat and poultry industry has consistently supported FTAs, and 
has benefited from the resulting market access to new 
international customers.
    Nearly 20 percent of our U.S. chicken production is 
exported; 17 percent of our pork, and prior to December 2003, 
more than 12 percent of our beef.
    As the Committee knows, December 2003 was the time that we 
diagnosed our first case, of BSE the first of three, in the 
U.S. cattle herd. We found it in Washington State in an older 
cow imported from Canada. We immediately lost about 85 percent 
of our beef exports valued at about $7 billion, as trading 
partners such as Korea, banned U.S. beef.
    Prior to the ban on beef trade, Korea was the beef 
industry's third largest market, with 2003 sales in excess of 
$750 million.
    Beginning as long ago as 1989, the U.S. had implemented 
multiple controls and testing programs to minimize the 
introduction of BSE and to prevent its spread amongst the U.S. 
cattle herd. According to the World Organization for Animal 
Health data, the U.S. has the lowest rate of BSE per 100,000 
head of cattle of any nation that has ever diagnosed BSE in its 
domestic herd.
    Today we can say with great confidence that our cattle herd 
is healthy and our beef is safe. In fact, since December 2003, 
while countries such as Korea continue to prohibit U.S. beef 
imports, Americans have happily consumed 60 billion pounds of 
American beef.
    Earlier this month, the World Organization for Animal 
Health's expert panel recommended a preliminary designation for 
the United States as a controlled risk country for BSE. This 
designation affirms the effectiveness of our BSE prevention and 
control programs. Under such a designation, U.S. cattle and all 
beef products can be safely traded in accordance with 
international guidelines, guidelines endorsed by countries such 
as the United States and Korea, and guidelines which are 
enforceable under the WTO dispute settlement process.
    For the past 3 years, the U.S. government has been 
attempting to convince Korea to re-open its market to U.S. beef 
imports, and as a condition of commencing FTA negotiations a 
year ago, a preliminary agreement was reached with Korea in 
January of last year.
    Specifically, the Koreans agreed to allow resumption of 
U.S. beef imports in a two phrased approach, first re-opening 
the market to boneless beef from animals less than 30 months of 
age, and second, permitting full restoration of trade for all 
beef and beef products from animals of all ages upon conclusion 
of these FTA negotiations.
    This second condition is consistent with recently 
negotiated FTAs with Panama, Columbia and Peru, as well as with 
Russia, as part of its WTO accession talks.
    U.S. beef has earned the trust of the international 
community, and we deserve the same response from Korea through 
these FTA negotiations.
    Unfortunately, with Korea, 14 months later, the initial 
opening for boneless beef has yet to occur, because the Koreans 
refuse to accept commonly used commercial definitions for 
boneless product. Instead, they subject our imported shipments 
to x-ray screening searching for cartilage the size of my 
little pinky's fingernail.
    Late last year, three relatively small initial shipments of 
beef from three different U.S. suppliers were x-rayed and 
rejected by the Koreans. The tenderloins that I buy at the 
local grocery store and thoroughly and confidently enjoy with 
my family, could not pass these extreme Korean inspection 
requirements.
    Reports this week from our agricultural trade negotiations 
in Seoul are not particularly encouraging.
    Mr. Chairman, the prolonged trade ban that Korea persists 
in maintaining on U.S. beef imports is both frustrating and 
unacceptable. Despite the overwhelming scientific evidence 
supporting the safety of U.S. beef, more than 17 years of 
domestic BSE controls and animal surveillance, an international 
expert panel's designation of the health of our herd and the 
safety of our beef, and a year old agreement with the Koreans 
to restore trade at least partially, the ban on all U.S. beef 
exports to Korea persists.
    Regrettably, American Meat Institute (AMI) will not be able 
to support an FTA with a trading partner unwilling to abide by 
its bilateral commitments and permit trade under science based 
international guidelines.
    For these reasons, we appreciate the support of this 
Committee, and would encourage you to communicate and continue 
to communicate to the Korean government that the resumption of 
full beef access, pursuant to international standards, must 
occur prior to the conclusion of these important negotiations.
    Should this ban be resolved and full market access 
restored, AMI stands ready to be a strong supporter of the 
U.S.-Korean FTA, as we always have been in the past.
    Thank you very much.
    [The prepared statement of Mr. Boyle follows:]
 Statement of J. Patrick Boyle, President and Chief Executive Officer, 
                        American Meat Institute
    Good afternoon Mr. Chairman, Ranking Member, and Members of the 
Committee. Thank you for allowing me the opportunity to appear before 
this Subcommittee. My name is Patrick Boyle and I am president of the 
American Meat Institute (AMI). For more than 100 years, AMI has 
provided service to the nation's meat and poultry industry--an industry 
that employs nearly 800,000 individuals and contributes approximately 
$100 billion to the nation's economy.
    AMI members include 250 of the nation's most well-known meat and 
poultry packers and processors. Collectively, they produce 90 percent 
of the beef, pork, veal and lamb food products and 75 percent of the 
turkey food products in the U.S. Among AMI's member companies, 60 
percent are small, family-owned businesses employing fewer than 100 
individuals and some are publicly traded and employ tens of thousands. 
These companies operate, compete, sometimes struggle and mostly thrive 
in what has become one of the toughest, most competitive and certainly 
the most scrutinized sectors of our economy: meat and poultry packing 
and processing.
    The members of AMI have supported and benefited greatly from the 
existing free trade agreements (FTA). The economic well-being of meat 
and poultry packers and producers is closely tied to our 
competitiveness in accessing global markets. From the Israel FTA to 
CAFTA and NAFTA, the U.S. meat and poultry community has consistently 
benefited from the market access to new, international consumers. In 
fact, Mexico and Canada are currently two of the largest export 
destinations for beef and beef variety meats, accounting for more than 
2/3 of all beef trade and more than $1 billion in sales. AMI pork 
packing members have also benefited from trade. Nearly 17 percent of 
U.S. pork production is exported and the value of pork exports has 
increased by more than 350 percent since NAFTA's passage. Korea is 
currently the fourth largest market for U.S. pork products. AMI is 
fully prepared to be a strong and vocal supporter of this agreement 
should this ban on beef end and full market access for beef is 
restored.
    Prior to the ban on beef trade, South Korea was the beef industry's 
third largest market, with 2003 sales in excess of $750 million. 
Additionally, it was an attractive market because Korean consumers 
purchased a broad spectrum of products, from high value cuts to variety 
meats that tend to do better in international markets--thereby, 
increasing the overall return for packers and producers of beef. 
Particularly important was the fact that 40 percent of exports to the 
Korean market were what the industry calls ``bone-in'' product. In 
Korea's case, it was predominately short ribs.
    The trade ban followed the December 2003 diagnosis of a single case 
of BSE in an imported Washington state cow born before feed 
restrictions were implemented.
    The case was detected through the U.S.' routine and aggressive 
surveillance program, which began shortly after the UK's BSE crisis and 
long before BSE was ever diagnosed in the U.S. In fact, the United 
States was the first BSE-free nation ever to launch a surveillance 
program for the disease.
    It was just one part of our nation's extraordinary, focused, and 
disciplined steps designed to prevent a disease that ravaged Europe. 
These measures also included import controls and careful feed 
restrictions.
    After we detected the first of three total cases in the U.S., we 
enhanced our interlocking system of firewalls even further and today, 
we can say with great confidence that our herd is healthy and our beef 
is safe. According to World Organization for Animal Health (OIE) data, 
the U.S. has the lowest rate of BSE per 100,000 head of any nation that 
has ever had BSE in its herd. This is testament to the effectiveness of 
our preventive measures.
    During the past two and half years, the U.S. and Korean governments 
had a number of negotiating sessions to resolve this ban. Very early in 
these negotiations, the beef industry conveyed to USDA and USTR that 
unless beef trade is normalized, the beef industry will not support and 
would actively oppose Congressional passage of a potential FTA. A 
preliminary agreement was reached in January 2006. As a condition of 
commencing FTA negotiations, the Koreans agreed to allow resumption of 
U.S. beef imports in a two phased approach: first, immediately allowing 
boneless beef from animals less than 30 months, and second, allow beef 
and beef products from animals of all ages upon conclusion of the FTA 
negotiations.
    The slow opening of markets was accepted under the expectations 
that meaningful amounts of product would begin to move and government 
officials could resolve remaining sanitary and phytosanitary issues on 
the basis of internationally accepted scientific principles.
    For the ensuing nine months, the U.S. and Korea were simultaneously 
negotiating the FTA and the technical terms and conditions relating to 
permitting boneless U.S. beef exports. In early September 2006, the two 
governments announced the reopening of trade under the first phase. 
However, the omission of a very common commercial bone tolerance has 
effectively precluded any meaningful resumption of trade and resulted 
in Korea rejecting three shipments of beef.
    In December, three separate shipments from three different 
companies were rejected because bone fragments were found by the Korean 
government. Two of the three companies had performed their own x-ray 
testing to identify bones chips before shipping, and none were found.
    On January 4, 2007, the beef industry informed USTR Ambassador 
Crowder that Korea needs to engage now--before progress is made in the 
FTA negotiations--on how the Korean government will fully restore beef 
trade. The industry is willing to have a Korean two-step process 
similar to the WTO Accession agreement with Russia, but Korea has 
refused to enter into theses discussions at this point in time. The 
current Korean import requirements for U.S. beef do not come close to a 
first stage of reopening trade. The beef industry is united and has 
informed USTR and USDA that they will not support an FTA with Korea if 
U.S. beef exports are not normalized.
    On March 12, 2007, a World Organization for Animal Health (OIE) 
expert panel recommended a preliminary designation for the U.S. of a 
``Controlled Risk'' country for BSE. This designation affirms the U.S.' 
proactive and effective commitment to preventing BSE and controlling it 
should it did occur. Under such a designation, U.S. cattle and products 
from cattle of all ages can be safely traded in accordance with 
international guidelines, due to our interlocking safeguards.
    The facts are indisputable. No nation acted with as much 
forethought as the U.S. to prevent a disease, detect it if it existed 
and control and destroy it if it occurred. Using a surveillance system 
that far exceeds international guidelines, we have detected only three 
cases in a 100 million head herd. More importantly, no BSE-related 
human illness has even been associated with eating U.S. beef.
    We have earned the right to trade in the international arena under 
international guidelines.
    Mr. Chairman and Members of the Committee, our industry, workers 
and producers that supply us livestock have been significant 
beneficiaries of free trade agreements. Every billion dollars in meat 
exports adds 13,000 U.S. food manufacturing jobs. The USDA has reported 
that the income multiplier from meat exports is 54 percent greater than 
the income multiplier from bulk grain exports. Tallying in hides and 
related beef products, the U.S. is estimated to export $4 billion in 
2007.
    The prolonged trade ban Korea maintains on U.S. beef imports is 
frustrating to many of our members and cattle producers. For our 
members, it means fewer sales, less jobs, and a negative impact on the 
communities where we operate. For producers, the impacts are similar 
with less destinations and consumers to demand their product. Despite 
the overwhelming scientific evidence supporting the safety of U.S. 
beef, more than 17 years of controls, a preliminary expert panel 
designation, and an agreement to restore trade, the ban persists. 
Therefore, we urge you and your colleagues to communicate to the South 
Korean government that the resumption of full beef access must occur 
prior to the conclusion of the FTA negotiations. Should this ban be 
resolved and full market access restored, we stand ready to be strong, 
vocal supporters of this agreement and its Congressional passage.
    Thank you for the opportunity to present these views before you 
today.

                                 

    Chairman LEVIN. Thank you.
    Ms. Ritter.

   STATEMENT OF GERALYN S. RITTER, SENIOR VICE PRESIDENT OF 
      INTERNATIONAL AFFAIRS, PHARMACEUTICAL RESEARCH AND 
                    MANUFACTURERS OF AMERICA

    Ms. RITTER. On behalf of the Pharmaceutical Research and 
Manufacturers of America, I would like to thank you, Chairman 
Levin, Ranking Member Herger, and Subcommittee Members for 
holding today's hearing.
    We appreciate the opportunity to address the most 
economically significant FTA in recent years. PhRMA views the 
U.S.-Korea FTA as an important opportunity to do three things, 
enhance the access of Korean patients to innovative medicines, 
improve the transparency and predictability of Korea's national 
health insurance system, and secure better recognition of the 
value of innovative American biomedical discoveries.
    To put my testimony in a bit of context, I would like to 
start by giving you some quick background on the Korean system.
    Korea has a single payer system, so access to the 
government health care system is access to the Korean market. 
There is no real private market outside the government system. 
The government system is it.
    Innovative pharmaceutical products are mainly imported into 
Korea from United States and other international companies. 
Foreign producers only gained access to Korea's market at all 
in 1999, and then only after intense pressure from the U.S. 
government.
    Korea's policies have long favored its domestic industry, 
which still holds a disproportionately large share of the 
market.
    Adding to these longstanding concerns, on May 3, 2006, 1 
week before the first round of the U.S.-Korea FTA negotiations 
started, the Korean government announced an entirely new 
reimbursement system for pharmaceuticals.
    This was a major setback. The new system is very 
complicated. There is huge scope for bureaucratic manipulation 
in it, and it is much more restrictive toward patients' access 
to medicines. Worse, the infrastructure does not exist in Korea 
to implement the new system effectively.
    I should also note that local generic producers are to be 
grandfathered into the new system, at least in the near term.
    The end result is massive business uncertainty for U.S. 
companies, and reduced access to medicines for Korean patients.
    Our industry is worse off today in Korea than before these 
FTA talks began. I am sorry to say that.
    You basically have a black box. If you want to bring a new 
product to market in Korea, you have to reach into the black 
box and hope that you pull out a set of reasonable conditions 
for market access. That is what the core of this FTA is about 
for us, opening that black box.
    We need some sunshine, but more than just transparency, we 
need real disciplines on what happens in that black box. We 
need rules that matter. So, far, unfortunately, and despite 
some strong efforts from USTR, Korea is resisting a very 
reasonable set of proposals.
    There are two chapters in the agreement that are critical 
to our industry, the chapter on pharmaceuticals trade, of 
course, and the intellectual property rights chapter.
    Within the pharmaceuticals chapter, we are extremely 
concerned about provisions regarding government reimbursement 
regulations. These regulations need to be developed and applied 
in a way that recognize the value of innovation. They should 
provide innovative products with some measure of predictability 
and guard against bureaucratic arbitrariness.
    We are also concerned, as I mentioned, about the lack of 
transparency and accountability in Korea's reimbursement and 
listing decisions.
    This has been a difficult issue for years in Korea, but it 
is particularly bad now under this new system. In order to 
ensure fairness and due process, the new system should include 
an independent appeals mechanism to serve as a check on what 
happens in that black box. That kind of appellate body has to 
have some teeth. It should have the authority to overturn 
reimbursement and listing decisions where appropriate.
    The final issue I want to mention is intellectual property. 
The IP chapter of the FTA needs to contain strong commitments 
to protect confidential pharmaceutical test data.
    The agreement also needs to require that Korea adopt a 
patent linkage system. A patent linkage system just ensures 
that the right hand of the Korean government knows what the 
left hand is doing. You cannot have a patent authority on the 
one hand giving you a patent with the exclusive right to market 
a product and the regulatory authority on the other approving 
infringing products for marketing. There has to be a 
coordination mechanism there.
    In conclusion, I just want to reiterate the importance of 
this agreement to the American pharmaceutical industry. We know 
resolution of these issues will not be easy, but the U.S. 
positions are reasonable and they are achievable.
    We are committed to working with USTR in the final days of 
these negotiations. We want to support the agreement, but it is 
going to be tough. We are pretty far from the finish line right 
now, and time is short.
    Thank you.
    [The prepared statement of Ms. Ritter follows:]
    Statement of Geralyn S. Ritter, Vice President of International 
    Affairs, Pharmaceutical Researchers and Manufacturers of America
    On behalf of the Pharmaceutical Research and Manufacturers of 
America (PhRMA), I would like to thank Chairman Levin and the 
Subcommittee members for organizing today's hearing and for providing 
PhRMA the opportunity to speak on one of the most economically 
significant FTAs in recent years. Over the years, the Chairman and 
members of this committee have been very helpful in addressing 
pharmaceutical market access issues in Korea and other countries. PhRMA 
has viewed the U.S.-Korea FTA as a significant opportunity to enhance 
access of Korean patients to leading U.S. biomedical products; further 
improve the transparency and accountability of the National Health 
Insurance system; and secure better and lasting recognition of the 
value of innovative American biomedical discoveries for better 
healthcare outcomes. As the FTA negotiations head into the final 
stages, PhRMA believes it is critically important that any final 
agreement meaningfully address the pharmaceutical sector for it to be a 
success.
    Impediments to Market Access: The operating environment in Korea 
has for many years presented numerous challenges for PhRMA's member 
companies. Innovative products, which are mainly imported into Korea by 
U.S. and other multinational producers, only gained access to Korea's 
national healthcare system in late 1999, after intense pressure from 
the U.S. Government. Given that Korea has a single payer system, access 
to the national healthcare system is critical to have any meaningful 
right to participate in the Korean market. Since 1999, U.S. and other 
multinationals have continued to face a range of market access 
impediments, including shifting standards of review for having new 
innovative products listed on the national reimbursement list and lax 
enforcement of intellectual property rights. Indeed, Korea's policies 
have long favored the domestic industry, which has disproportionately 
large share of the Korean market. While favoring domestic producers, 
Korea has maintained policies that disadvantage U.S. and other 
innovative companies, an approach that places Korean patients at a 
serious disadvantage as compared to their OECD counterparts. As an OECD 
member economy, Korea should instead establish policies that encourage 
research and development of innovative products which would lead to new 
cures that benefit patients worldwide.
    While the U.S. Government has attempted to address these market 
access barriers through various bilateral agreements and ongoing 
consultations over the years, these efforts have yielded very few 
positive, concrete results. The FTA, therefore, provides an 
unparalleled opportunity to obtain government-level commitments from 
Korea that substantively address key issues of concern to the U.S. 
pharmaceutical industry.
    Korea's New Reimbursement System: Adding to the existing market 
access issues, on May 3rd, 2006, the week before the first round of 
negotiations, the Korean Government proposed an entirely new 
reimbursement system for pharmaceuticals. This was a major setback for 
PhRMA's members. The new system will further discriminate against U.S. 
research-based pharmaceutical companies and increase market access 
barriers. Perhaps most significantly, innovative drugs will no longer 
be available under Korea's national healthcare system unless they can 
meet a number of complicated new requirements. These requirements have 
not been spelled out clearly, and the infrastructure is not in place to 
effectively administer the new system. At the same time, local generic 
products will be grandfathered into the new system, at least in the 
near term. Further, the new system will overturn longstanding 
commitments previously reached between the U.S. and Korea on how market 
access decisions would be made for innovative products. As a result, 
the new system will restrict U.S. pharmaceutical manufacturers' access 
to the Korean market and in turn Korean patients' access to new, 
innovative medicines. While the new system lowers the reimbursement 
level of generic producers--a step that has local producers up in 
arms--it does not go nearly far enough to address the imbalance in 
treatment between foreign innovative companies and local generic 
producers.
    Over the strong objections of the U.S. Government and the 
innovative pharmaceutical industry, regulations implementing the new 
system were finalized on December 29, 2006. Despite a detailed 
submission made by the innovative industry and extensive comments from 
the U.S. Government, the Ministry of Health and Welfare (MOHW) did not 
address any industry or U.S. Government concerns in these final 
regulations.
    PhRMA is committed to working with the U.S. Government through the 
remaining weeks of the FTA negotiations to address problems we have 
identified related to the Korean market and the new reimbursement 
system and to ensure that the outcome does not further restrict market 
access for U.S research-based pharmaceutical companies. However, we are 
concerned that to date, there has been very little movement by Korea on 
the priority issues that U.S. negotiators have put forward.
    Pharmaceuticals Chapter: With regard to the pharmaceuticals chapter 
in the FTA, PhRMA member companies have three key priorities: (1) that 
Korea adopt an appropriate approach to reimbursement procedures so that 
U.S. research-based pharmaceutical manufacturers have fair and timely 
access to the market and Korean patients have timely access to life 
saving medicines; (2) that an independent appeals mechanism be put in 
place to resolve any disputes on reimbursement decisions; and (3) that 
the FTA address longstanding concerns regarding fair business practices 
in the Korean market.

