[Senate Hearing 113-618]
[From the U.S. Government Publishing Office]
S. Hrg. 113-618
THE U.S.-KOREA FREE TRADE AGREEMENT:
LESSONS LEARNED TWO YEARS LATER
=======================================================================
HEARING
before the
SUBCOMMITTEE ON INTERNATIONAL TRADE, CUSTOMS, AND GLOBAL
COMPETITIVENESS
of the
COMMITTEE ON FINANCE
UNITED STATES SENATE
ONE HUNDRED THIRTEENTH CONGRESS
SECOND SESSION
__________
JULY 29, 2014
__________
Printed for the use of the Committee on Finance
______
U.S. GOVERNMENT PUBLISHING OFFICE
82-663 PDF WASHINGTON : 2015
-----------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Publishing
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Washington, DC 20402-0001
RON WYDEN, Oregon, Chairman
JOHN D. ROCKEFELLER IV, West ORRIN G. HATCH, Utah
Virginia CHUCK GRASSLEY, Iowa
CHARLES E. SCHUMER, New York MIKE CRAPO, Idaho
DEBBIE STABENOW, Michigan PAT ROBERTS, Kansas
MARIA CANTWELL, Washington MICHAEL B. ENZI, Wyoming
BILL NELSON, Florida JOHN CORNYN, Texas
ROBERT MENENDEZ, New Jersey JOHN THUNE, South Dakota
THOMAS R. CARPER, Delaware RICHARD BURR, North Carolina
BENJAMIN L. CARDIN, Maryland JOHNNY ISAKSON, Georgia
SHERROD BROWN, Ohio ROB PORTMAN, Ohio
MICHAEL F. BENNET, Colorado PATRICK J. TOOMEY, Pennsylvania
ROBERT P. CASEY, Jr., Pennsylvania
MARK R. WARNER, Virginia
Joshua Sheinkman, Staff Director
Chris Campbell, Republican Staff Director
______
Subcommittee on International Trade,
Customs, and Global Competitiveness
DEBBIE STABENOW, Michigan, Chairman
JOHN D. ROCKEFELLER IV, West JOHNNY ISAKSON, Georgia
Virginia ORRIN G. HATCH, Utah
CHARLES E. SCHUMER, New York CHUCK GRASSLEY, Iowa
MARIA CANTWELL, Washington PAT ROBERTS, Kansas
ROBERT MENENDEZ, New Jersey JOHN THUNE, South Dakota
SHERROD BROWN, Ohio ROB PORTMAN, Ohio
MICHAEL F. BENNET, Colorado
MARK R. WARNER, Virginia
(ii)
C O N T E N T S
__________
OPENING STATEMENTS
Page
Stabenow, Hon. Debbie, a U.S. Senator from Michigan, chairman,
Subcommittee on International Trade, Customs, and Global
Competitiveness, Committee on Finance.......................... 1
Isakson, Hon. Johnny, a U.S. Senator from Georgia................ 3
Brown, Hon. Sherrod, a U.S. Senator from Ohio.................... 4
WITNESSES
Biegun, Stephen E., vice president, International Governmental
Affairs, Ford Motor Company, Dearborn, MI...................... 6
Murphy, Sean P., vice president and counsel, International
Government Affairs, Qualcomm Incorporated, San Diego, CA....... 8
Morris, Shawna, vice president, trade policy, National Milk
Producers Federation and U.S. Dairy Export Council, Arlington,
VA............................................................. 10
Rue, Michael, owner, Rue and Forsman Ranch, Inc., on behalf of
the USA Rice Federation, Rio Oso, CA........................... 11
ALPHABETICAL LISTING AND APPENDIX MATERIAL
Biegun, Stephen E.:
Testimony.................................................... 6
Prepared statement........................................... 29
Brown, Hon. Sherrod:
Opening statement............................................ 4
Isakson, Hon. Johnny:
Opening statement............................................ 3
Prepared statement with attachment........................... 37
Morris, Shawna:
Testimony.................................................... 10
Prepared statement........................................... 41
Murphy, Sean P.:
Testimony.................................................... 8
Prepared statement........................................... 51
Rue, Michael:
Testimony.................................................... 11
Prepared statement........................................... 60
Stabenow, Hon. Debbie:
Opening statement............................................ 1
Prepared statement........................................... 66
Communications
Advanced Medical Technology Association (AdvaMed)................ 69
American Chemistry Council....................................... 72
National Association of Manufacturers............................ 75
National Pork Producers Council.................................. 83
(iii)
THE U.S.-KOREA FREE TRADE AGREEMENT:
LESSONS LEARNED TWO YEARS LATER
----------
TUESDAY, JULY 29, 2014
U.S. Senate,
Subcommittee on International Trade,
Customs, and Global Competitiveness,
Committee on Finance,
Washington, DC.
The hearing was convened, pursuant to notice, at 3:08 p.m.,
in room SD-215, Dirksen Senate Office Building, Hon. Debbie
Stabenow (chairman of the subcommittee) presiding.
Present: Senators Brown, Thune, Isakson, and Portman.
Also present: Democratic Staff: Elissa Alben, International
Trade Counsel; Jason Park, International Trade Counsel; and
Jayme White, Chief Advisor for International Competitiveness
and Innovation. Republican Staff: Richard Chovanec, Detailee;
and Shane Warren, International Trade Counsel.
OPENING STATEMENT OF HON. DEBBIE STABENOW, A U.S. SENATOR FROM
MICHIGAN, CHAIRMAN, SUBCOMMITTEE ON INTERNATIONAL TRADE,
CUSTOMS, AND GLOBAL COMPETITIVENESS, COMMITTEE ON FINANCE
Senator Stabenow. Well, good afternoon. The Senate Finance
Subcommittee on International Trade, Customs, and Global
Competitiveness will now come to order.
Thanks very much for being here today as we consider the
lessons we have learned during the first 2 years of our free
trade agreement with Korea. Because this is my first hearing as
chair of the subcommittee, I would like to share my basic
beliefs on international trade as we begin this discussion.
Michigan is a State where we make things and grow things. I
grew up with families whose quality of life was shaped in part
by their ability to sell products in foreign markets. These
products sold around the world because the people who made the
cars and tilled the soil were good at it. This hard work
powered the growth of our middle class in Michigan, just as it
powered the growth of the middle class throughout America.
We know this: if American workers and American businesses
can compete on a level playing field, they will succeed in
markets around the world, and our American middle class will
thrive. Within this subcommittee, we have the opportunity to
explore new markets on behalf of these workers and the
businesses that employ them. In exchange for these
opportunities, we allow products made in other countries to
compete in the United States. We are not afraid of competition.
We welcome it.
But the competition must be fair, and the playing field
must be level. Too often in recent years, our workers and
businesses have found themselves on a playing field that was
tilted in one direction, littered with rocks and holes that
could trip them up.
We must resist being drawn into a race to the bottom on
international trade. Trade agreements must be about creating
opportunities to grow a middle class around the world, not lose
our middle class in America, which I think is really our
fundamental charge and challenge.
