[Senate Hearing 110-1193]
[From the U.S. Government Publishing Office]


                                                       S. Hrg. 110-1193
 
                IMBALANCE IN U.S.-KOREA AUTOMOBILE TRADE 

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

                                HEARING

                               before the

        SUBCOMMITTEE ON INTERSTATE COMMERCE, TRADE, AND TOURISM

                                 OF THE

                         COMMITTEE ON COMMERCE,
                      SCIENCE, AND TRANSPORTATION
                          UNITED STATES SENATE

                       ONE HUNDRED TENTH CONGRESS

                             SECOND SESSION

                               __________

                           SEPTEMBER 24, 2008

                               __________

    Printed for the use of the Committee on Commerce, Science, and 
                             Transportation

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       SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION

                       ONE HUNDRED TENTH CONGRESS

                             SECOND SESSION

                   DANIEL K. INOUYE, Hawaii, Chairman
JOHN D. ROCKEFELLER IV, West         KAY BAILEY HUTCHISON, Texas, 
    Virginia                             Ranking
JOHN F. KERRY, Massachusetts         TED STEVENS, Alaska
BYRON L. DORGAN, North Dakota        JOHN McCAIN, Arizona
BARBARA BOXER, California            OLYMPIA J. SNOWE, Maine
BILL NELSON, Florida                 GORDON H. SMITH, Oregon
MARIA CANTWELL, Washington           JOHN ENSIGN, Nevada
FRANK R. LAUTENBERG, New Jersey      JOHN E. SUNUNU, New Hampshire
MARK PRYOR, Arkansas                 JIM DeMINT, South Carolina
THOMAS R. CARPER, Delaware           DAVID VITTER, Louisiana
CLAIRE McCASKILL, Missouri           JOHN THUNE, South Dakota
AMY KLOBUCHAR, Minnesota             ROGER F. WICKER, Mississippi
   Margaret L. Cummisky, Democratic Staff Director and Chief Counsel
Lila Harper Helms, Democratic Deputy Staff Director and Policy Director
   Christine D. Kurth, Republican Staff Director and General Counsel
                  Paul Nagle, Republican Chief Counsel
                                 ------                                

        SUBCOMMITTEE ON INTERSTATE COMMERCE, TRADE, AND TOURISM

BYRON L. DORGAN, North Dakota,       JIM DeMINT, South Carolina, 
    Chairman                             Ranking
JOHN D. ROCKEFELLER IV, West         JOHN McCAIN, Arizona
    Virginia                         OLYMPIA J. SNOWE, Maine
JOHN F. KERRY, Massachusetts         GORDON H. SMITH, Oregon
BARBARA BOXER, California            JOHN ENSIGN, Nevada
MARIA CANTWELL, Washington           JOHN E. SUNUNU, New Hampshire
MARK PRYOR, Arkansas
CLAIRE McCASKILL, Missouri



                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on September 24, 2008...............................     1
Statement of Senator Dorgan......................................     1
Statement of Senator McCaskill...................................    48

                               Witnesses

Bozzella, John T., Vice President, External Affairs and Public 
  Policy (Americas), Chrysler LLC................................    16
    Prepared statement...........................................    18
Brilliant, Myron, President, U.S.-Korea Business Council; Vice 
  President, Asia, U.S. Chamber of Commerce; 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.............................................    35
    Prepared statement...........................................    38
Cassidy, Robert B., Director, International Trade and Services, 
  Kelley Drye Warren LLP.........................................     6
    Prepared statement...........................................     8
Gettelfinger, Ron, President, International Union, United 
  Automobile, Aerospace and Agricultural Implement Workers of 
  America (UAW)..................................................    11
    Prepared statement...........................................    13
McMillion, Dr. Charles W., President and Chief Economist, MBG 
  Information Services...........................................    25
    Prepared statement...........................................    26


                        IMBALANCE IN U.S.-KOREA 
                            AUTOMOBILE TRADE

                              ----------                              


                     WEDNESDAY, SEPTEMBER 24, 2008

                               U.S. Senate,
   Subcommittee on Interstate Commerce, Trade, and 
                                           Tourism,
        Committee on Commerce, Science, and Transportation,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 10 a.m. in 
room SR-253, Russell Senate Office Building, Hon. Byron L. 
Dorgan, Chairman of the Subcommittee, presiding.

          OPENING STATEMENT OF HON. BYRON L. DORGAN, 
                 U.S. SENATOR FROM NORTH DAKOTA

    Senator Dorgan. The hearing will come to order.
    This is a hearing of the Commerce Subcommittee on 
Interstate Commerce, Trade, and Tourism. The subject of today's 
hearing is the imbalance in U.S.-Korea automobile trade.
    I've called this hearing because the Senate may be asked, 
at some point soon, to approve a free trade agreement with 
Korea, and it appears to me that our trade negotiators have 
learned nothing from the failure of U.S. trade policy over the 
last several decades. This bilateral trade in automobiles 
between the United States and Korea, for me, is a case in 
point, and I wanted to have that discussion today with some 
folks who know about it.
    The number one product category that we trade with Korea, 
on a value basis, is automobiles. But, it is almost entirely a 
one-way trading relationship. In 2007--and I have some charts 
to show--in 2007, we bought over $8 billion worth of Korean 
automobiles. Korea, by contrast, produced--or, purchased, 
rather--very, very few American-made cars. There's a simple 
reason for this, and it is that the Korean government has done 
everything it can to prevent U.S. cars from being sold in the 
Korean market. Over time, the Korean government has done 
everything, from singling out purchasers of foreign-made cars 
with tax audits to declaring foreign-made cars unsafe. The 
result is that 98 percent of the cars on the roads in Korea are 
Korean-made.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Senator Dorgan. Imagine that. You can stand on a street 
corner, I am told, in Seoul, for an hour and not see a foreign-
made car drive by. Would that happen in Washington, D.C.? It's 
a modern metropolitan area of 23 million people in Seoul, 
Korea, the second-largest city in the world, and it's very 
difficult to spot a car that was not made in the country of 
Korea.
    In fact, the few foreign cars that are sold in Korea are 
typically purchased by expatriate businessmen and women who 
live in just a few areas of the city, and occasionally the 
Korean government will purchase a few U.S.-made cars, just to 
be able to say it's doing what it can. But, ordinary Koreans 
have largely gotten the message, and they don't buy foreign 
cars, don't dare buy foreign cars.
    This next chart shows our automobile trade balance with 
Korea last year, or, I should say, our automobile trade 
imbalance. The Koreans shipped 772,000 Korean-made cars to 
America, and we were able to ship 6,200 U.S.-made cars to 
Korea. This lopsided ratio translates directly into the loss of 
thousands of well-paying U.S. jobs, whether in Michigan, in 
Ohio, or other states around the Nation. This ratio has 
remained essentially unchanged for over a decade, and it's 
remarkable, because the U.S. has signed, not one, but two 
separate trade deals with Korea to open up the Korean auto 
market. The Koreans have simply failed to live up to their 
commitments.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Senator Dorgan. The most recent agreement negotiated with 
Korea on auto trade was signed in 1998, and I have a chart that 
shows the trading relationship with Korea after that agreement 
was signed.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Senator Dorgan. You'll see that, up through 1997, we had a 
positive trade relationship with Korea; in fact, a positive net 
trade balance with Korea. Since that time, since 1998, when we 
signed an agreement on automobile trade, our trade balance with 
Korea fell into the red and has been consistently in deficit 
since.
    Since the mid-1990s, we've had a small surplus, but in 1998 
the trade negotiators signed a deal to increase our access to 
the Korean market. No sooner had we signed the deal in 1998 
that our trade balance began to deteriorate, as you will see in 
this chart. We began to run huge trade deficits with Korea. The 
automobile trade imbalance represents 85 percent of those red 
lines.
    Now our trade negotiators want us to approve another trade 
agreement with Korea that they have negotiated. This agreement 
opens up our automobile market completely to the Koreans by 
eliminating the remaining 2-and-a-half-percent tariff on Korean 
cars, but it does not commit Korea to allowing a single 
additional U.S.-made automobile into the Korean market. 
Instead, it merely lowers the tariff rate on U.S. cars entering 
Korea. That assumes the Korean government is sincere about 
allowing U.S. cars into that country.
    This would be the third trade agreement trying to deal with 
automobiles, the first two having failed. Frankly, I've not 
seen a shred of evidence that the Korean government has changed 
its mind on this issue.
    U.S. automakers and autoworkers have pleaded with the U.S. 
Trade Representative to include specific market-access 
benchmarks in the agreement so that our tariffs on Korean cars 
would not be lowered until we were actually exporting more cars 
to Korea. We have a very low tariff, but it would not be 
lowered even further until we saw results from Korea. But, our 
trade negotiators scoffed at that idea.
    My own view is, this new trade agreement would be another 
heaping teaspoonful of the same flawed trade policies that have 
brought us to where we are in automobile trade. This Korean 
trade deal is, in my judgment, not going anywhere, as long as 
that remains the case.
    I do want to make one additional comment before I introduce 
the witnesses. I have spoken at length, both in this Committee 
and on the floor of the Senate, about the issue of bilateral 
automobile trade with China, which is not yet reaching the area 
of automobile trade with Korea. But, in our bilateral agreement 
with China, our country signed an agreement that said it will 
be all right, after a phase-in, for our country to impose a 
2\1/2\ percent tariff on Chinese cars being shipped into the 
United States, and it will be all right for the Chinese to 
impose a 25 percent tariff--ten times higher--on U.S. cars that 
would be sold in China.
    The Chinese are ramping up a very large and aggressive 
effort to be a major exporter of automobiles, including to the 
U.S. market. Don't know exactly when that's going to happen--a 
year, 2 or 3 years--but it will happen. And when it happens, we 
will have signed up to a bilateral agreement China, with whom 
we have a large--very large trade deficit--last month, I 
believe it was $23 billion, in a month--we will have signed up 
to a trade agreement with China that said, ``You go ahead and 
impose a tariff that is ten times higher than our tariff on 
bilateral automobile trade.'' I think that is almost 
unbelievably ignorant of our country's own economic interests.
    I don't believe we should put up walls around our country. 
I don't believe that we should be protectionists for the sake 
of being called protectionists. But, I do believe that trade in 
this country, as we negotiate it with other countries, ought to 
be mindful of our own economic interests. Trade that produces 
giant, relentless deficits, year after year after year, as has 
been the case, now in the $600 billion and $700 billion and 
$800 billion-a-year area, inevitably will weaken this country's 
currency, inevitably will be repaid with a lower standard of 
living in the United States. And if this country does not wake 
up, and policymakers do not wake up at some point and decide 
that we must have some basic balance in our trade 
relationships, and decide that trade agreements must be 
negotiated in a manner that is competent rather than 
incompetent, ultimately this American economy will pay a very 
large price.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Senator Dorgan. We're starting to see some of that, even 
now, on Monday of this week, with respect to what has happened 
to the value of the dollar and the electronic herd that runs 
after a currency they believe that is representative of a weak 
economy.
    So, I have invited a number of people to testify about this 
subject: Robert Cassidy served as Deputy U.S. Trade 
Representative under the Clinton administration and led 
negotiations with China on market access to that country prior 
to China gaining permanent normal trade relations. Mr. Cassidy 
recently wrote an editorial warning that some critical flaws in 
our trade policy with China were about to be repeated with 
Korea.
    Mr. Ron Gettelfinger is the President of the United 
Autoworkers, which represents 640,000 active members and has 
more than 800 local unions. I'm pleased to welcome him back 
before the Committee.
    Mr. Gettelfinger, welcome.
    Mr. John Bozzella is Vice President for External Affairs 
and Public Policy at Chrysler Corporation. I look forward to 
his testimony. And I know that Ford Corporation has been vocal 
in expressing concerns about the Korean trade deal, and I'm 
interested in hearing Chrysler's views today.
    Charles McMillion has testified before this Committee 
before. We welcome him back. He's President of MBG Information 
Services, a business information analysis and forecasting firm 
based in Washington, D.C. Mr. McMillion is the former Associate 
Director of the Johns Hopkins University Policy Institute and 
has held Staff Director and Chief Economist positions in both 
the U.S. Senate and the U.S. House.
    And finally, Mr. Myron Brilliant, who is the President of 
the U.S.-Korea Business Council and a Vice President for the 
Asia Division of the U.S. Chamber of Commerce.
    I want to thank all of the witnesses for appearing today, 
and look forward to their testimony.
    And, Mr. Cassidy, I will call on you first.
    Let me say that your full statements will be a part of the 
permanent record of this Subcommittee, and we would ask all of 
you to summarize.
    Mr. Cassidy?

           STATEMENT OF ROBERT B. CASSIDY, DIRECTOR,

               INTERNATIONAL TRADE AND SERVICES,

                     KELLEY DRYE WARREN LLP

    Mr. Cassidy. Thank you, Senator. Thank you for this 
opportunity to speak before the Subcommittee on the imbalances 
in U.S.-Korea automotive trade.
    Let me start by saying that these comments are my own and 
do not necessarily reflect the views of the firm that I work 
with, Kelley Drye Warren LLP, or any of its clients.
    Sir, after 15 years of experience in negotiating trade 
agreements with USTR--and, I might add, one of those agreements 
was the first agreement on automotive trade with Korea, and 
then the second one that you mentioned is the 1999 market 
access agreement with China--I have reluctantly come to the 
view that we have failed to address the underlying fundamental 
market distortions that skew the benefits toward a few, while 
leaving behind the rest of the economy.
    China's agreement to enter the WTO is a perfect example. In 
order to join the WTO, China made unilateral concessions to 
reduce, and, in some cases, eliminate, barriers to the entry of 
U.S. goods and services. While U.S. exports to China may have 
grown faster than to any other country, it did so only because 
it grew from a very low number. In fact, we exported 70 percent 
more, in absolute terms, to the EU and 40 percent more to 
Canada than we exported to China, and neither of those 
countries made any concessions to the United States in that 
time.
    On the import side, the United States made no concessions 
to China, yet U.S. imports from China in 2007 were more than 
triple the pre-accession levels, to $322 billion in 2007, 
almost matching the imports from the entire European Union. In 
contrast, increases in imports--that's the increases in imports 
from Canada, our largest trading partner--rose by only $82 
billion, and imports from the EU increased by $134 billion. 
Clearly, we did not expect these results.
    The beneficiaries of the agreement with China fall into two 
groups: multinational companies that moved to China and the 
financial institutions that financed those investments, 
financed those trade flows, and financed those deficits. 
Sourcing by U.S. companies from China, whether through direct 
investment or through licensing arrangements, have allowed 
companies to cut costs and increase profits, as reflected, 
until recently, in increased corporate profits and the surge in 
the U.S. stock market.
    Conversely, it is doubtful that the U.S. economy or its 
workers are better off. U.S. manufacturing jobs declined by 2.5 
million after China joined the WTO in 2001. While services jobs 
increased during this time, with the exception of the 
telecommunications sector, nontradeable jobs accounted for the 
most significant portion of that increase. Wages have been 
stagnant, and real disposable income for three-quarters of U.S. 
households has been stable or declining. Only the top quartile 
of families have seen significant increases in real disposable 
income.
    I realize there are many factors involved, but certainly my 
conclusion is, we're not seeing the expected results from such 
a major trade agreement.
    Let me emphasis that the free trade model does have a valid 
theoretical basis, but the premise and the promises are flawed, 
because trade does not exist in a free market petri dish, where 
there are no barriers to competition.
    Using China as an example, once again, proponents of the 
free trade model argue that China has a competitive advantage 
in wage rates that make it ideal as a global manufacturing 
center that it has become. A closer examination, however, 
reveals that China has adopted an export-led development 
strategy, the centerpiece of which is an undervalued currency, 
of about 30 to 40 percent undervalued at the present time. 
Thus, China's wages, in U.S. dollar terms, are 30 to 40 percent 
cheaper than they would have been if the currency were allowed 
to freely float. Chinese exports receive a 30 to 40 percent 
subsidy. Foreign investors receive a 30 to 40 percent subsidy 
to develop operations in China. To add insult to injury, our 
exports are taxed at an effective 30 to 40 percent rate.
    U.S.-Korea FTA is another perfect example of why such 
agreements tend to fail to live up to their expectations. 
First, Korea, as does China, uses an undervalued exchange rate 
to maintain its competitive position in the U.S. market and in 
third-country markets. Six months prior to the initiation of 
negotiations on the FTA, during the pre-negotiation stage, 
Korea began to appreciate the Korean won by almost 15 percent, 
until it reached its peak, just prior to the conclusion of the 
negotiations. Three months later, the currency depreciated, 
until it is now, once again, at the initial exchange rate.
    Korea's exchange-rate movement indicate how Korea is likely 
to manage its exchange rate to achieve maximum commercial 
advantage, effectively subsidizing its exports and taxing 
imports through its exchange rate.
    Second, after years of observing and negotiating with Korea 
over a wide range of products and services, I have learned that 
Korea uses non-tariff barriers, particularly standards, as a 
means of providing advantage to its domestic producers.
    Third, in the case of automobiles, Korea tax authorities 
have been known to harass purchasers in Korea of foreign 
automobiles, as you mentioned, through tax audits, and that's 
an allegation that's been substantiated by the Europeans and 
other North American producers. This harassment has discouraged 
Koreans from purchasing foreign-made automobiles, in addition 
to other products.
    Fourth, Korean population is biased against purchasing 
foreign-made products.
    Simply put, none of these issues are addressed adequately, 
or, in some cases, at all, in the bilateral FTA. And 
furthermore, the dispute settlement mechanism for automobile 
trade is deficient. Although there is a special provision that 
deals only with automotive trade, it deals with automobiles 
under Harmonized System (HS) number 8703. However, the 
bilateral exchange of benefits in the agreement for this sector 
relate to automotive trade for the United States, while 
granting greater access for Korean trucks in the United States. 
So, it's an automobile-for-truck deal.
    But, by limiting retaliation in that special provision to 
automobiles, it effectively eliminates any incentive for Korea 
to give special access, or real access, to the United States-
produced automobiles.
    In conclusion, until the FTAs and other trade agreements 
address the specific distortions to trade that occur through 
currency undervaluation and practices that impede competition, 
the imbalances in automotive trade between the United States 
and Korea will only increase.
    Thank you, sir.
    [The prepared statement of Mr. Cassidy follows:]