    1. Government Reimbursement Regulations: Government reimbursement 
regulations should be developed and applied in a way that adequately 
recognizes the value of innovation and provides predictability. The 
Government's reimbursement decisions should be based on published, 
clear and objective criteria which all stakeholders have participated 
in developing, as well as transparent processes and appropriate 
deadlines.
    Through the new system, the Korean reimbursement authorities are 
also empowered to make decisions as to which drugs will be reimbursed 
under the national healthcare system based on cost-effectiveness 
analysis without adequate regard to medical need. Experience in other 
countries that have tried such an analysis shows that these methods can 
significantly limit patients' access to life saving medicines. Further, 
lessons learned from other countries show that without an adequate 
phase-in period, to allow for the development of adequate procedures, 
guidelines, data and administrative resources, patients have been 
inappropriately denied access to advanced medical treatments.
    2. Independent Appeals Mechanism and Transparency: Lack of 
transparency in Korea's reimbursement and listing decisions has been a 
difficult long-standing issue U.S. pharmaceutical companies have had to 
face in Korea. In order to ensure fairness and due process, PhRMA 
believes that the new system should include an independent appeals 
process that would have the authority to overturn reimbursement and 
listing decisions. Ideally, this independent appeals process would 
include a panel of experts that would review reimbursement and listing 
decisions to determine if the decision is in line with the regulations 
and guidelines for the system. To be effective, this appeals mechanism 
will also require improved transparency throughout the reimbursement 
and listing process.
    3. Fair Business Practices: Certain business practices in Korea 
also continue to impede market access for PhRMA member companies. A 
major Korean Government report released in 2005 identified a number of 
private sector practices currently seen in the Korean market that must 
be effectively resolved, including payment to hospitals by companies 
for formulary access and to physicians for prescribing medicines. PhRMA 
and its member companies fully support the Korean Government's ongoing 
efforts to ensure appropriate practices and believe that this issue 
should be addressed in the context of the FTA. Korea should take 
concrete steps to ensure fair business practices in the private market 
and to provide the opportunity to monitor and address the development 
of these efforts.

    Intelectual Property Rights Chapter: As in previous FTAs with 
developed countries, the intellectual property rights chapter of the 
FTA should require that: (1) Korea agree to implement at least 5 years 
of data exclusivity; and (2) Korea adopt a patent linkage system.

    1. Data Exclusivity: The U.S. research-based pharmaceutical 
industry remains hopeful that through the FTA negotiations Korea will 
agree to implement at least 5 years of data exclusivity.
    2. Patent Linkage: Unlike the United States, Korea does not 
currently have a patent linkage system and the FTA should require Korea 
to enact one. In the absence of a linkage system, PhRMA member 
companies have encountered instances of generic products being 
registered and brought to market while patents are in force. An 
effective patent linkage system prevents the registration of a generic 
form of a patented medicine while a patent is still in force, thereby 
preventing unnecessary litigation and confusion.

    Conclusion: In conclusion, we realize that substantive resolution 
of our priority, long-standing issues in Korea will not be easy. 
However, the purpose of entering into a Free Trade Agreement is to 
lower barriers and create a better operating environment for companies 
operating in the partner country. As such, what PhRMA seeks from this 
FTA is to address long-standing barriers to U.S. pharmaceutical 
companies in a commercially meaningful way--in other words, we seek to 
ensure that with Korea's implementation of its new system that we do 
not end up worse off than before the FTA negotiations began. Our 
priority asks are reasonable and achievable, and we remain committed to 
working with the U.S. Government to resolve these critical areas in the 
FTA.

                                 

    Chairman LEVIN. Thank you very much.
    Mr. Steir.

STATEMENT OF BERTON STEIR, EXECUTIVE VICE PRESIDENT, PARAMOUNT 
                 FARMS, LOS ANGELES, CALIFORNIA

    Mr. STEIR. Chairman Levin, Ranking Member Herger, 
Congressman Brady, Congressman Larson, I am pleased to testify 
today on behalf of Paramount Farms, and many U.S. pistachios 
growers.
    Paramount Farms is America's largest producer of 
pistachios. The pistachio industry farming operations are 
located throughout the State of California. Pistachios are also 
grown in New Mexico, Nevada, Arizona, and plantings are now 
taking place in Texas.
    The United States is the second largest producer and 
exporter of pistachios in the world, the world's largest is 
Iran. By contrast, South Korea does not grow any pistachios and 
has no domestic pistachio industry to protect.
    However, the South Korean market represents tens of 
millions of dollars annually for U.S. pistachio growers. That 
is, of course, contingent on the elimination of South Korea's 
tariff on U.S. pistachios.
    The latest information on the negotiations that are going 
on is that pistachios are bundled together with various other 
tree nuts, for which the U.S. Trade Representative is trying to 
negotiate an across the board reduction of tariffs.
    Pistachios are not a controversial line item in these 
talks, and deserves to be separated out for immediate duty free 
treatment. That is why the pistachio industry is closely 
monitoring the Korea trade agreements and negotiations, and 
that is why I am here today.
    The U.S. industry produces an average of 250 million pounds 
of pistachios a year, and employs thousands of people. The 
industry has grown more than three times in value in the past 
ten years to over $500 million in annual sales. We expect the 
industry will grow to over $1 billion in the years to come.
    Exports are fundamental to this growth, and we see South 
Korea as a huge market. Unfortunately, South Korea applies a 30 
percent tariff on raw pistachios and a 45 percent tariff on 
packaged pistachios. This is in comparison to only 8 percent 
for almonds and hazelnuts. This limits our exports seriously 
and severely.
    The U.S. pistachio industry's experience in Europe provides 
a model, the type of model we envision for South Korea. 
Actually, Europe does grow some pistachios. However, 
nevertheless, it has created an entire industry in roasting, 
packaging and marketing imported U.S. pistachios.
    The value added by this industry is considerable. In 2005, 
Europe sold approximately $1 billion worth. It imported 
pistachios at a cost of $500 million creating an additional 
$500 million in domestic value added business.
    Several European brands proudly promote their products as 
being pistachios from California U.S.A. and America. It is 
important to note that low tariffs made all this possible.
    The current duties in the European Union are 1.6 percent 
for raw pistachios, compared to 30 percent in South Korea. This 
is 20 times higher.
    South Korea could, like the EU, have the potential to 
create a domestic pistachio industry using U.S. pistachios, by 
importing not only for its domestic market, but also for value 
added resale in neighboring countries. This will not only 
benefit South Korean roasters and packages, but also South 
Korean retailers and exporters.
    At current prices, South Korea could expect to sell as much 
as $100 million worth at retail. However, the current tariffs 
severely limits U.S. pistachio imports and prohibits this 
market from being realized.
    Pistachios are not a controversial line item in the Korean-
U.S. free trade agreement talks, because South Korea does not 
grow any pistachios and has no pistachio industry. As a result, 
U.S. pistachios do not compete with any domestic South Korean 
product, and do not pose a threat to the South Korean market.
    I submit to you that in this case, pistachios are a 
definition of a line item that deserves immediate duty free 
treatment. This is why the U.S. pistachio industry has been 
pressing for the immediate duty free treatment for pistachios 
in the Korea-U.S. free trade agreement.
    This position is strongly endorsed by many of your 
colleagues in the California Congregation Congressional 
Delegation.
    I have attached a testimony of a November 2006 letter 
signed by 17 members of the California Delegation, including 
both U.S. Senators.
    In closing, California pistachio growers, as well as those 
in New Mexico, Nevada, Arizona and Texas, need your help. There 
is absolutely no justification for any import duty to apply to 
U.S. pistachio imports to South Korea.
    On behalf of the U.S. pistachio industry, I ask you to 
encourage our negotiators not to settle for anything less than 
immediate duty free treatment so U.S. pistachio growers can 
increase their exports and also provide South Korea with a new 
domestic and export industry.
    This is a win-win situation for both sides.
    I thank you, and thank you, Mr. Herger, for complimenting 
me, and hope you will be able to have some influence.
    [The prepared statement of Mr. Steir follows:]
 Statement of Berton Steir, Executive Vice President, Paramount Farms, 
                        Los Angeles, California
    Mr. Chairman and Members of the Committee:
    I am pleased to testify today on behalf of Paramount Farms and the 
U.S. pistachio industry. Paramount Farms is America's largest producer 
of pistachio nuts. The pistachio industry's farming operations are 
located throughout the State of California. Pistachios are also grown 
in New Mexico, Nevada, Arizona, and Texas.
    The U.S. is the second largest producer and exporter of pistachios 
in the world; the world's largest producer is Iran. By contrast, South 
Korea does not grow any pistachios and has no domestic pistachio 
industry. Nevertheless, the potential South Korea market represents 
tens of millions of dollars annually for the California pistachio 
industry. However, this is contingent on the elimination of South 
Korea's tariffs on U.S. pistachios.
    Our latest information is that pistachios are bundled together with 
various other tree nuts for which USTR is trying to negotiate an 
across-the-board reduction in tariffs. Pistachios are not a 
controversial line item in these talks and deserve to be separated out 
for immediate duty free treatment. That is why the pistachio industry 
is closely monitoring the Korea-U.S. Free Trade Agreement (KORUS FTA) 
negotiations and that is why I sit before you today.
The U.S. Pistachio Industry and the South Korean Market
    California is home to approximately 98 percent of U.S. pistachio 
production. The industry produces an average of 250 million pounds of 
pistachios a year and employs thousands of Californians. The industry 
has grown more than three times in value in the past ten years to over 
$500 million in annual sales today. We expect industry sales will grow 
to over $1 billion in the coming years. Exports are fundamental to this 
growth, and we see South Korea as a huge market.
    Unfortunately, South Korea applies a 30 percent tariff on raw 
pistachios and 45 percent tariff on packaged pistachios, compared to 8 
percent for raw almonds and hazelnuts. This limits our exports 
severely. Iranian exports can also be found in South Korea. We 
understand the Iranians have a history of not playing by the rules in 
order to avoid tariffs and saturate various markets with their product. 
The U.S. pistachio industry cannot--and will not--compete under such 
conditions. We prefer to compete in a free trade environment where our 
product can thrive.
Value to South Korea
    The U.S. pistachio industry's experience in the European pistachio 
market provides a model for what we envision in South Korea. Europe 
grows modest amounts of pistachios but has created an entire industry 
in roasting, packaging, and marketing nuts including pistachios from 
the U.S. The value-added generated by this industry in considerable. In 
2005, Europe sold approximately $1 billion in imported pistachios at an 
import cost of $500 million, creating $500 million in domestic value-
added business. Several domestic European brands have even been 
established which market their products as featuring pistachios from 
``California, U.S.A.'' It is important to note that low tariffs made 
this market possible: Current duties in the European Union (EU) are 1.6 
percent for raw pistachios.
    Like the EU, South Korea has the potential to create a domestic 
pistachio industry using U.S. pistachios. This will not only benefit 
South Korean roasters and packagers, but South Korean retailers as 
well. At current prices, South Korea can expect to sell as much as $100 
million at retail, resulting in $50 million in domestic value-added 
business. However, the current tariff severely limits U.S. pistachio 
exports and prohibits this market from being realized.
A Superior, Cost-Competitive U.S. Product
    Where there is a level playing field, the differentiators between 
the U.S. and Iran become the product itself, and cost. U.S. pistachios 
are higher quality and healthier than pistachios from Iran, and in 
markets where free trade is permitted, U.S. pistachio producers out-
compete Iranian producers.
    Iranian pistachios are frequently contaminated with high levels of 
aflatoxin, a naturally occurring carcinogen. Their pistachios are also 
lower quality and are treated with bleach to mask imperfections. [HOLD 
UP BAG OF IRANIAN PISTACHIOS.] These are Iranian pistachios. You can 
tell they are Iranian pistachios because they are unnaturally white due 
to the bleaching process. [HOLD UP BAG OF U.S. PISTACHIOS.] These are 
U.S. pistachios. They are naturally clean. Because of our highly 
technical processing we do not need to bleach our pistachios, and I 
assure you they taste much better.
    The U.S. pistachio industry has made significant investments to 
incorporate aflatoxin preventative measures into its farming and 
processing operations. The results of these safeguards are 
considerable: Shipments of Iranian pistachios to the EU are frequently 
rejected due to high aflatoxin levels. This is reflected in Iran's 
share of the EU market. In 2003, Iranian producers commanded a 73.8 
percent share of the EU's pistachio market. In 2005, the Iranian share 
had shrunk to 43.5 percent, while the U.S. increased its market share 
to 56.5 percent.
    The bottom line? Where free trade is permitted, the U.S. simply 
out-competes its Iranian counterparts by providing a healthier, cost 
competitive product. If tariffs are eliminated, we expect the same 
results in South Korea.
No Threat to the South Korean Market
    Pistachios are not a controversial line item in the KORUS FTA talks 
because South Korea does not grow any pistachios and has no pistachio 
industry. As a result, U.S. pistachios do not compete with any domestic 
South Korean product and do not pose a threat to the Korean market.
    It is understandable that some tariffs--tariffs on U.S. products 
that compete with same or similar South Korean products--must to be 
phased out over 3, 5 or even 10 years to allow the domestic market time 
to adjust to increased foreign imports. However, where no domestic 
market exists-- such as for pistachios--there is no justification for 
any tariff to apply to a product for any period of time.
    In fact, I submit to you that in the immediate case, pistachios are 
the definition of a line item that deserves immediate duty free 
treatment. This is why the U.S. pistachio industry has been pressing 
for immediate duty free treatment for pistachios in the KORUS FTA. This 
position is strongly endorsed by many of your colleagues in the 
California Congressional Delegation. I have attached to my testimony a 
November 2006 letter signed by 17 Members of the California Delegation 
including both Senators.
Closing
    In closing, California pistachio growers--as well as those in New 
Mexico, Nevada, Arizona, and Texas--need your help. There is absolutely 
no justification for any import duty to apply to U.S. pistachio imports 
to South Korea. On behalf of the U.S. pistachio industry, I ask you to 
encourage our negotiators not to settle for anything less than 
immediate duty free treatment so that U.S. pistachio growers can 
increase their exports and provide South Korea with U.S. pistachios, 
the best pistachios in the world.
    Mr. Chairman, I thank you for the opportunity to testify before you 
today. I am happy to answer any questions you may have.

                                 

    Chairman LEVIN. I thank you very much.
    Mr. Cohen.