Fortunately, the Republic of Korea is a trusted ally and a
willing partner. I am grateful to Korean leaders for working
with us when the Obama administration asked for better terms on
behalf of our automakers. When our Nation entered into this
agreement in March 2012, I was as optimistic as the
administration and the business community that removing trade
barriers would spur job growth and generate higher earnings for
our workers.
I am sure Korea had the same hopes. But for trade deals to
thrive, they must be a win-win for both sides. So far, the
Korean free trade agreement has fallen short of our hopes. The
agreement aimed to narrow the trade deficit between the U.S.
and Korea. Instead, the trade deficit has gone in the wrong
direction. Even if you look at the most conservative numbers,
that deficit has grown. If you look at the deficit in goods, in
the things that we make, it has increased by nearly 50 percent.
While our dairy producers have reaped many benefits through
the trade agreement, they continue to face challenges when it
comes to certain products that are blocked from the market
based on geographical indications. We will hear more about that
today from our witnesses.
The agreement aimed to open Korea's markets to American
automakers, but agreeing to phase out tariffs on U.S.-made
automobiles has not been enough. Due to non-tariff barriers,
Korea remains one of the most closed auto markets in the world.
Given our strong alliance with the Republic of Korea, I am
hopeful that the expectations we had at the outset will be
matched by real-world results, but to achieve these results we
must have candid conversations about what is working and what
is not, and that is why we are here. I also believe that it is
very important that we apply what we learned here to the other
major international trade agreements that are actively being
negotiated right now.
We also need to recognize that we have other tools for
strengthening our Nation's position in the international
economy. By improving our infrastructure, our goods and
services can move more smoothly; by reforming the tax code, we
can give companies incentives to keep jobs in America; by
offering job training to American workers, we can equip them
for 21st-century markets; and by strengthening U.S. trade law,
we can defend our companies against nations that manipulate
their currency.
In international trade, it is our responsibility to drive a
tough, fair bargain with foreign countries that seek access to
American markets. There must be no doubt that we will be
exporting our Nation's products and not our jobs. I have every
confidence that, with smart trade policies, we will be
successful.
[The prepared statement of Senator Stabenow appears in the
appendix.]
Senator Stabenow. Now it is my great pleasure to turn this
to our distinguished ranking member, Senator Isakson. I am so
very pleased to have him as my partner in leading this
subcommittee.
Senator Isakson?
OPENING STATEMENT OF HON. JOHNNY ISAKSON,
A U.S. SENATOR FROM GEORGIA
Senator Isakson. Well, thank you, Chairman Stabenow. It is
a pleasure to serve with you, and I have looked forward to this
opportunity for many days. I am glad we could finally have this
hearing together, and I appreciate your opening remarks.
I have voted for every free trade agreement that I have had
the possibility of voting for since I have been in the Congress
of the United States in the last 16 years. One of the ones I
was proudest of was President Bush's proposal that he signed in
2007, and the Senate finally ratified in 2011. That free trade
agreement has served Americans and served South Korea well.
I have a warm place in my heart for South Korea. In 1988, I
took a trade mission from the State of Georgia to Seoul, South
Korea, to take 23 Georgia companies to do some business in
Korea. By the time we left, the Coca-Cola company had made the
contract to purchase the office systems for the Coca-Cola USA
headquarters being built in Atlanta, and Dalton Carpet and Shaw
Industries had sold carpet to the Korean Textile Federation for
a new facility they were building. So I believe in
international trade creating jobs in my State, but also
creating jobs in South Korea. I have been proud to be a part of
that.
I am also appreciative of our steadfast loyalty to each
other, in terms of our mutual defense, and have had the
privilege of going where the peace agreement was signed between
North and South Korea and visiting some of the 30,000 U.S.
troops who are stationed in South Korea, helping to carry out
their message which is ahead of them all, which is their
slogan, ``The United States Army at the DMZ.'' I appreciate
very much our steadfast work with them.
In the past 2 years since the FTA agreement was put in
force, we have already seen positive results emerge in my home
State of Georgia, with increased exports in aerospace products,
pulp and paper, engines and turbines, agricultural products,
and chemical products. The U.S.-Korea Free Trade Agreement has
paved the way for $800 million in exports from Georgia to South
Korea, and in 2013 almost $7 billion in Korean investment
across the United States of America.
Korean investment in Georgia has been welcomed to boost our
State's economy. According to Georgia's Department of Economic
Development, Georgia is home to 62 Korean companies/facilities,
over 23 of which are manufacturing facilities. The Kia Motors
Manufacturing Company in West Point, GA represents a $1.1-
billion investment in my home State, providing jobs, directly
or indirectly, for over 10,000 Georgians. On July 11, 2013, the
1 millionth Kia Motorcar was built in the United States at that
plant.
Kia is a member of the Association of Global Automakers. I
would like to ask unanimous consent from the chairman that
their statement for this hearing be put in the record.
Senator Stabenow. Without objection.
[The prepared statement of the Association of Global
Automakers appears in the appendix on p. 39.]
Senator Isakson. Today we will hear testimony from
witnesses who have different experiences with the U.S.-Korea
free trade agreement. I am looking forward to a fruitful
discussion and the benefits of their knowledge and experience
they have had with this agreement, but I also understand that
there have been challenges. As we discuss these challenges, we
do so not only with our trade relationship with South Korea in
mind, but also with an eye towards the ongoing trade
negotiations with others.
However, it will be extremely difficult to make any
progress on these issues without a renewal of Trade Promotion
Authority for the President of the United States. Without TPA,
the administration continues to negotiate from a weaker
position, and Congress's priorities are notably absent from the
important trade talks of the Trans-Pacific Partnership.
As the ranking member of the Trade Subcommittee on the
Finance Committee, with the Trans-Pacific Partnership, the
Trans-Atlantic Trade and Investment Partnership, and the AGOA
Act--the African Growth and Opportunity Act--I know how
important it is for TPA to be authorized for the President so
he can negotiate knowing he has the full faith of the Congress
behind him and has an up-or-down vote on, finally,
ratification.
So I hope, although I know there are differences, that we
can note the importance of Trade Promotion Authority and the
need to have it. The President called for it in his State of
the Union address, many members of Congress have called for it,
and I hope that it will happen.
The bipartisan Congressional Trade Priorities Act of 2014
introduced by Senator Hatch and former Senator Baucus would
renew TPA and address some of the issues that are so important
to our witnesses in the future agreements. For example, this
important legislation would make addressing the issue of
currency manipulation a principal negotiation objective of the
United States in trade talks.
Until the Senate acts on renewing TPA, Congress's
priorities on this and other important issues will remain on
the sidelines. I would like to thank our witnesses for being
here to testify today, and I thank the chairman for giving me
the opportunity to speak.
Senator Stabenow. Thank you very much. I know that Senator
Brown would like to make a brief opening statement as well.
[The prepared statement of Senator Isakson appears in the
appendix.]
OPENING STATEMENT OF HON. SHERROD BROWN,
A U.S. SENATOR FROM OHIO
Senator Brown. Thank you, Madam Chairman. I will be brief.