Prepared Statement of Robert B. Cassidy, Director, International Trade 
                  and Services, Kelley Drye Warren LLP
    Thank you for the opportunity to testify before this Subcommittee 
on the U.S.-Korea Free Trade Agreement (FTA). In examining the issues 
relating to the imbalance in U.S.-Korea automobile trade, I would like 
to approach that assessment from a different perspective, first, by 
examining why the trade agreements that we have negotiated have often 
failed to live up to the expectations of those of us who negotiated 
those agreements; second, how those negotiating failures relate to the 
U.S.-South Korea FTA and its impact on the imbalance in U.S.-Korea 
automobile trade. Let me emphasize at the beginning that these comments 
are my own and do not necessarily reflect the views of Kelley Drye 
Warren LLP or its clients.
    By way of background, most of my 30-year career of service for the 
U.S. Government has been directly involved with U.S. international 
trade and finance. My most recent experience involved 15 years with the 
Office of the U.S. Trade Representative (USTR), under both Republican 
and Democratic administrations, negotiating sectoral agreements on 
steel, shipbuilding, transportation vehicles, and intellectual property 
rights, as well as bilateral agreements with the EU, South Korea, 
Taiwan, Thailand, and the Philippines, and also plurilateral agreements 
mostly among Asian countries. My most recent experience was as chief 
negotiator for the U.S.-China Market Access Agreement of 1999 which was 
the basis for China's later accession to the World Trade Organization 
(WTO). I mention this experience only because my views derive not from 
exhaustive academic research, which of course is valuable, but from 
years of negotiating--in the trenches, so to speak--on behalf of 
perceived U.S. economic interests.
    Since retiring from government service, I have had some time to 
reflect on the negotiating accomplishments of the past and have 
concluded that the agreements that we negotiated did not live up to our 
expectations. We failed to address the underlying fundamental market 
distortions that skew the benefits toward the few while leaving behind 
the rest of the U.S. economy. As George Soros, in a Bloomberg News 
interview on the financial crisis, recently said, ``. . . the system, 
as it currently operates, is built on false premises.'' The premise on 
which our trade agreements are negotiated is at best flawed, if not 
broken.
Failed Expectations
    China's agreement to enter the WTO is a perfect example of failed 
expectations. In order to join the WTO, China made unilateral 
concessions to reduce and, in some cases, eliminate barriers to entry 
for U.S. goods and services. While no one claimed that the bilateral 
deficit would be reduced, claims were made that U.S. exports of goods 
to China would increase, thus creating jobs in the higher-paying export 
sector.
    U.S. exports to China have increased and, as USTR often emphasizes, 
at a higher rate than to any other country. But such claims distort the 
real truth that exports grew faster because they grew from a very low 
level. In absolute terms, the increase in U.S. exports of goods to the 
EU was almost 70 percent greater than the increase in exports of goods 
to China, and the increase in U.S. exports to Canada was 40 percent 
more than to China. Neither of those trading partners made any trade 
concessions to the United States during this period.
    Conversely, on the U.S. import side, the United States made no 
concessions to China, yet U.S. imports from China in 2007 were more 
than triple the pre-accession levels, to $321 billion in 2007, almost 
matching imports from the entire European Union. In contrast, increases 
in imports from Canada, our largest trading partner, rose by $82 
billion, and imports from the EU increased by $134 billion.
Who Benefits?
    The beneficiaries of the agreement with China fall into two groups: 
multinational companies that moved to China, and the financial 
institutions that financed those investments, trade flows, and 
deficits. Foreign direct investment (FDI) in China accelerated at a 
time when such investment to other parts of Asia was declining and, in 
2001, even matched FDI to the United States. Sourcing by U.S. companies 
from China, whether from direct investment or through licensing 
arrangements, has allowed companies to cut costs and increase profits, 
as reflected, until recently, in increased corporate profits and the 
surge in the U.S. stock market.
    Conversely, it is doubtful that the U.S. economy or its workers are 
better off. U.S. manufacturing jobs declined by more than 2.5 million 
after China joined the WTO in December 2001. While services jobs 
increased during this period, with the exception of telecommunications, 
non-tradable jobs accounted for the most significant portion of that 
increase. Wages have been stagnant, and real disposable income for 
three-quarters of U.S. households has been stable or declining. Only 
the top quartile of families has seen significant increases in real 
disposable income.
    The beneficiaries of these trade agreements try to divert attention 
from these facts by arguing that our trade in services has increased or 
that our competitiveness has declined. Those arguments, however, don't 
explain why our exports of goods to countries that made no concessions 
increased more than our exports to China, which made significant tariff 
and non-tariff concessions. Such arguments also fail to explain why our 
imports of goods from China increased more than our imports from other 
major trading partners. Is there any wonder that the people on Main 
Street think that trade agreements do not work?
Broken Premises
    Were this simply a problem with our bilateral trade relationship 
with China, policymakers could focus on resolving that dysfunctional 
relationship. However, the problem extends to nearly all trade 
agreements since they are based on the flawed premise that free trade 
benefits the economy. Let me be clear, the ``free trade'' model has a 
valid theoretical basis. But the premise is flawed and broken since 
free trade does not exist in a ``free market'' Petri dish where there 
are no barriers to competition.
    Using China as an example once again, proponents of the free trade 
model argue that China has a competitive advantage in wage rates that 
makes it ideal as the global manufacturing center that it has become. A 
closer examination, however, reveals that China has adopted an export-
led development strategy, the centerpiece of which is a currency that 
is undervalued by 20-80 percent, with the consensus leaning toward 30-
40 percent at the present time. Using this consensus estimate, China's 
wages, in U.S. dollar terms, are 30-40 percent cheaper than they would 
have been if the currency were allowed to freely float. Chinese exports 
receive a 30-40 percent subsidy. Similarly, foreign investors receive a 
30-40 percent subsidy to develop operations in China. To add insult to 
injury, our exports are taxed at an additional effective 30-40 percent 
rate.
    While China has allowed its currency to appreciate somewhat 
nominally against the U.S. dollar since July 2005, China has a long way 
to go to bring it to equilibrium levels. In addition, China's internal 
barriers to trade not only restrict U.S. exports, but also restrict 
China's market for Chinese domestic producers, thus reducing the size 
of the domestic economy. It is not surprising that, until the last few 
months, our imports from China continued to accelerate, jobs continued 
to move overseas, and our exports to China consisted primarily of raw 
materials. The weakened U.S. dollar has only recently had a positive 
impact on U.S. exports. Europe, Canada, and other countries with freely 
floating exchange rates face comparable trends in their trade 
relationships with China.
Implications for the U.S.-Korea Free Trade Agreement
    The implications for FTAs are obvious. While FTAs with small 
economies have relatively small impact on the U.S. economy, the same 
cannot be said for FTAs with the larger economies such as Canada, 
Mexico, and now Korea. Our FTAs are based on the premise that free 
trade benefits all economies, at all times, and in all circumstances. 
The argument is similar to Adam Smith's premise that perfect 
competition results in the most efficient allocation of resources. 
Unfortunately, free trade, like perfect competition, rarely if ever 
exists but that premise nevertheless remains the theoretical and 
philosophical underpinning of FTAs. Furthermore, anyone who argues 
against free trade and especially those who vote against Free Trade 
Agreements are castigated as know-nothings or, worse yet, as 
``protectionists.''
    Advocates of FTAs argue that these model agreements level the 
playing field so that U.S. companies, and U.S. workers, can compete in 
markets free of distortions. The U.S.-Korea FTA is a perfect example of 
why such agreements fail to live up to their expectations. First, 
Korea, as does China, uses an undervalued exchange rate to maintain its 
competitive position in the U.S. market and in third country markets. 
Six months prior to the initiation of negotiations on an FTA, during 
the pre-negotiations stage, Korea began to appreciate the Korean won by 
almost 15 percent until it reached its peak just prior to the 
conclusion of the negotiations. Three months later, the currency 
depreciated until it was once again at the initial exchange rate. Even 
to the unpracticed eye, Korea's exchange rate movements have been 
convenient in the extreme and indicate how Korea is likely to manage 
its exchange rate to achieve maximum commercial advantage. Whether 
intended as a means to gain an unfair competitive advantage or not, 
Korea's undervalued exchange rate subsidizes its exports, subsidizes 
foreign direct investment, and taxes foreign imports into Korea.
    Second, after years of observing and negotiating with Korea over a 
wide range of products and services, I have learned that Korea uses 
non-tariff barriers, particularly standards, as a means of providing an 
advantage to its domestic producers. Because the Korean market is 
relatively small, foreign suppliers are at a disadvantage. As a share 
of their sales, the Korean market is not large enough to justify 
meeting those extraordinary standards requirements and, when standards 
are met, the cost per unit is high. When taxes are added to the 
product, those taxes are applied to the full cost of the product, thus 
increasing the absolute price disparity between products. U.S. 
companies, and thus their workers, must absorb much of those increases 
through lower profit margins and stagnant wages.
    Third, in the case of automobiles, Korean tax authorities have been 
known to harass purchasers in Korea of foreign automobiles, a practice 
which has been substantiated by European and North American producers. 
This harassment has discouraged Koreans from purchasing foreign-made 
automobiles in addition to other products. The impact on automotive 
trade is more extreme because of the visibility of those products.
    Fourth, the Korean population has a bias against purchasing 
foreign-made products. While this is probably true in many countries, 
the impact on some products, particularly automobiles, is much larger 
than one would expect.
    This list is incomplete and, to be fair, Korea could likely draw a 
list of obstacles to trade in the United States, such as inconsistent 
state regulations governing many services. But because the U.S. markets 
are so much larger, Korean suppliers can adjust to meet those increased 
costs and can do so profitably. With the exception of exchange-rate 
manipulation, it is difficult to assess the adverse economic impacts of 
many of these measures unless they are evaluated on a product-specific 
basis. Nevertheless, cumulatively these barriers, if allowed to exist 
in a bilateral FTA, can have significant effects on whether the 
benefits of an FTA are realized.
Whither the Future of the U.S.-Korea FTA
    The dilemma facing Congress is whether the deficiencies of the 
agreement are serious enough to warrant disapproval and renegotiation. 
For the record, I support the negotiation of bilateral Free Trade 
Agreements, especially those that push the envelope for more open, 
transparent and global markets. But I am concerned that this agreement 
with such a large and important bilateral trading partner will set a 
dangerous precedent because it does not address in any meaningful ways 
the distortions to trade that result from currency depreciation and 
non-tariff barriers such as standards. Equally important, the agreement 
as negotiated incorporates seemingly product specific provisions for 
automobile trade that really do nothing to address the longstanding 
dispute the United States has had with South Korea in this sector.
    The dispute settlement mechanism for automobile trade is deficient 
on a number of levels. First, the provision deals only with trade in 
automobiles (HS 8703). The bilateral exchange of benefits in the 
agreement for this sector relate to automotive trade for the United 
States while granting greater access for Korean trucks in the United 
States. By limiting the retaliation in that special provision to 
automobiles, it effectively eliminates any incentives for Korea to give 
real access to U.S. produced automobiles. A more effective mechanism 
would provide for a snap-back in truck tariffs if Korea nullifies or 
impairs U.S. access to Korea's automobile market because of exchange 
rate undervaluation, commercially restrictive standards or through 
other coercive measures such as tax harassment.
    A second, though less serious problem, relates to the term of 
retaliation. The provision requires that retaliation cease when the 
other party eliminates the non-conforming measure. In my experience, 
Korea frequently reaches agreements but does not implement those 
measures at all or does not implement them as expected. Consequently, 
retaliation should only be reversed once the dispute settlement panel 
can be assured that the non-conforming measure has been eliminated.
Conclusion
    The decision on whether to approve this agreement in its current 
form or whether to send it back for renegotiation now rests with the 
Congress. But until these FTAs and other trade agreements address the 
specific distortions to trade that occur through currency 
undervaluation and practices that impede competition, trade agreement 
rarely will deliver the results that Main Street expects and deserves.

    Senator Dorgan. Mr. Cassidy, thank you very much. We 
appreciate your testimony.
    Next, we will hear from Mr. Ron Gettelfinger, who is the 
President of the United Autoworkers.
    Mr. Gettelfinger, thank you for returning to the Committee.

           STATEMENT OF RON GETTELFINGER, PRESIDENT,

       INTERNATIONAL UNION, UNITED AUTOMOBILE, AEROSPACE

      AND AGRICULTURAL IMPLEMENT WORKERS OF AMERICA (UAW)

    Mr. Gettelfinger. Thank you, Mr. Chairman.
    My name is Ron Gettelfinger, and I am President of the UAW, 
and the UAW very much appreciates the opportunity to testify 
before your Subcommittee on the subject of the imbalance in 
U.S.-Korean automobile trade.
    The statistics on auto exports and imports in 2007 vividly 
demonstrate how lopsided and unfair the auto trade situation is 
between the United States and Korea. In 2007, Korea exported, 
as you pointed out, somewhere in the neighborhood of 668,000 
vehicles to the U.S., but U.S. producers were only allowed to 
export 6,500 vehicles to Korea. The net result was a $10.3 
billion U.S. automotive trade deficit with Korea.
    Historically, Korea has kept its market almost completely 
closed to U.S.-built automotive products, as well as products 
from other nations. This has been accomplished through a 
combination of tariff and nontariff barriers. At the same time, 
the U.S. market has been largely open to imports of Korean 
vehicles and auto parts. As a result, Korean imports have 
grown, and the U.S. auto trade deficit with Korea has risen 
dramatically.
    In 1995 and 1998, the U.S. negotiated the Memorandum of 
Understandings with Korea that were intended to eliminate 
Korea's barriers to competitive automotive imports. Despite 
these agreements, Korea continued to maintain a variety of 
nontariff barriers that kept its market closed to U.S.-built 
automotive products. As a result, the U.S. automotive trade 
deficit with Korea soared from $1.3 billion in 1994 to the 
$10.3 billion in 2007.
    Unfortunately, the auto provisions in the proposed U.S.-
Korea Free Trade Agreement negotiated by the Bush 
administration are deeply flawed and would exacerbate the 
imbalance in auto trade between the U.S. and Korea. They would 
immediately eliminate the 2.5 percent U.S. tariff on the vast 
majority of auto and auto imports from Korea. In addition, they 
would phase-out our 25 percent tariff on imports of pickup 
trucks. These provisions would trigger a surge in automotive 
imports from Korea.
    But, this trade deal would allow Korea to maintain a series 
of nontariff barriers that have effectively kept its market 
closed to imports of U.S.-built vehicles and parts.
    The United States would not have any effective remedies to 
challenge a continuation of these Korean trade barriers. As a 
result, KORUS FTA would inevitably lead to an increase in the 
enormous unfair automotive imbalance between the U.S. and 
Korea. This would threaten the jobs of tens of thousands of 
American workers, exacerbating the already serious difficulties 
facing the U.S. auto industry and its workers and retirees.
    For these reasons, the UAW strongly opposes the Korean FTA. 
The UAW's analysis of the impact of the KORUS FTA is supported 
by the International Trade Commission and statements by the 
Korean government. In September of 2007, the ITC released a 
report which concluded that this trade deal would increase the 
annual U.S. trade deficit with Korea by $1-$1.3 billion. It 
found that the KORUS FTA would trigger a surge in automotive 
imports from Korea with little offsetting increase in U.S. auto 
exports. In addition, shortly after the proposed trade 
agreement was announced, the Korean government stated that it 
expected the trade deal to boost Korea's auto trade surplus by 
roughly $1 billion annually. The chief negotiator for Korea 
also stated that Korean manufacturers would probably be 
shipping pickups to the United States in 5 years to take 
advantage of the phase-out of the 25 percent tariff on imported 
light trucks.
    In response to these dismal analyses, the Bush 
administration has continued to extol the virtues of the auto 
provisions in the KORUS FTA. However, the truth is, the KORUS 
FTA does not guarantee that Korea will have to eliminate all of 
its nontariff barriers. It still allows Korea to continue an 
array of taxes that discriminate against U.S.-built vehicles 
with larger engine sizes. It also allows Korea to continue the 
practice of arbitrarily placing imported vehicles in high-risk 
insurance classifications, and it allows Korea to continue to 
use safety emissions and other technical standards as a tool to 
discriminate against imported automotive products instead of 
having to accept U.S. or international standards. Most 
importantly, there is absolutely nothing in this trade deal to 
prevent Korea, as it has in the past, from coming up with new 
nontariff barriers to keep its market closed to U.S.-built 
automotive products.
    The Bush Administration also has touted the dispute 
resolutions provision in the KORUS FTA as containing an 
innovative process for settling disputes on auto-related 
measures. However, these provisions cannot provide any 
effective relief. The automotive working group has no 
enforcement powers to address any nontariff barriers. 
Furthermore, it would be extremely difficult for the United 
States to prevail in any case under this new dispute resolution 
procedure. And, even if an arbitration panel were to rule in 
favor of the U.S., the only relief that is provided is that the 
U.S. would be allowed to reinstate our former 2.5 percent 
tariff on autos. However, this snap-back provision does not 
apply to the 25 percent pickup truck tariff; thus, the remedy 
provided by the tariff snap-back is largely toothless, since it 
does not apply to the most important U.S. tariff concessions.
    In conclusion, the UAW appreciates the opportunity to 
testify before this Subcommittee on the imbalance in the U.S.-
Korea automobile trade. UAW calls on Congress to reject the 
KORUS FTA until its auto provisions are renegotiated and 
replaced with measures that will require Korea to dismantle its 
nontariff barriers to U.S.-built automotive products before it 
is granted any additional access to our market.
    Thank you.
    [The prepared statement of Mr. Gettelfinger follows:]

Prepared Statement of Ron Gettelfinger, President, International Union, 
  United Automobile, Aerospace and Agricultural Implement Workers of 
                             America (UAW)
    Mr. Chairman. My name is Ron Gettelfinger. I am President of the 
International Union, United Automobile, Aerospace and Agricultural 
Implement Workers of America (UAW). The UAW represents one million 
active and retired members, many of whom work or receive retirement 
benefits from auto manufacturers and parts suppliers throughout the 
United States. We appreciate the opportunity to testify before this 
Subcommittee on the subject of the imbalance in U.S.-Korea automobile 
trade.
    Korea is the fifth largest producer and fourth largest exporter of 
motor vehicles in the world. In 2007, Korea produced 4.1 million motor 
vehicles. The top three Korean producers were Hyundai, GM-Daewoo, and 
Kia. Korea exported 2.8 million motor vehicles to the rest of the 
world.
    In 2007, imports of Korean automotive products into the U.S. were 
valued at $11.3 billion, while U.S. exports of similar products to 
Korea amounted to just $1.0 billion. The net result was a $10.3 billion 
U.S. automotive trade deficit with Korea.
    Primarily due to the decline in the value of the U.S. dollar, our 
overall trade deficit with Korea decreased 18 percent (to $5.97 
billion) though the first 6 months of 2008. However, over the same 
period, the U.S. deficit with Korea in automotive products increased 
2.4 percent (to $5.86 billion). Thus, the deficit in automotive 
products now accounts for 98 percent of our overall trade deficit with 
Korea.
    The statistics on auto exports and imports in 2007 vividly 
demonstrate how lopsided and unfair the auto trade situation is between 
the United States and Korea. In 2007, Korea exported 668,000 vehicles 
to the United States. But U.S. producers were only allowed to export 
6,500 vehicles to Korea.
    Historically, Korea has kept its market almost completely closed to 
U.S. built automotive products, as well as products from other nations. 
This has been accomplished through a combination of tariff and non-
tariff barriers. Indeed, Korea's market has the lowest level of import 
penetration of any major automotive producing economy in the world. 
Imported cars made up just 4.3 percent of the overall Korean auto 
market in 2007. A total of only 27,985 cars were imported into Korea 
from all other countries.
    At the same time, the U.S. market has been largely open to imports 
of Korean vehicles and auto parts. As a result, Korean imports have 
grown, and the U.S. auto trade deficit with Korea has risen 
dramatically.
    In 1995 and 1998, the U.S. negotiated Memoranda of Understanding 
(MOUs) with Korea that were intended to eliminate Korea's barriers to 
competitive automotive imports. Despite these agreements, Korea 
continued to maintain a variety of non-tariff barriers that kept its 
market closed to U.S. built automotive products. As a result, the U.S. 
automotive trade deficit with Korea soared from $1.3 billion in 1994 to 
$10.3 billion in 2007. The deficit grew particularly quickly after the 
1998 MOU, during a period of regular consultations with the Korean 
government designed to make progress in opening the Korean market.
    Over the past decade, U.S. exports of automotive products to Korea 
increased by just $330 million, while imports of Korean automotive 
products increased by $8.7 billion. As previously indicated, the U.S. 
deficit in automotive trade now accounts for 98 percent of the total 
bilateral trade deficit with Korea, compared with less than one-third 
in 1998.
    Unfortunately, the auto provisions in the proposed U.S.-Korea Free 
Trade Agreement (KORUS FTA) negotiated by the Bush Administration are 
deeply flawed, and would exacerbate the imbalance in auto trade between 
the U.S. and Korea. They would immediately eliminate the 2.5 percent 
U.S. tariff on the vast majority of auto and auto parts imports from 
Korea. In addition, they would phase-out our 25 percent tariff on 
imports of pickup trucks. These provisions would trigger a surge in 
automotive imports from Korea, as it would be relatively easy for 
Korean manufacturers to ramp up production for export to the United 
States.
    Although this trade deal would require Korea to drop its tariffs on 
U.S. automotive products, it would allow Korea to maintain a series of 
non-tariff barriers that have effectively kept its market closed to 
imports of U.S.-built vehicles and parts. The United States would not 
have any effective remedies to challenge a continuation of these Korean 
trade barriers. As a result, the KORUS FTA would inevitably lead to an 
increase in the enormous, unfair automotive trade imbalance between the 
U.S. and Korea. This would threaten the jobs of tens of thousands of 
American workers, exacerbating the already serious difficulties facing 
the U.S. auto industry and its workers and retirees. For these reasons, 
the UAW strongly opposes the KORUS FTA.
    The UAW submits the KORUS FTA would move us in precisely the wrong 
direction. Instead of providing guarantees that Korea will have to 
dismantle its auto trade barriers and give U.S. auto and parts 
producers access to its market, the KORUS FTA would make our auto trade 
imbalance with Korea even worse. This is not just the UAW's 
perspective.
    In September 2007, the International Trade Commission (ITC) 
released a report on the impact of the KORUS FTA. Significantly, the 
ITC concluded that this trade deal would increase the annual U.S. auto 
trade deficit with Korea by $1 billion to $1.3 billion. It found that 
the KORUS FTA would trigger a surge in automotive imports from Korea, 
with little offsetting increase in U.S. auto exports.
    For a number of reasons, the UAW believes the ITC report actually 
underestimates the negative economic impact of the KORUS FTA on the 
U.S. automotive industry. First, the ITC's analysis did not adequately 
take into account the tremendous negative impact of the phase-out of 
the 25 percent U.S. light truck tariff. The Bush Administration has 
tried to minimize this impact by arguing that Korean companies will be 
increasing production of pickups at their facilities in the United 
States. But it is precisely the existence of the 25 percent U.S. pickup 
truck tariff that has provided the incentive for Korean producers to 
locate production in the U.S. and employ American workers. After the 
announcement that the KORUS FTA would phase-out this tariff, the Korean 
companies have already indicated that they are examining plans to 
export pickup trucks to the U.S. to take advantage of this tariff 
phase-out. This past May, Hyundai announced that it was canceling plans 
to build a pickup for both the Hyundai and Kia brands at its West 
Point, Georgia plant. In addition, other Asian companies are likely to 
use Korea as a platform to export pickups to the U.S. Because of these 
factors, in future years the U.S. auto trade deficit with Korea would 
balloon even further.
    Second, the ITC report asserts that the surge in auto imports from 
Korea will be partially offset by the ``diversion from other import 
sources.'' However, the report did not provide sufficient evidence to 
support this assertion. The UAW believes it is extremely unlikely that 
non-Korean producers--such as Toyota, Nissan and Honda--would passively 
accept such a large reduction in their exports to the U.S. Indeed, the 
history of NAFTA's implementation suggests otherwise. The drastic 
increase in automotive imports from Mexico after 1995 did not displace 
Japanese or European imports of similar products.
    Third, the ITC report did not take into account the adverse impact 
of Korea's non-tariff barriers on auto trade with the United States. 
This is because the ITC's method of analysis, a computable general 
equilibrium (CGE) simulation model, is unable to quantify the impact of 
non-tariff barriers on automotive trade and investment flows. But, it 
is the Korean government's effective and continuous use of non-tariff 
barriers that has kept its market closed to U.S. built automotive 
products.
    The conclusion by the ITC that the KORUS FTA would increase the 
U.S. auto trade deficit with Korea is buttressed by statements from the 
Korean government. Shortly after the proposed trade agreement was 
announced, the Korean government stated that it expected the trade deal 
to boost Korea's auto trade surplus by roughly $1 billion annually. It 
expected Korean exports of finished cars and auto parts to increase 
substantially, whereas there would only be a minimal rise in imports of 
U.S. built automotive products. In addition, the chief negotiator for 
Korea, Kim Jong Hoon, stated that Korean manufacturers would probably 
be shipping pickups to the United States in 5 years to take advantage 
of the phase-out of the 25 percent tariff on imported light trucks. 
This would further exacerbate our auto trade deficit with Korea.
    In response to these dismal analyses, the Bush Administration has 
continued to extol the virtues of the auto provisions in the KORUS FTA. 
It has repeatedly claimed that this trade deal makes great strides in 
eliminating the non-tariff barriers that have historically kept the 
Korea market closed to U.S. built automotive products.
    However, the truth is the KORUS FTA does not guarantee that Korea 
will have to eliminate all of its non-tariff barriers. Indeed, it still 
allows Korea to continue an array of taxes that discriminate against 
U.S. built vehicles with larger engine sizes. It also allows Korea to 
continue the practice of arbitrarily placing imported vehicles in 
``high-risk'' insurance classifications. And it allows Korea to 
continue to use safety, emission and other technical standards as a 
tool to discriminate against imported automotive products, instead of 
having to accept U.S. or international standards. Most importantly, 
there is absolutely nothing in this trade deal to prevent Korea, as it 
has in the past, from developing new non-tariff barriers to keep its 
market closed to U.S. built automotive products.
    The Bush Administration also has touted the dispute resolution 
provisions in the KORUS FTA as containing ``an innovative process for 
settling disputes on auto-related measures.'' For several reasons, 
however, these provisions cannot be expected to provide any effective 
relief. The Automotive Working Group, which would be established under 
the KORUS FTA, has no enforcement powers to address any non-tariff 
barriers.
    Furthermore, it would be extremely difficult for the United States 
to prevail in any case under this new dispute resolution procedure. It 
would not be sufficient for the U.S. to show the existence of non-
tariff barriers that are still keeping our automotive products out of 
the Korean market. Instead, we would have to prove ``non-conformity'' 
with Korea's obligations under the trade agreement, which is unlikely 
given its vague and weak provisions. The U.S. would also be required to 
demonstrate that our automotive producers have suffered ``injury'' as a 
result of Korea's non-tariff barriers. This would be a difficult hurdle 
to overcome because Korea can always allege that other factors are 
keeping down sales of U.S. built automotive products.
    Most importantly, even if an arbitration panel were to rule in 
favor of the U.S. under this dispute resolution procedure, the only 
relief that is provided is that the U.S. would be allowed to reinstate 
(i.e., ``snap back'') our former 2.5 percent tariff on autos and auto 
parts. However, this snap back provision does not apply to the 25 
percent pickup truck tariff. Thus, the remedy provided by the tariff 
``snap back'' is largely toothless, since it does not apply to the most 
important U.S. tariff concession.
    The UAW wishes to underscore that we are not opposed to any trade 
agreement with Korea. In March 2007, a bipartisan group of Members of 
Congress sent a proposal to the Bush Administration for addressing the 
automotive trade imbalance between the U.S. and Korea. This proposal 
provided incentives for Korea to open its market to U.S. built 
automotive products before it granted additional access to the U.S. 
market. This proposal also contained a mechanism for dismantling 
Korea's non-tariff barriers, and protections against a surge in imports 
from Korea. Significantly, it stipulated that the U.S. tariff on 
imported pickup trucks should be left for resolution through 
multilateral WTO negotiations, in order to address the likelihood that 
any tariff reduction for one country would lead to a shift in pickup 
production from Japan and Thailand.
    The UAW publicly endorsed this bipartisan proposal. We believe it 
could serve as the basis for a fair trade agreement between the United 
States and Korea. Unfortunately, the Bush Administration totally 
ignored this proposal, and instead negotiated a one-sided trade deal 
that would give Korea further access to our automotive market, without 
first receiving any guarantees that the U.S. will get greater access to 
the Korea market. This represents a huge step backward, and will only 
serve to exacerbate our huge and growing auto trade deficit with Korea.
    In conclusion, the UAW appreciates the opportunity to testify 
before this Subcommittee on the imbalance in U.S.-Korea automobile 
trade. For many years auto trade between the U.S. and Korea has been 
totally one-sided. Korea has used a variety of tariff and non-tariff 
barriers to keep its market closed to U.S. built automotive products, 
while steadily expanding automotive exports to the U.S. Unfortunately, 
the KORUS FTA would make this bad situation even worse. It would 
trigger a surge of Korea automotive imports into the U.S., without 
getting any guarantees that Korea will dismantle its non-tariff 
barriers and give U.S. auto and auto parts companies greater access to 
its market. For this reason, the UAW calls on Congress to reject the 
KORUS FTA until these auto provisions are renegotiated and replaced 
with measures that will require Korea to dismantle its non-tariff 
barriers to U.S. built automotive products, before it is granted any 
additional access to our market. Thank you.