            STATEMENT OF CALMAN J. COHEN, PRESIDENT,

             EMERGENCY COMMITTEE FOR AMERICA TRADE

    Ms. COHEN. Thank you, Mr. Chairman, Ranking Member Herger, 
and Congressman Brady, for the opportunity to appear before the 
Subcommittee this afternoon.
    I am testifying today on behalf of Emergency Committee For 
American Trade (ECAT) an association of chief executive 
officers of leading U.S. business enterprises with global 
operations that was founded some four decades ago to promote 
economic growth through expansionary trade and investment 
policies.
    As a cross-sectoral group, ECAT strongly supports the 
conclusion of a comprehensive, high standard, and commercially 
meaningful FTA with Korea that creates concrete new trade and 
investment opportunities for U.S. companies, farmers, workers, 
and their families.
    Given the detailed testimony provided today by my 
colleagues in many sectors, I will focus my oral testimony 
today on the very important and cross cutting investment issues 
that are critical to the successful conclusion of these 
negotiations.
    Foreign investment by U.S. companies, supported by core 
investment access and protections, is a key driver of U.S. 
economic growth, productivity, and exports. Indeed, the largest 
market for U.S. exports is foreign based subsidiaries of U.S. 
companies. More broadly, U.S. investment abroad is important 
for broader national U.S. interests, such as developing stable 
sources of energy supplies, continuing U.S. leadership in 
creating new and advanced technologies, and promoting 
stability, economic development, and the rule of law.
    Three primary issues are being discussed by U.S. and Korean 
negotiators: access for investment, commitments to core 
investment protections, and investor-state--dispute settlement.
    First, investment access. ECAT members seek the reduction 
and binding elimination of foreign equity limitations in all 
major sectors, from telecommunications and broadcasting 
operations to distribution of agricultural and manufactured 
goods. Such access, I emphasize, is critical to ensure that the 
market access commitments that we receive from Korea in other 
chapters are actually meaningful.
    Second, investment protections. The objective of the 
investment negotiations is to ensure that U.S. investors in 
Korea have the same levels of protection for their investments 
that Korean investors already have in the United States, 
including protections related to national treatment, most 
favored nation treatment, expropriation, fair and equitable 
treatment, full coverage of investment agreements, and the free 
transfer of capital.
    It is critical, therefore, to U.S. competitiveness that the 
United States in the negotiations reject proposals to limit 
investment protections against discriminatory, arbitrary or 
expropriatory government activity; restrict the transfer of 
capital; or create exceptions from the key protections. Such 
diminutions to the high standard model U.S. text would deny 
U.S. investors precisely the protections that are needed to 
address the barriers that have long pervaded the Korean 
economy.
    In short, not to have these protections would provide a 
safe harbor to Korean regulators to block U.S. participation in 
the Korean economy.
    It also would put U.S. investors at a competitive 
disadvantage, since Korea already has provided strong 
investment protections to competitors in the United Kingdom, 
Germany, the Netherlands, as well as others.
    For financial institution investors, in particular, the 
expropriation protections are absolutely vital, since the 
United States has not sought to ensure rights of such investors 
to bring claims with respect to discrimination.
    Third, investor-state dispute settlement. Investor state 
provisions are in thousands of international instruments, 
including the investment treaties and free trade agreements 
that Korea has concluded with other governments.
    Investor-state dispute settlement is vital for all U.S. 
industries to be able to address barriers and government 
actions that would deny effective access to the Korean economy. 
The ability to bring such cases must apply fully to investors 
in each of these sectors and for all breaches of the FTA, as 
well as breaches of a special type of investment agreements 
that govern much of U.S. investment abroad in natural 
resources, infrastructure, and other major areas.
    Several issues remain outstanding. We understand the Korean 
negotiators are pushing back on core protections, are seeking 
major exceptions, and are continuing to resist opening their 
investment market in key areas. ECAT urges U.S. negotiators to 
reject the weakening of investment protections and the denial 
of investment access.
    In sum, ECAT urges U.S. negotiators to continue to work to 
conclude a comprehensive and commercially meaningful FTA that 
protects and promotes investment.
    Such an outcome will receive ECAT's strong support. Thank 
you for the opportunity to testify.
    [The prepared statement of Mr. Cohen follows:]
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    Chairman LEVIN. I want to thank you and to all of you. This 
has really been an informative panel.
    Let me just ask a few questions and turn it over to Mr. 
Herger and to Kevin. Mr. Boyle, you at the end of your 
testimony, and you repeated it or said it here, ``We urge you 
and your colleagues to communicate to the South Korean 
government that the resumption of full beef access must occur 
prior to the conclusion of the FTA negotiations.''
    I think that is a good idea.
    Mr. BOYLE. I appreciate that, Mr. Chairman.
    Chairman LEVIN. It is interesting. I would simply ask my 
colleagues that we think about that. Also, ask all of us to ask 
ourselves do we not need something, if not identical, 
comparable in other fields.
    The problem is that if we say kind of over time reduce your 
regulations, or in this case, abide by some decent standards, 
it may or may not happen. That is one of the dilemmas we have 
with a regulatory system that is so opaque, and that has truly 
been used in many cases to shelter a local market.
    I have to think that was true of beef. Essentially, what 
you are saying is tear down that wall before, and to the extent 
we can do that, I think we should.
    Let me just say a few words to you, Ms. Ritter, and then my 
colleagues will take over and maybe have questions of others.
    What I said about beef is a bit of a puzzle as to 
pharmaceuticals, because with this new system, it is really 
hard to see how we set up a structure so there is any 
assurance, not only they grandfathered in certain entities, I 
do not quite know what is meant by an independent appeals 
system, so how do we approach this FTA with any assurance that 
there will be a major relaxation and in the end, not only 
diminution but end of a regulatory structure that essentially 
has a very un-level playing field for American pharmaceuticals?
    As you know, it is no surprise. We at times have leaned on 
the pharmaceutical industry in FTA negotiations thinking that 
some of the provisions were perhaps too stringent in terms of 
access to medicines where they are really needed.
    Here, we are dealing with essentially an industrialized 
society with a substantial pharmaceutical industry; right?
    How do we frame this so that we really have any assurance? 
I do not quite see even with your recommendations how we are 
sure over a reasonable period of time we get there.
    Ms. RITTER. This is a very complex and complicated set of 
issues in Korea. Our approach, and we have worked closely with 
USTR, and I think the approach the USTR has been advocating 
with Korea, is to tackle it on several levels.
    Transparency is important. Transparency does matter. I 
think it can make a difference here, and an appeals mechanism 
is part of that, that regulatory decisions need to be subject 
to some kind of independent review, and you need to know the 
basis on which those decisions were made.
    Transparency alone is not enough. You really have to get to 
the core of how these reimbursement and listing decisions are 
made, and we need to have some assurances as to what the rules 
are going to be, and some level of predictability.
    We have worked, I think USTR has worked, to engage Korea on 
the regulations that they have put in place around this new 
system, and to date, Korea has taken into account not a single 
one of the recommendations either that the industry has made or 
that the U.S. Government has made to make those rules clearer, 
more predictable, so that business knows what to expect when it 
reaches into the black box.
    Chairman LEVIN. Send us whatever you would like to. How we 
handle this challenge has some relevance, I think, to how we 
handle others.
    With beef, essentially you are saying change before. That 
is, pardon the pun, clear cut; right? A good cut of beef.
    Ms. RITTER. Right.
    Chairman LEVIN. I do not quite see--there seems to me there 
is a lot of work to do with there being assurance that the 
tangle of regulation does not end up more or less where we are 
today.
    Ms. RITTER. I think that is right. We would be happy to 
follow up and provide more of the technical details.
    Chairman LEVIN. Do that.
    Ms. RITTER. That is one of the reasons it is also important 
that this FTA put in place ongoing mechanisms to review and 
continue the consultations to ensure that real market access 
opening happens.
    Chairman LEVIN. Mr. Herger?
    Mr. HERGER. Thank you, Mr. Chairman. I want to thank each 
of our members on this panel.
    Mr. Stallman, back to rice again. I am not naive. I am very 
much aware of the very sensitive and tough issue that rice is 
to the Koreans. That said, U.S. rice farmers do not get 
anything close to a fair shake when it comes to selling into 
the Korean market. I am aware of tariffs, quotas, and use 
restrictions that require U.S. rice to be processed instead of 
sold in the retail stores where Korean consumers shop.
    Can you elaborate on the various mechanisms that Korea 
maintains to block U.S. rice from competing in the Korean 
market, and are there others that I have not mentioned?
    Mr. STALLMAN. I am not aware of all. You have to look at 
what we have access to now. They have a 5 percent in quota 
tariff. They do not even have an over quota tariff because they 
do not import any rice over the quota, and the quota was 
established in the Uruguay Round agricultural agreement. That 
was a demand, that they had to have some opening of their 
market, which at least indicates they are willing to do that, 
if they are pushed.
    There are quota's of about 225,000 metric tons in the 
Uruguay round agreement. The United States has about 50,000 
tons of that.
    As you said, once the rice gets into Korea, then their 
consumers do not have the opportunity to see if they even like 
it or not because they use mechanisms, and frankly, Japan has 
been guilty of some of the same thing, used mechanisms to keep 
it out of the consumer market.
    Once again, we knew rice was going to be a very sensitive 
issue in these negotiations. We recognized that. It is going to 
be one of those 11th hour issues that are resolved at the very 
end.
    Our policy is very clear, that trade agreements need to be 
comprehensive and there should be no exclusions, and we expect 
the Koreans, if they want an agreement that U.S. agriculture 
can support, to do something in terms of granting more access 
into their rice market through this FTA.
    Mr. HERGER. Thank you. Again, as a point of precedence, we 
certainly cannot allow this one area to be out and others in.
    Mr. Cohen, we have heard today that Korea has in the past 
used domestic regulations, non-transparency, to favor domestic 
concerns and inhibit trade.
    Given this history, is it not important that USTR continue 
to press its model investment chapter, which is written 
carefully, for the purpose of protecting countries' legitimate 
regulatory actions while at the same time allowing foreign 
investors the right to obtain arbitration in cases of 
illegitimate takings by the host country?
    Ms. COHEN. Absolutely. I think that it is critical that the 
Administration continue to press in this area. Indeed, the 
argument that American business is making with regard to 
investment is for the key investment protections to be 
available to U.S. investors, just as they are available to 
investors from other countries around the world.
    As I mentioned, Korea has agreements with countries such as 
Germany and the United Kingdom which provide for just such 
protections.
    Failure to provide our investors with similar protections 
would put them at a competitive disadvantage. Right now, Korean 
investors in the United States have access to fair, non-
discriminatory dispute settlement arise. All we are asking for 
is similar treatment in Korea.
    Mr. HERGER. Thank you. Ms. Overby, would you want to 
comment on that?
    Ms. OVERBY. Yes. I would also like to make one additional 
point, that there are two very clearly different groups of 
officials operating in the Korean government today--those who 
genuinely want and embrace the change in real competition that 
an open market will bring and those that are still clinging to 
the past protective practices.
    We cannot miss this key opportunity to strengthen the hand 
of the reformers in Korea. If we let the closed market team 
gain the upper hand, the United States is going to lose out on 
our best chance to resolve a very large number of market access 
problems that we have in Korea, and put in place binding 
disciplines and ongoing consultations that will help us address 
issues that we are unable to address in the context of this 
agreement.
    Perhaps even more importantly, if this deal falls apart, we 
believe the United States will lose its ability to lead in 
shaping the trade agenda in Asia, possibly for decades. Our 
competitors are not standing idly by while we debate how or 
where we want to assert our economic presence in Asia.
    Rather, Korea and the EU are going to launch their FTA 
negotiations in May. Japan has asked the Koreans to re-start 
their stalled FTA. Korea has already launched a study group 
with China.
    If we miss this chance, we run the risk that others are 
going to decide the rules for the future while we are left out 
on the side lines.
    Mr. HERGER. Thank you.
    Chairman LEVIN. Mr. Brady?
    Mr. BRADY. Thank you, Mr. Chairman. This has been a great 
panel, although I find myself suddenly craving cheeseburgers 
with rice and pistachio ice cream. I think as a show of 
bipartisanship, if you would order that in for everyone in the 
room, Mr. Chairman, that would be very helpful, I think.
    Let me continue on a serious note.
    Chairman LEVIN. I agree with that, by the way.
    Mr. BRADY. I hope the Korean negotiators are listening 
carefully to this panel because the positions you have outlined 
on market access, regulatory reforms, are just critical to this 
agreement. It has tremendous potential because of its size and 
strategic interest, but these issues have to be addressed.
    They are real deal killers at this panel right now. I hope 
the Korean negotiators are listening carefully, because it 
reflects the opinion of much of us in Congress today.
    Let me ask you this. Each of you represents members in 
export oriented industries that can both improve our trade 
deficit, create jobs. We are not just buying America here at 
home. We are selling America around the world.
    As you look at Korea and you look at the growing Asia 
market for customers, if this is a good solid trade agreement 
we can all support, do you see this as a model or a foot hold 
for new customers in that growing region?
    I will leave it to you to comment.
    Ms. OVERBY. Absolutely. I represent 1,100 American 
companies living and working in Korea every day. I will tell 
you that this deal is a wonderful chance for us to expand that 
market and grow that market into China. Absolutely, without a 
doubt.
    Mr. BRADY. Thank you.
    Mr. STALLMAN. Absolutely, too. We always said that we need 
to focus on those markets for agriculture that hold some real 
promise, given the economic status of South Korea, even though 
they designate themselves as a developing country, they have a 
high per capita income. They have very little arable land 
relative to their population. They are an outstanding market 
given those two facts for U.S. agricultural products.
    We need to break down the barriers to get our products in 
there. This is a real opportunity and probably the first one 
really under free trade agreements or bilateral agreements 
where we believe we have the opportunity to get into a real 
high value market.
    Mr. BRADY. Thank you.
    Mr. VASTINE. Congressman, we feel, of course, the same way. 
The Korean market is an extremely important one. We are doing 
well there. We could do very much better.
    The irony of this is that the people who will do best are 
the Koreans by embracing the most modern types of 
infrastructure services, like telecommunications and financial 
services, and the other services we mentioned.
    The Koreans will put themselves in a position of being a 
much more dynamic successful economy.
    It is a known disadvantage that they resist modernizing and 
opening up their telecommunications market. They will benefit 
much more than we actually from that.
    Mr. BRADY. Thank you, sir.
    Mr. BOYLE. Congressman, to the extent there are lower 
tariffs that translate into greater market access for our 
poultry and pork processors within the American Meat Institute, 
that will be a potential growth opportunity for them.
    The beef issue is somewhat distinct. We are not asking for 
a precedent setting breakthrough in market access. We want a 
restoration of the status quo ante. We lost that almost $800 
million a year market overnight. We obviously have not got it 
back overnight. We think the decision day is coming closely.
    Just like my colleague here who says that the Koreans will 
be the beneficiary of the restoration of our beef export 
opportunities, it is evident when one goes grocery shopping in 
Korea.
    I was in Seoul two or three weeks ago. I am going back this 
coming week. The price of beef in Korea, while already high 
before the U.S. product was banned, is double what it was back 
then.
    In 2003, a pound of ground chuck beef cost $16 in Korea. 
Could you imagine that? Today, it is $35 for ground chuck. That 
is an expensive cheeseburger to go with your pistachio ice 
cream, Congressman.
    The Koreans will benefit. It is not going to adversely 
affect to a significant extent the Korean beef industry. We 
coexisted with them as we grew that market over the last 20 
years. They are enjoying what I may characterize as windfall 
profits near term, but the restoration of the status quo is 
what the beef industry seeks.
    Mr. BRADY. You bet. Great point.
    Ms. RITTER. Absolutely. Korea is an extremely important 
market for the American pharmaceutical industry. I think a good 
strong agreement here very much could potentially do a lot to 
strengthen that market, not only for the U.S. industry but also 
for Koreans themselves.
    Mr. BRADY. You bet.
    Mr. STEIR. The EU, European Union, had a small domestic 
industry to protect, and when they dropped the tariff to 1.5 
percent, which is practically no tariff at all, the market 
exploded. The domestic industry thrived and benefited from 
that.
    Ms. COHEN. Congressman Brady, for the members of ECAT, the 
Korean market is extremely important. We recognize that Korea 
is the seventh-largest trading partner of the United States, 
with tremendous additional economic potential.
    We want to see the investment provisions in the FTA done 
right, and we recognize, as has been corroborated many times in 
many studies, that U.S. exports follow U.S. investment 
overseas.
    If the investment provisions are written in the right way 
in the U.S.: Korea FTA to be non-discriminatory and, there by, 
support U.S. investment, you will see much further U.S. 
investment, and as a result, significant additional exports of 
U.S. services and products to Korea.
    We see a good, solid, trade agreement as my colleagues have 
just suggested, as a potential win-win, a win for the United 
States and a win for Korea, for opening markets in Korea. Thank 
you.
    Mr. BRADY. Right. Thank you, sir. I thank the Chairman.
    Chairman LEVIN. Thank you, Mr. Brady.
    This has been an excellent panel, an excellent hearing. I 
have a letter from the Governors of the State of Michigan and 
the State of Ohio, and without objection, I would like to enter 
them into the record. So, ordered.
    [The information referred to follows:]
    [GRAPHIC] [TIFF OMITTED] T0312A.051
    
    [GRAPHIC] [TIFF OMITTED] T0312A.052
    
    Chairman LEVIN. Thank you very much. Thank you for your 
patience. I hope it has been worth your time. It has been worth 
ours. Thank you very much.
    We are now adjourned.
    [Whereupon, at 5:44 p.m., the hearing was adjourned.]
    [Submissions for the Record follow:]
             Statement of American Council of Life Insurers
    The American Council of Life Insurers, the American Insurance 
Association and the Insurance Committee of the Coalition for Service 
Industries would like to express strong support for conclusion of a 
commercially meaningful free trade agreement with South Korea. 
Collectively, these groups represent over 800 U.S. insurance companies 
and millions of employees.
    The life insurance sector is key to both the economies of South 
Korea and the United States, and a good outcome for the life insurance 
sector under the KORUS FTA will be beneficial for both economies. In 
the United States, for example, life insurers provide the products that 
protect against life's uncertainties. Our industry helps individuals 
and families manage the financial risks of premature death, disability, 
and long-term care. We enable employers to provide employees with 
critical retirement savings programs such as pensions and 401(k) plans. 
And through annuities, life insurers guarantee retirees an income for 
life, no matter how long they live.
    With nearly $4 trillion invested in the U.S., we help fuel our 
nation's economic growth. We're the largest holder of corporate bonds 
in the country, and with our long-term focus, life insurers provide 
businesses and governments the long-term capital they need to invest in 
roads, schools, and homes, and in the plants and equipment that create 
jobs. We fuel economic growth, help families secure their future, and 
guarantee a retirement income that lasts a lifetime. Our industry can 
serve similar functions in South Korea--and provide important means for 
enhancing the quality of life for families, households and workers in 
South Korea.
    Property and casualty insurers, many of which are represented by 
the American Insurance Association, likewise support economic 
development, provide security and compensation in the event of injury 
and property loss and help prevent losses through public safety 
advocacy and loss control services. For example, property and casualty 
insurers have invested more than $305 billion in municipal bonds, which 
provide critical infrastructure, including roads, bridges, schools, 
affordable housing and emergency services facilities. We can, if 
allowed, play a similar constructive role in Korea.
    We support the FTA with Korea because of its economic and 
commercial significance. South Korea is the world's eighth largest 
insurance market with total premium volume of more than $65 billion. 
The South Korean insurance and retirement security market would be by 
far the largest insurance market to be included in a FTA with the 
United States. The financial sector reforms that South Korea would 
undertake as a result of the FTA would contribute to a stronger and 
more resilient economy for the country and help it to deepen capital 
markets and investment for the long term.
    The United States and South Korea have now completed eight rounds 
of negotiations and we are pleased with the progress on insurance 
issues to date. This agreement is important to the U.S. insurance 
industry because, if concluded, it will set a new standard for 
addressing regulatory, as well as market access, barriers. Given the 
nature of the insurance business, regulatory hurdles and the need for a 
level playing field are often as critical as our ability to enter the 
market.
    We are encouraged by progress in the FTA negotiations on issues of 
importance to the insurance sector such as an increase in the allowance 
of foreign currency reserves, bancassurance reform, more regularized 
and transparent regulatory procedures, more fair and equal treatment 
for foreign insurers, adoption of a negative list approach to financial 
sector regulation and regional integration of data processing. We are 
hopeful that the issues of importance to U.S. insurers that remain 
unresolved, including leveling the playing field and other issues 
between private insurance companies and the government-owned Korea 
Post, will be settled satisfactorily in the coming days. We are in 
regular consultation with the outstanding and highly professional U.S. 
negotiating team as they continue their efforts to conclude these 
negotiations positively.
    From a strategic vantage point, South Korea is an important ally 
with whom the United States must work closely in order to continue 
advancing global security. From a trade standpoint, the consumers of 
both countries stand to gain significantly from the broad benefits of a 
comprehensive agreement, as well as from the expanded and more stable 
financial development in the Northeast Asian regional economy that such 
an agreement will bring. In addition, an agreement of this high quality 
will help set the standard for future bilateral and multilateral 
progress, including at the WTO.
    Our industry is aware that a number of critical issues still need 
to be resolved in order for the United States to achieve its goal of 
concluding a strong and comprehensive agreement that will bring 
benefits across the board to the U.S. economy. However, we would like 
to share our optimism with regard to the current negotiations as they 
affect the insurance industry, as well as to emphasize the importance 
of the near-term conclusion of the agreement to our companies. We 
believe that the results achieved for the insurance sector to date in 
the KORUS FTA negotiations merit the Trade Subcommittee's considered 
examination and strong support. We are hopeful that the other 
outstanding issues will be resolved in the days ahead, thereby allowing 
for timely consideration of such an important potential free trade 
agreement between two longstanding allies.

                                 
             Statement of American Iron and Steel Institute
    The American Iron and Steel Institute (AISI), Steel Manufacturers 
Association (SMA) and Specialty Steel Industry of North America 
(SSINA), on behalf of our U.S. member companies, are pleased to submit 
written comments to the House Committee on Ways and Means regarding the 
proposed Republic of Korea-U.S. Free Trade Agreement (KORUS).
    Because the KORUS negotiation is now approaching the 11th hour, we 
will focus our statement on two issues of great importance to the 
American steel industry: (1) trade remedies and (2) steel rules of 
origin.
Trade Remedies: Agree to No Weakening of the Statute--or the Process
    America's steel industry is extremely concerned about reports that 
Korea has, as one of its top priorities in this free trade agreement 
(FTA) negotiation, the goal of achieving weakening changes to United 
States trade laws, particularly our antidumping (AD) and countervailing 
duty (CVD) laws. In this regard, we are equally concerned about reports 
of possible efforts to negotiate changes to the legal process by which 
AD/CVD actions are investigated and remedied.
    While we recognize that U.S. negotiators have thus far resisted 
agreeing to any changes to our AD/CVD laws, it is essential to stress 
that: (1) the United States must maintain the full integrity of its 
laws against unfair trade in this and all other trade negotiations; and 
(2) U.S. negotiators, therefore, need to continue to resist the 
inclusion, in the KORUS, of any changes to the AD/CVD laws or to the 
related legal process.
    The widely reported Korean desire to achieve ``something'' in the 
AD/CVD trade remedies area (i.e., some form of trade law weakening) is 
extremely troubling to America's steel industry for two principal 
reasons.

      First, steel producers in South Korea have had a long 
history of using market-distorting practices in their exports of a 
variety of steel products to the United States. Our AD and CVD laws 
have been reasonably effective in addressing these practices, resulting 
in the imposition of specific trade case orders where appropriate. In 
view of this history, the United States should not agree to any FTA 
provisions that would weaken these vital laws or the related legal 
process in any way.
      Second, the Korea FTA would be a very significant 
bilateral agreement, and any such weakening would set an extremely 
disturbing precedent for other future bilateral and multilateral 
negotiations.

    In sum, we believe that, at this critical time in the KORUS 
negotiation, it is important that the House Committee on Ways and Means 
make its views known in this area by urging our U.S. negotiators to 
agree to nothing in the AD/CVD area--whether in substantive law or the 
legal process--that could have the effect of trade law weakening in any 
way.
    For many years, domestic steel producers have supported trade 
liberalization as long as it does not weaken U.S. trade laws. We would 
now like to make it clear that, if any trade law weakening is included 
in the final FTA with Korea, it will force us to oppose the KORUS.
Steel Rules of Origin (ROO): Go Back to the NAFTA Rules
    We are also concerned that, as things stand now in the KORUS 
negotiation, the U.S. government is once again prepared to accept steel 
ROO in an FTA that are less effective than those in the NAFTA. Our 
position is that we continue to support the steel ROO in the NAFTA and, 
regarding steel ROO in the KORUS, do not wish to see any departure from 
the sound and effective NAFTA ROO.
    Unfortunately--in the Central American Free Trade Agreement (CAFTA) 
and in the U.S.-Peru and U.S.-Colombia FTAs--the U.S. government agreed 
to accept more lenient and less effective steel ROO than exist in the 
NAFTA. In the KORUS negotiation, the U.S. government has continued a 
basic willingness to accept looser steel ROO than exist in the NAFTA--
over the strong objection of domestic steel producers.
    For the record, America's steel producers continue to support, for 
the KORUS and for all future U.S. efforts to negotiate FTAs:

      The NAFTA ROO for steel products--so as to avoid 
conferring origin based merely on rolling or minor processing 
operations in an FTA country; and
      Strict ROO across-the-board on manufactured products--so 
as to (1) avoid conferring FTA benefits based on a relatively lesser 
amount of processing in an FTA country, (2) ensure that the benefits go 
where they are intended and (3) ensure that the FTA not serve to 
incentivize and benefit products where value is added largely or 
substantially in third countries.
Conclusions
    First and foremost, the United States should accept nothing in the 
KORUS that weakens U.S. AD/CVD laws, whether by change in statute or by 
change in process (e.g., accept no trade case ``consultative 
mechanism'').
    Second, at a time of growing and record trade deficits and the loss 
of millions of U.S. manufacturing jobs, the United States should 
rethink its willingness to accept looser rules of origin in the KORUS 
(and in future FTAs) than exist in the NAFTA.
    AISI, SMA and SSINA appreciate the opportunity to comment on this 
important issue.

