[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
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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\
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\1\ World Bank, World Development Indicators Database.
\2\ OECD Indicators 2006.
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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.
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\3\ U.S. Bureau of Economic Analysis, Survey of Current Business,
October 2006.
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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.
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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\
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\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.
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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
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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.