    Senator Dorgan. Mr. Gettelfinger, thank you very much for 
your testimony and for being here.
    Next, we will hear from Mr. John Bozzella, who is the Vice 
President of External Affairs and Public Policy for Chrysler.
    Mr. Bozzella, welcome. And I have read your statement. Your 
entire statement will be part of the record, and you may 
summarize. You may proceed. Thank you.

         STATEMENT OF JOHN T. BOZZELLA, VICE PRESIDENT,

         EXTERNAL AFFAIRS AND PUBLIC POLICY (AMERICAS),

                          CHRYSLER LLC

    Mr. Bozzella. Thank you, Mr. Chairman. It's nice to be with 
you.
    My name is John Bozzella. I am Vice President for External 
Affairs and Public Policy for Chrysler LLC. Thank you for the 
opportunity to provide Chrysler's views on the imbalance in 
U.S.-Korea automotive trade.
    Chrysler sells and services vehicles in roughly 120 
countries around the world. Chrysler alone exported over 
400,000 vehicles from the United States last year, or about 25 
percent of our total U.S.-based production. Chrysler believes 
that the U.S. continues to have the best workforce and most 
innovative environment for creating globally successful 
products which are desired across the globe.
    Because of our history and our philosophy, Chrysler has 
supported every free trade agreement ever negotiated by the 
U.S. We didn't do it blindly. We did it carefully, after 
reviewing the merits of each and every agreement.
    Senator Dorgan. Mr. Bozzella, would you pull the microphone 
a little closer.
    Mr. Bozzella. I'm sorry, Mr. Chairman. Is that better?
    Unlike our American counterparts at GM and Ford, we do not 
have extensive production outside of North America. As a 
result, exports from North America remain a critical component 
of our business.
    Now I'd like to turn to the subject of today's hearing, the 
imbalance in U.S.-Korea auto trade. We will highlight the 
causes of the imbalance and explain why we simply cannot 
support the U.S.-Korea Free Trade Agreement, in its current 
form.
    This is a difficult position for us, and one we do not take 
lightly. But, we do believe this agreement is flawed, and it's 
an example of the twisting of the principles of free trade in a 
way that harms the interests of the U.S. economy and its 
workers.
    There is probably no greater example of the huge and 
damaging one-sided trade than the flow of automotive trade 
between the U.S. and Korea. The U.S. auto industry simply 
cannot afford to lock in one-sided trade deals. In short, we 
believe that this FTA rewards Korea's poor behavior for failing 
to honor two prior automotive trade agreements with the U.S.; 
it narrows, but does not eliminate, discrimination against U.S. 
importers; and it eliminates the little U.S. leverage left to 
address Korean nontariff barriers.
    The hostility to imported autos is not directed just to the 
U.S., I might add, and its manufacturers; in fact, total 
imports consisted of only 4 percent of the Korean market. South 
Korea is recognized throughout the global automotive industry 
has having the most restrictive import market. Korea ranks 30th 
out of 30 among the OECD countries, in terms of import market 
access.
    While limiting imports to 4 percent of their home market, 
Korean automotive manufacturers exported 70 percent of their 
production in 2007. Over 16 percent of their production was 
exported to the United States alone.
    Because of its history of trade restrictions and 
discrimination, 80 percent of the $13-billion U.S. trade 
deficit with Korea is autos. That fact tells us that the first 
thing the U.S. should have negotiated with Korea in any 
agreement that confers on them the special status of a free 
trade partner is an acknowledgment that confronts this directly 
and ensures that this unacceptable one-sided trade in our 
largest trade product is decisively reversed.
    Our U.S.--our work with USTR and Korea did not begin with 
the U.S.-Korea Free Trade Agreement. In--two previous 
agreements have been referenced already; I won't spend too much 
time talking about them now. But, it's safe to say that this is 
round three, and we remain skeptical, based on what this 
agreement looks like, that we will make major progress.
    My written testimony highlights several examples of 
barriers to entry in that market. I will not revisit those in 
my statement, except to highlight one, which is Korea's auto 
insurance reform proposal, which I think is illustrative of the 
challenges we face.
    In September 2006, the Korea Insurance Development 
Institute released a reform package for automobile insurance 
calculations that was set to start in April 2007. The result is 
that insurance rates increased for most imported vehicles, 
compared to comparable domestic vehicles. Under the reform, for 
example, a Chrysler 300C is about 28 percent more expensive to 
insure each year than a comparable Korean vehicle, even though 
the prices are similar and the driver's profile is identical.
    Regardless of KIDI's intentions, the result of the reform 
is, consumers that buy imported vehicles will pay higher auto 
insurance rates. As soon as they were made aware of this 
problem, the import industry objected, stating that the rates 
should not be higher, based on whether a vehicle is imported, 
and insurance should be allowed for all vehicle categories. 
Based on this pressure and that of the U.S. Government, Korea 
made some marginal changes that mitigated the worst effect of 
the insurance rate schedule, but the new schedule continues to 
result in higher insurance rates for imports versus domestics.
    Members of the U.S. auto industry, along with numerous 
Members of Congress, worked closely with USTR, up to and 
including the day of the agreement--the day the agreement was 
initialed, in April of 2007. After reviewing the agreement, we 
immediately called it unacceptable and not even close to what 
we and others in the industry had told the U.S. officials 
repeatedly was necessary to secure true change in the Korean 
market.
    It quickly became clear that most of the U.S. industry and 
our workers are--as well as many Members of Congress, including 
our congressional leadership, believe that the automotive 
provisions were inexcusably weak and ineffective, and needed to 
be redrafted and expanded in order to obtain sufficient 
congressional support.
    The response so far? In more than a year since the signing 
of the agreement, the Korean government has not sought dialogue 
with our elected representatives or anyone in our industry to 
address these concerns and inadequacies. Interestingly, they 
didn't seem to have a problem seeking alterations to the beef 
agreement their president just signed.
    For its part, the U.S. Trade Representative has repeatedly 
made clear that the U.S. has no intention of asking the Koreans 
to sit down and improve on the automotive chapter of the FTA. 
However, the USTR has negotiated vigorously on the beef issue, 
which, ironically, isn't even part of the FTA. Autos, unlike 
beef, are a pillar industry in Korea, and require a significant 
commitment on the part of the administration for real change to 
occur.
    The U.S. automotive market is, by far, the largest and most 
open in the world. This fact provided our agreement--excuse 
me--our Government with substantial leverage in its 
negotiations with Korea. We clearly articulated the need for a 
robust agreement which would pry open a Korean automotive 
market that has been blatantly and pervasively protected for 
decades. We believe the administration has miscalculated the 
dynamics in Korea.
    We are ready and willing to resume discussions with the 
Administration and the Korean government on how to improve the 
automotive provisions of the U.S.-Korea FTA. We appreciate the 
support we have received from both Senate and House members 
regarding this issue.
    And, once again, thank you, Mr. Chairman, for arranging 
this hearing and asking for us to testify.
    Thank you.
    [The prepared statement of Mr. Bozzella follows:]

        Prepared Statement of John T. Bozzella, Vice President, 
      External Affairs and Public Policy (Americas), Chrysler LLC
    Thank you for the opportunity to provide Chrysler LLC's views on 
the imbalance in U.S.-Korea automobile trade. Chrysler LLC, 
headquartered in Auburn Hills, Michigan, is an indirect wholly owned 
subsidiary of Chrysler Holdings LLC, which in turn is owned 80.1 
percent by Cerberus Capital Management LP and 19.9 percent by 
subsidiaries of Daimler AG. Chrysler LLC sells and services vehicles in 
roughly 120 countries around the world.
The Importance of Trade to Chrysler
    International trade has become a defining characteristic of the 
automobile industry. Many people might already know that automotive is 
the largest import sector after oil for the United States ($231 billion 
or 12.5 percent of total imports), but maybe fewer recognize that it is 
also our largest export sector ($111 billion or 9.5 percent in 2007). 
Finished vehicles and parts are traded in massive volumes on a daily 
basis. Chrysler alone exported over 400,000 vehicles from the United 
States last year, or about 25 percent of our total U.S.-based 
production. The dramatic and often painful changes in recent years in 
the U.S. automotive market are emblematic of the immense forces that 
the global economy have had in our economy. But these changes and the 
recent economic turmoil in the U.S. also reinforces the need to have a 
global approach to your business. Chrysler believes that the U.S. 
continues to have the best workforce and most innovative environment 
for creating globally successfully products which are desired across 
the globe. We also believe in building partnerships with other 
automakers to forge new business opportunities both here and abroad.
    Because of our history and philosophy, Chrysler has supported each 
free trade agreement negotiated by the U.S. We didn't do this blindly, 
rather we carefully reviewed the merits of each agreement. The very 
first ``free trade agreement'' negotiated by the U.S. was the 1965 Auto 
Pact between the U.S. and Canada, which still stands as a model of how 
free trade can build prosperity and grow jobs in both partner 
countries. Our industry was at the forefront of many agreements such as 
the North American Free Trade Agreement (NAFTA). Our exports have grown 
exponentially with our free trade partners. Two recent trade agreements 
provide just a quick example. Since the U.S.-Chile Free Trade Agreement 
was implemented, Chrysler's U.S.-based exports to that country have 
grown by 365 percent. Similarly, Chrysler's U.S.-based exports to 
Australia have risen by over 115 percent since that FTA has been 
implemented.
    Chrysler has made a commitment to grow sales outside North America, 
and has been successful in achieving significant sales growth for its 
international business. Key factors that contribute to this growth have 
been expanding the international dealer network, and the development of 
a vehicle portfolio that reflects the needs of global customers. In 
order to serve diverse international markets, over the last 5 years 
Chrysler has nearly tripled the number of right-hand-drive models (from 
6 to 17), quadrupled the number of models with diesel powertrain 
options (from 4 to 17), and developed several vehicle packages 
specifically for our customers outside North America.
    Unlike our American counterparts at GM and Ford, we do not have 
extensive production outside of North America. As a result, exports 
from North America remain a critical component of our business. This is 
evidenced by the fact that we remain one of the largest U.S.-based 
automotive exporters. For example, we exported over 40 percent of our 
production from our Belvidere, Illinois assembly plant last year, 
helping us maintain jobs that would otherwise have been lost due to the 
weakened U.S. market. We have also highlighted our intent to increase 
collaborative alliances with other manufacturers in the future, such as 
our cross-production arrangement announced this year with Nissan. Such 
alliances will allow us to deliver customer demanded vehicles in an 
even quicker fashion across the globe.
The U.S.-Korea Auto Trade Imbalance--Why Chrysler Can't Support the 
        U.S.-Korea FTA in its Current Form
    The points I have highlighted make it clear that maintaining a 
system of open and fairly traded automotive products is vital to 
maintaining the strength of Chrysler's manufacturing base in the U.S. 
and to creating a business model for the company's future in a global 
automotive market. Now I would like to turn to the subject of today's 
hearing, the imbalance in U.S.-Korea auto trade. We will highlight the 
causes of the imbalance and explain why we simply cannot support the 
U.S.-Korea Free Trade Agreement in its current form. This is a 
difficult position for us, one that we do not take lightly. We are not 
promoting any form of protectionism nor do we believe in erecting any 
barriers to the growth of more open trade in the global economy. Far 
from it, we understand that an open and growing trading system is the 
future of our company and of the U.S. economy. We do believe that this 
agreement is flawed, and is an example of twisting the principles of 
free trade in a way that harms the interests of the U.S. economy and 
its workers. We see it as a classic example of why so many Americans 
have grown skeptical of the claims that such free trade agreements 
bring real benefit to American workers.
    We do not believe the agreement as written will lead to a true free 
flow of goods. There is probably no greater example of huge and 
damaging one-sided trade than the flow of automotive trade between the 
U.S. and Korea. The U.S. auto industry simply cannot afford to lock in 
one-sided trade deals. In short, we believe that this FTA:

        1. Rewards Korea's poor behavior for failing to honor two prior 
        auto trade agreements with the U.S.

        2. Narrows, but does not eliminate discrimination against U.S. 
        importers.

        3. Eliminates the little U.S. leverage left to address Korean 
        non-tariff barriers.

        4. Begins a process by which we will have to turn grievances 
        over to lawyers when we should be hiring sales people to sell 
        vehicles (the so-called gold standard dispute resolution 
        mechanism).