                                 
           Statement of Automotive Trade Policy Council, Inc.
I. Introduction
    Thank you for the time to discuss the importance of automotive 
trade issues in the ongoing U.S.-Korea FTA negotiations. I am 
testifying today on behalf of General Motors Corporation, Ford Motor 
Company and DaimlerChrysler Corporation--who are the members companies 
of the Automotive Trade Policy Council and whose views I am presenting 
today.
    I want to begin with several comments relating to the current 
situation:
    1. The U.S. auto companies have supported U.S. trade liberalization 
initiatives by Republican and Democratic Administrations for decades. 
This includes all the bilateral FTAs presented to the Congress since 
2000. We have also offered extensive support to USTR in this Korean 
initiative from the beginning of this negotiation. These three 
companies have spent many years trying to open the Korean auto market. 
ATPC's hope is to see the U.S. reach a strong, solid and credible 
agreement with Korea that will eliminate all tariff and non-tariff 
barriers and allow U.S. auto companies to fully participate in that 
market.
    2. Auto trade is a large portion of U.S.-Korea trade and has now 
become a big problem in this negotiation. But the Korean government 
created this problem and the Korean Government is the party that has to 
resolve it. The auto industry has earned a seat at this table. The U.S. 
now has an $11 billion deficit in auto trade with Korea, which is 82% 
of the total deficit between our two counties. In simple numbers, U.S.-
Korean auto trade is so lopsided that it cannot be seriously justified 
by any credible economic or market--based rationales.
    Last year, Korea exported about 700,000 cars, vans and SUVs to the 
United States. Our market is open and Korean competitors have been 
welcomed and given a fair shot a success here. On the other side, U.S. 
auto exports to Korea totaled just over 4,000 last year. Amazingly, 
auto imports from the entire world represented just 3.6% of the Korean 
market. This is not a picture of a healthy, mature, and mutually 
beneficial trading relationship
    3. A Free Trade Agreement is primarily about trade. There have been 
changes in investment patterns in the auto business, both here and in 
Korea. Recently, Korea has opened up to foreign investment in its auto 
sector. In 2002, General Motors invested in Korea, acquiring certain 
assets of the bankrupt Daewoo Motors and creating a new company which 
produces cars there.
    On the U.S. side, Hyundai/Kia has also made investments here, with 
one assembly plant operating and another under construction. But auto 
investment is not the topic of this FTA. It's all about trade and 
market access.
    4. Korea's auto market is not just closed to the U.S. auto 
industry. European and Japanese automakers are doing no better in Korea 
and share the same view--that Korea unacceptably and unjustifiably 
restricts sales of foreign automobiles.
    5. The U.S. auto companies have worked together with USTR for over 
a decade to deal with this serious and glaring blot on our countries' 
trade relationship and have not succeeded in opening the Korean auto 
market. However, all past efforts, including two bilateral auto trade 
(MOU) agreements negotiated in good faith by USTR in l995 and l998 
using the strongest U.S. trade policy tools, have failed to open the 
Koran auto market. That is not the fault of past UTSR efforts, or the 
efforts of U.S., European or Japanese companies to get access to that 
market. The reason is the refusal of the Korean government to remedy 
and reverse these blatantly unfair and self-serving policies.
II. The Position of ATPC on the U.S. Korea FTA
    We understand that there has been some mischaracterization in Seoul 
and in Washington about what we seek in this negotiation as a remedy to 
the closed Korean auto market. Let me be very clear: We are not seeking 
`managed trade' or `guaranteed sales in Korea', as some have suggested. 
These are incorrect, yet quick and simple labels that have been used to 
gloss over the serious efforts by many trade practitioners to an 
innovative approach to deal with a unique and intractable problem.
    We believe that the standard trade approach, reminiscent of the old 
U.S.-Korea MOUs of the l990s, which is apparently being used by our 
U.S. negotiators, will result in a one--sided agreement that benefits 
only Korea. We believe that the U.S.-Korea FTA is the absolutely last 
chance for USTR, in close consultation with the Congress, to get this 
right. Otherwise one of the largest and most active auto markets in the 
world will remain closed to access by the U.S.
    ATPC has consistently recommended opening the Korean auto market 
will require the their willingness to take new approaches. Given 
Korea's dismal past record, we have recommended that preferential 
access to the U.S. auto market be provided when the Administration and 
the Congress can be reasonably satisfied that all trade barriers to 
imported autos have been removed and the Korean market is seen to be 
fully open to the sale of U.S. and other imported cars.
III. Why is the Korean Auto Market Closed?
    Let me summarize the major facts about this case, and explain how 
Korea?s system of tariffs, taxes, and particularly nontariff barriers 
that keep foreigners restricted in the market.
    Chart #1 shows the sales by all foreign automakers in Korea last 
year. In a country that produced 3.8 million cars, and had domestic 
sales of 1 million last year, Korea imported a total of 40,000 cars and 
trucks from the rest of the world. I would draw your attention in Chart 
#1 to the fact that this is a grand total of a 3.6 % market share for 
all imported cars. In comparison, of the 30 OECD industrialized 
countries where the average level of imports for autos is over 40%, 
Korea ranks 30th out of 30.
    Chart #2 shows the breakdown of the sale of imports in Korea by 
automaker. As you can see, no one is selling any respectable volume in 
Korea. The vast majority of those imported car sales are in the 
highest-end luxury segment. While our companies' sales in Korea were 
small, you will notice that high volume European automakers sales were 
also minimal while the Toyota, and Nissan brand, which are the number 
one and two automakers in Japan, did not sell a single car in Korea. 
This is not a picture of a normal, healthy, competitive automotive 
market.
    So what is the problem?
IV. What Specifically Causes the Problem of Selling Imported Cars in 
        Korea
    Chart #3 summarizes the story and the continuing problem. For a 
long time, Korea has very effectively used a whole arsenal of trade 
tools, starting with outright imports bans, high tariffs, 
discriminatory taxes and a stifling maze of overlapping and never 
ending regulatory nontariff barriers to keep placing hurdles for 
imported cars.
Bans on Imported Autos
    Prior to l995, as this chart shows, the Korean government was quite 
clear about its policy:

      All imported cars were legally banned in Korea until 
1989, while the country was furiously building its own auto industry
      Japanese cars remained banned until l999
      Very high tariffs (50%) were applied
Tax Audits on Purchasers of Imported Cars
    After those outright bans were dropped, Korea switched to other 
NTBs that were very effective. Korea employed one of the most effective 
tools when it directed that all purchasers of imported cars would 
automatically have their taxes audited. After the U.S. repeatedly 
complained, these automatic tax audits stopped, but the perception and 
a lingering fear remains
    Just last year in a highly publicized move, Korean tax authorities 
ordered all of the country's import car dealers to report to their 
federal tax agency the names, addresses and relevant personal 
information of the purchasers of all foreign cars. Now I ask, if you 
were thinking about buying a new car, wouldn't you find that 
intimidating?
High, Discriminatory Taxes on Imported Autos
    Korea has also freely used its tax structure to make it far more 
expensive to purchase an imported car. Korea has nine different layers 
of tariffs and taxes on autos. With an overall tax burden of over 70% 
for imports versus 56% for domestic autos, the effects of cascading 
taxes on top of the tariff puts imports at a 14% percentage point price 
disadvantage vis-`-vis domestic vehicles. To make matters worse, many 
of the taxes are applied at a rate much higher for imported cars, based 
on engine size, configuration or other artificial means. The end result 
is that much higher taxes are added to imported cars, on top of the 8% 
import tariff.
The Web of Regulatory NTBs
    When compared to other partners with whom the U.S. has engaged in 
Free Trade Agreements, Korea is unique in the both the scope and 
intensity of its use of Non Tariff Barriers to restrict imports. This 
pervasive use of NTBs in restricting trade calls for different kinds of 
solutions than U.S. trade negotiators have faced before.
    This is the most complex and most difficult issue to summarize for 
those outside of the business. But all foreign automakers are in 
consensus that Korea pursues a rolling series of regulatory NTBs that, 
de facto, severely restrict the ability to market imported cars into 
Korea. These include regulations that are often trivial, imposed 
without warning and developed with no input from foreign automakers. 
They have the effect of knocking out or severely limiting the ability 
of foreign automakers to get cars to the market in Korea.
    Every year, the issue is different--tinted windshields, frequencies 
for remote keyless entry systems, bumper configurations, power window 
requirements, and license plate sizes. Just last week, we were notified 
of a change in the auto insurance policies that arbitrarily placed 
imported vehicles are in the highest risk classification. The result is 
owners of imported vehicles will pay the highest premium possible for 
their auto insurance, (both Ford and DaimlerChrysler were placed in 
Class #1, the most expensive), as well as a totally unacceptable 
process foreign companies must use to certify compliance with these 
regulations.
    The NTBs vary from one wave to another, but the result is the same: 
a revolving set of costly hurdles placed in front of any foreign 
automaker trying to sell in Korea.
    I want to share with you the conclusion of the European Auto 
Manufacturers Association (ACEA) in their statement to European 
Governments and the EU Commission describing the situation:
    ``Korea has a number of nontariff barriers in place which prevent 
market access of European vehicles to the Korean market. In general, 
the import situation is characterized by a lack of transparency, little 
or no lead-time and adoption of unique standards and inadequate action 
of EU or U.S. standards in the fields of safety and environment--As a 
result no foreign automakers--E.U., U.S. or Japan--has been able to 
achieve a significant market share''.
    Over the past nine years, following the l998 U.S.-Korea bilateral 
auto MOU agreement, Korea has introduced more than 15 new auto 
technical regulations that have served as barrier to auto imports.
    Here are three quick examples of a few of the past and current 
NTBs:
    1. License Plate Size-- The Korean government proposed a new 
regulation that would change the size and shape of a car's license 
plates, with little notice or opportunity to comment. License plates in 
Korea have traditionally been the same size as found in the United 
States.
    At first blush, this may appear to be a minor nuisance with little 
impact on U.S. automakers. However, given the fact that the front and 
back bumpers of cars are designed around the size and shape of a 
license plate, this type of requirement would lead to almost a million 
dollars per model being spent to meet the new requirement. Domestic 
automakers that are selling hundreds of thousands per vehicle model can 
afford the cost spread over a large number of sales, but importers that 
are lucky to sell a few hundred of a particular model would not be able 
to justify the cost and would have necessitated pulling most U.S. 
models out of the Korean auto market, or taking a heavy loss on every 
vehicle sold.
    The Korean authorities were forging forward with this regulation, 
despite the devastating impact it would have on imports, and that it 
would not have any societal benefit. Fortunately efforts were made, 
including the intervention by USTR Zoellick, to get the Korean 
government to drop the proposed regulation. Although successful, the 
fact that a U.S. cabinet official had to personally intervene with the 
highest levels of the Korean government to resolve a license plate 
issue demonstrates the level of the NTB problem.
    2. Self-Certification Investigation Change--After the current FTA 
negotiations began, Korea proposed making a major change to its auto 
safety certification process that would reverse commitments and 
progress made in past agreements with the United States to ``not take 
any new measures that directly or indirectly adversely affect market 
access for foreign passenger vehicles''.
    The proposed change would:

      adversely impact import automakers, but have no impact on 
Korean automakers;
      significantly increase the certification burden, with no 
societal benefit, and;
      withdraw commitments made under the two previous U.S.-
Korea bilateral auto agreements.

    This is a transparent effort to further thwart import automakers to 
the benefit of the Korean automakers, and should be permanently dropped 
as part of this FTA
    3. Korea's new auto emissions regulations (K-ULEV)--now effective 
2009.
    While this proposed new rule is based on California's stringent 
emissions regulations, Korea made some significant changes in its 
implementation that results in a disproportionate burden being placed 
on importers, over domestic automakers. This is what is called ``cherry 
picking'' from regulations. The immediate result is while Korea's 
emissions regulations offers no higher level of emissions containment, 
some imported cars will be withdrawn from sale in the market and fewer 
new import models will be exported.
    The California and Korean regulations achieve the same emissions 
outcome, but the Korean regulation does not provide the flexibility 
that was purposely designed into the California program. U.S. 
automakers meet the California regs, but will not be able to offer 
their vehicles for sale to consumers in Korea. The U.S. Government has 
tried to help U.S. automakers with this barrier, but to no avail.
    In advance of the launching of the U.S.-Korea FTA negotiation, 
Korea agreed to delay full implementation of the K-ULEV regulation 
until 2009. Although somewhat helpful, the two-year delay only puts off 
the problem until a later date. It did not the fix the problem. Korea's 
K-ULEV regulations should be modified to allow vehicles that meet 
California regulations to meet the Korean regulations.
    The importance of eliminating the current auto NTBs cannot be 
overstated. Full access will not be achieved unless this is 
accomplished. But equally important is getting a commitment from Korea 
that will avoid the implementation of future auto NTBs.
    For more than a decade, the U.S. auto industry has worked with 
various USTRs and their staff who have spent many months negotiating 
with the Koreans to eliminate one after another unnecessary NTB. The 
persistence of USTR efforts to get rid of a single NTB--as minor as 
license plate sizes--has succeeded, but at a high cost in U.S. 
government resources, both politically and financially. Inevitably, 
within weeks of the resolution of one ?show stopper' NTB, another one 
pops up to replace it.
    Korea's track record of using NTBs to protect its auto market is 
endless and has no equal in any other OECD country. And its does not 
deserve to be glossed over or tacitly accepted by the United States in 
formalizing an FTA with one of America's largest trading partners.
V. What has the U.S. done about this situation?
    The seriousness of problems caused by Korea's closed auto market is 
not new. They were recognized as severe enough a decade ago that USTR 
filed a Section 301 unfair trade practices case against Korea's auto 
policies, one of the rare uses of that powerful tool in U.S. trade law. 
USTR then negotiated two specific auto trade MOU agreements with Korea 
(in l995 and l998) in which Korea clearly and formally committed to 
eliminate anti--import policies, as well as tax and regulatory NTBs 
that discriminated against U.S. auto products.
    Chart #4 highlights just some of the still current goals and 
commitments of those l995 and l998 agreements that were not achieved. 
These were two solid, if traditional, trade agreements designed to 
reduce market barriers. They looked outstanding on paper. But they did 
not work, because Korea countered with a new strategy to implement a 
powerful mix of non-tariff barriers. The results: Despite two tough 
negotiations and auto trade agreement with Korea in l995 and l998, 
exports of U.S. autos to Korea barely moved from 4000 in 1995 to 4,500 
in 2006. Imports from all countries are also dismal.
    ATPC believes that Korea's obvious failure to meet its commitments 
and promises to the U.S. in these two formal trade agreements is both a 
loud warning and a legitimate basis for insisting that we not repeat 
the same mistake a third time. This is why we have urged that any FTA 
with Korea must be creative, assertive and reflect the reality of auto 
trade with Korea. We have urged USTR to look beyond the traditional 
negotiating strategy, not because our industry inherently deserves 
something better or special, but because there is such a clear, 
unquestionable trail of evidence of the failure of Korea to live up to 
previous agreements with the USG.
VI. The Current Status of the Negotiations
    So where are we now, less than two weeks before the deadline for 
completing these negotiations?

    1. Immediately after the launch of these talks, ATPC offered a 
comprehensive proposal to USTR for addressing the totality of barriers 
that have prevented access to the Korean market and the failure of two 
prior U.S. trade auto agreements. This proposal placed the 
responsibility fully on the Korean government to demonstrate that 
commitment by results and not just promises. The USTR appears not to 
have accepted this approach.
    2. The Korean Government, to the best of our knowledge, has not 
come forward with a proposal that fully addresses the closed market 
issue.
    3. Earlier this month, a bipartisan group of members of the House 
and the Senate, including Chairman Rangel and Chairman Levin, sent a 
letter to the President presenting a ``Congressional Proposal to Open 
Korea Automotive Market''. The members proposed ``moving beyond 
previous negotiating strategies and embarking on a new approach that 
addresses the United States' legitimate concerns that Korea will not 
obtain additional access to the U.S. market unless there is reciprocal 
opening of the Korean auto market''. The Congressional proposal deals 
with both the respective countries' automotive tariffs and a system for 
addressing both current and future NTBs in Korea auto market, and other 
sectors as well''.
    4. ATPC deeply appreciates this effort by Members to offer a 
constructive proposal to secure a fair trade deal for the U.S. auto 
industry in an FTA with Korea. ATPC said that this Congressional 
proposal ``captured the industry's frustration with Korea's refusal to 
abide by past auto trade commitments by ensuring that the Korean 
government will have to provide U.S. automakers with real and 
meaningful access to Korea's auto market if they are to be given 
preferential access to our market''. We are not aware of whether U.S. 
negotiators have accepted any or all of the recommendations contained 
in this Congressional proposal to resolve the auto issue.
    5. The latest information we have received concerning the 
negotiations is most disturbing. It is now widely reported that the 
Korean Government has demanded the immediate elimination of the U.S. 
auto tariffs as their number one priority in this negotiation.

    Finally, Mr. Chairman, ATPC does not know what will happen over the 
next two weeks. But we do know with certainty the record of Korea over 
the past two decades.
    I would like to leave you, and the U.S. negotiating team, with what 
President Roh of Korea told his negotiators last week in his Cabinet 
meeting as they prepared for the final stretch of these talks, as 
publicly reported in the Korea Times on March 15:
    President Roh told his team:
    ``I will give you some instructions in principle: Please consider 
real economic benefits--act just like merchants. And do not consider 
security or other non--economic factors.''

                                 
             Statement of California Farm Bureau Federation
    California Farm Bureau Federation (CFBF) is writing you in response 
to the Ways and Means Committee hearing on U.S.-Korea Free Trade 
Agreement Negotiations.
    The California Farm Bureau Federation (CFBF) is the largest 
agricultural organization in the state, representing more than 91,500 
members. In 2005, California agriculture received over $31.71 billion 
in farm revenue. Of that, more than $9 billion was exported.
    A U.S.-Korea FTA offers a great opportunity for expanding 
California's agricultural exports to Korea. In 2005, Korea accounted 
for $278 million in California's agricultural exports. As shown in the 
table below, California's top agricultural exports to the region 
included oranges (fresh and juice), almonds, cotton, walnuts and hay.
    In order for this agreement to have the greatest long-term success 
it must include reducing tariffs and establishing a protocol for 
resolving new, and outstanding, non-tariff barriers. We have recently 
released a report titled ``U.S.-Korea Free Trade Agreement, What it 
would mean for California Agriculture'' that you can access at http://
www.cfbf.com/issues/pdf/KoreaFTA07.pdf. This report looks at the market 
opportunities for California agriculture in Korea and at its impact on 
Korean agriculture.