I never trump the distinguished chairman of our subcommittee,
but she said she comes from Michigan where they make things and
grow things. Her neighbor immediately to the south makes
things, grows things, and mines things too, I would add, with
our oil and gas industries. So, not to ever show up the
chairman, but thank you. I appreciate Ranking Member Isakson's
comments about currency too.
This hearing is important for a whole number of reasons. I
opposed the original Korea trade agreement. Like most
Americans, I support trade, I want more of it, but I want trade
that benefits our workers. I think too many of our trade
agreements have undermined U.S. manufacturing, especially small
manufacturers further down on the supply chain and their
employees.
I thought the Korea FTA followed this flawed model, and I
was skeptical that it would yield reciprocal market access for
U.S. companies. I believed, and I continue to believe now, that
there is another way forward on trade.
For example, the Korea agreement does not include
disciplines on currency. There is no recourse for U.S.
companies that face disadvantages due to an under-valued won. I
appreciate the chairman's leadership on that currency issue and
the whole host of ways that she has addressed that.
I think the hearing today is especially timely. TPP and
TTIP both are advancing. Congress continues to urge the
administration to negotiate high-standard and better, more
level trade agreements for American workers. I think this
hearing can help lead to that. So, I thank the chairman.
Senator Stabenow. Thank you very much.
We are very pleased to have four distinguished witnesses
with us from different parts of the economy, with different
perspectives. We appreciate all of your time.
Let me introduce our four witnesses. Our first witness is
Stephen Biegun, vice president of international governmental
affairs for Ford Motor Company, a company I know a little bit
about. Before joining Ford, Mr. Biegun worked as National
Security Advisor for former Senate Majority Leader Bill Frist,
and prior to that he served the White House as Executive
Secretary of the National Security Council. Welcome.
Our next witness is Sean Murphy, vice president and counsel
of Qualcomm, based in San Diego. Mr. Murphy manages Qualcomm's
international public policy agenda on issues such as
international trade, technology policy, competition and
innovation, and intellectual property. He has represented the
company before industry associations and multilateral
institutions, including the United Nations, the World Trade
Organization, and the World Bank. Welcome as well.
Our third witness is Shawna Morris, vice president of trade
policy, National Milk Producers Federation and U.S. Dairy
Export Council, based in Arlington, VA. Ms. Morris has worked
with Congress and other government officials negotiating U.S.
free trade agreements and resolving bilateral trade barriers.
She is an advocate for the U.S. dairy industry's priorities in
international trade. Welcome.
Our final witness is Michael Rue, who will be speaking on
behalf of the USA Rice Federation, which is based in Rio Oso,
CA. Mr. Rue is vice chairman of the Federation's International
Trade Policy Subcommittee. He chairs the Federation's
Subcommittee on Asian Trade Policy, and serves on the
Subcommittee on European Union Trade Policy.
So we will begin with Mr. Biegun. As you know, we ask for 5
minutes of testimony verbally. You are welcome to give us in
writing whatever you have; we would certainly welcome that.
So, Mr. Biegun, welcome.
STATEMENT OF STEPHEN E. BIEGUN, VICE PRESIDENT, INTERNATIONAL
GOVERNMENTAL AFFAIRS, FORD MOTOR COMPANY, DEARBORN, MI
Mr. Biegun. Thank you, Madam Chairman. I do have a
statement that I would like to submit for the record.
Thank you, Madam Chairman, thank you, Ranking Member
Isakson and Senator Brown, for the invitation to appear today.
Also let me thank you on behalf of the 72,000 men and women who
work for Ford Motor Company across the United States of
America. We deeply appreciate the commitment of this committee
to make trade work for American manufacturers.
Trade is not an after-thought for Ford Motor Company's
business. One hundred and 10 years ago when our company was
founded, Henry Ford exported the sixth vehicle made by the Ford
Motor Company. Since then, we have become one of the largest
exporters and largest importers in the global economy.
It is a little-known fact to many people that the
automotive sector is the number-one sector of exports from the
United States economy, and, within that sector of exports, Ford
Motor Company is the number-one exporter of American-made
automobiles to markets around the world. We are very proud of
our trade pedigree and, as you can see by the scale of our
business, trade is a foundation of Ford Motor Company's model.
Now, we have supported every free trade agreement that has
been passed by the United States since we began negotiating
free trade agreements about 2 decades ago. But I will say that,
when the KORUS agreement was first proposed 7 years ago, we had
deep skepticism that it would be able to change the nature of a
Korean market which was the most closed automotive market in
the entire world.
With slightly more than 5 percent import penetration, Korea
ranked dead last among the 32 OECD countries in terms of import
access. By way of comparison, on average, normal markets around
the world have about 50 percent import presence in their
markets. Korea was a definite outlier.
So we had our concerns, and, when the agreement was
originally signed, it actually confirmed all of our concerns in
that it failed to address the barriers to automotive trade with
Korea. However, with the support of many members of this
committee, with the support of our partners in the United Auto
Workers, and with our fellow companies in the U.S. auto
industry, we were able to work with the administration to
renegotiate the agreement.
Our strategy in the renegotiation of the agreement 3 years
ago was basically to create time and space for the export of
American automobiles. How would we do that? Working with U.S.
negotiators and the Koreans, we set up a model in which up to
25,000
American-made vehicles per year could come into Korea, built to
American regulatory standards.
Now, America's regulatory standards are not second to
Korean regulatory standards--in some cases, they actually
exceed them--but they are different. But they are different
because for decades the Korean government has used slight
tweaks of its regulatory system to add cost to importers to
keep them out of the Korean market.
So with the negotiations we created space to get our
vehicles into the market, and then we also created time. We
created time by delaying for 4 years the removal of tariffs on
the import of Korean vehicles in the United States. During that
4-year period, it was our anticipation that we would be able to
build a toe-hold for a business in Korea that, up to that
point, only had one dealership in the entire country of Korea.
Now, compare that to the Korean manufacturers who had 1,500
dealerships across the United States of America and sold and
imported hundreds of thousands of vehicles per year. Our goal
was to use that time and space to get a toe-hold so, when the
tariffs went away, we could at least have some equivalent
opportunity. It would never be in balance, but it would be some
equivalence of opportunity.
I explained in detail in my written testimony what kind of
barriers we have seen since, but I have to tell you, in short,
our view of the agreement to date has been disappointment. Yes,
we have to some degree increased the number of vehicles that we
have exported and sold in Korea. We have done that with tens of
millions of dollars of expenditure in expanding our business
and marketing expenses.
We are falling woefully short of the numbers that were
negotiated in the agreement to allow us to build a toe-hold in
the business. There is an urgency here. The clock is ticking.
In 2 years, the tariffs go away, and we still are left guessing
in the Korean market what the rules will be to export American
cars in the coming year.
So what are the lessons learned for this committee and for
companies like ours? We do not regret supporting the agreement.
We still think that we can make it work. But we have to be able
to use the enforcement mechanisms quickly, not just to help our
own companies, but quite frankly to help the Korean government
learn the disciplines of free trade.