    Chrysler has a long and painful experience trying to operate 
normally in the South Korean market. We first entered the market in 
1992. We currently sell more imported vehicles than GM and Ford 
combined (and more than the majority of foreign brands as well), and 
the 4,100 vehicles we sold in 2007 was a 53 percent increase from the 
previous year. However, we need to put these numbers in perspective. We 
sold almost twice as many vehicles in South Africa, a market which is 
about half the size of South Korea's. The hostility to imported autos 
is not directed just to U.S. manufacturers. In fact, total imports 
consisted of only 4 percent of the Korean market. More starkly, three 
local Hyundai dealers in the U.S. sold more cars through their 
individual dealerships in 2007 than Chrysler, Ford or GM sold in the 
entire Korean market last year. In fact, two of those dealers sold more 
than Chrysler in the Republic of Korea; nine dealers sold more than 
Ford; and more than 400 Hyundai dealers sold more vehicles than GM.
    South Korea is recognized throughout the global automotive industry 
as having the most restrictive import market. Korea ranks 30th out of 
30 among the OECD countries in terms of import market access. While the 
method for protecting the market has transitioned from a blatant ban on 
imports several decades ago, to a more nuanced but very effective 
approach of other forms of discrimination, make no mistake, the Korean 
government has systematically thwarted true competition in the Korean 
market.
    The fortress the Koreans created for their domestic manufacturers 
has created an unnatural export powerhouse. While limiting imports to 4 
percent of their home market, Korean automotive manufacturers exported 
70 percent of their production in 2007. No, that is not a misprint. 
Over 16 percent of their production was exported to the United States. 
Now, if Chrysler could export 16 percent of our U.S. production to 
Korea, we'd be sending over 260,000 units over there instead of 4,000! 
Alright, you might say ``let's get real.'' Well, if the U.S. share of 
the Korean market was similar to the Korean share of the U.S. market 
(4.2 percent as opposed to 0.5 percent), the U.S. would be exporting 
50,000 vehicles valued at about $1 billion. This happens to be more 
than the value of the U.S. beef which was exported to Korea before they 
imposed the ban.
    Speaking of beef, there has been great attention paid to the 
restrictions Korea has placed on imports of American beef. I can say 
that as a representative of a company that has faced the barrage of 
bans, regulations, and unfair restrictions on imports of our products, 
we understand the frustration of our colleagues in the beef industry. 
Yet, while the Administration has told the Koreans and the Congress 
repeatedly and unequivocally that this FTA cannot be approved until 
U.S. beef enters the Korean market, the Administration has not taken 
such a position when it comes to the auto industry, and we have to ask 
why.
    While we have alluded to the inadequacies of this agreement, let us 
be a bit more specific. We would first like to point out that we work 
with the Administration in general and the office of the United State 
Trade Representative (USTR) in particular on many trade issues. We have 
the utmost respect for the bright, dedicated and hardworking 
individuals at USTR who work tirelessly on many different fronts in 
trade negotiations. In the vast majority of cases, we believe the U.S. 
negotiators achieve a result in which U.S. national interests are 
advanced in a proven effective way. However, we do not believe this was 
the case with the U.S.-Korea FTA. The fact is, more should have been 
done.
    Let's start with the fact that, because of its history of trade 
restrictions and discrimination, 80 percent of the $13 billion U.S. 
trade deficit with Korea is autos. That fact tells us that the first 
thing the U.S. should have negotiated with Korea in any agreement that 
confers on them the special status of a free trade `partner' is an 
acknowledgement that confronts this directly, and ensures that this 
unacceptable one-sided trade in our largest traded product is 
decisively reversed. It seems to us that asking our negotiators to 
ensure that companies have a realistic and credible guarantee of true 
open and fair market access in Korea before granting Korea 
unconditional free market access here, doesn't seem, as the lead U.S. 
negotiator told us, to be a ``bridge too far.''
    Our work with USTR on Korea did not begin with the U.S.-Korea FTA. 
In response to evidence of outrageous examples of Korean restrictions 
and downright harassment to keep U.S. auto imports out of Korea, in 
1995 the U.S. negotiated and signed a Bilateral Trade Agreement (MOU) 
with South Korea in an attempt to address non-tariff trade barriers 
limiting U.S. exports. Within 2 years, it became clear that this 
agreement was a failure. The Koreans signed this agreement but did 
little to change their behavior, while simply exporting more and more 
cars to the U.S. In a rebuke to the Korean's behavior, the U.S. 
negotiated a second automotive trade agreement in 1998. The intent of 
both agreements was clear--there had to be unequivocal evidence that 
all evidence of discrimination and restrictions on imports of U.S. 
autos had stopped and that sales were increasing as evidence of a 
`normal' mature market. But while making token changes, the Korean 
government simply crafted new barriers and certainly did not meet the 
spirit of the agreement as evidenced by the numbers. Fool me once, 
shame on you, fool me twice  . . .
    The history of Korean automotive non-tariff barriers which drive 
our concern with this agreement have been articulated publicly before 
on several occasions. I assume that the UAW will highlight some of them 
today as well. Unlike tariffs, non-tariff barriers are not easy to 
address. Korea has used a myriad of such non-tariff barriers ranging 
from outright bans to implementing complex regulatory requirements that 
upon first glance do not appear to be discriminatory but in practice 
are.
    Today, I would like to focus on the actions Korea has taken since 
the FTA was concluded last April. We would just like to point out that 
the Koreans have engaged in this activity knowing that the FTA is 
pending Congressional consideration. Given that they would engage in 
these activities now, we wonder what awaits us should the agreement 
enter into force as signed.
Non-Tariff Barriers Imposed Since the FTA Was Signed
    The following are examples of Korean actions since the FTA 
negotiations started that have disrupted importers' operations in the 
Korean auto market.
Korea's Auto Insurance Reform Proposal
    In March 2008, the Korea Insurance Development Institute (KIDI) 
released a reform package for automobile insurance calculations that 
was set to start in April 2007. The new methodology to determine the 
insurance rate was based on vehicle model brand (Chrysler) for imports, 
and vehicle model (Sonata) for domestics. The result is that the 
insurance rates increased for most imported vehicles compared to 
comparable domestic vehicles. Prior to the reform, the premium paid was 
determined by each individuals (insured) characteristics, not the model 
brand or source (domestic or import) of the insured vehicle. Under the 
reform, for example, a Chrysler 300C is about 28 percent more expensive 
to insure each year than a comparable Korean vehicle even through the 
prices are similar and the driver's profile is identical.
    Regardless of KIDI's intentions, the result of the reform is 
customers that buy imported vehicles will pay higher auto insurance 
rates. As soon as they were made aware of this problem, the import 
industry objected stating that the rate should not be higher based on 
whether a vehicle is imported or not, and insurance should be allowed 
for all vehicle categories. Based on this pressure, and that of the 
U.S. Government, Korea made some marginal changes that mitigated the 
worst effect of the insurance rate schedule, but the new schedule 
continues to result in higher insurance rates for imports vs. 
domestics.
FTC Korea Government Investigation of Importers
    In early December 2007, the Korean Fair Trade Commission (FTC) 
arrived unannounced at the Korea Automobile Importers and Dealers 
Association (KAIDA) offices to investigate alleged unfair business 
practices (keep in mind that this is supposedly the anti-monopoly 
commission which is raiding an association representing 4 percent of 
the market). Some documents and files (meeting minutes, e-mails, 
agendas and letters) were seized in the raid. Several KAIDA members 
companies were also investigated/raided.
    The reported purpose of the investigation was that KAIDA importers 
were allegedly colluding against grey market (parallel) auto importers, 
and price collusion in the import dealer network. The FTC claimed that 
it was supporting a law that protects unauthorized parallel importers 
in Korea. All major authorized auto importers, including Chrysler, are 
members of KAIDA. The result of the FTC investigation is still unknown, 
but the intimidating message it sent is clear.
Witness Testing
    In February 2008, U.S. automakers certifying vehicles for sale in 
Korea were informed, by Korea's governing regulatory agencies, of a 
significant change to Korea's auto emissions testing/certification 
process--no longer allowing importers to certify by witness tests at 
the location of the automaker's test facilities. The Korean government 
claims that the change was a cost and a corruption reduction effort.
    This change would have adversely affected the ability of U.S. 
automakers to introduce several new models into the Korean auto market 
in 2008, and going forward would also introduce unnecessary complexity 
and lack of consistency into an emissions testing process that has 
worked well to date.
    U.S. automakers (Chrysler, Ford and GM) had scheduled witness tests 
for nine vehicle models in 2008. U.S. automakers requested that Korea's 
governing agencies continue to allow for auto emissions witness 
testing, which has been a successful and effective practice to date. 
After the U.S. Government brought considerable pressure to bear on the 
Korean government, the Korean government agreed to back away from the 
change.
    In June 2008, the Korean government officially backed off of its 
plans to end witness testing and instead offered some alternative 
approaches. This ultimately ended up being a successful outcome, but 
demonstrates that Korea's longstanding habit of creating new non-tariff 
barriers to auto imports has not ended.
    These are just a few recent examples of the type of issues we face 
in Korea. As I mentioned, there are other long-existing non-tariff 
barriers which USTR tried to address in this agreement, but we believe 
the remedies are inadequate. I am happy to discuss these other non-
tariff barriers, such as Korea's discriminatory tax practices, 
regulatory or certification issues or general anti-import bias.
How to ``Fix'' the Agreement
    Members of the U.S. automotive industry, along with numerous 
Members of Congress, worked closely with USTR up to and including the 
day that the agreement was initialed in April 2007. After reviewing the 
agreement, we immediately called it unacceptable and not even close to 
what we and others in the industry had told the U.S. officials 
repeatedly was necessary to secure true change in the Korean market.
    It quickly became clear that most of the U.S. industry and our 
workers, as well as many Members of Congress, including our 
Congressional Leadership, believed that the automotive provisions were 
inexcusably weak and ineffective and needed to be redrafted and 
expanded in order to obtain sufficient Congressional support.
    The response so far? In more than a year since the signing of the 
agreement, the Korean government has not sought dialogue with our 
elected Representatives or anyone in our industry on how to address 
these concerns and inadequacies. Interestingly, they didn't seem to 
have a problem seeking alterations to the beef agreement their 
President just signed. I don't say this to be flip, but because it goes 
to our fundamental concern.
    For its part, the U.S. Trade Representative has repeatedly made 
clear that the U.S. has no intention of asking the Koreans to sit down 
and improve on the automotive chapter of the FTA. However, the USTR has 
negotiated vigorously on the beef issue, which ironically isn't even 
part of the FTA. We find this frustrating and odd. Autos, unlike beef, 
is a pillar industry in Korea and requires a significant commitment on 
the part of the Administration for real change to occur.
    And so there is a stalemate, not because there is a problem that 
can't be solved but because neither of the parties is willing to 
acknowledge that a critical part of the Agreement was perhaps rushed, 
and a more careful and deliberate set of proposals and agreements need 
to be hammered out.
    The United States automotive market is by far the largest and most 
open in the world. This fact provided our government with substantial 
leverage in its negotiations with Korea. We clearly articulated the 
need for a robust agreement which would pry open a Korean automotive 
market that has been blatantly and pervasively protected for decades. 
We believe that the Administration miscalculated the dynamics in Korea. 
Their assumption was that the leadership in Korea was receptive to 
openness and we should therefore complete an agreement as quickly as 
possible to take advantage of this newfound, enlightened view in Korea.
    Unfortunately, the longstanding and pervasive nature of the Korean 
government's protective meddling and nationalism cannot be undone 
overnight (note beef). While the leadership may commit to these 
changes, it is the Korean bureaucracy which would be responsible for 
implementing the agreement. And given their history, they have proven 
time and again that they are extremely adept at creating new barriers.
    Changing this culture will not be easy. That is why we asked USTR 
to remove the existing U.S. barriers only after Korea had demonstrated 
that its auto market is open and that import access would be sustained. 
We believe that only this approach would provide the necessary 
incentive to the entire Korean bureaucracy to systemically eliminate 
the protectionist mentality and actions it has practiced for decades.
    Similarly, Congressional leadership recognized the same concerns. 
In a March 1, 2007 letter to the President, House Leadership presented 
a Congressional Proposal to Open Korea's Automotive Market. There are 
two key components to the Congressional proposal. The first part 
addresses the phase-out of the U.S. passenger vehicle tariff and 
creates a positive incentive for Korea to open its market to U.S. 
vehicles. The second part addresses Korea's current non-tariff barriers 
and creates a ``self-help'' mechanism--available to all industries--for 
the United States to take action against future non-tariff barriers. 
Attached to our written testimony is a copy of that letter.
    We are ready and willing to resume discussions with the 
Administration and the Korean government on how to improve the 
automotive provisions of the U.S.-Korea FTA. We appreciate the support 
we have received from both Senate and House members regarding this 
issue and once again thank Senator Dorgan for arranging this hearing 
and asking Chrysler to testify.
                                 ______
                                 
                              Congress of the United States
                                      Washington, DC, March 1, 2007
The President,
The White House,
Washington, DC.

Dear Mr. President:

    We are writing in advance of the eighth round of U.S.-Korea Free 
Trade Agreement negotiations, to present the enclosed Congressional 
Proposal to Open Korea's Automotive Market. This proposal reflects a 
pragmatic, trade-expanding, WTO-consistent approach that provides 
concrete, achievable positive incentives for Korea to open its 
automotive market and ensure the elimination of current and future non-
tariff barriers in all industries. This proposal represents what we 
believe the United States needs to negotiate to achieve a satisfactory 
resolution to Korea's closed automotive market. In addition, it is a 
proposal that should be welcomed by Korean consumers and by the Bush 
Administration because it will lead to a more competitive market in 
Korea with greater choice of products and more competitive prices.
    We have developed this proposal out of our growing concern that 
these negotiations will fail to effectively tear down Korea's non-
tariff barriers, prevent Korea from using future non-tariff barriers to 
maintain its closed market indefinitely, and ensure access for imports 
to Korea's automotive market. For decades, Korea has enjoyed open 
access to the U.S. auto market. At the same time, it has kept its own 
market virtually shut to foreign competition through the use of an 
import ban, followed by high tariffs, coupled with a complex and 
discriminatory tax regime, coupled with systemic, comprehensive and 
longstanding regulatory barriers, coupled with periodic anti-import 
campaigns by the Government of Korea.
    The issue of our inability to break down long-standing and 
discriminatory barriers in a bicameral negotiation would seriously 
undermine our ability to address non-tariff barriers in the more 
comprehensive multilateral negotiations underway at the World Trade 
Organization. Given the importance of this issue, we have made 
consistent and repeated calls for the United States to undertake a new 
approach with Korea that addresses in a complete, comprehensive, and 
systemic way the long-standing policies by which Korea created and 
maintains a fundamentally closed automotive market. The U.S. automotive 
industry and union leadership also have called upon the Administration 
to take a new approach. To date, however, no new approach has been put 
forth that would lead to genuine market opening in Korea. Instead, we 
understand that the proposals which have been exchanged have been 
similar to the same ones that were tried repeatedly in the past and 
that have failed to achieve any meaningful access for U.S. products.
    Our proposal moves beyond previous negotiating strategies and 
embarks on such 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. There are two key components to the 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. A copy of the proposal is enclosed, as well as a briefing 
paper that summarizes its key elements.
    The Korean automotive market presents a significant potential 
market for U.S. exports of cars and automotive products and would 
greatly benefit the U.S. automotive industry and the hundreds of 
thousands of workers it employs and supports. U.S. automotive 
manufacturers can compete effectively in an open and fair Korean auto 
market. We look forward to discussing how our proposal achieves a truly 
open market and more balanced automotive trade with Korea.
            Sincerely,





Hon. Charles B. Rangel                Hon. Carl Levin
Chairman, Committee on Ways and       Co-Chair, Senate Auto Caucus
 Means

Hon. Sander M. Levin                  Hon. George V. Voinovich
Chairman, Subcommittee on Trade       Co-Chair, Senate Auto Caucus
House Committee on Ways and Means

Hon. John Dingell                     Hon. Evan Bayh
Chairman, House Committee on Energy   Chairman, Senate Banking
 and Commerce                          Subcommittee on International
                                       Trade, Finance, and Security

Hon. Dale E. Kildee                   Hon. Debbie Stabenow
Co-Chair, House Auto Caucus           Member, Senate Committee on
                                       Finance

Hon. Ron Kind                         Hon. Fred Upton
Member, House Committee on Education  Co-Chair, House Auto Caucus
 and the Workforce

Hon. Ellen O. Tauscher                Hon. Joe Knollenberg
Chair, New Democrat Coalition         Member, House Committee on
                                       Appropriations

Hon. Candice S. Miller                Hon. Vernon J. Ehlers
Member, House Committee on Armed      Member, House Committee on
 Services                              Transportation and Infrastructure
Hon. Thaddeus McCotter
Member, House Committee on Budget
 and  Foreign Affairs


                                 ______
                                 
        Congressional Proposal to Open Korea's Automotive Market
    There are two key components to the Congressional proposal. The 
first part addresses the phase-out of the 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 ``self-help'' mechanism--available to all industries--for 
the United States to take action against future non-tariff barriers. 
The key elements of this proposal are described further below:
Part I--U.S. Tariff Reduction Tied to Opening Korea's Auto Market
   Tariff Reduction--Korea's 8 percent auto tariff will go to 
        zero immediately. The U.S. 2.5 percent passenger vehicle tariff 
        will go to zero at the conclusion of the longest phase-out 
        period provided for in the agreement, or 15 years, whichever is 
        longer. The U.S. 25 percent pick-up truck tariff will continue 
        to be negotiated with Korea, Japan and other countries at the 
        World Trade Organization.

   Positive Incentive to Open Korea's Auto Market--As a 
        positive incentive for Korea to open its auto market to U.S. 
        autos during the tariff phase-out period, Korea will get a 
        benefit in the form of duty free entry for a specified number 
        of autos every year that U.S. auto sales in the Korean market 
        increase from a designated baseline. The benefit will be 
        measured on a car-for-car basis, and apply in the next calendar 
        year. The baseline, and any subsequent increase, will be 
        determined by an FTA Committee comprised of the respective U.S. 
        and Korean commerce ministries. The positive incentive is 
        structured so that the more open Korea allows its market to 
        become, the greater will be Korea's benefits.

     Example--The agreement comes into force on January 1, 
            2008, and the baseline is established at 3,000 (a 
            hypothetical figure representing the number of U.S. autos 
            sold in Korea in 2007). If 4,000 U.S. cars are sold in 
            Korea in 2008, then Korea may receive duty free entry to 
            the U.S. for 1,000 cars in 2009.

   Auto Safeguard with Incentive to Increase U.S. Market Share 
        in Korea--An automotive safeguard will come into effect 
        immediately upon the full phase-out of the U.S. auto tariff. 
        The safeguard will apply automatically in the event that the 
        United States determines that imports of Korean autos are 
        increasing significantly. The penalty will be a predetermined 
        ``snap-back'' of the 2.5 percent auto tariff. The penalty will 
        remain in place until the United States determines that imports 
        are no longer increasing significantly. As an incentive for 
        Korea to increase access to its auto market and promote full 
        competition in that market to benefit Korean consumers, the 
        safeguard will be suspended for each year that the market share 
        of U.S. auto sales in Korea equals or exceeds Korea's auto 
        market share in the U.S.
Part II--Non-tariff Barriers.
    This provision will apply to all sectors, not just automotive.
   Elimination of Current Barriers--Korea agrees to eliminate 
        current specified measures prior to the agreement coming into 
        effect. The proposal will contain a list of specific current 
        barriers identified by the automotive industry, as well as 
        other industries.

   Addresses Future Barriers Through Dispute Settlement by 
        Providing Self-Help for U.S. and Creating A ``Reverse Burden of 
        Proof'' for Korea--The proposal enables the U.S. to take 
        immediate, unilateral compensatory action to counter any future 
        barrier (or any current barrier not specifically identified in 
        the agreement) based on a standard of ``reasonable evidence'' 
        relative to the existence of a Korean measure that 
        discriminates against imports. The compensatory action (such as 
        a tariff snap-back or tariff increase on other products) would 
        remain in effect until Korea established conclusively that the 
        measure does not exist, or does not operate to afford 
        protection to a domestic industry in Korea.

    Senator Dorgan. Mr. Bozzella, thank you very much.
    Next, we will hear from Dr. McMillion.
    Again, I have read the statements that all of you have 
submitted.
    And, Mr. McMillion, thank you for being here, and you may 
proceed.

       STATEMENT OF DR. CHARLES W. McMILLION, PRESIDENT 
         AND CHIEF ECONOMIST, MBG INFORMATION SERVICES

    Dr. McMillion. Thank you, Mr. Chairman. I'm especially glad 
to come before you today as the full Senate, the country, and 
the world face the crises built from 28 years of naive 
financial deregulation.
    I'd like to focus on three broad and closely related 
points. First, this naive or cynical ideological obsession with 
deregulation that has now bankrupted the U.S. financial system 
is inextricably intertwined with the obsession for deregulation 
of commerce, particularly of global commerce and what is often 
called ``free trade.''
    Second, as with financial deregulation, all of the major 
theories used to sell deregulation of global commerce have long 
failed the test of experience, undermining U.S. production of 
goods and services, and forcing dependence on soaring debt and 
asset sales to foreign interests in China and elsewhere.
    Third, as within the endangered financial system, now is 
the time for an urgent, careful reversal in the deregulatory 
global commercial policies that have so very clearly failed.
    Just since NAFTA with Mexico was implemented, 14 years ago, 
the U.S. has accumulated over $6 trillion in current account 
deficits, $4.6 trillion just since 2001. These massive trade 
deficits occurred despite unprecedented debt-exploding tax cuts 
and wage stagnation in the U.S. to make the U.S. supposedly 
more competitive.
    The severely threatened U.S. auto industry has suffered 
more than $1 trillion in trade losses over just the last 8 
years. Even now, the U.S. auto industry faces production losses 
and global trade deficits of $10 billion each and every month. 
The U.S. now imports half again as many autos from Mexico as 
the U.S. exports to the entire world. Let me repeat that. 
Fourteen years after NAFTA, last year the U.S. imported over a 
million cars from Mexico and exported only 673,000 cars to the 
entire world.
    Including auto parts, Korea exported $11.3 billion of 
autos, trucks, and parts to the United States in 2007, compared 
with only $1 billion of U.S. exports to Korea. This 11-to-1 
U.S. imbalance of Korean imports to exports is worsening, so 
far this year, our worsening deficits in auto parts. The 
difference is with parts, Senator.
    I hope there's time to discuss some of the key false 
assumptions behind the claims of those that, even today, 
continue to push deregulation--further deregulation of global 
commerce.
    But, after 28 years of trade deregulation, today's $2-
billion-per-day production shortfall and forced U.S. foreign 
borrowing continues to put enormous pressure on global 
financial markets, it constrains U.S. policy options, and it 
clearly undermines U.S. living standards today, as well as in 
the future.
    Further deregulation of global commerce should not be a 
serious consideration for anyone concerned with the United 
States of America and its economy. Now is the time for an 
urgent, careful reversal in the deregulatory global commercial 
policies that have so clearly failed. This is the time for 
renewed global cooperation toward new, sustainable, and 
mutually beneficial objectives of raising living standards here 
in the United States and around the world.
    Thank you, Mr. Chairman. I look forward to the discussion.
    [The prepared statement of Dr. McMillion follows:]