                                             Exports of California Agricultural Products to Korea, 1999-2005
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                         Value $000
--------------------------------------------------------------------------------------------------------------------------------------------------------
                             Commodity                               1999 \1\  2000 \1\      2001         2002         2003         2004       2005\p\
--------------------------------------------------------------------------------------------------------------------------------------------------------
Oranges, fresh\2\                                                      14,512    41,000      51,152       70,877       81,101       88,846       96,670
--------------------------------------------------------------------------------------------------------------------------------------------------------
Almonds                                                                11,326    11,000      13,903       17,409       21,382       25,781       34,608
--------------------------------------------------------------------------------------------------------------------------------------------------------
Cotton                                                                 69,656    88,000      99,969       37,626       29,328       28,034       33,214
--------------------------------------------------------------------------------------------------------------------------------------------------------
Walnuts                                                                           4,000       4,566        6,712        7,434       13,890       17,522
--------------------------------------------------------------------------------------------------------------------------------------------------------
Hay                                                                     4,189    13,000      14,961       17,600       17,745       17,120       14,282
--------------------------------------------------------------------------------------------------------------------------------------------------------
Hides & Skins\3\                                                                             17,167       16,390       18,721       15,113       13,878
--------------------------------------------------------------------------------------------------------------------------------------------------------
Tomatoes (processed)                                                    9,276     8,000       9,710       11,364       10,938       11,387       12,300
--------------------------------------------------------------------------------------------------------------------------------------------------------
Wine                                                                    2,358     3,000       4,915        3,347        5,927        6,992        9,535
--------------------------------------------------------------------------------------------------------------------------------------------------------
Grapefruit (incl. juice)                                                                      1,004        2,028        4,001        5,107        8,914
--------------------------------------------------------------------------------------------------------------------------------------------------------
Rice                                                                                          3,988       10,979       25,340       17,447        6,619
--------------------------------------------------------------------------------------------------------------------------------------------------------
Grape Juice                                                             6,115     3,000       6,348        7,878        8,169        5,180        5,249
--------------------------------------------------------------------------------------------------------------------------------------------------------
Dairy and Products                                                     12,096    28,000      16,816       17,938       11,419        4,200        6,279
--------------------------------------------------------------------------------------------------------------------------------------------------------
Raisins                                                                 2,444                 2,568        2,669        2,631        3,653        4,159
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table Grapes                                                                                    451            0        2,202        2,273        2,955
--------------------------------------------------------------------------------------------------------------------------------------------------------
Lemons                                                                                        2,443        3,398        2,542        2,749        2,950
--------------------------------------------------------------------------------------------------------------------------------------------------------
Orange Juice                                                                                  3,295        3,779        2,976        2,955        2,392
--------------------------------------------------------------------------------------------------------------------------------------------------------
Cherries                                                                                        352            9        1,439        1,459        1,180
--------------------------------------------------------------------------------------------------------------------------------------------------------
Pistachios                                                                                      587          475          434          532          914
--------------------------------------------------------------------------------------------------------------------------------------------------------
Kiwi fruit                                                                                       57            0        1,438        1,924          859
--------------------------------------------------------------------------------------------------------------------------------------------------------
Lettuce                                                                                          51           45          420          649          777
--------------------------------------------------------------------------------------------------------------------------------------------------------
Flowers                                                                                         704          187          308          112          437
--------------------------------------------------------------------------------------------------------------------------------------------------------
Olives                                                                                            9          161          382          834          382
--------------------------------------------------------------------------------------------------------------------------------------------------------
Beef (and products)\4\                                                 37,795    51,000      21,022       39,781       52,956          114          243
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total CA Export to Korea                                              178,000   262,000     279,415      274,000      312,010      259,000      278,556
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Data provided for commodities with exports of more than $2 million in 1999 and 2000.
\2\ Includes fresh oranges and orange juice from 1999 and 2000.
\3\ Included in beef and products for 1999 and 2000.
\4\ Includes beef and hides and skins from 1999 and 2000.
\p\ Preliminary figures
Source: U.C. Agricultural Issues Center, Annual California International Agricultural Export estimates, 2001-2005.

Market Access
Fresh fruits and vegetab les
    Our primary objective is to improve global market access for 
California agriculture. California's fruit and vegetables are faced 
with excessive export tariffs that are four times greater than U.S. 
agricultural tariffs. Tariffs on California fresh citrus exports to 
Korea range from 40--144%. The Korean government views citrus as a 
sensitive product and has advocated that there be no reduction in 
tariffs, especially during its ``in season.'' Korea is California 
citrus growers' largest export market. A free trade agreement with 
Korea must lower the tariffs being applied to California citrus 
products. Overall, the average applied tariff on California fruit and 
vegetable products is 53.6%, while, the United States imposes an 
average 6% applied tariff on fruits and vegetables, respectively.\1\ 
There must be fairness under this agreement.
---------------------------------------------------------------------------
    \1\ Office of the United States Trade Representative, ``FTA: United 
States & Republic of Korea Economic and Strategic Benefits,'' February 
2, 2006.
---------------------------------------------------------------------------
    As we have advocated in the World Trade Organization negotiations, 
this free trade agreement must reduce tariffs for fresh fruit and 
vegetables in the Harmonized Tariff Schedule (HTS) Chapters 7 and 8. We 
recognize that because of the sensitivity of these negotiations there 
will have to be differing phase-outs of tariff schedules for each 
commodity.
Beef products
    Prior to the beef ban in December 2003, the Korean market was an 
important market for our beef cuts and organs that are not primarily 
consumed in the U.S.. U.S. beef and offal products face an applied 
tariff of 8-40%.\2\ In addition to market access, a clear protocol, or 
timeline, for the acceptance of U.S. beef into Korea must be 
established prior to final acceptance of the agreement. We have relied 
too many times on agreements making promises of resolving phytosanitary 
issues only to continue negotiating after the finalization of an 
agreement, without results.
---------------------------------------------------------------------------
    \2\ Office of the United States Trade Representative, ``Trade Facts 
FTA: United States & Republic of Korea Opportunities for Agriculture.'' 
February 2006.
---------------------------------------------------------------------------
non-tariff barriers
    In many cases, non-tariff barriers become the biggest issues that 
hold up the progress and success of an FTA. Similar to the Australian 
FTA, and others, this agreement must establish a protocol for both 
countries to effectively address on going phytosanitary issues.
    We not only want expanded access for those commodities that 
currently export to Korea but those that have the potential to meet the 
needs of a growing and changing marketplace.
Conclusion
    CFBF appreciates this opportunity to comment on the U.S.-Korea free 
trade agreement. Of all the agreements being negotiated this one has 
the most potential for the greatest gain for California producers. For 
more details on the opportunities and impacts of this agreement please 
refer to our ``U.S.-Korea Free Trade Agreement, What it would mean for 
California Agriculture'' that you can access at http://www.cfbf.com/
issues/pdf/KoreaFTA07.pdf. Please feel free to contact Rayne Thompson, 
in my office, with any questions.

                                 
      Statement of Center For Policy Analysis on Trade and Health
Tobacco Control
    According to the Pan American Health Organization and the World 
Health Organization, ``Transnational tobacco companies--have been among 
the strongest proponents of tariff reduction and open markets. Trade 
openness is linked to tobacco consumption.'' \1\
---------------------------------------------------------------------------
    \1\ D. Woodward, N. Drager, R. Beaglehole, D. Lipson. 
Globalization, global public goods, and health. In: Trade in Health 
Services: Global, Regional and Country Perspectives. N. Drager and C. 
Vieira, Eds. Washington, DC: PAHO, 2002. pp 6-7.
---------------------------------------------------------------------------
    It is not clear what The U.S Trade Representative has indicated 
that tobacco measures in the Korea-U.S. Trade Promotion Agreement will 
be similar to all recent U.S. trade agreements, which have included 
reductions in tariff and nontariff barriers to trade in tobacco 
products. These provisions are intended to increase consumption of 
tobacco products, which are lethal. Reducing tobacco consumption is a 
key public health goal of particular consequence for South Korea, where 
67% of males smoke presently.
    Korea currently attributes the majority of its deaths to cancer. 
Cancer-related deaths rose from 13.8% to 21.4% of all deaths between 
1980 and 1994--with cancer-related mortality for men changing from 49.5 
to 134.2/100,000, and for women from 32.6 to 76.1/100,000. Since 1980, 
lung cancer has increased the most rapidly, and liver and lung cancer 
in men accounted for 65% of all cancer deaths from 1984-1998.\2\
---------------------------------------------------------------------------
    \2\ Sun Ha Jee, II Soon Kim, II Suh, Dongchun Shin and Lawrence J 
Appel (1998). Projected Mortality from lung cancer in South Korea, 
1980-2004. International Journal of Epidemiology; 27;365-69.
---------------------------------------------------------------------------
    There is a lag period of between 20 and 30 years between tobacco 
consumption and tobacco-related deaths such as lung cancer. Mortality 
due to lung cancer is sure to increase and present significant problems 
for suffering individuals, for the national health care system, and in 
the loss of economic productivity due to premature deaths.
    Tobacco control measures appear to be achieving a slow decline in 
tobacco consumption in South Korea. In 1995, Korea passed the National 
Health Promotion Act (NHPA), which states that all public areas and 
facilities must assign smoking and non-smoking areas. The NHPA also 
restricts cigarette vending machines and selling to those under the age 
of 19. It requires health warnings on tobacco packaging and 
advertising. Annual per capita consumption declined from 130 in 1990 to 
116 in 2000. One goal of the NHPA is to reduce male smoking from 67% to 
30%, and female smoking from 6.7% to 5%, by 2010.
    Korea has a 40% tariff on imported tobacco products. Korea 
originally planned to levy a 40 percent tariff on imported tobacco as 
its lifting of the state monopoly on cigarettes became effective in 
July 1, 2001. But, driven by pressure from the U.S. government and 
multinational cigarette producers, the Korean government reluctantly 
consented to phase in the tariff by 10 percent a year, gradually 
raising it to 40 percent by 2004. This tariff will likely be eliminated 
by the agreement, which will likely increase consumption particularly 
among youth.
    The proposed liberalization of tobacco markets under the KORUS FTA 
has the potential to significantly hinder this progress. Korea had 
import tariffs on foreign cigarettes, until the 1980s, when the U.S. 
exerted pressure to liberalize the tobacco industry under the Special 
301 provisions. In 1988 smoking rates among male Korean teens rose from 
18.4% to 29.8% in a single year. The rates among female teens more than 
quintupled--from 1.6% to 8.7%.\3\ These rises were due to decreased 
prices and increased advertising.
---------------------------------------------------------------------------
    \3\ Callard, Chitanondh, and Weissman. Why trade and investment 
liberalization may threaten effective tobacco control efforts. Tobacco 
Control, 2001; 10:68-70
---------------------------------------------------------------------------
    This FTA includes NAFTA-like provisions that give investors, 
including tobacco companies, standing to challenge governmental 
regulations at the local, state, and national levels directly and seek 
compensation for profits lost due to rules that do not comply with 
strict investment obligations.
    Trade agreements enable the tobacco industry to challenge a wide 
range of tobacco control measures, unless tobacco products are 
specifically excluded from trade agreements: \4\

    \4\ Shaffer ER, Brenner JE and Houston TP, International trade 
agreements: a threat to tobacco control policy.

      Tobacco tariffs--Tariffs can also be challenged as 
discriminatory and restrictive trade barriers.
      Reducing exposure to secondhand smoke--Clean indoor air 
rules, including banning smoking in restaurants and bars, could face 
challenge as barriers to trade since these policies decrease cigarette 
consumption, and company profits.
      Ingredient disclosure and warning labels--Under investor 
rights provisions, private corporations could sue for ``expropriation'' 
of property as a result of regulations on ingredient disclosure and 
warning labels.
      Controlling sale and distribution of tobacco products--
Wholesale and retail licensing, controls on vending machines, and 
restrictions on sales to children could be subject to challenge under 
rules governing distribution services in trade agreements.
      Cigarette content regulation--Laws and regulations to 
enact tobacco control affecting cigarette content regulation, including 
fire-safe cigarettes, are subject to potential challenge trade rules. 
Consumer warnings could be required as a substitute for product 
regulation as they are less restrictive to trade, but they are also 
less effective tobacco control measures.
      Advertising, promotion, sponsorship, and marketing 
restrictions--Partial bans of cigarette advertising could be challenged 
as trade violations under FTA trade rules affecting advertising.

    The investor-state provision in the Korea agreement makes tobacco 
control measures particularly vulnerable to challenge.
CPATH recommends the following:
    1. Tariff and Nontariff Provisions:
    Exclude tobacco products from all trade rules and in each relevant 
Schedule and Annex, including but not limited to Market Access, Most 
Favored Nation, National Treatment, Services, Intellectual Property, 
Investment and Dispute Settlement and tariff reduction schedules.
    2. Insert the following:
    Notwithstanding any language to the contrary, nothing in this 
agreement shall block, impede, restrict, or modify the ability of any 
party to take or maintain any action, relating to manufactured tobacco 
products that is intended or expected, according to the party, to 
prevent or reduce tobacco use or its harms and costs or that is 
reasonably likely to prevent or reduce tobacco use or its harms, 
including tariffs and restrictions on the marketing of tobacco or 
tobacco products.
    3. Add: Provisions of the Framework Convention on Tobacco Control 
shall govern, in the event of any conflict with this Agreement.
    4. Eliminate the investor-state provision that gives foreign 
corporations greater rights than domestic investors to file trade 
challenges against tobacco control measures.
Intellectual Property and Access to Affordable Medicines
    The U.S. persists in pressing for changes in Korea's drug pricing 
system that are strongly opposed in Korea. Because several U.S. federal 
programs use reference pricing systems similar to Korea's to provide 
affordable drugs, the U.S. is trading off our ability to provide 
affordable medicines at home in exchange for other economic benefits to 
the transnational pharmaceutical industry from this agreement. We are 
also trading off our ability to concentrate on other, more important 
objectives, such as opening up automobile markets, in return for 
questionable benefits to the transnational pharmaceutical industry and 
even fewer clear benefits to the American public.
    The agreement proposes expanded protection of drug company monopoly 
rights. It is important to be clear about what this means for the 
people of Korea and the people of the U.S.: higher prices for people 
and delayed fair competition from generic competitors which would lower 
prices. On March 28, Korean trade negotiators reportedly capitulated to 
U.S. demands to implement new data exclusivity rules, patent 
extensions, and linkage between patent and drug marketing offices. 
These provisions, if implemented, will depress generic production and 
increase prices. Korea's universal National Health Insurance system 
relies on generic medicines to control drug costs. Drugs already 
account for 30% of Korea's health expenditures, more than other OECD 
countries. The average annual income in Korea is $16,000 a year.
    According to the Korea Policy Institute, ``new drug prices are 
comparable to average factory prices in the U.S., the United Kingdom, 
Germany, France, Italy, Japan, and Switzerland. The Korean government 
has enacted cost containment measures in the area of pharmaceuticals--
lowering the reimbursement costs for drugs and supporting the 
production of domestically produced generic drugs. The Korean Health 
Insurance Review Agency has a goal of reducing pharmaceutical costs 
from more than 29 percent of the national insurance payments to less 
than 24 percent by 2011. South Korea relies on the provision of generic 
drugs to control pharmaceutical costs in their public health care 
system.''
    The Korean Alliance Against KorUS FTA reports that people in Korea 
already suffer as a result. Han-ki Yoon, diagnosed with AIDS nine years 
ago, needs second-line treatments which are unavailable or unaffordable 
there. He reported that Roche has rights to sell Fuzeon in Korea, but 
refuses to do so, demanding a price of $20,000 a year per patient.
    Jung-ha Kim, whose bother died of leukemia in October, 2006, noted 
that the national health program now pays over $31 million a year to 
treat leukemia patients with Gleevec.
    The pharmaceutical industry has stated in its published remarks on 
trade advisory committees that trade negotiations have become the 
principal process through which it is able to ensure new standards of 
protection and enforcement. Some of these provisions, on reviews for 
government purchasing decisions, would be new to the U.S., and would 
not likely be independently approved here if proposed independently. 
Others, such as data exclusivity, are being imposed out of context of 
finely balanced U.S. rules. The drug industry is due reasonable 
compensation based on evidence that it is producing innovations and 
that these innovations are available to and benefiting populations who 
need them. To the contrary, however, stronger IP rules have coincided 
with diminished innovation, and reduced access to needed drugs. Drug 
company rights should be fairly balanced against people's human right 
to medical care. The Korea agreement does not meet this test.
    A statement by majority Ways and Means Committee members on March 
27, 2007, indicates an intention to establish a fair balance between 
access to medicines and protecting pharmaceutical innovation in 
developing countries. However, it also calls for opening up Korea's 
``closed markets'' for pharmaceuticals and automobiles. We suggest the 
Committee reconsider important respects in which life-saving medicines 
and automobiles are not similar products.
Restrictions on government purchasing
    The Korea Policy Institute reports: ``Before the second round of 
talks, the South Korean government introduced plans to implement a 
``positive list'' of reimbursable prescription drugs by the end of 
2006. A ``positive list'' system creates a list of drugs with proven 
efficacy and price-competitiveness that will be reimbursed within the 
national health care system. This would replace the existing ``negative 
list'' system that only lists drug exclusions. The positive list system 
is not a unique intervention by the South Korean government. Indeed, it 
has been adopted in many OECD countries and is an effort towards 
keeping the high cost of health care expenditures down. Many U.S. 
states and HMOs are taking a similar approach of scrutinizing 
prescriptions drugs, encouraging the use of generics, and limiting 
reimbursements on brand name drugs.''
    The U.S. proposal calls for Korea to install an independent review 
board on government pricing and drug selection decisions, as Korea 
establishes a ``positive list'' program for selecting and pricing drugs 
in Korea. This provision would also subject to trade challenges several 
U.S. programs that use formularies and reference pricing (negotiated 
rates for a limited number of drugs in each therapeutic category). 
These U.S. programs include Medicare hospital drug purchases, Medicaid, 
Department of Defense, and Veterans Affairs, and federally authorized 
drug discount programs for other providers. These provisions were 
controversial in the Australia agreement. (see attached from CPATH.)
    The U.S. has also required that Korea charge the average price for 
G7 countries (referred to as the A7 price) for each listed drug.
    The U.S. is trading off our ability to provide affordable medicines 
at home in exchange for other economic benefits to the pharmaceutical 
industry from this agreement. We are building a track record, with 
Australia and now with Korea, of using trade negotiations to establish 
policies that will prop up high drug prices at home and abroad. These 
policies would be unlikely to pass an independent vote in Congress, and 
do not balance Congress' objectives in the Trade Act to assure 
affordable medicines while promoting intellectual property rights.
CPATH recommends the following:
    1. Exclude TRIPS-plus provisions including data exclusivity, patent 
extensions and linkage, from the Korea agreement.
    2. Exclude provisions calling for outside review of government drug 
purchasing determinations in Korea and in the U.S.
Attachment
CPATH w Center for Policy Analysis on Trade and Health
Bringing a Public Health Voice to Trade and Sustainable Development
The U.S.-Australia Free Trade Agreement Can Challenge VA and Medicaid 
        Drug Prices
Summary
    The Australia Free Trade Agreement can expose U.S. drug discounts 
for programs including Veterans Affairs, Medicare and Medicaid, to 
greater leverage by the pharmaceutical industry through independent 
review processes that vary from current practices.
    U.S. health care consumers and professionals are not represented in 
trade negotiations. Trade agreements, which frequently lead to 
unintended consequences, increasingly address important issues of 
health and social policy. Congress can take steps now to assure that 
the U.S.-Australia FTA protects affordable drug prices, and to include 
the public health community in a transparent trade policy process.
Australia FTA and Department of Veterans Affairs:
    The FTA gives drug companies the right to challenge drug listing 
and pricing decisions by the Department of Veterans Affairs. 
Independent reviews can delay procurement decisions, and allow 
companies to pressure agencies for higher prices.
    The VA system effectively achieves very low prices for medicines. 
Under the U.S.-Australia FTA, ``suppliers,'' defined as businesses, are 
authorized to challenge VA procurement decisions, including listing and 
pricing pharmaceuticals, through ``at least one impartial 
administrative or judicial authority that is independent of its 
procuring entities''(15.11.2).
    The FTA process described is different from the current domestic 
U.S. bid challenge system. The independent review body must have the 
power to overrule VA decisions promptly (Article 15.11.4) The General 
Accounting Office, presently the first line of review, can recommend 
but not override VA decisions. Court appeals, the second step, might 
not be considered prompt. A system that does meet these requirements 
could jeopardize the VA's successful drug pricing system.
    The process is different from the World Trade Organization's 
Government Procurement Agreement, Article XX: 1. The WTO requires only 
that interim corrective measures preserve commercial opportunities 
generally; U.S.-Australia gives specific rights to the complaining 
supplier to participate in the procurement opportunity at hand. 2. The 
WTO calls for procedures that can provide for interim measures (such as 
delaying a procurement decision). U.S.-Australia gives that power to 
the independent review authority, which is separate from the procuring 
entity. 3. The WTO has an exception for the public interest; U.S.-
Australia has no such exception
    Grounds for filing a complaint do not need to include a charge of 
discrimination based on national origin. A supplier can assert failure 
to comply with the Federal Acquisition Regulations, in the case of the 
U.S.. The FTA requires that decisions do not have the ``purpose or 
effect of creating unnecessary obstacles to trade.'' A drug company 
with an office in Austalia could initiate a challenge.
    CPATH w Ellen R. Shaffer and Joe Brenner, Directors w 98 Seal Rock 
Drive, San Francisco, CA 94121 USA email: [email protected] w 
www.cpath.org

    The U.S. Trade Representative, and the General Counsel for the VA, 
have provided the following assurances:
    1. The VA is not covered by the FTA's Annex 2-C on pharmaceuticals. 
This is true. However, VA drug listing and pricing decisions are 
covered in another FTA section, Chapter 15 on Government Procurement.
    2. VA non-contracting measures will be protected by the 
``Exceptions'' article of the FTA, which exempts measures necessary to 
protect human life or health. This is an extraordinarily sunny 
interpretation of the exception, which also requires countries to 
demonstrate that the measure in question does not provide a ``disguised 
restriction on international trade,'' and has failed in past cases to 
prevent arguably graver threats to life.
    3. The Australia FTA gives rights to drug companies to challenge 
drug purchasing and reimbursement decisions by Medicare and Medicaid, 
which could lead to higher prices.