I actually think we would have helped the Korean government
had we used elements like the snap-back provision in the
agreement early on. We would have sent a message through the
bureaucracy that compliance is not negotiable.
The second lesson we learned is that regulatory systems do
matter. Our free trade agreements have to make sure that our
trading partners accept American-made goods that are built to
the highest standards of safety and environmental performance.
Lastly, as a couple of the Senators did mention, currency
matters. Currency is the medium in which trade flows. The
Korean government has intervened in its currency over a number
of years, and, absent the disciplines against that kind of
practice in a free trade agreement, we will not see any trading
partners cease and desist.
Let me conclude by saying that we are committed to the
Korean market. We have a wonderful team of men and women in
Korea who are working every day to build a healthy and growing
business in that market. We want to serve the Korean customers
with some of the best automobiles in the world. All we ask is
that the Korean government get out of the way and let us go
about our business. Thank you.
Senator Stabenow. Thank you very much.
[The prepared statement of Mr. Biegun appears in the
appendix.]
Senator Stabenow. Mr. Murphy, welcome.
STATEMENT OF SEAN P. MURPHY, VICE PRESIDENT AND COUNSEL,
INTERNATIONAL GOVERNMENT AFFAIRS, QUALCOMM INCORPORATED, SAN
DIEGO, CA
Mr. Murphy. Chairman Stabenow, Ranking Member Isakson,
Senator Brown, I am pleased to be here today to discuss the
U.S.-Korea FTA, KORUS. Qualcomm has been, and remains, a strong
supporter of this historic agreement. Since KORUS entered into
force a little more than 2 years ago, it has opened the Korean
market to U.S. goods, services, and investment. It has also
enhanced the basic framework for U.S. free trade agreements,
creating an updated model upon which to build the Trans-Pacific
Partnership, the Trans-Atlantic Trade and Investment
Partnership, and the Trade in Services Agreement.
Korea is important to Qualcomm because it is one of the
world's most sophisticated mobile communications markets.
Korean cell phone manufacturers and mobile service providers
are among our most-valued partners.
Qualcomm is a world leader in 3G, 4G, and next-generation
mobile technologies. Seventy percent of our 30,000-plus
employees are here in the United States, and about 65 percent
of them are engineers and scientists. If you have a smartphone,
a tablet, or other advanced wireless device, chances are you
are using our technology.
Qualcomm develops and channels its technologies into Korea
and global markets in two ways. First, we sell advanced semi-
conductor chipsets and software that are incorporated into
mobile devices that are manufactured by our customers and sold
globally. Second, we own tens of thousands of technology
patents worldwide, and we broadly license our inventions to
more than 270 licensees across the global mobile industry.
Under KORUS, Korea has become the tenth-largest export market
for the United States in goods and the sixth-largest trading
partner overall. Bilateral trade in goods today tops $100
billion, about one-third greater than when negotiations began
in 2006.
Consider the ways in which the agreement promotes a
competitive environment for U.S. companies in Korea. For
example, KORUS eliminates 95 percent of all Korean tariffs on
U.S. industrial goods by 2016; it establishes rules to reduce
Korean non-tariff barriers; it liberalizes services markets in
a number of sectors; it adopts the principle of technology
neutrality, which obliges Korea to refrain from discriminating
in favor of Korean businesses and technologies when it sets
technical standards or licenses services; it enhances
transparency and due process in Korean competition law matters;
it incorporates state-of-the-art protections for intellectual
property rights; and it includes strong investment protections
in Korea and enhanced transparency in Korean regulation and
rulemaking.
KORUS has yielded important benefits that have helped to
level the playing field and create new market opportunities.
However, we are only 2 years into implementation, which
coincided with a slow recovery from a painful global economic
recession. We acknowledge that some U.S. firms have concerns
about KORUS implementation. That issues of this nature arise is
to be expected, given the size and complexity of the bilateral
trade and investment relationship. Fortunately, KORUS provides
a structure for regular, ongoing, bilateral dialogue about
specific challenges.
If resolutions cannot be reached through consultation,
KORUS establishes an enforceable dispute settlement mechanism.
KORUS implementation is also happening in parallel with the
roll-out of Korean President Park's ``Creative Economy''
agenda, which is designed to deregulate and stimulate the
Korean economy through innovation.
One form of regulatory intervention is antitrust
enforcement, which should be grounded in rigorous economic and
competitive
effects-based analyses, which are crucial to understanding
innovation-driven economies.
In concluding, I would like to recap by addressing the main
question this hearing poses: what are the lessons learned from
KORUS after 2 years? First, we are better off with KORUS than
without it. The agreement strengthened bilateral trade and
economic relationships and provided a framework for broadening
and deepening these ties.
Second, it is possible to negotiate a state-of-the-art
agreement between trading partners that have different
interests and complex national economies, and such agreements
can deliver concrete benefits.
Third, KORUS is still a work in progress with respect to
the phase-in of certain obligations, but it is improving the
ability of American companies and investors to compete in
Korea. Implementation questions and new challenges will
inevitably arise and need to be addressed through the
consultative and dispute settlement mechanisms established in
the agreement.
Fourth, KORUS updated the model for U.S. free trade
agreements and paved the way for TPP and TTIP.
Finally, our experiences with KORUS should inform the
important debate about Trade Promotion Authority and help us
identify updated negotiating objectives for the 21st-century
trading system. As implementation of KORUS proceeds, Qualcomm
looks forward to seeing the full benefits of continuing
economic integration, innovation, job growth, and consumer
choice in both the U.S. and Korean economies.
Thank you again for the opportunity to share Qualcomm's
views, and congratulations on your inaugural hearing as
chairman.
Senator Stabenow. Thank you very much.
[The prepared statement of Mr. Murphy appears in the
appendix.]
Senator Stabenow. Ms. Morris, welcome.
STATEMENT OF SHAWNA MORRIS, VICE PRESIDENT, TRADE POLICY,
NATIONAL MILK PRODUCERS FEDERATION AND U.S. DAIRY EXPORT
COUNCIL, ARLINGTON, VA
Ms. Morris. Chairman Stabenow, Ranking Member Isakson,
thank you for the opportunity to present the views of the
National Milk Producers Federation and the U.S. Dairy Export
Council on the first 2 years of the U.S.-Korea Free Trade
Agreement.
Trade is increasingly important to the U.S. dairy industry.
We have gone from exporting less than $1 billion in dairy
products in 1995 to a record $6.7 billion in exports last year.
We are now the world's leading exporter of skim milk powder,
cheese, whey products, and lactose. Korea is an important
market for U.S. dairy exports, which is why NMPF and USDEC
strongly supported the U.S.-Korea Free Trade Agreement, or
KORUS.
The agreement ultimately will eliminate nearly all Korean
dairy tariffs. It was not perfect, but it certainly was very
good. As a result of its initial market access expansions, U.S.
dairy exports to Korea in 2013 totaled more than $300 million.
That is more than double the average of the previous 3 years.
This type of deep and broad trade liberalization seen in
KORUS's dairy provisions can be a good model for Trans-Pacific
Partnership negotiations with Japan and Canada. In undertaking
such strong dairy commitments, Korea made a difficult decision
to prioritize the achievement of a strong FTA. This type of
commitment to high standards is just as important in TPP.