       Prepared Statement of Dr. Charles W. McMillion, President 
             and Chief Economist, MBG Information Services
    Thank you Mr. Chairman and the other Senators on the Subcommittee 
for inviting me to testify before you today. I am especially glad to 
come before you today as the full Senate, the country and the world 
face some of the enormous consequences of 28 years of naive 
antigovernment, ideological extremism and financial deregulation.
    This naive or self-serving antigovernment extremism is also behind 
28 years of careless deregulation of commerce, especially global 
commerce, that has undermined our productive economy and left the U.S. 
deeply dependent on foreign debt and asset sales. This is reflected in 
today's auto industry crisis where, even now, the industry faces 
production losses and trade deficit of $10 billion each month. Often 
celebrated as ``free'' trade, the dire consequences of this global 
commercial deregulation are inextricably intertwined with today's 
financial crises.
    After 200 years of U.S. history, Federal and household debt 
combined equaled $2.4 trillion in 1980. Twenty-eight years later, this 
debt has grown 10-fold, surging past $24 Trillion. As a share of GDP, 
this debt fell from a high of 138 percent during the World War II 
emergency, plunged to 83 percent in 1980, and has since methodically 
soared to 168 percent now--far worse than ever before.
    Whatever emergency rescue plan the Congress adopts for our bankrupt 
financial system and its powerful Wall Street leaders this week, the 
adjustments to our living standards and to our policies that begin next 
week will be long and difficult.
    In the past 28 years the U.S. reversed its previous trade surpluses 
and accumulated over $7 trillion in current account trade deficits. 
Since NAFTA with Mexico was implemented 14 years ago, the U.S. has 
accumulated over $6 trillion in current account deficits, $4.6 trillion 
just since 2001. These massive trade deficits occurred despite 
unprecedented, debt-exploding tax cuts and wage stagnation to ``make 
the U.S. more competitive'' and reflect the substitution of foreign 
debt and asset sales (and Wall Street commissions) for U.S. production 
of goods and services.
    Even as the worst U.S. financial crises since 1933 began to become 
more widely apparent, in 2008-Q2 the U.S. was required to borrow or 
sell-off assets of over $2 billion (net) per day to foreign interests 
in China and elsewhere to pay for trade deficits. This, of course, is 
in addition to the fact that U.S. policymakers are limited to 
activities that will reassure foreign creditors and prevent them from 
calling massive loans or selling off assets already owned by China and 
other foreign interests.
    As with the financial system more directly, the theoretical 
judgments of those urging deregulation of global commerce has proven 
over and over again for decades to be remarkably naive or cynical. For 
example, heavily-promoted (and quoted) advocates for NAFTA with Mexico, 
assured that the agreement would benefit U.S. production and jobs by 
constantly extending commercial surpluses with Mexico for decades. 
Rather, U.S. trade surpluses with Mexico immediately vanished as the 
confidently assured 15 years of theoretical surpluses totaling $140 
billion became, in fact, constantly worsening losses totaling $630 
billion in real deficits, lost production, lost jobs and new U.S. 
foreign debt.
    New commercial agreements or other ``key,'' ``breakthrough'' 
developments are announced several times each year between the U.S. and 
China. Indeed, it was assured that following NAFTA, trade with Mexico 
would help reduce or eliminate the then $23.8 billion U.S. trade 
deficit with China in 1993. Since then there have been market access 
agreements, agreements on intellectual property, Permanent Normal 
Trading Relations, World Trade Organization membership, lowered tariffs 
and much more. And yet the result is U.S. current account losses to 
China soaring to $289.7 billion in 2007, rising toward $300 billion in 
2008, and totaling $1.5 Trillion in just the past 8 years.
    Borrowing to pay for these massive commercial trade deficits, U.S. 
debt service and other investment payments to China in 2007 were $36 
billion more than all profits earned by U.S. business and investment in 
China. These U.S. net payments are increasing rapidly.
    Those promoting commercial deregulation often ridiculed concerns 
for low wage competition from countries like Mexico, China or Korea by 
assuring that this is more than offset by far higher overall 
productivity rates in the U.S. But as post-NAFTA U.S.-Mexico auto trade 
demonstrates, overall productivity rates are irrelevant when commerce 
is dominated by the same modern, global transnational companies. The 
U.S. now imports half again as many autos from Mexico (1,009,300 in 
2007) as the U.S. exports to the entire world (673,100) including to 
Mexico.
    Korea exported $11.3 million of autos/trucks and parts to the U.S. 
in 2007 compared with only $1.0 million of U.S. exports to Korea. This 
left a U.S. auto-sector deficit with Korea of over $10 billion and an 
11-to-1 ratio of U.S. import payments (or debt) to export earnings. 
From January to July 2008, the cost of U.S. auto-sector imports from 
Korea is up 2.3 percent (concentrated in auto parts) while the value of 
U.S. industry exports to Korea is down -9.4 percent, indicating a 
worsening U.S. deficit and net loss of auto-sector production.
    Similarly, promoters of deregulation often argue that the 
technological superiority of the U.S. allows for the loss of older 
industries--now, perhaps including the auto sector--imports of which 
can be paid for with surpluses in modern technologies and intellectual 
property royalties and fees. However, since 2002, the U.S. also has 
lost its post-World War II commercial trade surplus in advanced 
technology goods with the nominal value of ATP deficits now larger than 
any past surplus.
    This ATP deficit is worsening rapidly with Mexico, China, Korea and 
others as modern transnational corporations transfer their best 
technologies and new products where they are cheapest to produce. 
Despite the near-record weakness in the foreign currency value of the 
dollar, ATP deficits now virtually offset all net earnings on IP 
royalties and fees from companies chartered in the U.S. That is, 
technology goods and services now pay virtually no part of the U.S. 
bill for foreign military operations or for the net import of oil, 
autos, electronics, clothing, etc.
    Rapid changes in the global profile of the U.S. economy and trade 
are reflected in recent U.S.-Korea trade patterns. Obsolete economic 
theory suggests that countries like China and Korea with economic 
growth faster than world growth will have Current Account deficits 
while countries like the U.S. that has grown far slower than the world 
economy in each of the past 9 years--and only half the growth rate in 
Korea--would have Current Account surpluses. Yet China and Korea each 
have had substantial Current Account surpluses for many years while the 
United States' Current Account deficit averaged 5 percent over these 
past nine troubled years.
    Similarly, in addition to Korea's now consistent surplus in autos 
and ATP trade with the U.S., Korea enjoys large surpluses with the U.S. 
in electronics, machinery, textiles/apparel, iron and steel products 
and most other manufactured goods. Most of the industries in which the 
U.S. enjoys surpluses with Korea are agricultural and commodities such 
as cereals and organic chemicals, although the U.S. does retain 
surpluses in aircraft and some specialty medical and optic instruments. 
Through the first 7 months of 2008, U.S. agricultural trade surpluses 
with Korea are rising (on soaring prices) while U.S. deficits with 
Korea are worsening for manufactured goods including ATP, autos and 
parts.
    Over the past 8 years the U.S. has accumulated Current Account 
deficits of about $98 billion with Korea including merchandise deficits 
of $112 billion and manufacturing deficits of $123 billion.
    These rapidly changing patterns of global trade illustrates another 
key obsolete article of faith for those that promote further 
deregulation of global commerce. Against all evidence, it is still 
claimed that unregulated trade drives growth in U.S. productivity, 
wages and living standards. However, the contrary evidence has been 
overwhelming for over 20 years. Unregulated global commerce is 
eliminating highly productive U.S. manufacturing output and jobs and 
forcing dependence on massive new debt to create far less productive, 
lower-paying service sector jobs that are protected from global 
competition. Of the 3.4 million new U.S. jobs created over the past 8 
years, more than all have been in health care (2.4 million new jobs) 
and in bars and restaurants (1.5 million new jobs.)
    After 28 years of trade deregulation, today's $2 billion per day 
production shortfall and forced U.S. foreign borrowing continue to put 
enormous pressure on global financial markets, constrain U.S. policy 
options and undermine the U.S. living standards. Further deregulation 
of global commerce should not be a serious consideration for anyone 
concerned with the United States of America and its economy.
    As with the endangered financial system, now is the time for an 
urgent, careful reversal in the deregulatory global commercial policies 
that have so clearly failed. This is the time for renewed global 
cooperation toward new, sustainable and mutually beneficial objectives 
of raising living standards.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    Senator Dorgan. Mr. McMillion, thank you very much for 
being with us again.
    And finally, we will hear from Mr. Myron Brilliant, who is 
the President of the U.S.-Korea Business Council and the Vice 
President, Asia, U.S. Chamber of Commerce, on behalf of the 
U.S. Chamber of Commerce and the U.S.-Korea Business Council.
    Mr. Brilliant, welcome, and you may proceed.

      STATEMENT OF MYRON BRILLIANT, PRESIDENT, U.S.-KOREA

    BUSINESS COUNCIL; VICE PRESIDENT, ASIA, U.S. CHAMBER OF

           COMMERCE; 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

    Mr. Brilliant. Thank you, Chairman. 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, I'd like to thank the Interstate Commerce, 
Trade, and Tourism Subcommittee for the opportunity to provide 
our views on the U.S.-Korea Free Trade Agreement and the United 
States automobile industry.
    It won't be a surprise to this Committee that our views are 
very different--vastly different than those already expressed 
on this panel today.
    Our organizations believe that the U.S.-Korea FTA will 
provide enormous, enormous market access opportunities and 
represents the most commercially significant U.S. trade 
agreement concluded in over a decade. Once implemented, it will 
provide very substantial benefits to all sectors of the U.S. 
economy, including the U.S. auto industry. And it does enjoy 
very broad support among U.S. manufacturers, farmers, and 
service providers. That is why the U.S.-Korea FTA Business 
Coalition now comprises of over 500 U.S. companies, trade 
associations, industry organizations, and chambers of commerce, 
representing millions of businesses of every size in every part 
of the U.S. economy. We seek the agreement's ratification.
    Once implemented, the agreement will lead to a substantial 
reduction in trade barriers, in every sector of the Korean 
markets, to U.S. goods and services, and thereby generate 
billions of dollars in new U.S. exports, creating new American 
jobs and economic growth. At this critical time, we would think 
such an agreement would be an imperative for the U.S. Congress 
to pass.
    Under the agreement, nearly 95 percent of bilateral 
consumer and industrial-goods trade will become duty-free 
within 3 years. Almost all remaining tariffs and goods will be 
eliminated within 10 years. Korean tariffs on U.S. industrial 
products average approximately 6.2 percent, or twice as high as 
the equivalent U.S. rate. In addition, there are unprecedented 
provisions to address nontariff measures, which I'm happy to 
discuss in the question-and-answer session.
    The agreement will also guarantee transparent and 
predictable regulatory and rulemaking procedures in Korea, 
enhance investment protections, protect and enforce 
intellectual property rights, and help ensure that fair and 
transparent application of competition policy for all U.S. 
companies doing business with Korea, a $1-trillion economy. 
Moreover, in deepening ties between the United States and 
Korea, we will reinforce a bilateral relationship that has 
promoted regional security and prosperity in East Asia for more 
than 50 years. My full statement goes into more details.
    Turning to the U.S. auto industry, our organizations are 
clearly sensitive to the challenges facing the U.S. automobile 
industry in the current domestic and global economy, including 
in Korea. Indeed, Ford, GM, and Chrysler are members of the 
U.S. Chamber of Commerce. GM sits on the Executive Council of 
the U.S.-Korea Business Council. And Chrysler has, in the past. 
We fully recognize the leadership role that the U.S. automobile 
industry has played in opening markets and removing unfair 
trade barriers to U.S. goods and services all around the world, 
to the benefit of the entire U.S. economy. AMCHAM Korea and the 
U.S.-Korea Business Council repeatedly have called on the 
Korean government to eliminate impediments to imports of U.S. 
vehicles, and the FTA does just that.
    The auto commitments in the FTA are comprehensive, 
meaningful, and binding. It is important to recognize just how 
much of--the U.S.-Korea FTA does to reduce Korean trade 
barriers to U.S. autos.
    First, the agreement will eliminate, immediately, Korea's 
tariff of 8 percent on U.S. passenger vehicles, 10 percent 
tariff on U.S. trucks, and almost all duties on U.S. auto 
parts, which currently range from 3 to 10 percent.
    Second, the FTA reduces substantially the discriminatory 
effect of Korea's automotive taxes on U.S. and other foreign 
vehicles, and significantly reduces these taxes.
    Third, the Korean government has also made a commitment 
under the FTA not to impose any new engine displacement taxes 
or to apply these taxes on a nondiscriminatory manner.
    Fourth, the agreement includes commitments by the Korean 
government to address three specific standards of concerns, and 
also an overall requirement that Korea not employ technical 
regulations that create unnecessary barriers to trade.
    Fifth, the FTA includes a unique and innovative mechanism 
for resolving auto-related trade disputes. It will provide 
expedited resolution of disputes under the agreement by cutting 
in half the dispute settlement process.
    Sixth, the FTA establishes an autos working group to 
address regulatory issues that may arise by providing U.S. 
stakeholders opportunity for early involvement in the Korean 
regulatory process.
    All these commitments are binding--binding obligations.
    Seventh, in addition to the auto-specific provisions, the 
U.S.-Korea FTA also addresses standards and technical barriers 
to trade. Under the agreement, the Korean government is 
required to provide transparency and national treatment to U.S. 
entities in the development of standards, technical 
regulations, and conformity assessment procedures, and we've 
already seen early indications of their commitment to this, 
this summer.
    Moreover, we should also be encouraged by statements by the 
Korean government that it will not discourage the purchase or 
use of U.S. goods or services, an important commitment, in 
light of past anti-import campaigns in Korea.
    The ITC, the International Trade Commission, in 2007, in 
its study, forecasted that, ``U.S. exports of passenger 
vehicles to Korea would likely experience a large percentage 
increase as a result of the FTA'', following full 
implementation of the FTA provisions. It estimated that exports 
of U.S. motor vehicles and parts to Korea would increase by 
$294 million and $381 million, or 45 percent to 58.9 percent 
over current levels.
    The ITC report did note that U.S. imports of Korean motor 
vehicles and parts would also increase by 9 to 10--to 12 
percent, but forecasted that much of the increase--55 to 57 
percent of the estimated increase--would be diverted from other 
foreign motor vehicles and parts sold in the United States. For 
this reason, the U.S. ITC concluded that the risk of any 
decline in output or employment for the U.S. automobile 
industry and U.S. auto parts manufacturers from the FTA would 
likely be negligible.
    We note that Korea is no longer the closed market it once 
was to U.S. and other foreign automobiles. Foreign import 
penetration of the Korean auto market has grown rapidly in 
recent years. For the first 7 months of this year, the total 
market share of foreign autos in Korea was 6.5 percent. In 
sharp comparison, the market share for foreign vehicles in 
Korea was 0.26 percent in 1999. We'd like to see our cars do 
better. But, U.S. automakers sold 6,000-plus cars in Korea in 
2007, an increase of nearly 37 percent over 2006 sales levels, 
and those trends continue in 2008.
    Delaying or rejecting the U.S.-Korea FTA is not a solution 
for addressing the imbalance in U.S.-Korea automobile trade, 
and could erode the competitiveness of the U.S. auto industry 
in the Korean market for years to come. Korea is close to 
completing its FTA with the EU. If that were the case, the U.S. 
auto producers would be at a substantial competitive 
disadvantage to European competitors. That would not help the 
situation, but it would, in fact, exacerbate the imbalance in 
bilateral auto trade.
    The best way to reduce our imbalance is to reduce Korean 
taxes, tariffs, and nontariff measures on U.S. automakers. Once 
the FTA is implemented, we are committed--committed to working 
hand in hand with the U.S. auto industry to make sure that 
Korea fulfills all of its FTA obligations and commitments.
    Our organization, in sum, believes that this agreement will 
level, ensure--will ensure great market access to our 
industries, including autos, in one of the most advanced and 
dynamic overseas markets.
    Thank you for the opportunity to testify this morning.
    [The prepared statement of Mr. Brilliant follows:]