    Annex 2-C on Pharmaceuticals applies to ``federal healthcare 
authorities [that] operate or maintain procedures for listing new 
pharmaceuticals or indications for reimbursement purposes, or for 
setting the amount of reimbursement for pharmaceuticals, under its 
federal healthcare programs.'' These programs are distinguished from 
those like the VA that procure drugs directly, and are covered by 
Chapter 15 on Government Procurement.
    The USTR has stated that parts of Medicare would be covered by this 
provision. Annex 2-C would also apply to Australia's Pharmaceutical 
Benefits Scheme, which negotiates low drug prices for Australians.
    The USTR has asserted that Medicaid would not be affected because 
it is a state program. However, These are strong grounds for disputing 
the USTR's view. A federal authority, HHS, maintains the federal 
statute on drug price rebates for Medicaid programs. (Many states then 
proceed to seek further discounts.) Medicaid was created by federal 
law.
    Annex 2-C requires affected agencies to ``make available an 
independent review process that may be invoked at the request of an 
applicant directly affected by a recommendation or determination.'' The 
USTR has stated that ``applicants'' refers to program beneficiaries. A 
May, 2004, request to the Department of Health and Human Services to 
clarify this point has not been answered. Assuming that ``applicants'' 
includes drug companies, the California Senate Office of Research (SOR) 
has commented regarding Medicaid: ``The . . . requirements that would 
appear to conflict with California current practice would be the 
independent review process, implemented at the request of an applicant, 
and the requirement that written justification for any decision be 
given to the applicant. In very general terms, the agreement would make 
drug pricing and regulation more difficult by expanding the basis for 
an applicant to challenge an administrative decision.'' The SOR analyst 
agrees that failure to reach agreement on price could in this case be 
grounds for a request for independent review, a right that drug 
companies do not currently enjoy.
Congress can take steps now to change the U.S.-Australia FTA and to 
        protect U.S. consumers.
    VA drug procurement, Medicare and Medicaid could be excluded from 
the Agreement. Many procurement decisions are already excluded from the 
Australia FTA including motor vehicles and dredging at construction 
sites. The VA Counsel claims that Chapter 15 gives new access to U.S. 
contracts for Australian firms; however the USTR also claims that 
Australian drug companies have no such interest. Important government 
programs that provide benefits to millions, including vulnerable 
populations, can legitimately be excluded from this Agreement.

                                 
           Statement of Korea International Trade Association
    The Korea International Trade Association (KITA), 460 Park Avenue, 
Suite 1101, New York, NY 10022, is registered with the U.S. Department 
of Justice, Washington, D.C. under the Foreign Agents Registration Act 
as an agent of KITA, Trade Tower Gangnam-gu, Seoul 135-729, Republic of 
Korea. This material is filed with the United States Department of 
Justice where the required registration statement is available for 
public inspection.
I. Introduction
    The Korea International Trade Association (``KITA'') is an 
association of more than 60,000 Korean companies with diverse trading 
interests in the United States and globally. Our association is 
actively involved in monitoring developments related to the Korea-U.S. 
free trade agreement (``KORUS FTA'') negotiations. Given the breadth of 
interests KITA represents, the long-standing trade relationship between 
both countries, and our member companies' significant investment in the 
United States, I believe our perspective on the FTA concluded between 
Korea and the United States would be of significant value to the House 
Ways and Means Subcommittee on Trade.
    KITA has strongly supported the KORUS FTA negotiations since they 
were launched last February, recognizing that a balanced final 
agreement would offer many benefits and opportunities for both 
countries. However, KITA also understands that such an agreement poses 
many challenges and raises concerns on both sides of the bilateral 
trade relationship. KITA would like to balance the discussion on the 
impact of a KORUS FTA in both countries, and wishes to express our 
strong hope that U.S. and Korean businesses will work together in a 
final push to facilitate the implementation of the agreement. An 
expansion of trade between our two countries will only serve to benefit 
the U.S. and Korean economies in the long term.
II. A KORUS FTA Will Benefit Both Countries
    The Korean government and business community recognize the need to 
further open Korea's economy to remain competitive in the global 
economy. It is for this reason the Korean government has crafted a new 
trade policy that embraces the pursuit of FTAs on a multi-track basis. 
KITA believes that FTAs, especially one with the United States, will 
help Korea lock in needed economic reforms and further liberalize the 
Korean economy. Further, the KORUS FTA will benefit both countries 
because it will create meaningful new trade flows for goods, services 
and investment.
    Apprehension over market liberalization is not new or unique to the 
United States. For example, many KITA member companies in the 
agriculture and services sectors share concerns similar to those 
expressed by U.S. business interests. For perspective, however, it is 
worth noting the magnitude of the challenges faced by Korean industry 
and agriculture. When U.S. interests express concern about the impact 
of an FTA with Korea because Korea is the United States' 7th largest 
trading partner, we must remind those interests that the U.S. economy 
is much larger in scale than Korea's--U.S. GDP is 15 times larger than 
that of Korea--and is in fact Korea's 3rd largest trading partner.
    What interests in both the United States and Korea need to realize 
is that the bilateral trading relationship is more complementary than 
competitive. Recent economic studies demonstrate that a KORUS FTA will 
lead to greater intra-industry trade that is beneficial to both 
economies, and show the deeper the liberalization of the Korean market, 
the greater the effect on overall GDP. This includes liberalization in 
sensitive Korean sectors.
    Studies undertaken by the Korea Institute for International 
Economic Policy (KIEP) estimate the benefits to Korea of a KORUS FTA to 
include $5.4--$8.2 billion in increased exports, and over $35 billion 
in income growth. Studies have also revealed that market liberalization 
frees up resources and can also strengthen the long term 
competitiveness of Korean industries. This is true for Korea, as KIEP 
has shown, but it is also true for the United States.
    KITA is pleased that both sides have worked through concerns over 
tough sectoral issues such as autos, pharmaceuticals and investment in 
order to conclude the KORUS FTA. All realized that there is too much to 
gain and too much to lose.
III. A KORUS FTA is Necessary to Ensure the Continued Strength of the 
        Bilateral Economic Relationship
    The close economic relationship between Korea and the United States 
makes an FTA between our two countries not simply important, but 
imperative. The following statistics are worth emphasizing here: Korea 
is the United States' 7th largest trading partner and 6th largest 
export market for agricultural products. The United States is the 
number one source of foreign direct investment in Korea, the 2nd 
largest export market for Korean goods, and the 2nd largest investment 
destination for Korean companies. The KORUS FTA has significant 
commercial implications for trade in manufactured goods, as well as the 
service sectors.
    However, our strong economic relationship is not self-sustainable; 
we must continue to reinforce it. This fact is illustrated by 
considering the situation if the concluded FTA is not implemented. 
Though bilateral trade volume is increasing, each country's share of 
trade in the other country is decreasing compared to third countries. 
For example, Korea's share in the U.S. import market has continuously 
decreased over the past decade. In 1998, it was as high as 4.6%, but, 
the share was only 2.5% in 2006. Likewise, the U.S. share of Korea's 
import market also has declined during the same time period. In 1998, 
U.S. goods enjoyed 24.6% of Korean market, but the share dropped to 
10.9% last year.
    A similar trend can be observed with respect to foreign direct 
investment--our respective share of FDI in each other's country is also 
declining. While the United States remains the largest investor in 
Korea, its share of FDI has dropped from 37% of total FDI in Korea in 
2004 to just over 15% in 2006. In the meantime, investment from the 
European Union in Korea is on the rise. If Korea concludes an FTA with 
the EU, this investment trend is sure to deepen. Likewise, Korean 
investors are turning away from the United States and putting their 
money into other destinations like China, Europe, Central America and 
Southeast Asia.
    The KORUS FTA will reverse these trends. In past FTA agreements the 
effect on trade has been clear: trade between the FTA countries 
increases dramatically. Indeed, Free trade agreements (FTAs) have 
proven to be one of the best ways to open up foreign markets to U.S. 
exporters. Today, the United States has FTAs with 13 countries. 
According to the latest edition of the U.S. Commerce Department's 
International Trade Update, last year U.S. trade with these FTA 
countries was significantly greater than their relative share of the 
global economy. Although comprising only 7.3 percent of global GDP (not 
including the United States), those FTA countries accounted for 42 
percent of U.S. exports.
    U.S. trade with Chile provides a great example of the benefits of 
an FTA. Before the agreement with Chile in 2003, U.S. exports were $2.7 
billion. Liberalizing trade in the intervening years has had a dramatic 
effect on trade volumes. By 2006, Chile became one of the top 30 U.S. 
export destinations, with nearly $6.8 billion in exports, a 30 percent 
increase over 2005 and a 150.1 percent increase since the FTA went into 
force.
    Not only has the volume of exports to Chile increased, but so has 
the U.S. share of Chile overall import market, which has risen from 
14.5 percent in 2003 to 16.0 percent in 2006. Several U.S. industries 
have benefited from the trade growth with Chile, including high-tech, 
commodity, and finished goods, such as surgical equipment, airplanes, 
petroleum derivatives, and earthmoving equipment.
    Implementing the concluded KORUS FTA will provide even greater 
benefits for U.S. exporters.
IV. A KORUS FTA Gives the United States Strategic Advantages
    To conclude, I would like to point out several strategic advantages 
the United States would capture by implementing the KORUS FTA. First, 
the United States will be able to tap into Korea's world-class 
information technology (IT) infrastructure, creating unparalleled 
business opportunities for U.S. service providers and related 
industries. Korea is an ideal place for the United States to test new 
technologies, and will provide a competitive edge for companies that do 
business in Korea.
    A second strategic advantage is Korea's geographical location. The 
KORUS FTA will allow the United States to establish a bridgehead in 
Northeast Asia. Closer economic ties to Korea will translate into more 
efficient access for the United States to Japan, China and the ASEAN 
region. These markets, combined with Korea, represent one-third of the 
world's population, and include some of the fastest growing economies 
in the world.
    Finally, the political and diplomatic advantages of the KORUS FTA 
cannot be downplayed. In addition to strengthening our economic 
relationship, the KORUS FTA will help to solidify the two countries' 
longstanding diplomatic ties, and will serve to support our bilateral 
relationship in the years ahead.
    Promoting understanding about the benefits of the KORUS FTA is 
essential. KITA has been fully engaged in this objective both in Korea 
and with its counterparts in the United States. Most recently, KITA 
held a conference with business leaders from 7 Southeastern states in 
Alabama, during which an agreement on the benefits of a KORUS FTA was 
reached. On March 14, I was pleased to represent KITA and join 
representatives of the National Association of Manufacturers and the 
U.S. Business Coalition for the KORUS FTA in a roundtable hosted by the 
U.S. Chamber of Commerce to reaffirm the common goal of concluding this 
important agreement.
    KITA remains committed to supporting the vital trade relationship 
between Korea and the United States. Implementing the recently 
concluded KORUS FTA will ensure the continued strength of our vibrant 
bilateral economic relationship, create new opportunities for economic 
growth and job creation in both countries, and increase U.S. and Korean 
competitiveness in the world.