Despite these overall positives, however, a new type of
trade barrier unfortunately popped up in Korea just prior to
implementation of KORUS. Since mid-2011, Korea has restricted
access for certain U.S. cheeses, namely gorgonzola, feta,
asiago, and fontina. This is the direct result of its separate
FTA with the European Union.
In a nutshell, the E.U. has been leaning on countries
around the world to block imports of products by confiscating
common food names and reserving them exclusively for itself. It
does this through the abuse of geographical indications
regulations. Since approval of the E.U.-Korea FTA, the E.U. has
expanded around the world the model it first developed in that
agreement. E.U. pressure has resulted in similar restrictions
in Central America, Peru, Colombia, and most recently in South
Africa.
Canada has also agreed to restrict cheese names, and we
understand the E.U. is pursuing similar objective in Singapore,
Japan, the Philippines, Malaysia, and Vietnam, as well as in
China. It is also clear that the E.U. wants to impose these
types of strict GI rules on the U.S. through the Trans-Atlantic
Trade and Investment Partnership.
This is an outcome that we, and many members of Congress,
deemed entirely unacceptable this past spring as we instead
insisted that the existing restrictions driven by E.U. efforts
be rolled back. As the CEO of Sartori Company, a 4th-generation
family-owned cheesemaker, put it, ``If we are not able to use
these common names that our customers have become familiar
with, we are going to sell less cheese, and we are going to
have less employees working for us.''
It is going to hurt rural America, because they are the
foundations supplying the milk for the cheese products. We
greatly appreciate the work USTR, USDA, and the U.S. Patent and
Trademark Office have devoted to this issue. Both Ambassador
Froman and Secretary Vilsak have been clear about the serious
nature of the E.U.'s attacks.
As the administration continues to work to prevent barriers
to U.S. exports, it will be useful to draw upon the experience
in Korea. There are a few critical lessons that we learned from
the Korean situation. First, we need to do a better job of
fully employing our embassy resources to try to find out about
these E.U. deals before they are signed and sealed.
Second, the GI letter exchange USTR conducted with Korea
remains a process we believe could be used elsewhere to clarify
our rights. It was not perfect, since it left in place barriers
against some U.S. cheese exports, but it was very helpful.
Third, GIs are no longer simply about intellectual
property. Instead, this issue also requires concrete work in
defense of U.S. market access opportunities. We know that we
have to fight to keep these markets open.
Finally, where we can be involved in negotiating on the
topic of GIs directly, we need to be. The greatest
opportunities currently are in TPP and in the World
Intellectual Property Organization. The U.S. needs to lead in
promoting a more balanced and WTO-compliant path forward.
Although I represent the U.S. dairy industry, NMPF and
USDEC are collaborating with many other industries, including
the wine and meat sectors in fighting the E.U.'s aggressive
stance. Together with these groups, we look forward to
continuing to work closely with the administration on how to
ensure that all of our trade agreements are operating in a way
that maximizes opportunities for U.S. exporters.
I appreciate this chance to explain how the U.S.-Korea free
trade agreement has benefitted the U.S. dairy industry and to
elaborate on a trade barrier that has limited access to that
market for some of our most important products.
Senator Stabenow. Thank you very much.
[The prepared statement of Ms. Morris appears in the
appendix.]
Senator Stabenow. Mr. Rue, welcome.
STATEMENT OF MICHAEL RUE, OWNER, RUE AND FORSMAN RANCH, INC.,
ON BEHALF OF THE USA RICE FEDERATION, RIO OSO, CA
Mr. Rue. Thank you, Chairman Stabenow, Ranking Member
Isakson. Thank you very much for holding this hearing and
giving us an opportunity to share the lessons that we have
learned and the experiences we have had in the aftermath of the
Korea Free Trade Agreement. I am a rice producer and rancher
from the Sacramento Valley in California. I am testifying today
on behalf of the USA Rice Federation.
The USA Rice Federation is a global advocate for all
segments of the rice industry, with a mission to promote and
protect the interests of producers, millers, processors,
merchants, and allied businesses. We are active in all rice-
producing States.
Nationally, the U.S. rice industry contributes $35 billion
in economic activity. It provides and generates jobs not only
for rice producers and processors, but for all those involved
in the value chain, generating over 128,000 jobs. About 85
percent of the rice that is consumed in the United States is
produced domestically. Despite significant foreign trade
barriers, many of which you have heard about today, the U.S.
remains the largest non-Asian exporter of rice in the world and
consistently ranks in the top five exporters worldwide.
The key lesson learned from our trade policy and
negotiating experience with the Korea Free Trade Agreement is
that product exclusions should be a non-starter and have no
place in a modern comprehensive trade agreement. As you know,
rice was completely excluded from the Korea Free Trade
Agreement at the insistence of the Korean government and with
the acquiescence, unfortunately, of the U.S. Government. Not
only were U.S. rice producers and processors denied the
opportunity to improve on the limited access in Korea that was
obtained in the WTO's Uruguay Round agreement, the exclusion of
rice in KORUS gives support today for those in the negotiations
involving the Trans-Pacific Partnership, primarily Japan, who
seek to turn back the clock and retreat from the principles of
a comprehensive trade agreement. Rice and the other so-called
sensitive agricultural commodities face the real prospect of
sub-standard market access gains if Japan is allowed to prevail
with this line of negotiating tactic in the Trans-Pacific
Partnership.
As I mentioned, U.S. rice received access in Korea as a
result of the Uruguay Round agreement in 1994. This access,
while significant, was insufficient and permitted the Korean
government to keep an absolute lid on the amount of rice
imported. The quality of access under the Uruguay Round was
poor, as it denied suppliers like the United States direct
access to Korean consumers, thus preventing any opportunity to
establish and promote commercial markets.
The access of some 20 years ago was also negotiated when
Korea was considered a developing country and the market access
bar was set low. For example, I would like to point out that in
the Uruguay Round, for the first 10 years of that agreement, no
U.S. rice was actually sold to Korea. Only when Korea sought an
extension of special treatment in 2004 were conditions provided
in those negotiations that allowed U.S. rice to find success in
entering Korea.
Korea's wish to join TPP offers an opportunity to fail or
redress the decision. It is also an opportunity to set
comprehensiveness and trade liberalization as conditions of
entry for Korea as a TPP partner. We believe that U.S.
negotiators have learned a key lesson, of course, that product
exclusions have no place in trade policy today, and we
acknowledge and appreciate the ongoing active support and
strong efforts of administration negotiators in TPP to obtain
meaningful improvements in access for U.S. rice, especially in
Japan.
However, as we all know, much more work needs to be done.
We would hope that the U.S. and other TPP participants will
move forward without Japan if Japan is not able to show the
kind of ambition that needs to be shown.
We also have begun to work now with U.S. negotiators as
Korea seeks to transition from the rice import regime set up 20
years ago to a tariff-based system. This emerging negotiation
is an opportunity to advance market access across not only
rice, but other important agricultural commodities.