 Prepared Statement of Myron Brilliant, President, U.S.-Korea Business 
 Council; Vice President, Asia, U.S. Chamber of Commerce; 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
    The U.S. Chamber of Commerce, the U.S.-Korea Business Council, the 
American Chamber of Commerce in Korea (AMCHAM Korea), and the U.S.-
Korea FTA Business Coalition would like to thank the Interstate 
Commerce, Trade, and Tourism Subcommittee for the opportunity to 
provide their views on U.S.-Korea automobile trade.
    The U.S. Chamber is the world's largest business federation 
representing three million businesses of every size, sector and region. 
The U.S.-Korea Business Council, an affiliate of the U.S. Chamber, is 
composed of U.S. companies that are significant investors in and 
exporters to Korea. AMCHAM Korea represents hundreds of U.S. companies 
doing business in Korea. The U.S.-Korea FTA Business Coalition is a 
group of over 500 U.S. companies, trade associations, industry 
organizations, and chambers of commerce representing businesses of 
every size and sector of the U.S. economy that support the U.S.-Korea 
Free Trade Agreement (FTA), which was signed on June 30, 2007. The 
U.S.-Korea Business Council serves as the Coalition's secretariat.
    Our four organizations believe that the U.S.-Korea FTA is the best 
solution for addressing many of the factors that have contributed to 
the historical imbalance in U.S.-Korea automobile trade. This is one of 
the reasons why the member companies and associations of our 
organizations enthusiastically endorse the U.S.-Korea FTA, the most 
commercially significant U.S. trade agreement concluded in over a 
decade.
    This agreement provides very substantial benefits to all sectors of 
the U.S. economy. It enjoys broad support among U.S. manufacturers, 
farmers, and the services sector. By eliminating trade barriers in 
every sector of the Korean market to U.S. goods and services and 
securing a more open and competitive Korean market, the agreement will 
generate billions of dollars in new U.S. exports, creating new American 
jobs and economic growth.
    Under the U.S.-Korea FTA, nearly 95 percent of bilateral consumer 
and industrial goods trade will become duty-free within 3 years; almost 
all remaining tariffs on goods will be eliminated within 10 years. 
According to the U.S. Department of Commerce, Korean tariffs on U.S. 
industrial products average approximately 6.2 percent--twice as high as 
the equivalent U.S. rate. Over 80 percent of U.S. merchandise exports 
to Korea are manufactured products, and the agreement will bring 
tangible and significant benefits to U.S. manufacturers--including U.S. 
auto producers and auto parts makers. We note that the agreement covers 
trade in remanufactured goods, which will additionally create new 
export and investment opportunities for U.S. firms producing these 
products, including machinery and auto parts.
    Korea's complex regulatory system and other non-tariff barriers 
have in the past limited opportunities for U.S. manufacturers and 
others to compete and succeed in the Korea market. The U.S.-Korea FTA 
addresses these challenges with strong provisions and protections that 
open Korea's market, protect U.S. interests, and set the bar higher for 
future trade pacts. These provisions include expanded market access for 
U.S. producers in Korea in sectors where they currently face 
restrictions on investment and on their operations. The agreement will 
also guarantee transparent and predictable regulatory and rulemaking 
procedures in Korea, protect and enforce intellectual property rights, 
enhance investment protections, and help ensure the fair and 
transparent application of competition policy for all U.S. companies 
doing business in Korea. These and other elements of the FTA will level 
the playing field for U.S. businesses competing in Korea's dynamic $1 
trillion economy. Moreover, the FTA will deepen the ties between the 
United States and Korea, reinforcing a bilateral partnership that has 
promoted regional security and prosperity in East Asia for more than 
fifty years.
    While today's hearing focuses on the issue of U.S.-Korea 
automobiles trade, we are including as an attachment to this testimony 
a report issued by the U.S.-Korea Business Council on the broader and 
very substantial benefits that the U.S.-Korea FTA will provide the U.S. 
economy if the Congress approves the agreement.
    Our organizations are sensitive to the challenges facing the U.S. 
automobile industry in the current domestic and global economy. We 
recognize the leadership role that the U.S. automobile industry has 
played in opening markets and removing unfair trade barriers to U.S. 
goods and services all around the world, to the benefit of the entire 
U.S. economy. Moreover, we are acutely familiar with the challenges 
that the U.S. automobile industry long encountered in the Korean 
market. AMCHAM Korea and the U.S.-Korea Business Council repeatedly 
have called on the Korean government to eliminate tariff and non-tariff 
barriers and other discriminatory policies that have severely limited 
opportunities for U.S. automakers to compete in the Korean market.
    We urged Korean and U.S. trade negotiators to include strong 
provisions addressing these issues in the U.S.-Korea FTA. And that is, 
in fact, just what they did. We are pleased that the U.S.-Korea FTA 
includes commitments by the Korean government to address virtually 
every tariff and non-tariff market access barriers to U.S. automobiles 
in Korea raised by the U.S. auto industry during the FTA negotiations. 
Once the FTA is ratified, we are committed to working hand-in-hand with 
the U.S. auto industry to make sure that Korea fulfills all of its FTA 
commitments.
    Delaying or rejecting the U.S.-Korea FTA on the basis that it does 
not go far enough in opening Korea's market to U.S. autos will not 
right the imbalance in bilateral automobile trade. Rather, the best way 
to accomplish this goal is by ratifying the U.S.-Korea FTA and by 
focusing our energy on ensuring that Korea faithfully fulfills its FTA 
commitments. If we do that, we can ensure that Korean tariff burdens on 
U.S. auto makers are eliminated; that tax burdens are significantly 
reduced; that existing non-tariff barriers are addressed and new ones 
are not imposed; and that the Korean government does not dampen sales 
in other ways.
How the U.S.-Korea Free Trade Agreement Will Reduce Barriers to Auto 
        Trade
    It is important to recognize how much the U.S.-Korea FTA does to 
eliminate many of the Korean trade barriers to U.S. autos. The 
agreement will eliminate immediately Korea's tariff of 8 percent on 
U.S. passenger vehicles, 10 percent tariff on U.S. trucks, and almost 
all on U.S. auto parts, which currently range from 3 percent to 10 
percent. These cuts will instantly give U.S. auto and auto parts 
manufacturers a price advantage in the Korean market.
    The FTA reduces substantially the taxes levied on autos, and 
eliminates their discriminatory effect on U.S. and other foreign 
vehicles. Under the FTA, the Korean government will amend its Special 
Consumption Tax and Annual Vehicle Tax to reduce existing maximum tax 
rates and to further eliminate aspects of these policies that have 
discriminated against U.S. autos on the basis of engine size. This 
``cascading'' set of taxes disproportionately affects U.S. automakers 
because U.S. vehicles tend to have relatively larger-sized engines than 
Korean vehicles. The Korean government has also made a commitment under 
the FTA not to impose any new engine displacement taxes or to apply 
these taxes in a discriminatory manner. Korea will also publicize the 
availability of an 80 percent refund of its Subway Bond Tax for 
purchasers of new automobiles, yet another tax that has been a barrier 
in the Korean market for U.S. autos. These reforms, when implemented, 
will reduce tax rates on U.S. autos in the Korean market to the same 
level as virtually all Korean autos and increase their price 
competitiveness.
    The FTA includes specific commitments in the automotive area by the 
Korean government not to employ technical regulations that create 
unnecessary barriers to trade, and to cooperate on harmonizing 
standards. In particular, the Korean government has agreed not to apply 
emission standards more stringent than those used by the state of 
California and agreed to use a less stringent standard used in 
California for small volume manufacturers. Low volume manufacturers 
(those which sell fewer than 4,500 vehicles a year) are exempted 
entirely. The FTA provides for imported motor vehicles to be exempt 
from any new or amended Korean regulations related to self-
certification for safety standards for at least 2 years after the date 
on which the regulations or amendments are issued; these standards will 
then only apply to models under certain conditions. By bringing Korean 
standards more closely in line with those applied in the United States, 
the FTA will further lower manufacturing costs and retail sales prices 
for U.S. autos in the Korean market.
    The FTA includes important mechanisms for resolving autos-related 
trade disputes. A unique and innovative autos-specific dispute 
settlement mechanism will provide expedited resolution of disputes 
under the agreement. If the agreement's dispute settlement panel finds 
that Korea has not complied with its obligations in the agreement's 
auto provisions, it can authorize the United States to reimpose import 
duties on Korean automobiles. To enhance the enforcement effect, this 
expedited process--just for autos--will result in decisions in half the 
time of the normal dispute settlement mechanism. The FTA also 
establishes an autos working group to address regulatory issues that 
may arise and to review and provide comment on potential new Korean 
regulations affecting auto manufacturers. Under the FTA, when the 
Korean government is developing new regulatory measures for 
consideration, it must provide information on these proposals to the 
working group, thereby giving U.S. stakeholders an opportunity for 
early involvement in the process. In addition, the FTA ensures that 
non-governmental parties, including auto companies and labor unions, 
may provide advice and input to the U.S. Government throughout the 
dispute resolution process. These and other stakeholders may take part 
in the activities of the autos working group. All of these commitments 
are binding obligations, something the United States did not have in 
past automotive arrangements with Korea.
    In addition to its autos-specific provisions, the U.S.-Korea FTA 
also addresses standards and technical barriers to trade (``TBTs'') and 
many other practices that the Korean government long used to protect 
Korea's market for a variety of manufactured goods from foreign 
competition. During the FTA negotiations, our organizations urged that 
the FTA eliminate Korea-unique standards and standards-setting, testing 
and certification procedures that are not in line with international 
norms, not carried out in a transparent or predictable manner, and that 
have adversely affected the ability of U.S. companies to provide goods 
and services in the Korean market. The FTA includes commitments by the 
Korean government to enhance transparency in the development and 
implementation of technical regulations and related conformity 
assessment procedures. Under the agreement the Korean government will 
provide national treatment to U.S. entities for participation in the 
development of standards, technical regulations, and conformity 
assessment procedures. Korea has also committed to publishing the 
criteria used to recognize conformity assessment bodies, and to explain 
objectives and how proposed regulations will address those objectives 
when regulations are notified for comment and again when they are 
adopted as final. The Korean government will also make publicly 
available all comments received on proposals, notify proposals for 
comment even if they are based on international standards; allow at 
least forty days for written comments on proposals; publish notice of 
proposed and final regulations in a single official journal; and in 
publishing final regulations will include responses to significant 
comments received together with an explanation of the revisions made to 
the proposal.
    Under the FTA, the Korean government is required to promote 
reliance on international standards that are consensus-based. Moreover, 
in areas where Korea recognizes non-governmental bodies to perform 
testing and certification for compliance with its technical 
regulations, the agreement includes the Korean government's commitment 
to provide national treatment to U.S. conformity assessment bodies and 
for Korea's government authorities to provide national treatment when 
testing and certifying U.S. products. The agreement also provides for 
the establishment of a bilateral committee to strengthen FTA and WTO 
commitments on TBTs, which will monitor implementation and promote 
cooperation.
    Beyond these important provisions, the U.S.-Korea FTA contains 
further commitments by the Korean government that stand to benefit the 
U.S. auto industry and thus contribute to reducing the imbalance in 
U.S.-Korea automobile trade. These include: enhanced intellectual 
property rights protections and enforcement; new protections for U.S. 
investors and a more stable legal framework in Korea for investment-
related cases; strong competition policy provisions; and statements by 
the Korean government that it will not discourage the purchase or use 
of U.S. goods or services--an important commitment in light of past 
``anti-import'' campaigns in Korea.
    In short, the U.S.-Korea FTA has stronger and more comprehensive 
provisions related to the automotive sector in the areas of taxes, 
tariffs, standards and technical barriers, and dispute settlement, than 
any other U.S. trade agreement. It provides a powerful tool for 
restoring balance to U.S.-Korea automobile trade and an important 
opportunity for ensuring that U.S. automakers and auto parts 
manufactures can fairly compete in the Korean market.
Anticipated Economic Effects of the U.S.-Korea FTA on the U.S. Auto 
        Industry
    The U.S.-International Trade Commission (USITC) noted the 
agreement's benefits to the U.S. automotive sector in its September 20, 
2007 assessment of the possible impacts of the FTA. The USITC 
forecasted that ``U.S. exports of passenger vehicles to Korea would 
likely experience a large percentage increase as a result of the FTA'' 
following full implementation of the FTA's provisions on standards and 
certification requirements, taxes, regulatory reforms, and other 
measures addressing non-tariff barriers.\1\ Its economic simulation 
estimated that exports of U.S. motor vehicles and parts to Korea would 
increase between $294 million and $381 million (45.5 percent to 58.9 
percent).\2\ The USITC observed that the removal of Korea's 8 percent 
tariff on U.S. passenger cars and 10 percent tariff on light trucks 
under the agreement would ``likely have a positive effect'' on U.S. 
exports, enabling U.S. companies to lower the price of their vehicles 
in the Korean market. It also concluded that the tax reforms included 
in the FTA would ``more or less'' equalize the total taxes paid on 
imported and domestic vehicles. While the USITC simulation also 
forecasted that U.S. imports of Korean motor vehicles and parts could 
increase by $1.3 billion to $1.7 billion (9 percent to 12 percent), it 
also forecasted that 55 percent to 57 percent of this estimated 
increase would be diverted from other foreign motor vehicles and parts 
sold in the United States. \3\ For this reason, the USITC concluded 
that the risk of any decline in output or employment for the U.S. 
automobile industry and U.S. auto parts manufacturers from the FTA 
``would likely be negligible.'' \4\
---------------------------------------------------------------------------
    \1\ U.S. International Trade Commission (USITC). The U.S.-Korea 
Free Trade Agreement: Potential Economy-Wide and Selected Sectoral 
Effects. Washington, D.C.: U.S. International Trade Commission, 
September 2007. p. 3-74.
    \2\ USITC, ibid., p. 2-8.
    \3\ USITC, ibid., p. 3-82.
    \4\ USITC, ibid., p. xviii.
---------------------------------------------------------------------------
Rapid New Growth for U.S. Auto Exports to Korea
    It is important to recognize that Korea is no longer the closed 
market it once was to U.S. and other foreign automobiles. In fact, 
foreign import penetration of the Korea haven auto market has grown 
exponentially in recent years--as evident from the below chart. \5\
---------------------------------------------------------------------------
    \5\ Korea Automobile Importers and Dealers Association.

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    For the first 7 months of this year, the total market share of 
foreign autos in Korea was at 6.54 percent. In comparison, the market 
share for foreign vehicles in Korea was 5 percent in 2007, 3.89 percent 
in 2006, 2.7 percent in 2005, and 0.26 percent in 1999. U.S. automakers 
sold 6,235 cars in Korea in 2007, an increase of nearly 37 percent over 
2006 sales levels, and have already sold more cars in Korea during the 
first 7 months of this year--4,584 vehicles--than they did in all of 
2006. \6\
---------------------------------------------------------------------------
    \6\ Korea Automobile Importers and Dealers Association.
---------------------------------------------------------------------------
    The U.S.-Korea FTA would be beneficial to U.S. companies looking to 
increase their market share and product offerings in Korea. For 
example, General Motors announced earlier this year a study to examine 
the potential for introducing the Chevrolet brand into Korea. 
Currently, GM only sells the Cadillac brand in Korea, apart from its 
Korea-manufactured Daewoo brand. Ratification of the FTA could provide 
incentives for U.S. automakers to expand their brands and models 
available to Korean consumers. Indeed, the best way to continue to 
increase U.S. market share in Korea's auto sector is through 
Congressional approval of the U.S.-Korea FTA.
The Costs of Inaction
    Delaying or rejecting the U.S.-Korea FTA on the basis that it does 
not go far enough in opening Korea's market to U.S. autos is not a 
solution for addressing the imbalance in U.S.-Korea automobiles trade, 
nor will this promote the competitiveness of the U.S. auto industry in 
the Korean market. Rather, it risks placing the U.S. automotive 
industry at risk of further market imbalances and erosion of its market 
share in Korea. European and Japanese automakers are subject to the 
same tariffs, non-tariff barriers, standards and regulations in Korea 
as U.S. motor vehicles, yet have rapidly increased their market share 
in Korea; through the first half of this year, Japanese and German 
models comprised Korea's top ten-selling foreign autos.
    The foreign auto companies' proven success in Korea is a cogent 
argument for ratification of the U.S.-Korea FTA soon. Another is 
Korea's current negotiation of a network of bilateral and multilateral 
trade agreements with the European Union, India, Canada, and other 
countries. Korea is also studying possible FTA talks with China and the 
possible reopening of its FTA negotiations with Japan, which are 
currently in a hiatus. The U.S.-Korea FTA, if put into effect first, 
will help to set the terms for these negotiations and other future 
trade agreements. That is important as we do not want to have less 
comprehensive agreements set the rules of trade for us. Korea is close 
to completing its FTA with the European Union. If that agreement was 
put into effect before the U.S.-Korea FTA, the U.S. auto producers 
would be at a substantial competitive disadvantage to European 
competitors. This would only further exacerbate the imbalance in 
bilateral auto trade.
Conclusion
    The U.S. Chamber of Commerce, the U.S.-Korea Business Council, 
AMCHAM Korea, and the U.S.-Korea FTA Business Coalition believe that 
the best way to address the U.S.-Korea auto trade imbalance is through 
the ratification and implementation of the U.S.-Korea FTA and the 
strict enforcement of its provisions. Our organizations and our member 
companies view the agreement as a landmark opportunity to level the 
playing field in one of our country's most important overseas markets 
and international partners, and in doing so generate new jobs and 
economic growth across the United States. Our organizations welcome the 
opportunity to provide the members of the Interstate Commerce, Trade, 
and Tourism Subcommittee with additional information about the U.S.-
Korea FTA.

    Senator Dorgan. Mr. Brilliant, thank you very much.
    Let me ask you a question first. You talk about the U.S. 
Chamber and the groups you represent pushing the Koreans to own 
up to their agreements. Have you been pushing the Koreans to 
own up to their 1998 agreement that they made with this 
country?
    Mr. Brilliant. We were very involved, past 1999, in 1998, 
in that effort. Let me just be clear, though: there are 
specific commitments that Korea has lived up to in the 1995 and 
1998 agreements. First of all, they lowered their tariff rate 
to 8 percent. Second, they reclassified minivans, as they 
committed to. And, third, they definitely shifted the 
certification standards. So, there are some commitments, 
specific commitments, they lived up to.
    We would like to see more market access for our companies, 
which is why we pushed hard for the U.S.-Korea FTA to include 
robust, meaningful, comprehensive obligations of the Koreans 
in--with respect to the auto industry.
    Senator Dorgan. But, Mr. Brilliant, it appears to me, on 
automobiles, 8 years--10 years after the 1998 agreement, there 
is largely one-way trade. You have done an awfully good job in 
trying to portray it as some modicum of success by talking 
about a 37-percent increase to 6,000 vehicles that we sell in 
South Korea. But, the fact is--if I can have the chart again--
they sent us 800,000, and we only sent them 6,000.
    You all might want to read the story about the Dodge Dakota 
pickup truck and their experience. Chrysler was very excited 
because it looked like they were going to start to sell the 
Dodge Dakota pickup truck in South Korea. I think they sold 50 
a month for a few months. It looked like that was kind of a 
promising market, looked like the South Koreans kind of liked 
the Dodge Dakota pickup truck. Then the South Korean government 
shut it down, just like that, despite all of the progress, 
despite all of the things that you described. This describes 
what I think is largely one-way trade that cannot possibly be 
described as successful.
    I've got some questions--additional questions for you, Mr. 
Brilliant, and I'm going to let you have plenty of time, as 
well, but I do want to go to Mr. Cassidy.
    Mr. Cassidy, you know, I've been speaking--this goes to 
China, but it's the same problem that we have with Korea. We 
did an agreement with China that was unbelievably, in my 
judgment, ignorant of our own self-interest. We said to the 
Chinese, who are ramping up a very robust automobile export 
program, and it's going to hit us very soon--we said, ``When 
you send a car to the United States of America, we will only 
impose a 2\1/2\ percent tariff, but if we send American cars to 
China, you may impose a 25-percent tariff.'' A country with 
whom we had a very large trade deficit, we said, ``You can 
impose a tariff that is ten times larger than we will'' on 
bilateral automobile trade.
    You no doubt have heard me--I've spoken on the floor about 
this many times, saying I'd love to meet the person that 
actually did that, 2\1/2\ percent versus 25 percent, because 
I'd like to fire them personally. You don't work for me, but I 
understand that you had something to do with that. Can----
    [Laughter.]
    Senator Dorgan. Because--and I ask you about it, only 
because it is related directly to the way the South Korea 
agreement has also, in my judgment, been incompetently 
negotiated. Tell me the background of all of this.
    Mr. Cassidy. Yes. I am the person who negotiated that. And 
I've been waiting for this opportunity. I----
    [Laughter.]
    Mr. Cassidy.--no longer work for the U.S. Government, so 
you can't fire me.
    [Laughter.]
    Senator Dorgan. You know, you're right, I can't get rid of 
you, but I've actually asked you to testify so I understand 
what has caused us to do these things that appear, clearly, not 
to be in our interest.
    Mr. Cassidy. Well, at the time, China's tariffs were 110 
percent, and we reduced the tariff on fully assembled 
automobiles to 25 percent. But, the story behind it is somewhat 
more complex, because the only company that was shipping fully 
assembled automobiles--or shipping exports to China in the form 
of a fully assembled automobile--was Chrysler. Well, let me 
just rephrase that. Ford and GM were sending their automobiles 
fully assembled from other countries--Australia or in the EU. 
Chrysler, on the other hand, was shipping unassembled 
automobiles to China. So, what we did, because it had more 
direct impact on U.S. exports, is, we reduced the tariff on--
the average tariff on parts, automotive parts--my Boston 
accent, that's P-A-R-T-S----
    Senator Dorgan. I got it.
    [Laughter.]
    Mr. Cassidy.--we reduced that to 10 percent. And thus, it 
would cover fully unassembled automobiles. So, for U.S. 
exports, the benefit was in the automotive parts. So, 
effectively, for the only product that was being exported from 
the United States in a knock-down version was Chrysler, and 
that's what we negotiated. The other ones were being shipped 
from other countries, and I figured, well, let's let the other 
countries negotiate their tariffs down. But, it was not going 
to help us.
    But, let me just say, further on, that, even with that 
tariff, the problem with the China deal is not necessarily in 
the tariffs, but the problem with the China deal is in the 
other things that typically are not negotiated within the 
framework of trade agreements, like currency undervaluation. 
And, you know, these are the things that have the greatest 
impact on automotive trade. So, even it if were down to 2.5 or 
zero, we still wouldn't be exporting----
    Senator Dorgan. No, Mr. Cassidy, I understand that. And, in 
fact, the same problem exists with currency with Korea and 
the----
    Mr. Cassidy. Right.
    Senator Dorgan.--nontariff barriers. I understand all of 
that. But, can you understand how someone in a policymaker 
position serving in Congress would take a look at this and say, 
``We have a--an unbelievable abiding resistant trade deficit 
with China that continues and continues and continues, because 
that's the way they want it, and they're now gearing up a huge 
automobile export industry, and we're going to be flooded with 
these cars, and we're going to charge 2\1/2\ percent, and when 
you--when Chrysler tries to ship a car to China, they charge 25 
percent, and we, by agreement, said that's OK''? So----
    Mr. Cassidy. But, Chrysler was going to be charged a 10 
percent tariff----
    Senator Dorgan. I under--well, I understand----
    Mr. Cassidy.--not a 25 percent tariff. And, you know, the 
expectation was--remember, these were unilateral concessions on 
the part of China. The United States gave nothing.
    Senator Dorgan. Oh, we----
    Mr. Cassidy. And certainly they----
    Senator Dorgan. No, no, we agreed for China to go to the 
accession to the WTO. Of course we----
    Mr. Cassidy. Yes, we agreed to that, but----
    Senator Dorgan. That was a big, big deal.
    Mr. Cassidy.--they got the benefits of the agreement, in 
any case. They got MFN provision anyways.
    Senator Dorgan. Yes, but--but, I mean, it's not--we 
shouldn't suggest China didn't get anything. The result of all 
of this--a terrible trade agreement with China, in my judgment.
    But, let me--let me go on, because Senator McCaskill is 
with us--I want to ask a couple more questions, then I'll call 
on Senator McCaskill.
    Most of us, I think, would believe, although there are a 
few that don't, that this trade deficit is destructive of our 
long-term interest. It's not a sign of economic health, it's a 
sign of trouble. Now, I know that some would look at me--I'm 
for trade, and plenty of it. I like trade. I insist that trade 
be smart and represent our interests. Some view me as, you 
know--or view people who--like me, who talk about these things, 
as xenophobic isolationist stooges that just don't get the 
theory of free trade. In fact, I think what is happening to us 
is--incrementally, agreement after agreement after agreement, 
we eat away and erode the basic economic foundation here, and 
it's because we don't stand up for our interests.
    Now, Mr. Gettelfinger, I assume that American workers, 
through labor unions, had access to the USTR, and pushed hard 
to say, ``What you're signing us up for here is more 
joblessness.'' You know, is that the case? Did you have access 
to USTR? And what was their response when you told them your 
assessment of what this trade agreement with South Korea would 
do to your autoworkers?
    Mr. Gettelfinger. Well, we don't really have the access 
that our workers should have. There's really not a voice there 
when these trade agreements are negotiated. And I would just 
refer you to Miami, when the trade ministers met. We went 
down--the AFL-CIO led a delegation down there, and we wanted to 
go down and peacefully protest. It was like a military zone. It 
was like a war zone. Literally, streets were blocked off, 
hotels were locked down, police were everywhere. They even used 
some of the money that was set aside for Iraq to have water 
cannons, just because we came down to peacefully protest. So, 
workers don't have a voice, really, and workers don't have a 
say when these agreements are put together.
    It just seems to us, in this particular case, this is a no-
brainer. It is a no-brainer. We're, as a country, on the losing 
end of this agreement. So, I think that if you just step back 
and say, ``Well, where does the worker come into play?'' the 
worker comes into play in the unemployment line.
    Senator Dorgan. Dr. McMillion, I've long appreciated your 
work, in which you've mapped out and charted and described what 
trade deficits mean to our country. Describe for me the ways 
that we, in 2008, end up with a largely wide-open market in our 
country for automobiles from around the world to come here, 
and, standing on a street corner of Seoul, not being able to 
see a foreign car. That doesn't happen by tariff. I mean, Mr. 
Brilliant described the 6.2 percent tariff. It's not a tariff 
issue, is it, with South Korea?
    Dr. McMillion. No, it's not a tariff issue, it's--there are 
so many different things involved, Mr. Chairman. But, this is a 
system that evolved after World War II, when the United States 
was, far and away, the most technologically superior country in 
the world, and the rest of the world was in ruins. And our 
trade policy developed as part of our foreign policy, not as--
not with very much consideration--really not with any 
consideration toward job creation and production here in the 
United States. It was a time when we thought we could pay any 
price and bear any burden. And now, as you say, incrementally, 
one free trade agreement--or one trade agreement following 
another, we've ended up with $2 billion a day that we have to 
borrow from foreign interests. Even in the middle of this worst 
financial crisis since 1933, today we're having to borrow $2 
billion to pay for all the cars and computers and cell phones 
that we import.
    Senator Dorgan. Let me just ask, isn't it the case that, 
with each succeeding trade agreement, things have gotten worse? 
I mean, this----
    Dr. McMillion. Well, I----
    Senator Dorgan.--this is a chart that shows the trade 
deficit, year by year by year. It seems to me it's very hard to 
describe those growing deficits as a success for our country.
    Dr. McMillion. Yes, sir. And there are many things--let me 
just say two of them that are--that I think are particularly 
important. In, I believe, each of the years that you have up 
there, the United States was growing far slower than the world 
economy, half the rate in Korea, about a quarter of the rate in 
China. Now, the theory is that, trade balances, you have 
surpluses and deficits, depending on your position in the 
business cycle, but certainly if you're growing slower than the 
global economy, you're supposed to have a surplus. And so, not 
only have we been running these world-record deficits, about 5 
percent of GDP over the last 8 or 10 years, but we've been 
doing them at a time when we're growing slower than the world.
    Senator Dorgan. It's more than 5 percent, at the moment, as 
you know.
    I want to ask Mr. Bozzella a question, and then Mr. 
Brilliant, and then I'm going to call on Senator McCaskill.
    Mr. Bozzella, you're a member of Mr. Brilliant's 
organization, right?
    Mr. Bozzella. I am, yes. Yes----
    Senator Dorgan. Chrysler belongs----
    Mr. Bozzella. Yes, we are.
    Senator Dorgan.--to the Chamber of Commerce?
    Mr. Bozzella. Right.
    Senator Dorgan. And I have spoken to the CEOs of GM, 
Chrysler, Ford to say, ``I don't hear much from your 
participation in the U.S. Chamber, except the U.S. Chamber is 
the biggest cheerleader for these trade agreements, and you're 
inside, apparently believing that the South Korea agreement, at 
least, undermines your own company's interest.'' Are you making 
that case inside the Chamber of Commerce?
    Mr. Bozzella. Well, we have made that case inside the 
Chamber of Commerce. And, as you know----
    Senator Dorgan. Has it leaked out?
    [Laughter.]
    Mr. Bozzella. Well, Mr. Chairman, we recognize that we have 
a difference of views with several members within the Chamber. 
You know, we certainly value the Chamber's efforts on a whole 
host of business issues. We disagree vigorously with them on 
this, and we would suggest that this is not, by the way, as 
some might suggest, you know, maybe one or two members of the 
Chamber who are concerned and disgruntled; we're talking about 
80 percent of this imbalance being automotive. And so, it's 
essential that we not think of this in terms of the needs of 
maybe one or two members of the Chamber of Commerce, but we 
think about it in terms of addressing 80 percent of this 
imbalance.
    Senator Dorgan. Now, Mr. Brilliant, you represent--and the 
Chamber does--what it perceives to be the interests of the 
Chamber--members of the Chamber and the country, as they see 
it, right? And----
    Mr. Brilliant. Yes.
    Senator Dorgan.--I'm trying to understand, this--we have 
been confronted here with U.S.-Canada trade agreements, with 
NAFTA, with CAFTA, with--you know, with all kinds of trade 
agreements, and you see what has happened to these deficits, 
year after year after year, going back to 1995. I could go back 
further. The deficits get worse. It appears to me--and I felt, 
at the time, I thought NAFTA was a horrible agreement, in terms 
of our own economic interests, and--Dr. McMillion points out 
that we now import more cars from Mexico, by far, than we 
export to the entire rest of the world. I have felt that these 
agreements have really undermined our economic interests rather 
than enhanced them, because the trade has not been two-way 
trade that is fair trade.
    How do you see this chart with the red ink? Do you view it 
as a success?
    Mr. Brilliant. Well, I think, first of all, the goal of 
U.S. trade policy should be to level the playing field in 
overseas markets to ensure we have market access. And if you 
look at the free trade agreements that we've conducted and 
concluded in recent years, we've not--we've seen gains, 
actually, in our export sales to those markets, whether it's 
Singapore or Australia or other markets. And we've ensured that 
we have greater market access. We've ensured that there are 
protections for intellectual property rights and for other 
issues.
    Let me tell you--you've mentioned China several times this 
morning, Mr. Chairman--we have a very comprehensive paper on 
the state of the U.S.-China relationship which yearly we 
provide to the U.S. Government, with recommendations on how to 
address ongoing barriers to trade in that market, and we would 
welcome sharing that with you and your staff. We take on a host 
of issues, many of which are not tariff barriers.
    So, when you look at the issue of merchandise trade 
deficits, we recognize your concerns, but we think the answer 
is in opening up other markets, ensuring that those countries 
that are not playing by international rules and standards do. 
And major trading partners of the United States, including 
China, have areas which we'd like to see addressed.
    Senator Dorgan. But, you seem to be acknowledging that 
nontariff trade barriers are a problem, and yet, you do not 
insist that they be dealt with or corrected in the very 
agreements that we're discussing. The South Korea Free Trade 
Agreement that has been negotiated does not address the 
nontariff barriers that the South Korean government creates to 
try to prevent U.S. vehicles from entering their marketplace.
    Mr. Brilliant. Well, this is where we would differ. We 
think that the U.S.-Korea FTA agreement does address many 
nontariff measures. It's the most robust on measures on 
transparency and dealing with standards. It allows our industry 
to get in very early in the process and address standards 
rulemaking in Korea. And we've seen evidence of this already, 
before the agreement is implemented in South Korea. This 
summer, our negotiators were in, talking about standards that 
affect the auto industry. So, I think--and I believe the U.S. 
auto industry was very much a part of that process. So, I think 
there is evidence that the South Korean government understands 
its obligations, but the value of this agreement is that the 
obligations are binding.
    Senator Dorgan. It just seems to me that if the three major 
auto companies in the U.S., members of your organization, 
believe that 80 percent of the trade deficit with Korea is 
automobile trade-related, and they believe the protections in 
the agreement are not sufficient to address the nontariff 
issues, it seems to me that ought to be dispositive for the 
Chamber of Commerce.
    Mr. Brilliant. Well, can I just make one additional point 
here?
    Senator Dorgan. Yes.
    Mr. Brilliant. There is one company of that three that has 
taken a neutral position on the issue of the FTA. And it's 
important to note for the record that General Motors 
anticipates possibly selling--exporting Chevrolets to South 
Korea as a result of the U.S.-Korea----
    Senator Dorgan. I have visited----
    Mr. Brilliant.--FTA.
    Senator Dorgan.--with General Motors folks. I must say--let 
me just say how much I appreciate Chrysler being at the table, 
because it's not easy for them to come. Most auto companies 
will not come to the table and speak publicly about these 
issues. There all kinds of ramifications for doing so. It takes 
some courage for Chrysler to be here, but it's--I would say 
it's about time. Thank you, Chrysler. But, I understand why the 
industry has been eerily quiet for a long period of time, even 
as trade agreements, I think, have not served their interests.
    Senator McCaskill? Thank you for----