                                 
                  Statement of Korea Policy Institute
    I would like to thank Congressman Sander Levin for this opportunity 
to speak on the current U.S. trade agenda. The focus of this statement 
is the proposed U.S.-Republic of Korea (South Korea) Free Trade 
Agreement currently being negotiated by representatives of the two 
governments. After a brief background on the proposed FTA, my statement 
will discuss the historical relationship between U.S. labor and South 
Korean economic development and its lessons for the proposed FTA, the 
linkage of South Korean agriculture with national culture and its 
relationship to anti-Americanism, and concerns about the lack of 
appropriate democratic process in South Korea.
Background
    On February 2, 2006, the United States and the Republic of Korea 
(South Korea) announced that they would open talks on a bilateral free 
trade agreement between the two governments that would remove 
protective trade measures such as tariffs and import quotas. The U.S. 
is South Korea's third-largest trading partner, after China and Japan, 
and its largest foreign direct investor, and the U.S. market is South 
Korea's second largest export destination. South Korea is the seventh-
largest trading partner for the U.S. and its seventh-largest export 
market. South Korea ranks as the tenth-largest economy in the world. 
Major imports from the U.S. include semiconductor chips, manufacturing 
equipment, aircraft, agricultural products, and beef. Major imports 
from South Korea include cellular phones, semiconductor circuits, 
television and flat panel screens, cards, computer parts, and 
construction vehicles. Other major issues under discussion include 
pharmaceuticals, automobiles, investor-state claim rules, steel, 
intellectual property rights, U.S. visa policies toward South Korean 
nationals, and whether to include products made in the North-South 
joint industrial park at Kaeseong.
    The first round of formal negotiations occurred during June of 2006 
in Washington, DC, and a total of seven rounds alternating between 
countries have thus far taken place. Informal talks have been 
interspersed between the rounds. The FTA is being negotiated under 
``fast-track'' authority granted to the Bush Administration shortly 
after 9/11. This authority allows the executive branch to present a 
completed agreement for a mandatory Congressional vote without 
possibility of amendments. The South Korean National Assembly must also 
pass the FTA for it to go into effect.
Labor rights, wages, and lessons from the past
    Understanding how South Korean products began to be shipped to the 
U.S. in the 1960s suggests much of what might be the consequences of 
the proposed FTA, and why concerns are being expressed by labor unions 
that fear a repeat of their past experiences with South Korean trade 
relations.\1\ The loss of jobs and the concomitant weakening of 
organized labor in the U.S. is inextricably linked to the historical 
and continuing labor exploitation in South Korea. The economic 
development of South Korea that began in earnest in the 1960s was 
accompanied by a decline of manufacturing jobs in the U.S. as corporate 
interests took their factories to Asia and other parts of the globe. 
Then military dictator Park Chung Hee maintained an iron fist over 
South Korea's economy, ensuring intense state and corporate-sponsored 
repression of workers who suffered in some of the worst working 
conditions in the world. The hyperexploitation of South Korean workers 
meant that American manufacturers in the early 1960s could calculate 
that the labor cost saving for firms willing to move to Korea was a 
factor of 25, since South Korean workers were paid one tenth of 
American wages but were 2.5 times more productive given, for example, 
the extraordinary number hours they put in per day, the lack of 
overtime, and the six day work week.\2\ Good jobs in the U.S. turned 
into bad jobs in South Korea. Supported by South Korean policies and 
U.S. willingness to open up key markets, light industries including 
textiles, footwear, radios, televisions, toys, and small appliances 
rapidly set up factories in South Korea, and beginning in the 1970s 
were joined by heavy industries including steel, cars, chemicals, 
defense, machine-tools, and semiconductors.
---------------------------------------------------------------------------
    \1\ See, for example, Thea Lea,policy director of the AFL-CIO, 
``Testimony on the Proposed U.S.-South Korea Free Trade Agreement. 
March 24, 2006.
    \2\ See discussion in Bruce Cumings, Korea's Place in the Sun, W.W. 
Norton & Co., 2005, p. 313.
---------------------------------------------------------------------------
    Similar to the reversal of earlier gains made by U.S. organized 
labor, rights and benefits accrued by South Korean organized labor 
through struggles over three decades have been lost. In particular, 
South Korean unions were weakened by South Korea's economic freefall 
during the 1997 Asian financial crisis. This crisis afforded the South 
Korean state and the chaebol an opportunity to reverse the gains of the 
labor movement, and since then workers have been fighting off declining 
working conditions, wages, and benefits.\3\ South Korea has been moving 
with rapidity toward the ``casualization'' of its labor force. 
``Irregular workers,'' who possess fewer labor rights and benefits 
currently constitute over half of all South Korean workers.\4\
---------------------------------------------------------------------------
    \3\ See, e.g., Hagen Koo, Korean Workers: The Culture and Politics 
of Class Formation, Cornell University Press, 2001.
    \4\ Lim Hyun-Chin and Jang Jin-Ho, ``Neo-liberalism in Post-Crisis 
South Korea: Social Conditions and Outcomes,'' Journal of Contemporary 
Asia, October 2006.
---------------------------------------------------------------------------
    Widespread state efforts to prevent the rise of independent unions 
have been a staple feature of South Korea since right-wing groups 
created the Federation of Korean Trade Unions (FKTU) in 1946. Lacking a 
grassroots base, the FKTU's raison d'etre was to compete with and 
destroy independent labor organizations.\5\ Today, the South Korean 
government continues to demonstrate a willingness to intervene in the 
internal affairs of independent unions that emerged despite state and 
corporate-sponsored violence against workers. Labor demonstrations and 
protests were regularly broken up in the 1960s by violent (public and 
private) police actions, and this continues to be true. Key 
deficiencies for worker's rights include the prohibition of multiple 
unions at the enterprise level, continuing restrictions on government 
employee rights to organize, an overly broad definition of ``essential 
public services'' where the right to strike is repressed or prohibited, 
the prohibition for unemployed or dismissed workers to become or remain 
trade union workers, and the requirement for notification of third 
parties to industrial disputes. In short, South Korean labor laws and 
enforcement have not reached internationally recognized standards of 
freedom of association and the right to organize and bargain 
collectively.
---------------------------------------------------------------------------
    \5\ The FKTU has since evolved into a more mainstream and 
legitimately recognized organization.
---------------------------------------------------------------------------
    In order to avoid repeating the failures of the past, the FTA 
should be accompanied by significant changes to South Korean labor laws 
that enhance worker's rights and benefits, and reverse the 
casualization of work that has gone virtually unimpeded over the last 
decade. The proposed FTA could be an opportunity to promote sustainable 
and equitable development between historical allies, but this is not 
possible given the current conditions for labor in South Korea. An 
enacted FTA that fails to ensure the maintenance and enforcement of 
labor rights and conditions in South Korea should be unacceptable to 
anyone concerned about the plight of workers and organized labor in the 
U.S.
Agriculture as Korean culture and its relevance to the proposed FTA
    The rapid rise of industrial development in South Korea whereby 
good jobs in the U.S. turned into bad jobs in South Korea also saw a 
migration of agricultural workers from South Korea's countryside into 
the urban core. In order to generate the labor force necessary to 
generate such rapid industrial development in urban areas during the 
1960s and 1970s, then military dictator Park kept grain prices below 
market rates and thus artificially expanded the labor pool in 
industrial centers as farmers were driven off their land even when they 
had bumper harvests. South Korea experienced an extraordinarily rapid--
and generally unwilling--population shift from rural areas to urban 
centers, with farmer-turned-worker's wages kept down as management 
rationalized that labor could be paid less since the market cost of 
food fell during this time due to the state's pricing policies.
    This migration is relevant to current talks because the negotiation 
of free trade policies influencing family farms are socially and 
politically complicated by the fact that so many South Koreans living 
in cities, only one generation ago, were living on farms. Many South 
Koreans continue to have strong connections to their rural roots given 
how recently their personal lives diverged from decades if not 
centuries of family farming. The Korean peninsula has maintained a 
domestic agrarian economy for millennia, and the significance of 
farming goes beyond the economic into every aspect of South Korean 
society and culture, and especially in ordinary South Koreans 
connection to the land. Because Korean society was--and continues to 
be--so intimately tied to agricultural society, much of Korean culture 
as a whole is intimately based upon customs that have emerged through 
the cultivation of land.
    For many South Koreans, the relationship of low prices to the 
demise of farms is not the theoretical abstraction that it is for 
advocates of neoliberal policies who have not experienced personal 
consequences of these policies, including rapid social and geographical 
dislocation. South Koreans often experience the demise of South Korean 
agriculture as a loss of both national and family history and culture. 
Consequently, much of the South Korean population finds it not just 
appropriate but necessary to protect indigenous agriculture and support 
measures that they view as preserving South Korea's national heritage 
as well as their own family's agricultural history. This belief in the 
importance of protecting agriculture not simply as an industry but as 
Korea's history, culture, and land, has been reinforced by the rise of 
a middle-class environmental movement, the farmer and peasants 
movement, and urban-based allies. In a particularly powerful example of 
the importance of agriculture to the average South Koreans, the three 
largest department store chains in South Korea--Lotte, Hyundai, and 
Shinsegae--each independently decided against purchasing cheaper 
imported rice and offering it to consumers for fear of a public 
backlash against their chains that will influence their ability to sell 
other products offered at their stores.\6\
---------------------------------------------------------------------------
    \6\ Song Meeyoung and Kim Kyoungwha, ``Lotte, Hyundai Spurn U.S. 
Rice as South Korea Ends Retail Ban,'' Bloomberg News, April 4, 2006.
---------------------------------------------------------------------------
    The average American farm is 58 times larger than the average 
Korean farm. Like small family farmers in the United States, South 
Korea's farmers cannot compete with large U.S. agribusiness capable of 
producing low-priced goods with the aid of significant U.S. government 
subsidies. In order to protect agricultural industries, except for rice 
which works under a quota system, the average South Korean tariff on 
agricultural products approaches 50 percent (compared with 7.5 percent 
tariffs on industrial products).\7\ South Korea already imports about 
60-70 percent of its agricultural products, and South Korean consumers 
are among the U.S.'s largest markets for agricultural products and 
beef, representing over a fifth of imports.\8\ This percentage is 
certain to rise under an FTA with the U.S., which is seeking to 
liberalize the trade of 235 items that are currently protected in 
varying degrees.
---------------------------------------------------------------------------
    \7\ Center for International Development, Harvard University, 
http://www.cid.harvard.edu/cidtrade/gov/southkoreagov.html.
    \8\ Economic Research Service, U.S. Department of Agriculture, 
http://www.ers.usda.gov/Briefing/SouthKorea/policy.htm
---------------------------------------------------------------------------
    The South Korean agricultural sector is not export-oriented but 
instead strives to be self-sufficient in rice, horticultural products, 
and livestock production.\9\ South Korea currently has roughly 3.5 
million farmers, or about 7.5 percent of the population. All farming in 
South Korea is done by individual farmers with small to medium-size 
holdings. Half of the South Korean farmers are now over 60 years old, 
which significantly circumscribes their possible professional options 
should their farms disappear. Many of these farmers have no other 
choice but to farm. Inclusion of agriculture in the proposed FTA is 
likely to obliterate this indigenous base of family farmers, with at 
least half of Korea's farmers expected to lose their farms and enter 
urban areas in search of work. Farmers and their advocates are adamant 
that more is at stake for them than a loss in profits, and that beyond 
cost-benefit calculations, the proposed FTA threatens the fabric of 
Korea's rural communities, and will have severe social, cultural, and 
environmental costs.
---------------------------------------------------------------------------
    \9\ USDA Economic Research Service, http://www.ers.usda.gov/
Briefing/SouthKorea/basicinformation.htm
---------------------------------------------------------------------------
    Should the proposed FTA pass, the sense of cultural loss is likely 
to be exacerbated by the recognition that the demise of South Korean 
family farms will come not at the hands of other family farmers, but 
rather by the entry of subsidized U.S. agribusiness. Because we are not 
talking about simply about dollars and cents and Korean won, but 
rather, about Korea's concern over the preservation of its cultural and 
familial heritage (and for some South Koreans, their sovereignty as a 
food secure nation), the rise of American agribusiness and the 
concomitant decline of South Korean family farmers are likely to result 
in intensified anti-Americanism not only in the agricultural sector, 
but through much of a sympathetic civil society. Rather than improve 
U.S.-South Korean relations, inclusion of agriculture in the proposed 
FTA is poised to create greater tension in the historical alliance 
between the two countries.
Concerns over democratic process in South Korea
    This alliance, of course, has been heavily strained during the Bush 
Administration. The FTA talks between the U.S. and South Korea come at 
the height of strained relations between the two countries, with anti-
Americanism on the rise in South Korea.\10\ The relationship between 
Washington and Seoul has declined considerably during the Bush 
Administration, with clear policy differences in their approaches to 
Korean reunification and the North Korean nuclear crisis. The 
deployment of South Korean troops to Iraq--the third-largest military 
contingent behind the U.S. and Great Britain--was and continues to be 
divisive and unpopular in South Korea, and South Korea's attempt to 
link their support of the war in order to induce a more flexible Bush 
Administration posture toward North Korea clearly failed.\11\ U.S. 
President George W. Bush is widely unpopular in South Korea, as is the 
U.S.-led war on Iraq, and more South Koreans see the U.S. as a threat 
to their safety than they do North Korea.\12\
---------------------------------------------------------------------------
    \10\ For a discussion of recent anti-Americanism and a broader 
discussion of South Korean popular opinion, see Seung-Hwan Kim's 
``Anti-Americanism in Korea,'' The Washington Quarterly 26.1 (2002-03) 
109-122.
    \11\ Samuel Len, ``Seoul ties question of troops for Iraq to 
nuclear progress,'' International Herald Tribune, October 2, 2003.
    \12\ For example, in January of 2004, Seoul-based Research & 
Research and Gallup Korea carried out a survey to find out which 
country is the key enemy of Korea. South Koreans under 50 years of age 
picked the U.S. as Korea's key enemy, while those over 50 said North 
Korea was the key enemy. ``For Young Koreans, U.S. ?Main Enemy,''' 
Chosun Ilbo, June 30, 2004.
---------------------------------------------------------------------------
    Given the rising anti-Americanism in South Korea, some South Korean 
politicians are mistakenly promoting the FTA talks as an opportunity to 
mend bridges between the U.S. and South Korea. Vice Finance Minister 
Kwon Tae-Shin, for instance, has argued that a successful FTA will help 
to ease tensions with the U.S. on differences in North Korea 
policy.\13\ However, developments in South Korea suggest that the 
undemocratic process by which the FTA has been negotiated will ensure 
that an enacted FTA will not improve relations with the U.S., but 
instead, lead to the further rise of anti-Americanism.
---------------------------------------------------------------------------
    \13\ ``FTA to Ease NK Nuclear Concern,'' Yonhap, February 7, 2006.
---------------------------------------------------------------------------
    The South Korean government's effort to engage in trade talks with 
the U.S. is driven in part by the weakness of the South Korean 
government and specifically of the highly unpopular President Roh Moo-
hyun. South Korean presidents are elected for a single 5-year term.\14\ 
As a lame duck president who cannot run for re-election in the fall of 
2007, and whose approval rating has recently polled in the single 
digits, Roh appears to view the strategy of pursuing FTAs as a means to 
quickly achieve a political legacy through the insular strength of 
South Korean bureaucracy that would be impossible were popular 
democratic debate allowed.
---------------------------------------------------------------------------
    \14\ ``Government Faces Revolt Over Free-Trade Deal With U.S.,'' 
Chosun Ilbo, April 10, 2006.
---------------------------------------------------------------------------
    According to South Korean law, interested stakeholders and the 
public at large must have the opportunity to register their concerns 
about the possibility of an FTA before negotiations are launched.\15\ 
The purpose is to facilitate democratic debate on the possible merits 
and defects of holding the talks as well as of the possible FTA itself. 
The Roh Administration scheduled this hearing for February 2, 2006, but 
had earlier announced that the decision to hold the talks had already 
been made, and that an official announcement would be made shortly. 
Representatives of various sectors of South Korean civil society, and 
especially farmers, expressed tremendous unhappiness that the decision 
to pursue talks had occurred before a hearing was held, and South 
Korean government officials abruptly suspended the hearing shortly 
after it began.\16\ South Korean promises that greater effort would be 
made to seek public opinion have not come to fruition, suggesting that 
South Korean officials are both aware that the public's voice has not 
been heard and that the public's voice is not a priority for 
negotiators. South Korean negotiators also appear confident that is 
unnecessary to consult meaningfully with National Assembly members. For 
example, legislators have had limited time to pore over complex 
English-language documents that require translation into Korean. An 
August 2006 survey of National Assembly Members revealed that a 
majority of them believed that the South Korean government should at 
least inform the National Assembly when the talks were concluded and 
that the outcome of negotiations should be made public. A majority of 
Assembly Members also acknowledged that they had failed to seek out 
public opinion, and admitted having neglected their duties as political 
representatives.\17\
---------------------------------------------------------------------------
    \15\ Article 12 of the Stipulations on the Procedures for 
Concluding a Free Trade Agreement (Presidential Directive 121).
    \16\ ``Security guards scuffle with protesters during a public 
hearing on FTA talks in Seoul,'' Reuters, February 2, 2006.
    \17\ Cho Chung-un, ``Korea unprepared for FTA talks,'' Korea 
Herald, August 11, 2006.
---------------------------------------------------------------------------
    Given the general unwillingness of the Roh Administration to allow 
and facilitate an open discussion of the proposed FTA, and the failure 
of the National Assembly to take the lead in a public conversation 
about the merits and weaknesses of a proposed FTA, it should come as no 
surprise that important sectors of South Korean civil society have 
organized and emerged in opposition to both the negotiations and the 
FTA itself. On March 28 of 2006, some 270 civic organizations 
representing millions of workers, farmers, intellectuals, artists, and 
citizens announced the formation of the Korean Alliance Against the 
Kor-U.S. FTA, and shortly thereafter on April 16, thousands of trade 
unionists, farmers, students, and major celebrities marched in Seoul to 
demand that the government both abandon talks and allow the public to 
view the earlier negotiation process.\18\ Popular opposition to the FTA 
has developed quickly, and a general concern over the potential 
negative consequences of a free trade agreement is now openly expressed 
in Korean civil society. The disapproval rate of the FTA increased from 
29.2 percent on June 7, 2006 to 42.6 percent on July 6 and broke the 50 
percent barrier on July 22.\19\
---------------------------------------------------------------------------
    \18\ The website (in Korean) for the Korean Alliance Against the 
Kor-U.S. FTA is http://nofta.co.kr.
    \19\ Park Song-wu, ``Half of Koreans Oppose U.S.-SK FTA,'' Hankook 
Ilbo, July, 31, 2006. See also polls reported in Financial News, July 
23, 2006 and Hankyoreh, July 12, 2006, where over half of the 
respondents (N=1000) believed the costs of the proposed FTA would be 
larger than the benefits.
---------------------------------------------------------------------------
    The Roh Administration's desire to achieve an FTA with the U.S. 
combined with its dearth of popular approval appears to have led it to 
embrace certain authoritarian trends that have been prominent in South 
Korea's history. State-sponsored efforts to prevent the political 
expression of democratic thought has been a staple feature of South 
Korea since its inception in 1948, and the Roh Administration has taken 
up this legacy in both formal-legal and more openly confrontational 
ways. For instance, the state-run Korean Advertising Review Board 
rejected an ad submitted for approval by representatives of South 
Korean farmers and filmmakers because the ad included images of farmers 
expressing their opposition to the FTA. KARB reasoned that the farmers' 
beliefs were unfairly one-sided against the South Korean government, 
and thus could not be aired. On the other hand, a $3.8 million (US$) ad 
by President Roh's Committee to Support the Conclusion of the Korea-
U.S. FTA has aired daily in South Korea. The pro-FTA commercial was not 
reviewed by KARB on the basis that government beliefs need not be 
regulated.\20\ More explicitly, the Roh Administration has declared 
that it will cut off access to government subsidies for any 
organization that opposes the proposed FTA.\21\
---------------------------------------------------------------------------
    \20\ Bae Ji-sook, ``Dispute Arise(s) on Anti-FTA Advertisement, 
Korea Times, January 11, 2007.
    \21\ ``Anti-FTA Groups Denied State Subsidies,'' Korea Times, 
November 12, 2006.
---------------------------------------------------------------------------
    Consistent with South Korean history, there have also been a number 
of physical confrontations between sectors of civil society and the 
coercive authority of the state as embodied by police. Historically, 
these confrontations centered on the importance of political, economic, 
and social rights, and the recent clashes have been more of the same. 
Tensions have run especially high since a November 22, 2006 
confrontation between farmers and police during a protest against the 
FTA. The Roh government took the opportunity afforded by events of the 
day to outlaw all FTA-related public demonstrations.\22\ The resulting 
tactics of implementing this ban on public protest have been police 
deployment in the thousands and checkpoints set up on major roads 
leading to Seoul to prevent ordinary workers and farmers from 
exercising their freedom of assembly and travel.\23\ To stop the 
organizing of protests, the police issued summons and warrants for over 
170 social movement leaders, raided local offices of civic 
organizations, detained 19 leaders of farmers' and workers' 
organizations, and according to social movement leaders, even made 
threatening phone calls to potential participants of public 
rallies.\24\ South Korea's National Human Rights Commission has 
suggested that the Roh Administration tactics are inconsistent with the 
South Korean constitution, and urged that the anti-FTA rallies be 
allowed to take place.\25\ It is worthwhile to note that if the South 
Korean public believes that such an important negotiation with the U.S. 
was held largely without meaningful input from civil society, this 
failure to adhere to reasonable democratic standards has the potential 
to become a serious political liability for pro-FTA legislators in the 
upcoming 2007 elections.\26\ Thus, even legislators who intend to vote 
yes on any negotiated agreement are concerned about the increasing 
sense in South Korea that the Roh Administration has failed in a 
fundamental civic duty.
---------------------------------------------------------------------------
    \22\ ``Rights Commission Urges End to FTA Protest Ban,'' Chosun 
Ilbo, Dec. 6, 2006.
    \23\ ``Police counter anti-FTA protests,'' Korea Herald, December 
7, 2006.
    \24\ Shin Hae-In, ``Anti-FTA protesters defy police ban,'' Korea 
Herald, November 30, 2006.
    \25\ ``Rights Commission Urges End to FTA Protest Ban,'' Chosun 
Ilbo, Dec. 6, 2006.
    \26\ Hoon Jaung, ``2002 vs. 2006, The Rise and Fall of Anti-
Americanism in South Korea,'' Chung-Ang University.
---------------------------------------------------------------------------
    The passage of an FTA amidst widespread concerns about the failure 
of the democratic process in South Korea is also likely to enhance 
negative opinion toward the U.S. South Korea's historical alliance with 
the U.S. extends through the civilian dictatorship of Syngman Rhee and 
the military dictatorships of Park Chung Hee, and Chun Doo Hwan. Much 
of the South Korean population is undecided as to whether to see the 
U.S. government as a principled advocate for democracy in South Korea 
or willing to tolerate a lack of democracy so long as U.S. interests 
are protected. Differences in opinion are especially acute between 
older, more conservative South Koreans who lived through the Korean War 
and younger, more progressive South Koreans who increasingly dominate 
South Korean electoral politics. Should the U.S.-South Korea FTA be 
enacted after what ordinary South Koreans perceive to be a hasty 10-
month negotiation without appropriate and necessary democratic 
measures, its passage will give credence to South Koreans who argue 
that the U.S. government is willing to tolerate the failures of South 
Korean democracy so long as U.S. interests are served. It is worthwhile 
to note that despite significantly lower trade volume, South Korea's 
FTA with Chile took over three years to negotiate.
Conclusion
    The passage of the North American Free Trade Agreement (NAFTA) saw 
the loss of good jobs in the U.S. while workers in Mexico found 
themselves driven toward jobs with low wages and difficult working 
conditions, many of them in border towns or across the border. If NAFTA 
is any indication, passage of the proposed U.S.-South Korea FTA is 
likely to result in similar dynamics. South Korea would be the largest 
FTA partner for the U.S. in 15 years and there is little doubt that the 
proposed FTA will translate into a widening economic and social rift 
between the rich and the poor in both countries. On the American side, 
poised to profit are major corporate interests including pharmaceutical 
giants and agribusiness. On the South Korean side, the corporate 
conglomerations known as the chaebol, dominated by a handful of South 
Korean families, stand to gain the most. Losses in different South 
Korean sectors are likely to be framed as the result of an anti-
democratic process with an American partner more concerned about 
corporate interests than labor rights and benefits in both countries, 
willing to place corporate profit over the threat to South Korean 
democracy, and unconcerned about Korea's loss of its national heritage. 
The historical alliance between the U.S. and South Korea is likely to 
undergo further stress as anti-Americanism becomes tied not just to the 
Bush Administration policies in Iraq and toward North Korea, but also 
to the negative consequences of an FTA that will significantly change 
the landscape--both literally and figuratively--of South Korea. The 
U.S. needs to seriously consider whether an FTA with South Korea at 
this time is really in America's best interests, or if the FTA will end 
up spurring anti-Americanism in an important historical ally while 
making the lives of ordinary American and South Korean workers and 
families that much harder.

                                 
   Statement of Korean Alliance against Korea-U.S. FTA, Seoul, Korea
                    [by Permission of the Chairman]
    Greetings from the Korean Alliance against Korea-U.S. FTA (KOA), a 
coalition composed of over 300 trade unions, farmers' organizations and 
NGOs. As a representative of Korean people and civil society, we feel 
it is our duty to inform you of several concerns related to the Korea-
U.S. Free Trade Agreement, which are shared by a large section of the 
Korean population. This FTA will be the largest agreement of its kind 
since NAFTA and will have tremendous impact on the economy and society 
of both countries. We sincerely hope that you will consider these views 
seriously.
    First, we wish to take note of the undemocratic manner in which the 
FTA negotiations have been carried out, in particular the lack of 
effort on the part of the Roh Moo-hyun administration to solicit the 
opinions of stake-holders (interested parties) and the Korean public. 
One example of this is the fact that the administration planned only 
one public hearing related to the Korea-U.S. FTA, which was held just 
hours before the formal announcement of the opening of negotiations was 
made in Washington, D.C. on February 3 (in the middle of the night 
Korean time). The timing of the hearing attests to the fact that the 
decision to pursue an FTA had already been made without discussion with 
interested parties; the hearing itself was a pure formality and, as 
such an abuse of the presidential directive concerning the pursuit of 
free trade agreements, which require adequate hearings and discussion 
with the public beforehand.
    In addition, the Roh administration has moved forward with the 
negotiations process in a closed and secretive manner; information 
related to important points of contention and matters requiring the 
consent of the Korean people have not been made public. It is 
understandably not possible to make public all information related to 
the FTA. However, it can surely be said that information concerning 
issues that are of great public interest and which require 
understanding at all levels of society must be made transparent and 
that concerned persons must be sufficiently consulted. The Roh 
administration has not upheld either of these principles.
    Second, the Korea-U.S. FTA seriously endangers the Korean people's 
access to healthcare and pharmaceuticals. We believe that trade between 
the two countries can and must proceed fairly. However we are very 
concerned about the way in which the public system and policies of one 
country have come under discussion at the current negotiations. For 
example, the effectiveness of the positive list system, introduced last 
December as part of South Korea's new drug-pricing policy as a means to 
ensure the sustained development of national health insurance, is being 
severely minimized in the negotiations process. Guaranteeing people's 
access to necessary pharmaceuticals at an affordable price is a 
constitutional responsibility of the state and government. However, the 
Korea-U.S. FTA stands to undermine this ability and with it people's 
right to access, through provisions such as those that guarantee the 
minimum price for innovative drugs, extend patents, and call for the 
installation of an independent review board for drug pricing. We would 
like to emphasize that these measures are not consistent with the 
principle of promoting the mutual benefit of the people of both 
countries through the FTA.
    Third, we are concerned that the Korea-U.S. FTA will make the lives 
of Korean farmers and the sustained development of South Korea's 
farming communities much more difficult. When the South Korean market 
was first opened as a result of the WTO Uruguay Rounds, Korea's farmers 
suffered greatly. The situation has now reached the point that the 
future of Korean agriculture as whole is in question. Given the current 
conditions, we face the prospects of the disappearance of South Korean 
agriculture if our market is further opened through the Korea-U.S. FTA. 
Statistics show that if the Korea-U.S. FTA is concluded roughly half of 
Korean farmers will loose their livelihoods. Domestic agriculture is 
necessary for sustainable development and food security. For this 
reason countries around the world, including the United States, have 
agricultural subsidy policies. We would like to point out that in South 
Korea farming communities play the part of preserving our history, 
culture and the rural environment and ecosystems. Further, if these 
communities are destroyed, the resultant influx from the countryside to 
the cities will seriously exacerbate already increasing urban poverty, 
un--and underemployment. We must emphasize that the Korea-U.S. FTA is 
inviting the destruction of agriculture and agricultural life and with 
it, these social problems.
    Fourth, the Korea-U.S. FTA is predicted to violate the government's 
constitutional duty to protect public services and, therefore, public 
interest. The negotiators for both countries have stated that public 
services will not be included in the negotiations; however, at the 5th 
round of talks in Montana the U.S. side asked for the inclusion of 
energy design and maintenance, which could be included in a wide 
definition of public services. At the same time, in the area of 
education, the U.S. has also asked for the opening of the internet 
testing market, which has the potential to negatively impact Korea's 
public education system by increasing the necessity for students to 
seek private tutoring and after-school programs. We are concerned that 
in this way the FTA will lead to the overall devaluation of the public 
education system, ultimately undermining the right to equal education 
which it represents.
    Fifth, the Korea-U.S. FTA closely follows the NAFTA model, which 
has already shown to bring many problems to U.S. society. In 
particular, the ``investor-state claims clause,'' while on the one hand 
greatly expanding the authority of big business, has shown to greatly 
infringe on the government's power to protect public interest and labor 
and environmental standards. Therefore, this clause has met strong 
criticism from global civil society, including organizations in the 
United States. In fact, the U.S.-Australia FTA was concluded without 
the inclusion of this clause which we believe attests to its negative 
quality. However, the Korea-U.S. FTA includes the clause without any 
revisions.
    The investor-state claims clause goes against the government's 
ability to protect public interest. This is very significant for common 
Korean people. For example, real estate policy is an acute issue in 
Korea, especially now as real estate prices are soaring. The investor-
state claims clause lays the groundwork for a weakening of real estate 
policy because regulation policy, which designated areas for 
speculation, can become a target of claims; the result would be a great 
infringement on the people's rights to housing.
    Lastly, while you will see a separate testimony regarding this 
subject from the Korean Confederation of Trade Unions, which is our 
partner, we also cannot help but take note of the problem of the Roh 
administration's repression of labor. The Roh administration has not 
protected the right of public-sector workers, construction workers, and 
irregular workers to organize and collectively bargain. It forcibly 
closed the branch office of the Korean Government Employees' Union. In 
addition, last December, the Labor-Business Relations Road Map extended 
the ban on union pluralism at the enterprise level for an additional 
three years and expanded the scope of essential services against the 
ILO recommendations.
    As of January 2007, 62 union members were imprisoned for reasons 
related to labor union activities.
    We would like to point out that at the ILO Committee on Freedom of 
Association, South Korea ranked lower than Colombia in terms of 
countries which have not fulfilled this duty over a long period. This 
demonstrates how seriously the conditions of labor in South Korea fail 
to meet international standards.
    We hope the members of the Committee of Ways and Means Subcommittee 
on Trade will consider with all seriousness the concerns of the Korean 
people which are laid out above. We hope that this will cause you to 
reconsider whether the Korea-U.S. FTA does in fact present a desirable 
direction for the promotion of fair trade and economic relations 
between our two countries.