I conclude this statement with a wholehearted endorsement
of trade agreements. The U.S.-Colombia Trade Promotion
Agreement, for example, has been a great success for the U.S.
rice industry. Not only has it opened an important new market
for U.S. rice, but the creative thinking of U.S. negotiators
put in place a quota management regime that has returned $6
million last year to State rice research boards generated from
the management of those quotas.
Because trade agreements work for rice, and because we face
intense protectionism and government intervention overseas, we
will stay at the negotiating table and very much appreciate the
support of this subcommittee and its support and defense of
U.S. agriculture.
Thank you again for this opportunity.
Senator Stabenow. Thank you very much to each of you.
[The prepared statement of Mr. Rue appears in the
appendix.]
Senator Stabenow. Mr. Biegun, let me start with you,
talking about currency. As you know, Senator Lindsey Graham and
I, as co-chairs of the Manufacturing Caucus, put together a
letter some time ago. We had 60 members of the Senate, which is
a pretty substantial group of people, who signed the letter to
the administration about future trade agreements, wanting to
make sure that we were addressing currency manipulation.
The Treasury Department's April 2014 report to the Congress
on international exchange rate policies specifically notes
Korea's continued foreign exchange intervention, concluding
that Korea should limit such intervention to ``exceptional
circumstances'' and ``increase the transparency of their
interventions in foreign exchange.''
How have Korea's currency policies affected your ability to
compete in the auto market?
Mr. Biegun. Thank you very much, Senator. Thank you for
your leadership on the letter that was sent from the U.S.
Senate. That letter has significantly changed the nature of the
debate over currency disciplines in free trade negotiations,
and we deeply appreciate that change.
Currency manipulation is a significant problem for
industries like ours that build high-value items in the United
States economy. A country like Korea will use its currency
policy from its central bank to intervene in currency markets,
to buy U.S. dollars, to sell their own currency, the Korean
won, and in doing so they simply drive up the price of our
products coming into Korea.
Now, the Treasury's criticism is very much welcome. The
problem with the Treasury's criticism is, it is not matched by
any action. In fact, in the months since the Treasury
Department published that report, the Korean government has
several times intervened directly in the market in an attempt
to weaken the Korean currency, specifically to aid the domestic
export industry, and they did so non-transparently. They do it
through third parties. It is recognizable to companies like
ours that track global currency flows. But they do it, and
nothing happens.
As a result, we get a triple-whammy from this currency
manipulation. Number one, imported vehicles coming into the
market to compete with our products that are built right here
in the United States undercut us in price, not because they are
better, not because they are built at a better cost, but simply
because of the effect of a weakened currency.
Number two, when we export an American-made car into their
market, we essentially pay a tariff on that export. When they
move the value of the dollar up 10 percent, we have a 10-
percent duty on an export into the market.
Third, we are not just a U.S. and Korean manufacturer, we
export vehicles around the world. We go head-to-head with
Korean-made products in markets around the world. Every export
we send from the United States to the Middle East, to Europe,
to Asia, goes head-to-head with Korean products made in Korea
that are subsidized by currency manipulation.
So it is absolutely critical that future trade agreements
have disciplines against this pernicious practice which can
completely erase the benefits of a well-negotiated free trade
agreement.
Senator Stabenow. Thank you very much. I appreciate it.
Ms. Morris, talk a little bit more with me and the
subcommittee on the whole question, which I find to be an
important issue, of our developing a trade agreement with
another country, then another country develops a trade
agreement with them, and somehow through the back door that
comes back to affect what we already agreed to, which is very
worrisome, I think, when you look at the implications of that
in the long run.
It really means the value of the hard-fought deal we
negotiate for dairy is not as valuable as the industry planned
for, so I think that is a pretty big issue. How much of U.S.
dairy export growth consists of products with common cheese
names?
Ms. Morris. Well, thank you for that. I certainly agree
with the view that this is a serious concern to have another
country directly striving to undercut the market access that
our negotiators have worked so hard to carve out for U.S.
exporters. This was particularly the case in Korea, where
cheese plays such a major role in U.S. exports to that market.
It is by far the largest dairy product sector that we ship
to that country, so it certainly was an area that we highly
prioritized during the KORUS negotiations. So to find out years
afterward that another partner had effectively blocked out
access for a number of U.S. companies that had looked forward
to exporting to that market, certainly diminished the value of
the agreement, particularly for those companies and for the
industry as a whole.
I would say most troubling is the fact that we have seen
this model replicated now over and over with a number of other
trading partners, particularly with U.S. free trade agreement
partners where the European Union has put in place similar
restrictions against our cheese exports directly to try to
undercut them. It is something that we think definitely needs
more attention. We need to try to find out what is happening
before it is too late and then tackle it appropriately to
address the market access impacts.
Senator Stabenow. Great. Thank you very much. I think it is
a really important thing we have to weave our way through in
future agreements as well in how we address this.
Senator Isakson?
Senator Isakson. Mr. Biegun, welcome back to Capitol Hill.
Who bought the sixth Ford?
Mr. Biegun. Pardon me?
Senator Isakson. Who bought the sixth Ford? You said the
first five----
Mr. Biegun. It was exported to Canada.
Senator Isakson. To Canada?
Mr. Biegun. Yes, sir.
Senator Isakson. Not too far away. I just had to ask.
Mr. Biegun. Just across the river.
Senator Isakson. I just wanted to find out how trade was
working back in 1903. [Laughter.]
I really appreciate your comments and your remarks about
enforcement mechanisms in KORUS. In particular, I think you
were the one who stated that the lesson learned in the last 2
years is to quickly seize the opportunity to use those
enforcement mechanisms to protect your interests. Is that
right?
Mr. Biegun. Yes, sir. I think there is a reason why they
are in the agreement. As I said in my testimony, the irony is,
I think we probably would have helped the Korean government
make its way along the road of free trade a lot faster had we
used them initially.
By choosing instead to renegotiate some of these areas of
dispute, we just ate up time on the clock while we were trying
to build a business, and the Korean bureaucracy, still to this
day, is left to its own devices, even to subvert the intent of
some of the elected officials in Korea.
Senator Isakson. Well, I want to underscore the importance
of your remarks. All the remarks were fantastic, but it was so
important to me, because I remember when we did the permanent
normal trade relations with China, and being from the State of
Georgia where we export a lot of textiles, for a long time our
market share was eroded away by China at a rapid rate, and we
looked the other way on the enforcement mechanisms through the
WTO to protect our market share. So, we have to stay vigilant.
Do you think the mechanisms that are in the KORUS agreement
are a good example or a good template for what we might do with
TTIP or the Trans-Pacific Partnership?
Mr. Biegun. Yes, sir. When it comes to the area of
regulatory differences, I think the agreements are good. They
were in a renegotiation of the document. So one of the issues
that did come up after the agreement came into force is what
force of law they had in the agreement, because some of them
were in a side letter.
We would certainly argue that these dispute resolution and
snap-back measures should be up front, part of the core FTA,
and we should be forward-leaning and use them when we see non-
compliance.