              STATEMENT OF HON. CLAIRE McCASKILL, 
                   U.S. SENATOR FROM MISSOURI

    Senator McCaskill. Let me follow up----
    Senator Dorgan. Thank you for being patient.
    Senator McCaskill. Sure, yes.
    Let me follow up with the silence of General Motors. I 
mean, isn't it true that, among all of our domestic auto 
producers, they're the only ones that have, in fact, invested 
in a plant in South Korea?
    Mr. Brilliant. Well, General Motors does have a joint-
venture relationship with Daewoo, but----
    Senator McCaskill. So, Daewoo----
    Mr. Brilliant.--but they are not silent, in the sense that 
they have provided input into the process, and they have made 
it clear that their position is officially neutral, but they do 
see benefits for the automobile industry.
    Senator McCaskill. Let's talk turkey, here. I mean, GM is 
neutral because they've got skin in both sides of this game. I 
mean, GM is neutral because they've invested in a South Korean 
company, and they are anticipating making money off the cars 
they're making in South Korea with South Korean workers and 
shipping them to the United States of America. Isn't that true, 
Mr. Brilliant?
    Mr. Brilliant. Well, actually, it's not true--that's not a 
full picture. First of all, every company has its own unique 
set of circumstances, and they need to represent themselves 
before this Subcommittee. But, let me tell you----
    Senator McCaskill. Well, you're the closest I can get to 
them, since they're not here.
    [Laughter.]
    Senator McCaskill. Believe me, I'd be----
    Mr. Brilliant. I appreciate that.
    Senator McCaskill.--asking them, if they were here----
    Mr. Brilliant. I appreciate that.
    Senator McCaskill.--since they--they're kind of lurking 
around our offices right now, asking for seriously, seriously 
big taxpayer money.
    Mr. Brilliant. I'd make a few points. First of all, 
Chrysler was on the Executive Committee of the U.S.-Korea 
Business Council. General Motors sits on it, currently. I think 
that speaks of their commitment to work with our Government and 
with the Korean government to address substantial barriers to 
trade that exist in that market, and have existed for years. We 
share the concern of the auto industry, broadly, about the 
competitiveness of the industry, in light of challenges to the 
industry here, domestically, but we also believe that the best 
answer is to knock down the barriers that exist in that market, 
which is why we were supportive of the U.S.-Korea Free Trade 
Agreement, because it does have binding obligations.
    With respect to General Motors, I can tell you--because one 
of their top executives is--sits on our executive board--he has 
said, repeatedly, that they are going to look at opportunities 
to export from this market to South Korea once the FTA is 
implemented. I think that's an encouraging sign, that the 
Subcommittee should recognize.
    Senator McCaskill. Let me ask you this, in an honest 
assessment, do you disagree that this free trade agreement will 
increase our automobile trade deficit with South Korea?
    Mr. Brilliant. Well, I've seen evidence that it will 
increase exports to South Korea. The ITC report says that, for 
both passenger vehicles, as well as auto parts, it will 
increase exports. We anticipate, also, an increase of imports 
into the United States from South Korea. The percentages are 
obviously smaller, in terms of imports, because they're 
starting from a larger volume base. But, a lot of that could be 
diverted from other trading partners, whether it's Thailand or 
Japan or other places where automobiles are exported to the 
United States. And so, the overall impact is not clear.
    What I can tell you is that--which was referenced earlier--
we don't anticipate South Korea having the ability to ramp up 
its trucks and selling--because, first of all, they don't have 
that capacity, currently, and the tariff reduction is over 10 
years. It's not like to--to have any evidence, short term, that 
that will, in fact, hurt our domestic automobile manufacturers 
here in the United States, the tariff reduction.
    Senator McCaskill. It was a long answer. Let me try again. 
Do you disagree that this free trade agreement will, in fact, 
increase our automobile trade deficit, rather than decrease it?
    Mr. Brilliant. I think the short answer is, it will have a 
negligible impact, either way, but it will, in fact, lower 
barriers, both tax and tariff, as well as dealing with 
nonstandard issues, that will provide more market access for 
our companies, going forward.
    Senator McCaskill. OK.
    Let me ask--the ITC report talks about hybrids being 
attractive. We've obviously had a tough time in Missouri with 
Chrysler. We've lost 3,800 jobs this year in automobile 
manufacturing in my state. Those families are sitting around 
today, scratching their heads, reading the news. They're trying 
to figure out exactly what has happened to them. I read, 
yesterday, there's a $3.5 billion bonus pool that is staying 
intact for Lehman Brothers as Barclays buys them, for the 
executives. And those families in O'Fallon and South County are 
sitting around, asking, ``What has happened that we're writing 
checks of billions and billions of dollars everywhere?'' I'm 
trying my best to let them know I get it, that I understand 
that they're scared and frustrated and mad as hell.
    I guess one of the things that provided a little bright 
light in the materials I prepared for today was this idea that 
maybe there is a market for our Ford Escape hybrid in Korea. 
Maybe one of you can speak to that, whether or not you think 
there is, in fact, an appetite for hybrids, since they're not 
domestically producing hybrids, it's my understanding, in South 
Korea, and whether or not this would help, in terms of 
exporting of hybrids.
    Mr. Gettelfinger. I personally, Senator, do not think that 
it would. Look, South Korea's the fifth largest producer of 
vehicles in the world, they're the fourth largest exporter of 
vehicles. I'm hearing the positive spin on the agreement, but 
if this is true, why wouldn't it simply be done that, before we 
open our market further to them, that they open their market to 
us? That should be a precondition of going into this. Then, 
if--on the 2.5 percent tariff, that snap-back, if it exceeds 
what is reasonable or the trade starts getting unbalance, then 
put that 2.5-percent tariff back on. Let them step up to the 
plate and say, ``Look, we are going to eliminate nontariffs.'' 
And then, let's put in this compensatory action to counter them 
by going after other exports, in the event they take advantage 
of us. And then, leave the 25 percent pickup tariff to a 
bilateral commission of the World Trade Organization. That was 
proposed, by a bipartisan group of Senators, to the Bush 
administration when this was being negotiated, in March of 
2007.
    I think you hit the nail on the head. On the one end of the 
table, we're talking dollars and cents and big bucks, and on 
the other end of the table, we're talking about how workers, 
their families, their lives, and their communities are impacted 
by these unfair free-trade agreements that are destroying our 
country.
    Dr. McMillion. Can I say, Senator----
    Senator McCaskill. Dr. McMillion? Yes.
    Dr. McMillion.--that Toyota and others, in joint ventures 
with Chinese state-owned automakers, are already producing 
hybrids in China and exporting very heavily to Korea already. 
So, that's the competition. I think the idea that we're going 
to produce them here with our health and safety and all other 
costs related here, and sustaining our living standard with 
wage rates that we have to pay to pay----
    Senator McCaskill. Unrealistic.
    Dr. McMillion.--the mortgage, and export them to Korea is 
not in the cards.
    Senator McCaskill. Mr. Brilliant?
    Mr. Brilliant. I just would make one point, here, that for 
those hybrid models that are being sold right now into the 
Korean market, the tariff rates would go down to zero upon 
implementation of the FTA agreement. So, we could see expansion 
of trade. There are different phase-ins, generally, for hybrid 
vehicles, depending on the power system.
    But, I'd go back to one other point. There are 70,000, now, 
vehicles being sold in South Korea, foreign vehicles being sold 
in the market. We have only 6,000 of that 70,000 share. I'd 
like to see us increase our overall percentage of the vehicles 
sold in South Korea, and I think the only way to do that is to 
make sure Korea lives up to binding obligations. I'm not sure 
the answer--I'm sure the answer is not letting the Europeans 
and the Japanese have more of that market. And the only way to 
ensure that is to make sure that we follow through on our 
commitments here.
    Mr. Bozzella. I'm sorry, Senator, may I just----
    Senator McCaskill. Sure.
    Mr. Bozzella. I'm sorry. On the--this hybrid question, I 
think it is important to note, to Mr. Brilliant's point, that, 
in fact, the issue of covering the hybrids in a tariff cut was 
something that the Koreans resisted until the very last moment. 
Number one.
    Number two, again, the issue isn't the tariff rates. The 
issue is a continual outcropping and uprising of nontariff 
barriers that have been--we've been in this market for 20 years 
now in Korea, so it's not like we've come to this lately. And 
so, if this agreement does not have a robust approach to 
nontariff barriers, I would be concerned about our ability to 
drive cutting-edge technologies that we develop here in----
    Senator McCaskill. Which we're going to do, right?
    Mr. Bozzella. Which we are going to do. And, as I said 
earlier, Senator, we are a company that exports around the 
world. We have--we do not have extensive manufacturing 
operations around the world. We are dependent on good free 
trade agreements being negotiated in order for us to gain 
market access.
    Senator McCaskill. I heard you mention the Chamber of 
Commerce board of directors, and I want to say that I am not--I 
kind of--you know, pitched a tent in the middle on a lot of 
these issues. I've tried to be reasonable as it relates to the 
reality of world trade and the ability of the people I 
represent to export around the globe and participate in the 
global economy. I also, you know, want to look at every one of 
these trade agreements carefully and make sure they're fair to 
the men and women who work in America.
    And I know that the Chamber of Commerce is on the front 
line here. And you mentioned your board of directors. And I 
just want to say to you today, Mr. Brilliant, even if you are 
not there at those board meetings, if the decision was made, in 
a Chamber of Commerce board meeting, to spend somewhere between 
$15 and $20 million on political advertising this cycle, 
completely on the other side of the aisle, I would like to 
understand the rationale behind that.
    And we are all noticing it's unprecedented for the Chamber 
of Commerce to become this politicized in our election cycle. 
And for General Motors and Chrysler and all the members of the 
Chamber of Commerce, I hope they fully understand that this is 
a decision that somebody made at the Chamber. And I don't know 
on what basis it was made. But, for all of us who consider 
ourselves moderate votes, who consider us willing to listen to 
every side of every question--I have abandoned my party line 
with more frequency than almost any other Democrat in my 
caucus, and when I see these advertisements that are completely 
being paid for by the Chamber of Commerce, it really--it just 
makes me scratch my head. Who is making this decision, and why, 
and what are you saying to the people here that are trying to 
find the middle?
    I just--I would be really interested to know if your board 
of directors signed off on that decision. Do you know whether 
or not they did, Mr. Brilliant?
    Mr. Brilliant. Well, just a point of clarity. When I 
referenced ``the board'' where GM and Chrysler sat, I was 
referencing the U.S.-Korea Business Council, an affiliate of 
the U.S. Chamber of Commerce. I sit as president of the U.S.-
Korea Business Council. I also sit as an officer of the U.S. 
Chamber of Commerce. But, my reference to Ford and--sorry--to 
GM and to Chrysler, in this context, was with respect to the 
U.S.-Korean Business Council.
    Senator McCaskill. Well, I'm confused. Are you a member of 
the governing board----
    Mr. Brilliant. I wear----
    Senator McCaskill.--that decided to do this? Do you--were 
you aware of this decision? Did you have a part in it?
    Mr. Brilliant. I personally did not have a part in this 
decision. It's a very complex, or a very detailed process by 
which we determine which candidates--or which candidates for 
elective office that we will support or not support.
    Senator McCaskill. Doesn't look like it to me. It looks 
like----
    Mr. Brilliant. Based on their----
    Senator McCaskill.--it's pretty simple. If it's a 
Republican, you run it for them, and if it's a Democrat, you 
run them against it.
    Mr. Brilliant. I'm sympathetic to your views. I am not here 
today to talk about that.
    Senator McCaskill. I get that, but----
    Mr. Brilliant. I represent----
    Senator McCaskill.--it's on my mind.
    [Laughter.]
    Mr. Brilliant. Understood.
    Senator McCaskill. And it's on a lot of people's minds. And 
I just--I--you know----
    Mr. Brilliant. Our Congressional staff is responsible for 
this and I will let them know of your concerns.
    Senator McCaskill. You want to----
    Mr. Brilliant. I can follow up with your office.
    Senator McCaskill. Yes. You want to know why this place 
gets so divided and partisan? And you want to know why we can't 
come together and solve real problems that face our country? 
It's because this kind of stuff happens, and everybody around 
here, you know, starts seeing the Chamber of Commerce, not as a 
legitimate coming together of American businesses to try to 
promote American businesses, but the arm of one political party 
or the other. And it happens on both sides. I get just as 
cranky when I think folks on our side--but, this year there 
only appears to be one major actor, and it's the Chamber of 
Commerce. And I just wanted to--it's on my mind right now. I 
wanted to convey that to you. And I have a feeling you'll tell 
somebody about it.
    Mr. Brilliant. I appreciate that, and----
    Senator McCaskill. Thank you----
    Mr. Brilliant.--I will convey your views to the proper 
people in the chamber.
    Senator McCaskill.--Mr. Brilliant.
    Senator Dorgan. Senator McCaskill, I think you just told 
somebody about it.
    [Laughter.]
    Senator Dorgan. Let me thank you for your comments and your 
participation.
    And she raises a point that is very important, and a point 
that we hope you will deliver soon.
    Does anybody on this panel believe that there is some 
epiphany that's occurred in South Korea that persuades them 
that they would like to reduce their trade surplus in 
automobile trade with the United States?
    Mr. Cassidy, do you believe that? Let me just add, the 
reason I ask the question is, it seems to me they have had a 
very deliberate strategy for a long period of time, even post-
1998, since we had an agreement, since we would have expected 
them to own up to the terms of the agreement--they have a 
decision about how they want to run their economy. They want to 
produce vehicles to be sold here. They don't want us to produce 
vehicles to be sold there.
    So, the question is: Has the Government of South Korea, 
based on what they have told us and what they have said and so 
on, had some epiphany that tells us that the whole strategy 
there has changed, they'd like to actually have more U.S. cars 
shipped there and reduce their trade surplus with us on a 
bilateral automobile trade?
    Mr. Cassidy?
    Mr. Cassidy. Senator, I think I concur with you on this, 
but my--the way I do that is, I've been looking at the exchange 
rate of the Korean won during--prior to and after the 
negotiations. And, in part, we were looking at all of the Asian 
currencies, because of our focus on China--why was China not 
working? And I kept noticing that, during the negotiation 
phase, that Korea was appreciating its currency. And I thought, 
well, maybe this was because of the finance minister, Han 
Seung-soo, who was, I thought, a very responsible finance 
minister. And then, after the negotiations were over, the 
exchange rate then depreciates again. And this seemed, to me, 
classic Korean policy of using the exchange rate during the 
negotiation to keep that offer on the table, and then, after 
the negotiation is reached, that the agreement has been 
notified, the exchange rate goes down.
    And I've seen this far too often in my dealings with Korea, 
in particular; other countries, as well, but, I think this was 
a classic example.
    So, I come to the same position that you are, but I come to 
it through the--just observing the exchange rate.
    Dr. McMillion. Senator, could I say that----
    Senator Dorgan. Yes.
    Dr. McMillion.--there has been a epiphany in the business 
community and the political community in Korea over the last 2 
or 3 years, and that epiphany is an appreciation of the 
challenge that they face from China. There is enormous 
discussion in Korea, in the business community and the 
political community, about the technological threat that they 
feel very intensely from China. And the last thing they want to 
do is to see their auto and other industry surpluses with the 
United States and the West reduced, because they're so worried 
about competition from China. So, there is an epiphany, but it 
goes exactly in the other direction.
    Senator Dorgan. Mr. Brilliant?
    Mr. Brilliant. We have opportunities, obviously, through 
the Council, to meet with the senior leadership of Korea all 
the time, and we're constantly reminding them of the 
obligations that they're undertaking in the South Korea Free 
Trade Agreement. We'll see the Prime Minister later today in 
New York, we'll see the President of Korea in October, in 
Seoul. And of course we're going to continue to remind them of 
the importance of living up to--or following through on the 
obligations they're undertaking in this U.S.-Korea Free Trade 
Agreement.
    And we know the history, here, and we are very sensitive to 
the concerns of the U.S. auto industry. Our view is just that, 
if you look at the totality of circumstances, this is a very 
good agreement, not just for the auto industry, but for service 
providers, for farmers, for manufacturers, which is why we are 
putting our weight behind this agreement.
    Senator Dorgan. Mr. Brilliant, you say you know the 
history. Has the history largely been a failure, at least for 
the automotive sector in this country? Would you view the 
history with South Korea as less than satisfactory, or, as I 
would call it, a failure?
    Mr. Brilliant. I wouldn't call it a failure, but, of 
course, market access in South Korea for foreign vehicles, and 
particularly U.S. auto manufacturers, has not been 
satisfactory. It needs to be better. But, managed trade is not 
what we're looking for. What we're looking for is to eliminate 
the barriers that exist in South Korea that prevent our 
automobile manufacturers from selling in that market. And we 
think the FTA takes into account well, addresses many of them--
not all of them, but many of them.
    Senator Dorgan. Do you----
    Mr. Brilliant. And the answer is not to let the Europeans 
and Japanese seize the opportunities that may exist if we don't 
get this deal done.
    Senator Dorgan. Mr. Cassidy, he just described managed 
trade. In your judgment, is China, South Korea, just to name 
two, engaged in managed trade?
    Mr. Cassidy. Well, I would certainly say, in the case of 
Korea, that's been my experience, in that it has been much more 
managed. That's a small economy; and being surrounded by major 
countries, I think the policy position of the government has 
been to make sure that their trade position is maintained.
    I think China's is a little bit more complex, and I see 
that as an evolution of the economy. So, I can't honestly say 
that they manage it in quite the same way that the Koreans do, 
or that they are capable of doing that, but they are able to 
manage it through their exchange rate. And, once again, I raise 
that issue as a critical item.
    Senator Dorgan. I read the piece that you wrote about the 
runup in the won during the negotiation----
    Mr. Cassidy. Well, that's----
    Senator Dorgan.--and prior to----
    Mr. Cassidy.--the won. But, even in the China case----
    Senator Dorgan. I----
    Mr. Cassidy.--what they have done is, they have--that 
currency has depreciated----
    Senator Dorgan. I'm sorry.
    Mr. Cassidy.--by a significant amount.
    Senator Dorgan. Even more than Korea.
    Mr. Cassidy. That's right.
    Senator Dorgan. And China is a huge----
    Mr. Cassidy. And what happens in Asia is, most of the Asian 
currencies are aligned to China. So--to maintain their 
competitive position, vis-a-vis China--so, I--yes, they do, but 
not quite to the same detailed way that, I think, the Koreans 
do.
    Senator Dorgan. Mr. Gettelfinger, you indicated you didn't 
have much access to USTR, in terms of the voice of workers 
having some sort of input on what these agreements might mean 
to people that work for a living in this country. That's a 
shame, because it seems to me, United States trade Ambassadors 