                                 
    Statement of Korean Confederation of Trade Unions, Seoul, Korea
                    [by Permission of the Chairman]
    On behalf of more than 15 million workers and their families in 
South Korea, we would here like to express our concerns about the 
Korea-U.S. FTA. Although there are a number of provisions within the 
agreement which are harmful to the workers in the United States, we 
focus here on the lack of legitimacy of the Roh Moo-hyun administration 
in representing the interest of South Korean workers in negotiating 
this agreement. The main impetus for this statement lies in the fact 
that the Roh administration has in the past and continues in the 
present to repress the rights of workers in South Korea.
    Although the current President Roh Moo Hyun was formerly a 
democratic labor lawyer, in the past four years of his administration, 
his policy has been to repress trade union rights. Despite rhetorical 
claims to advancing industrial relations and eliminating discrimination 
faced by South Korean workers, his administration has introduced 
several pieces of legislation that further erode the economic benefits 
that South Korean workers had briefly enjoyed after struggling for 
nearly two decades. Rather than reaping the benefits of their hard 
work, South Korean workers, like U.S. workers, are now faced with an 
uncertain economic future which is made more precarious by the 
introduction of several laws that restrict South Korean workers' right 
to a voice in the workplace.
    In the past, several members of the U.S. Congress have been staunch 
supporters of the struggle for democracy, human rights, and labor 
rights in South Korea. In fact Congress members have courageously and 
eloquently spoken against the labor rights violations committed by 
previous administrations, calling for the release of several trade 
unionists such as Kwon Young Gil, and Dan Byung Ho, two former 
Presidents of the KCTU and current members of the South Korean National 
Assembly. We ask you to continue in this tradition by once again 
supporting the rights of trade unionists in South Korea. We also urge 
you to go further by calling for the end of the negotiations of the 
Korea-U.S. Free Trade Agreement, in light of the failure of the current 
administration to ensure the basic fundamental rights of workers and 
their families. We believe this long and standing history of Congress 
members supporting trade union rights in South Korea will be endangered 
unless the negotiation of the agreement is halted.
    The policy of the Roh administration has created a situation in 
South Korea where workers face insecure futures and no longer have the 
right to political voice. We strongly believe this is sufficient 
justification for calling to an end to the Korea-U.S. Free Trade 
negotiations. Please note that workers in the United States share many 
of our concerns with the Korea-U.S. FTA. As you grapple with the burden 
of taking a position on this agreement, we ask you also to listen to 
the voices of workers in the United States.

                                 
             Statement of National Corn Growers Association
    The National Corn Growers Association (NCGA) is a national 
organization founded in 1957 and represents more than 32,000 members in 
48 states, 47 affiliated state organizations and more than 300,000 corn 
farmers who contribute to state checkoff programs for the purpose of 
creating new opportunities and markets for corn growers.
    NCGA commends the Administration for its interest in pursuing a 
Free Trade Agreement (FTA) with the Republic of Korea. Korea is one of 
the United States' larger corn markets, importing 5.58 million metric 
tons in marketing year 2005/2006. Additionally, it is an extremely 
important market for corn's value-added products, and NCGA is hopeful 
that negotiators from both countries can work together at this late 
date to provide an outcome that addresses the market access issues 
raised by our protein partners.
    Korea provides low duty access for corn through an autonomous 
tariff rate quota (TRQ) system with volume levels well in excess of its 
World Trade Organization (WTO) commitments. For 2007, South Korea set 
an in-quota temporary volume for feed corn at 8 million metric tons and 
2.15 million metric tons for industrial corn, compared to the 6.1 
million metric ton TRQ for corn that it committed to in the Uruguay 
Round of the WTO. The applied tariff on in-quota feed corn is zero; the 
applied tariff on in-quota industrial corn runs from one to two 
percent. Korea's WTO obligation for in-quota feed corn tariff rate is 
bound at 1.8 percent and the WTO bound rate for in-quota industrial 
corn is three percent. Over-quota corn is bound at 328 percent. As 
Korea maintains a TRQ in excess of its current commitments, we support 
an elimination of the tariff and quota.
    In 2006, Korea imported about 30,000 metric tons of distiller's 
dried grains (DDGS) mostly from the United States and China. While 
relatively small in volume, imports are growing and there is 
significant potential for increased use in feed rations. In 2007, it is 
estimated that imports of DDGS might reach up to 100,000 metric tons. 
Korea's WTO bound rate for DDGS is 6.6 percent, however, it applies a 
rate of 5 percent. NCGA estimates that U.S. DDGS production will reach 
over 30 million tons by Marketing Year 2010/2011. We support an 
elimination of the tariff.
    NCGA is also concerned about the impact of several proposed Korean 
regulations related to products derived from biotechnology could 
seriously inhibit trade. It is important that these issues be resolved 
before the negotiation is finalized to help ensure that U.S. food and 
agriculture industries can truly benefit from an FTA with Korea.
    Specifically, U.S. trade officials and Korean industry 
representatives have indicated that the Korean government is currently 
considering regulations to require that shipments of commodities 
derived from biotechnology be accompanied by documentation that states 
the shipment ``does contain'' a specific list of products by biotech 
event. The Korean government has indicated this language is necessary 
for compliance with the Biosafety Protocol (BSP). Such onerous 
documentation goes beyond BSP requirements for trade between parties 
and non-parties and is more trade restrictive than necessary. No other 
Party to the BSP requires this type of trait specific documentation.
    The United States should seek assurances from Korea that it will 
not impose requirements that will unnecessarily disrupt the trade of 
U.S. biotechnology agricultural and food exports. The United States 
should also insist that clear, written, interpretive guidance be issued 
to alleviate any uncertainty among exporters regarding the regulation.
    In addition to the proposed regulations, Korea continues to 
maintain mandatory ``GM food'' labeling requirements that are not based 
on health safety concerns. Mandatory, process-based labeling 
requirements that are not scientifically justified inhibit the ability 
of food producers and manufacturers to sell products produced from 
biotech crops. Existing requirements should be addressed and any effort 
to expand the scope of labeling regulations should be strongly opposed.
    Removing trade barriers between the U.S. and the Republic of Korea 
will create important new export opportunities for corn growers. We 
encourage the Administration to use the FTA negotiations as an 
opportunity to ensure that Korean regulations affecting food, feed and 
seed products derived from biotechnology are transparent, science-based 
and non-discriminatory. NCGA is hopeful that the U.S.-Korea FTA will 
provide an ambitious and comprehensive outcome for America's farmers, 
ranchers and processors.

                                 
              Statement of National Pork Producers Council
    The National Pork Producers Council is a national association 
representing 44 affiliated states that annually generate approximately 
$15 billion in farm gate sales. The U.S. pork industry supports an 
estimated 550,200 domestic jobs and generates more than $97.4 billion 
annually in total U.S. economic activity and contributes $34.5 billion 
to the U.S. gross national product.
    Pork is the world's meat of choice. Pork represents 40 percent of 
total world meat consumption. (Beef and poultry each represent less 
than 30 percent of global meat protein intake.) As the world moves from 
grain based diets to meat based diets, U.S. exports of safe, high-
quality and affordable pork will increase because economic and 
environmental factors dictate that pork be produced largely in grain 
surplus areas and, for the most part, imported in grain deficit areas. 
However, the extent of the increase in global pork trade--and the lower 
consumer prices in importing nations and the higher quality products 
associated with such trade--will depend substantially on continued 
agricultural trade liberalization.
PORK PRODUCERS ARE BENEFITING FROM PAST TRADE AGREEMENT
    In 2006, the United States exported 1,262,499 metric tons of pork 
valued at $2.864 billion. This is a 9 percent increase over 2005 
exports in volume terms and 8.7 percent in value terms. 2006 was 
the15th straight year of record pork exports. U.S. exports of pork and 
pork products have increased by more than 433 percent in volume terms 
and more than 401 percent in value terms since the implementation of 
the NAFTA in 1994 and the Uruguay Round Agreement in 1995.

[GRAPHIC] [TIFF OMITTED] T0312A.035

    The following 7 export markets in 2005 are all markets in which 
pork exports have soared because of recent trade agreements.
Mexico
    In 2006 U.S. pork exports to Mexico totaled 356,418 metric tons 
valued at $557,857 million. This is an increase of 8 percent in volume 
terms and 9 percent in value terms over pork exports to Mexico in 2005. 
Without the NAFTA, there is no way that U.S. exports of pork and pork 
products to Mexico could have reached such heights. In 2006, Mexico was 
the number one volume market and number two value market for U.S. pork 
exports. U.S. pork exports to Mexico have increased by 274 percent in 
volume terms and 398 percent in value terms since the implementation of 
the NAFTA growing from 1993 (the last year before the NAFTA was 
implemented), when exports to Mexico totaled 95,345 metric tons valued 
at $112 million.

[GRAPHIC] [TIFF OMITTED] T0312A.036

Japan
    Thanks to a bilateral agreement with Japan on pork that became part 
of the Uruguay Round, U.S. pork exports to Japan have soared. In 2006, 
U.S. pork exports to Japan reached 337,373 metric tons valued at just 
over $1 billion. Japan remains the top value foreign market for U.S. 
pork. U.S. pork exports to Japan have increased by 279 percent in 
volume terms and by 178 percent in value terms since the implementation 
of the Uruguay Round.

[GRAPHIC] [TIFF OMITTED] T0312A.037

Canada
    U.S. pork exports to Canada have increased by 1,933 percent in 
volume terms and by 2,689 percent in value terms since the 
implementation of the U.S.--Canada Free Trade Agreement in 1989. In 
2006 U.S. pork exports to Canada increased to 138,564 metric tons 
valued at $437 million--a 6 percent increase by volume and an 11 
percent increase by value over 2005 exports.

[GRAPHIC] [TIFF OMITTED] T0312A.038

China
    From 2005 to 2006, U.S. exports of pork and pork products to China 
increased 13 percent in volume terms, totaling 88,439 metric tons 
valued at $126 million. U.S. pork exports have exploded because of the 
increased access resulting from China's accession to the World Trade 
Organization. Since China implemented its WTO commitments on pork, U.S. 
pork exports have increased 53 percent in volume terms and 90 percent 
in value terms.

[GRAPHIC] [TIFF OMITTED] T0312A.039

Russia
    In 2006 U.S. exports of pork and pork products to Russia totaled 
82,677 metric tons valued at $164 million--a 105 percent increase in 
volume terms and 127 percent increase in value terms over 2005 exports. 
U.S. pork exports to Russia have increased largely due to U.S.-only 
pork quotas established by Russia as part of its preparation to join 
the World Trade Organization. The spike in U.S. pork export to Russia 
in the late 1990s was due to pork shipped as food aid.

[GRAPHIC] [TIFF OMITTED] T0312A.041

Taiwan
    In 2006, U.S. exports of pork and pork products to Taiwan totaled 
25,198 metric tons valued at $38 million. U.S. pork exports to Taiwan 
have grown sharply because of the increased access resulting from 
Taiwan's accession to the World Trade Organization. Since Taiwan 
implemented its WTO commitments on pork, U.S. pork exports have 
increased 99 percent in volume terms and 103 percent in value terms.

[GRAPHIC] [TIFF OMITTED] T0312A.042

Australia
    The U.S. pork industry did not gain access to Australia until 
recently, thanks to the U.S.--Australia FTA. U.S. pork exports to 
Australia exploded in 2005 making Australia one of the top export 
destinations for U.S. pork. Even with the disruption caused by a legal 
case over Australia's risk assessment of pork imports, U.S. pork 
exports to Australia in 2006 totaled $62 million--a 480 percent 
increase over 2004 exports.

    Australia graphic not available at the time of printing.
Benefits of Expanding U.S. Pork Exports
    Prices--The Center for Agriculture and Rural Development (CARD) at 
Iowa State University has calculated that in 2004, U.S. pork prices 
were $33.60 per head higher than they would have been in the absence of 
exports.
    Jobs--The USDA has reported that U.S. meat exports have generated 
200,000 additional jobs and that this number has increased by 20,000 to 
30,000 jobs per year as exports have grown.
    Income Multiplier--The USDA has reported that the income multiplier 
from meat exports is 54 percent greater than the income multiplier from 
bulk grain exports.
    Feed Grain and Soybean Industries--Each hog that is marketed in the 
United States consumes 12.82 bushels of corn and 183 pounds of soybean 
meal. With an annual commercial slaughter of 105.3 million animals in 
2006, this corresponds to 1.34 billion bushels of corn and 9.63 million 
tons of soybean meal. Approximately 16 percent of this production is 
exported, and these exports account for approximately 216 million 
bushels of corn and 1.54 million tons of soybean meal.
    However, as the benefits from the Uruguay Round and NAFTA begin to 
diminish because the agreements are now fully phased-in, the creation 
of new export opportunities becomes increasingly important.
Pork Producers Support the Proposed U.S.-Republic of Korea FTA
    The Republic of Korea is an important export market for U.S. pork 
producers. U.S. pork exports to Korea have increased as a result of 
concessions made by Korea in the Uruguay Round. In 2006 exports climbed 
to 109,198 metric tons valued at $232 million, an increase of 2,217 
percent by volume and 2,606 percent by value since implementation of 
the Uruguay Round. Exports to the Republic of Korea in 2006 grew 
aggressively over 2005 exports--52 percent increased in volume terms 
and a 50 percent increase in value terms. South Korea currently is the 
4th largest export market for U.S. pork.

[GRAPHIC] [TIFF OMITTED] T0312A.040


    The United States-Republic of Korea free trade negotiations 
provides U.S. pork producers the opportunity to significantly increase 
market access in the very lucrative Korean market. U.S. pork and pork 
products currently face significant tariffs in South Korea. For 
example, the current South Korean duty on bellies, a high demand pork 
product, is 25 percent.
    On April 1, 2004 the Korea--Chile Free Trade Agreement went into 
effect. As a result, Chile--a major pork exporter and competitor to the 
United States--will have duty free access to the Korean pork market by 
2014. In 2006, Chile exported 31,203 metric tons of pork valued at $77 
million to South Korea. This is an increase of 88 percent in volume 
terms and 148 percent in value terms over exports in 2003, the year 
before the Chile--South Korea FTA went into effect. U.S. pork is 
becoming increasingly disadvantaged as the tariff on Chilean pork is 
being reduced and will be significantly prejudiced unless there is an 
ambitious outcome in the U.S.-Korea free trade negotiations. Upon the 
implementation of a United States-Republic of Korea Free Trade 
Agreement, all tariffs on U.S. pork and pork products should 
immediately be zero.
    The Republic of Korea should agree in writing to maintain a 
transparent system for issuing import permits, to recognize the U.S. 
pork inspection system, and to accept pork from all USDA-approved 
facilities.
    Additionally, the Republic of Korea needs to show flexibility in 
the country of origin labeling demands it is making of the United 
States meat industry. The new South Korean country of origin labeling 
rules require U.S. exporters to include in all packaging material a 
country of origin label that includes the use of the term ``USA'' or 
``U.S.A.''. It would apply to all individually packaged products being 
exported to South Korea. South Korea has to this point insisted, for no 
justifiable reason, that it will not accept the ``bug'' that currently 
appears on many U.S. packaged meat products which says ``U.S. Inspected 
and Passed by Department of Agriculture'', as an acceptable indication 
of country of origin. If the new Korean labeling requirements for pork 
and beef from the United States are implemented unabated, it will raise 
the cost of doing business and present a bad precedent that could be 
copied by other trading partners.

                                 
            Statement of The Honorable William J. Jefferson
Jefferson statement not available at the time of printing.

                                 
     Statement of Walter B. McCormick, Jr., United States Telecom 
                              Association
    I am Walter McCormick, president and CEO of the United States 
Telecom Association (USTelecom). USTelecom represents innovative 
companies ranging from the smallest rural telecoms in the nation to 
some of the largest corporations in the U.S. economy. Our member 
companies offer a wide variety of services across the communications 
landscape, including voice, video and data over local exchange, long 
distance, Internet and cable networks.
    Like many others around the world, members of USTelecom are 
watching very closely the results of the discussions between the United 
States and Korea toward a Free Trade Agreement (FTA). As negotiations 
proceed, our member companies remain particularly concerned over the 
continued reluctance of the Korean government to take an important step 
to a fully liberalized telecommunications services market by removing 
the 49% cap on foreign direct investment in facilities-based 
telecommunications service providers.
    Korea is one of the world's most important markets for 
international telecommunications services. An FTA will increase 
investment and trade opportunities in electronic communications 
services including telecommunications. However, Korea's insistence on 
maintaining its 49% foreign direct investment limitation creates a very 
high barrier for foreign providers seeking to enter into this market. 
This ownership and licensing barrier creates an acute market 
inefficiency for U.S. telecom companies that have ownership interests 
in the multiple submarine cable systems that land in Korea.
    Our member companies have urged the Bush Administration to ask the 
Korean government to remove foreign direct investment restrictions 
applicable to facilities-based telecommunication service providers. 
Elimination of the foreign direct investment limitation would stimulate 
overseas investment in Korea, drive domestic growth in the 
telecommunications and key related sectors, and further the development 
of Korea's information society. It is also worth noting that other 
Asian economies, including Singapore, Hong Kong, and Japan, have 
removed all foreign investment restrictions in these services sectors, 
making Korea's foreign direct investment restriction inconsistent with 
the global trend of enhancing foreign direct investment in the 
telecommunications sector.
    We recognize and appreciate the efforts of the USTR in attempting 
to address the important issue of foreign direct investment and 
continue to support a commercially meaningful U.S.-Korea FTA. However, 
we believe permitting U.S. entities to have 100% investments as 
facilities-based telecommunications service providers is fundamental to 
the trade agreement with Korea.

                                  
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