Senator Isakson. And that enforcement is a partnership
between you the exporter and manufacturer and the U.S. Trade
Representative. Is that not correct?
Mr. Biegun. That is right, Senator. We do work very closely
with the U.S. Trade Representative. They, on our behalf, work
very hard to get the Koreans to comply with these agreements.
I think the one thing we have to avoid is the temptation to
start renegotiating. We need to just go at it, if there is non-
compliance, just straightforward and honestly say so, and we
will probably do ourselves and our trading partners a big favor
in doing so.
Senator Isakson. Thank you.
Mr. Murphy, you used the term ``embracing state-of-the-art
intellectual property protections'' in KORUS as one of the main
values of that to Qualcomm. Can you explain why those
protections are so important to Qualcomm and what you think
these protections mean for future trade agreements?
Mr. Murphy. Yes. Thank you, Senator. I appreciate the
question. As I said in my opening remarks, Qualcomm owns tens
of thousands of patents worldwide. We are one of the largest
filers of patents before the Korea Intellectual Property
Office. Patents are fundamental to our business.
The KORUS intellectual property chapter raises and imposes
standards that go far beyond the minimum standards of the WTO
TRIPS agreement. Let me give you a few examples. First, in the
area of patents, the agreement expands the scope of subject
matter eligibility in Korea. In addition, it extends the term
of the patent for those products that are regulated and require
prior market approval or testing before they can be
commercialized. So, in other words, if your patent term is
eroded during the time that your product is being assessed, you
can potentially make up that lost time and still have exclusive
protection.
In addition, for those products where there is a
requirement for testing or approval, the data that the patent
owner or company would provide to the government agencies
responsible for the testing is required to be kept confidential
and exclusive. So, in other words, the data that you are using
to get market approval will not be leaked to your competitors.
In other areas, copyright for example, the agreement helps
move the Korean copyright regime closer to U.S. law,
specifically the Digital Millennium Copyright Act. In addition,
with respect to Internet domain names, there is a mechanism in
place to ensure that a company that does not own a trademark
cannot then cyber-squat, or assert rights to the domain name.
This ensures that the legitimate trademark holder has first
priority.
Senator Isakson. Thank you very much.
I will wait. Are we going to have a second round?
Senator Stabenow. Yes.
Senator Isakson. Thank you.
Senator Stabenow. Thank you.
Senator Brown?
Senator Brown. Thank you, Madam Chairman.
Mr. Biegun, your comment about the relative number of
dealerships I thought was particularly compelling and stunning,
so thank you for that.
I want to talk about TPP. The negotiations with Japan on
autos and agricultural products have been challenging because,
like Korea, Japan seems to be reluctant to open its markets to
sensitive products, especially autos. From your company's
perspective, Mr. Biegun, what are the risks to U.S. auto
companies and workers as the administration rushes to complete
a TTP agreement that does not include enforceable currency
provisions and does not address the non-tariff barrier issues
we have seen with Korea? If those issues are not remedied to
your satisfaction, would you support the agreement?
Mr. Biegun. Yes. Thank you very much, Senator Brown. Thank
you for everything you have done to help make the automobile
industry strong in the State of Ohio. The question is the one
that weighs on our mind right now. Ford Motor Company was a
strong supporter of the launch of the Trans-Pacific Partnership
negotiation. With its original 9 members, and later with 11
members, we thought that it made an enormous amount of sense.
But I have to tell you that we did have pause to reconsider
when Japan was added as a 12th member of that negotiation. We
are deeply skeptical that there will be anything in this
negotiation that opens the Japanese auto market to the export
of U.S. automobiles.
Japan, today, has no tariff on automobiles. You do not pay
a penny in tariff to get an automobile into Japan. Japan is the
third-largest auto market in the world and has the least number
of imports of any major auto market in the world. Japan is
completely closed, and it does not have a tariff.
So what are the challenges? Well, certainly there is a
major issue of non-tariff barriers. Many of the things that we
work with to try to get into the Korean market are nearly
existential challenges when it comes to setting up a business
in Japan. But more so, Japan has a record of being one of the
largest manipulators of currency in the global economy. By
moving the value of the yen to weaken 20 or 25 percent, they
do, de facto, impose a 20- or
25-percent tariff on every vehicle we try to export to Japan.
So we are deeply concerned about Japan's entry into the
TPP, and, more so than that, we are deeply concerned with the
impact it has had on the negotiations themselves. Without a
doubt, negotiations are now delayed.
The ambitions are now far lower than they had been before
Japan entered. We think that, unfortunately, this is driving
the negotiation to be a repeat of the Doha Round that will be
an endless discussion of how not to open markets. That is a
real lost opportunity for the U.S. economy.
Senator Brown. You mentioned non-tariff barriers. What
should we do differently in TPP to ensure we eliminate non-
tariff barriers before the agreement is actually signed?
Mr. Biegun. So USTR does have a team working on non-tariff
barriers with Japan. The problem is that they are spending 99
percent of their time on 1 percent of the problem. The mother
of all non-tariff barriers is currency manipulation, so we have
to have disciplines against currency manipulation.
And by the way, this is not a novel idea. Japan has agreed,
as a member of the IMF and the WTO, not to intervene in its
currency for purposes of facilitating its exports. It has
already agreed in principle. What is lacking is enforcement,
and that is what we need in our free trade agreements.
The other thing I would say is, the lesson of KORUS and the
future challenges of markets like Japan and also the Trans-
Atlantic Trade and Investment Partnership is, we should
negotiate these agreements to ensure that products like
American automobiles that are built to world-class standards of
safety and environmental performance can drive out of the
factory, drive onto the ship, get to the shores of the foreign
market, and get to the customers with a minimal amount of
revisions.
Non-tariff barriers really are the last tool to obstruct
trade as we see tariffs reducing around the world. Addressing
regulatory barriers and arresting currency manipulation will be
huge improvement in generating U.S. exports.
Senator Brown. Let me shift in my last minutes. Are you
concerned with harmonization of auto safety standards within
TTIP, or does that typically in your mind work to the advantage
of U.S. automakers?
Mr. Biegun. To be clear, the specific term----
Senator Brown. Defining the term, right.
Mr. Biegun. Yes. Harmonization is not actually the goal of
the TTIP. What the goal of the TTIP is is to create a body of
evidence that suggests that U.S. safety and environmental
standards provide an equivalent outcome as European safety and
environmental standards. That means they do not have to be
identical, but that means what every customer knows: when you
fly to Europe and you rent a car at a rental lot and you get in
the car and you buckle your seat belt, you do not have any
question in your mind that you are safely secured into the
cockpit of the car, and that it is going to perform to a high
level of safety.
The same goes for Europeans when they come to the United
States. Customers know this, and that is a reality. Still,
because of the importance that is attached to automotive
safety, it is incumbent upon us in the industry to provide the
data to regulators that proves factually that that is the case,
not just because it is the perception of us or customers. So
that is what we are doing.
If that happens, we believe this will open a significant
amount of new trade between the United States and Europe, which
right now only sees a very small amount of trade in the area of
premium vehicles. So, from a Ford Motor Company perspective, we
do fully endorse the efforts to create regulatory mutual
recognition between the U.S. and Europe, and we think it will
expand the export of U.S. automobiles to Europe.