negotiate on behalf of our country's interests, and a portion 
of those interests is the interests of American workers, in a 
very real way.
    Mr. Bozzella, you apparently did have access. Chrysler, you 
indicate in your testimony, did have access to USTR, and 
continually pushed USTR, but to no avail. Can you describe that 
again?
    Mr. Bozzella. That is accurate. We did appreciate the 
opportunity, over a period of time, to engage with the USTR. I 
would note that, as we got to the end of the process, frankly, 
with a U.S.-sided, self-imposed deadline, that that access and 
that opportunity for dialogue ended, and we were, frankly, 
surprised at what ended up coming out of the automotive 
chapter.
    We have said--had said, repeatedly, that, given our 
history--and Mr. Brilliant knows the history--we lived the 
history, we've been at this for 20 years--that we argued that 
what we needed was demonstrable progress prior to the U.S. 
giving up what little leverage it has. And that was clearly 
rejected.
    Senator Dorgan. Mr. Bozzella, what has happened to sales 
from your corporation of Dodge Dakota pickup trucks in South 
Korea?
    Mr. Bozzella. Well, the Dodge Dakota pickup story is 
instructive, for a number of reasons. We have really seen--we 
had a promising product that was a small, compact pickup truck 
that was designed to appeal to trades people and small-business 
people in Korea. We launched that vehicle, with high 
expectations. And, frankly, we ran into three barriers along 
the way, very significant ones. I think you alluded to them a 
little bit earlier.
    But, just to illustrate, because I think it's important, 
after launching the vehicle and seeing an increase in sales, 
albeit off a very, very low base, we were informed by 
authorities in Korea that the tax status of that vehicle was 
going to be reclassified. In other words, the vehicle, which is 
a truck--it is a--it's built on a frame, it's a pickup truck, 
it has got a bed in it, it's a pickup truck on--in every 
country on Earth--in Korea, it was reclassified to a car, which 
resulted in a tax increase of almost $5,000. We were, of 
course, dismayed by that and saw a drop in sales. We engaged in 
a process to try and get that turned around, and we were, 
fortunately, able to do so, and then ran into a second barrier.
    At that point, it was told to us by a different authority, 
a safety authority, that, in fact, this Dodge Dakota vehicle, 
with a cover on it, which, of course--any trades person or 
small-business person who wants to use a pickup truck's going 
to put a cover on it--that the cover was illegal. There was 
press accounts to this event--to this effect, which created 
another drop in sales. And then, we, frankly, through--had an 
intercession with the embassy, through Senate staff, to raise 
this issue and to say we really need to have some fairness with 
regard to this product.
    I would say there was an interesting sort of irony and 
Catch 22. The other authority that declared the vehicle a car 
and then let it become a truck again then said, ``When you put 
the cover on it, it looks like an SUV, so maybe we should tax 
it as a car again.'' Now, we managed to avoid that little 
problem, and then had the vehicle--finally, the safety 
authorities in Korea agreed that it should, in fact, be legal 
with the cover on it. And then, just finally--they came back 
and said, ``No, covers with glass windows would be illegal''--
and then, finally, we just gave up. We put bars on the windows 
and sold the vehicle like that.
    Senator Dorgan. And so, what have sales of Dodge Dakota 
pickup trucks been in----
    Mr. Bozzella. Well, needless to say, they've been low. And 
we have two problems. One is, we've--the Korean government has 
left consumers with great uncertainty in their minds as to 
whether this product is a legitimate product. And, number two, 
you've got to really wonder about the tenacity of a company to 
kind of continue to----
    Senator Dorgan. Yes.
    Mr. Bozzella.--try and get----
    Senator Dorgan. Well----
    Mr. Bozzella.--into this market.
    Senator Dorgan.--it seems to me the Korean government did 
exactly what it wanted to with the Dodge Dakota pickup truck. 
They, through a series of approaches, sent signals to the 
Korean consumers, ``Don't buy this.'' And that represents what 
I think has been a modus operandi of the Korean government. I 
raise it--I wrote it, a while back, and I suppose, because my 
state's name is in Dodge--we kind of like the name ``Dodge 
Dakota.'' We like somebody that would name a pickup truck after 
our state.
    [Laughter.]
    Senator Dorgan. But, from what I read and understood, that 
vehicle all of a sudden garnered some attention and some 
consumer preference in South Korea, and you began to see some 
excitement of, ``Maybe this is the vehicle that would really 
capture attention.'' You saw that in the sales, and immediately 
the Korean government began to take action that is not 
described in these agreements. It's just the action that they 
want to take to have the Korean people understand, ``You need 
to be driving Korean cars, cars made in Korea, produced by 
Korean workers.'' There's kind of a sophistry of low 
expectation by everybody, I think, on these trade agreements.
    Mr. Brilliant, I remain surprised that you would not call 
it a failure when we do a 1998 agreement with South Korea, and 
the deficit increases substantially, and we end up with a very 
substantial deficit in bilateral automobile trade, with all 
kinds of self-evident actions by the South Koreans to keep our 
vehicles out. It seems to me, just by classic definition, that 
has been a failure. And had you said you agreed with that, then 
I would have asked, if you believe that's a failure, what gives 
you a belief that there's going to be a different result from 
doing the same thing?
    I'll give you a chance to respond to this chart that shows 
the statement of South Korea's trade minister. ``The free trade 
pact with the United States is expected to boost South Korea's 
auto-related trade surplus by roughly $1 billion annually,'' 
the Korean government said Wednesday. The [Minister of 
Commerce] said . . . that exports of finished cars may shoot up 
around $810 million due to Washington's scrapping of its 2.5 
percent tariff for South Korean cars. Imports could rise $72 
million after Seoul removes its 8 percent tariff, giving South 
Korea a surplus of about $740 million a year.''
    I assume you must disagree with the Korean government, 
because if you agreed with the Korean government, you would 
think this wouldn't be much of a deal for us with respect to 
bilateral automobile trade. So, you would take issue with the 
Korean government with respect to their assessment of this 
trade agreement?
    Mr. Brilliant. Well, just to be clear, Senator, what I said 
before was, one, some of the specific commitments that were 
made in 1995 and 1998, the South Korea Government did 
implement. However, I did not say--and I would not say--that 
that led to a sufficient market share for U.S. automobile 
manufacturers. Clearly, it did not. Which is why we feel 
strongly that it was important to address some of the 
outstanding barriers--tariff and nontariff barriers--deal with 
regulatory transparency, ensure that we have a strong, robust, 
and innovative dispute resolution process, and, of course, deal 
with issues regarding standards, which this agreement does deal 
with, and, once implemented, would help level the playing 
field. It doesn't guarantee market access, but it certainly 
puts our automobile manufacturers in a better position than 
they would be in the alternative----
    Senator Dorgan. But, it----
    Mr. Brilliant.--in our view.
    Senator Dorgan. But, it is a curious way to grade a foreign 
government, in terms of what they did rather than what they 
didn't do. What they didn't do is much more important to those 
of us who are evaluating a trade agreement with a country that 
did not do the things that it represented in the previous two 
agreements. Why would you not emphasize, here, what was not 
done that was represented to us as something that would be 
done, and use that as some guidepost of whether this agreement 
makes much sense?
    Mr. Brilliant. Well, one thing about this agreement is that 
the various undertakings are binding obligations. And I cannot 
underestimate the importance of, one, our automobile 
manufacturers being part of the standards process. I mean, 
there has not been regulatory transparency in Korea--not just 
for the auto industry, but for a lot of industries--which is 
one of the fundamental tenets of this FTA agreement, which is 
to ensure regulatory transparency in the process, allow our 
auto manufacturers the ability to engage, early and often, in 
the process to provide input on standards. That's an important 
step forward, and it's already evidence of the reaction of the 
South Korean government to those obligations by sitting down 
with the U.S. Government, this past summer, and addressing one 
of the standards that our industry was concerned about.
    Senator Dorgan. I want to give the rest of you an 
opportunity to answer whether you think these so-called, 
``binding agreements,'' are measurably different, in terms of 
the results they will achieve, than any other promises or 
agreements that have resulted from the previous two attempts to 
deal with the bilateral trade relationship with South Korea.
    Mr. Cassidy?
    Mr. Cassidy. That's a very good point, because it--the 
question is, what is the nature of the binding agreement? Under 
the FTA, it would be a binding panel--arbitration--binding 
arbitration. But, that's not to say that all the other 
agreements were not binding. They were. We have section 301, in 
the United States, that provides an opportunity, when a country 
does not live up to its agreements, to take action. So, there 
are different forms of binding. And all of those agreements 
were binding in that sense. They were agreements, they were 
covered under the provisions of section 301.
    So, it's--this deals, on the FTA, with the specific 
mechanism--a bilateral panel that would presumably make 
independent decisions. But, all the agreements that we 
negotiated were binding.
    The question is, are they going to be implemented? Will the 
government--will the administration take action when those 
agreements are not met? Using China, again, we negotiated a 
section in the China agreement, section 421, under which--when 
market disruption takes place, the administration could take 
action against China. All the cases that were brought to the 
Government--I think there were five cases--all of them were 
denied by the Administration. So, the effectiveness of that 
provision is eliminated.
    So, the question about the agreement is, are the provisions 
meaningful, but will the Administration--whatever 
Administration--will they actually implement them?
    So, I think it's a ruse to say, ``This has binding 
commitments; whereas, no other agreement, presumably, did.'' 
That's not correct.
    Senator Dorgan. Mr. Gettelfinger, any comment on that? Do 
you have----
    Mr. Gettelfinger. Well, other than that I think that we 
have seen a lack of enforcement of trade agreements over the 
years, whether it's Korea or other countries, and the mechanism 
that's put in here has nothing to do with nontariff barriers--
nontariff, from a standpoint of the arbitration process. So, I 
just see this as--everything I hear is ``could'' and ``would'' 
and ``may'' and ``perhaps we will gain benefit.'' We see this 
as a total failure, in its current state.
    Senator Dorgan. Mr. Bozzella?
    Mr. Bozzella. Well, again, I want to--I want to make it 
clear, we seek to achieve success in Korea. We want to--we want 
to be a winning company there. We want to be successful in that 
market, and we value the opportunity to do so. I think the 
provisions that have been discussed, the dispute resolution 
procedure and the like, are not a--an adequate match for the 
challenges we face, in terms of Korea's history with regard to 
nontariff barriers.
    Senator Dorgan. Dr. McMillion?
    Dr. McMillion. Mr. Chairman, I may be the only nonlawyer on 
the panel today, maybe the only one in the room, so let me say 
that--maybe I can get away with saying this--that this seems 
like a full employment for lawyers set of interests. It seems 
to me that the concern should be for the results. Whether 
you're running a company or you're running trade policy, it 
seems to me that the objective should be the results, not 
trying to stab little beads of mercury with each of these--I 
understand the need for a rules-based system, but at some point 
it's the results that matter, and we're not getting the results 
we need.
    Senator Dorgan. Mr. Brilliant, you wanted to make a final 
comment?
    Mr. Brilliant. I do, just three quick points.
    First of all, I think the snap-back provisions are very 
important and should not be understated in the dispute 
resolution process. If, in fact, we see a nullification or 
impairment of the obligations that South Korea is undertaking 
in this FTA, and the tariff was put back on vehicles coming 
from Korea to the U.S. market, that would have a annual impact 
of about $200 million on South Korean auto manufacturers. So, 
that's not insignificant.
    The second point I'd make is that the detailed processes 
laid out in the agreement--dealing with regulatory 
transparency, dealing with the working group and the ability to 
get in early in the process--that's not insignificant either. 
It's much more detailed than in past agreements, which is why 
this aspect of it is not to be understated.
    And the third thing is, I think we have to be somewhat 
encouraged by recent statements by Korean government officials 
acknowledging past import campaigns--anti-import campaigns--and 
recognizing they have to address this in a very public way.
    Now, obviously, we need to hold them--their feet to the 
fire on that. And we need to make sure that those campaigns are 
a thing of the past. But, we have not seen recent evidence of 
that in the last year, and we're going to continue to work on 
that, because we have our members' interests at heart when we 
advocate for these agreements.
    Senator Dorgan. I want to thank all of the witnesses today. 
I do want to make a short comment on what we have heard.
    In other areas of this Capitol, we have hearings going on 
about $700 billion bailout to address a prospective financial 
collapse if nothing is done. And one portion of that, that has 
undermined the economic foundation of this country, in my 
judgment, has been the trade deficit. Now, there are a lot of 
things that have gone on. The selling of toxic mortgages by 
greedy brokers, greedy mortgage banks, greedy hedge funds, 
investment banks, all the way up the line; mortgages that, as 
most of you have read and seen, that advertise, ``If you've 
been bankrupt, come to us, we'll give you a loan. You have bad 
credit, slow pay, no pay, bankrupt, sick credit, we'll help you 
out. You can get a loan from us.'' I've shown all those 
advertisements on the floor of the Senate, and will do some 
more this afternoon.
    So, we had a lot of bad loans being made, called subprime 
loans; in some cases, with 1- and 2-percent entry interest 
rates, and resetting at 10 and 11 and 12 percent, 3 years 
later, in circumstances where the borrower couldn't possibly 
repay. In some cases, no principal payment. In some cases, no 
principal payment and no interest payment for the first 12 
months, all of it put on the back end of the loan. All of 
them--almost all of them, with prepayment penalties locked into 
9-, 10-, 11-, 12-percent interest rates in 3 years when it 
resets, with prepayment penalties, so they could put these 
together in securities, like you pack sawdust into sausage, 
years ago, you put together good and bad and securitize it, 
settle it upstream. Everybody was making massive amounts of 
money. And now the whole thing is collapsing, and they're all 
scratching their heads, wondering why.
    At the same time that all of this happening, you have a 
trade deficit of $700-$800 billion a year, you have a fiscal 
policy budget deficit that President Bush says is something 
between $400 and $500 billion. It is not that at all. The 
deficit is what we have to borrow each year in fiscal policy, 
and it's closer to $800 billion than it is to $500 billion.
    So, add trade and fiscal policy deficits, you get a $1.5 to 
$1.6-trillion deficit. That's before the bailout of AIG, it's 
before Freddie and Fannie. It's before the $29 billion for the 
Bear Stearns acquisition. It's before the $700 billion.
    All of this plays a role in undermining the economic--
foundation of this country's economy. I don't know what the 
solution is, but it seems to me you start, a step at a time, 
putting things back on track. If you're going to start, a step 
at a time, in trade, it seems to me that you create trade 
policies that encourage trade, because I think trade is good, 
and I think plenty of trade is better, as long as it is fair. 
But, trade and trade agreements, in my judgment, must be 
mutually beneficial to the countries that engage in them. And 
this country has been, in my judgment, unbelievably ignorant in 
being willing to accept trade agreements that are not mutually 
beneficial.
    You don't have to take my word for it. Take a look at the 
map that shows the unbelievable avalanche of red ink, year 
after year, that grows.
    And so, this is one piece, this discussion, a small piece 
of a larger problem of trade. This is about a South Korea 
agreement. It's about bilateral automobile trade inside that 
agreement. But, step by step, and block by block, piece by 
piece, all of this adds up to a great deal of insecurity in 
this country by people who take a look at this and say, ``What 
on Earth is going on? Who's standing up for our interests here? 
How is it you sign up to deals that undermine the interests of 
this country?''
    That's why I've held a hearing just on this subject, trying 
to understand, how is it we get ourselves in this position? 
It's not surprising to me that we have a substantial economic 
difficulty in this country if we have people shuffling around 
with their hands in their pockets, watching bad loans being 
made--at the Fed--yes, Treasury--regulator offices all across 
this state were--or, all across this city, rather--have been 
boasting, for almost a decade now, that they won't regulate. 
They're very interested in being willfully blind.
    All of this goes on under the lack of interest by those 
that we are paying each month to provide oversight, and we've 
had bad decisions made in 1999 by deciding what we're going to 
is create financial homogenization of big holding companies by 
getting rid of Glass-Steagall, the very protection that we put 
in place following the Great Depression so that we didn't merge 
banking with unbelievably speculative areas of real estate and 
securities. Got rid of that in 1999. I didn't support it, but 
Congress got rid of it, under the rubric of something called, 
``financial modernization,'' a misnamed piece of legislation, 
if ever there was one.
    So, we find ourselves, today, on a Wednesday, in pretty 
deep trouble, one part of which deals with international trade 
causing very large deficits that undermine this country's 
currency--play a role in undermining this country's currency at 
a time when we need to see evidence of economic strength and 
not economic weakness.
    My hope is that, as Congress works through all of these 
areas in the coming days and weeks, that we will begin to 
rethink, not whether our country wants to lead the world in the 
right direction, because we have leadership responsibilities as 
we put this back together, but, in trade, whether we want to 
lead in deciding that there's a new day for trade. We say to 
South Korea, ``No more bad deals with you. First of all, we're 
going to negotiate deals with you and China and others, that 
are mutually beneficial to you and to us, that enhance trade 
between our countries, enhance trade that is fair. And you 
should understand it's a new day. If you're not interested in 
that, then maybe you can sell all those 800,000 cars in Kenya. 
But, if you're interested in resolving the disputes and the 
differences and the imbalances that have grown, and want to 
have a trade relationship with this country that's fair to both 
countries, sign us up, we're interested in that.''
    This trade agreement, in my judgment, falls far, far short 
of that, and, in my judgment, will almost certainly not be 
supported by this Congress now. It's not going to be taken up 
before the end of this Congress, I believe, unless it is 
modified in a very substantial way. This trade agreement will 
not be embraced by any Congress, because I think it's a new 
time and a new day, and there are new requirements that we set 
for our country in our participation in the global economy.
    It is a global economy. We are participating in that global 
economy. But, we must insist that participation represent our 
interests, as well. Too many of these trade agreements have not 
done that.
    I thank the witnesses for being willing to come to Capitol 
Hill today and lend your voice to a public discussion about 
these issues.
    This hearing is adjourned.
    [Whereupon, at 11:50 a.m., the hearing was adjourned.]

                                  
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