Senator Brown. Thank you.
Senator Stabenow. Thank you.
Senator Portman?
Senator Portman. Thank you, Madam Chairman. Thank you for
holding this hearing.
I appreciate all the witnesses today. I did not get to hear
all your testimonies, but I got to look at some of what you had
to say. It is really important that, after we complete these
agreements, that we do have this ability to look back and see
how it is working or not working.
As some of you know, I was very involved in the launch of
this trade agreement, thinking that KORUS was critical for us
to have a better footprint, frankly, in that part of the world.
At the time, the U.S. was the single-largest trading partner
with the Republic of Korea. By the time we completed the
agreement, China was by far the largest trading partner, and
now we are attempting to regain some of that ground through
KORUS.
We just had the 2-year anniversary of its entry into force,
and sometimes you have to wait a while, so 2 years may not be
an appropriate marker to make the final judgment, but the
bottom line is, I think we have seen some progress. We have
also seen some problems. I think Mr. Biegun just talked about
some of the non-tariff barrier issues with these trade
agreements. We tend to make great progress on the tariff side.
In fact, we have already gone through a couple of rounds of
tariff reductions, and that is positive. We have seen U.S.
trade and services exports combined up about 4 percent between
2011 and 2013. I think those results would be a whole lot
better if our economies were better, including the Korean
economy, which took a dip during that period. The slow-down
over the last 2 years has meant that it has just not been as
strong as it could have been.
But the bottom line is, we have seen expanded opportunities
for services, we have seen expanded opportunities for our U.S.
goods, and we have seen improved transparency in much of the
regulatory system. We have stronger intellectual property
protection, and so on.
So I think, again, your judgment is a little premature. I
think we are making general progress on the tariff reductions
and progress on our degree of exports, but we still have big
challenges. I think currency is certainly one of them. That was
not something we addressed in the trade agreements, and we will
see what we do going forward on that, but I do think currency
is an issue, and I do think it affects trade.
I am concerned about transparency in medical device
reimbursement. I am concerned about the non-tariff barriers in
the auto industry that we talked about. I am concerned about--
by the way, Korea is a great opportunity for autos, including
for exports from Ohio. We have a bunch of plants in Ohio,
including Ford Motor Company plants, that produce parts,
transmissions, engines, and so on, for cars like the Explorer,
which are exported all over the world. So we want more of that
market share.
By the way, I am told that the vast majority of Hondas that
are in the Korean market are now exported from Marysville, OH.
So, there is an opportunity here for us to do even more, but we
have to get at those non-tariff barriers. Then there are some
Customs issues too. Again, both of our economies are weaker
than we would hope they would be, and so hopefully these
numbers will end up being stronger.
To Ford, quickly, you mentioned the regulatory burdens and
currency manipulation. The Korea situation is one we need to
deal with, and we are talking about that, but also they have
talked about joining the TPP, as you know.
Their interest in joining, I think, should wait until we
have full implementation of the KORUS issues, in my view. But I
would just ask you, how problematic have these non-tariff
barriers been to your U.S. workers as you look at TPP
potentially including Korea?
Mr. Biegun. Thank you, Senator Portman. Thank you for
working so closely with us and our UAW partners to raise the
issue of currency in Ohio as well. As I was saying earlier, it
really has changed the tenor of the debate on that issue.
The lesson that we have learned from these non-tariff
barriers in Korea--and it will apply to Japan as well--is that
the best solution would simply be for us to be able to sell our
cars at our standards in these markets. Now, that may not be
possible in all cases, I understand. I am realistic when it
comes to the fact that each country has a sovereign right to
set its own regulatory system.
But the problem that you have with markets like Korea and
Japan is, they have a long record of using the establishment of
those regulations as a trade barrier, so there is a special
burden on them to create a level of transparency and
predictability in their regulatory changes that at least is
equivalent to what their manufacturers face here in the United
States, and we simply do not have that.
In the case of Korea, 2 years ago we could not tell you
what cars it would be legal for us to sell in Korea today.
Today, I cannot tell you with certainty what cars it will be
legal for us to sell 1 year from now. In an industry in which
these kind of decisions to assign products, to allocate
vehicles like the Ford Explorer, are made under the most
extreme interpretation of the bonus-malus law, which is an
environmental provision currently under debate in Korea, next
year we could have to pay $7,000 on every Ford Explorer we
export from the United States to Korea. That would wipe us out.
There would not be a single Explorer there.
Now, I do not want to over-dramatize this. The Koreans are
in negotiations. We have gotten assurances that, in all
likelihood, this policy will evolve in a way that will not have
a punishing impact on importers. But in a way, it does not
matter, because right now I am not sure.
So, when I go to the business and say, we need to spend
tens of millions of dollars to make some adjustments in the
Explorer line to be able to qualify for whatever is left in the
Korean market, to qualify as far as regulations, it has to be
justified against a reasonable expectation that those products
will have access to the market. This is the Whack-A-Mole we
talk about with regulatory systems in protected markets, and it
is something where we really have to use our trade policy to
carve out the space for American manufacturers to export.
Senator Portman. Yes. That certainty issue is critical. I
was just at your transmission plant in the Cincinnati area, and
also your engine plant in Cleveland. You guys are not weeks or
months, you are years ahead in terms of your planning, and have
to be.
I know my time has expired. I would like another round, so
I would hope that the chairman will give me that. But again, I
appreciate all of you being here. I look forward to asking
another question for the rest of the panelists.
Senator Stabenow. Thank you very much, Senator Portman. We
will have a second round. I think we all have additional
questions.
Mr. Biegun, let me continue with you, because I know there
is, certainly in Michigan, great concern about our ability--we
want to be selling automobiles in Korea, in Japan, and around
the world and have equal access to markets that certainly other
countries have in America right now, as we know.
Just last weekend at an event in Seoul, the president of
the U.S. Chamber of Commerce echoed many of the concerns that
have been raised here today, that you have talked about,
related to non-tariff barriers. He acknowledged that there is
room for improvement, noting that ``things are moving too
slowly in areas where non-tariff trade barriers restrict trade
and where new rules or guidelines are required to meet the
Korea Free Trade Agreement.''
Could you talk a little bit more about how you would
identify a new trade barrier or potential trade barrier, the
process for preventing this before it got implemented? At this
point, is there a way?
Mr. Biegun. Yes. Certainly the highest level of
transparency is important, which is one of the provisions in
the KORUS, and the requirement for the longest lead time to
notify manufacturers--which again is in the KORUS. The problem
is, you do not know what you do not know. At times we have had
this sense that our Korean competitors in Korea have known well
in advance of us of some of the regulatory changes that were
coming.
When it is sprung upon us, even if it is a legitimate
regulatory innovation in the economy, it has the effect of
pushing our products, which are sold in relatively low numbers,
out of the market, because we simply cannot afford it. We will
sell 7,000 cars this year in a market of 1.5 million. If you
add thousands of dollars of cost to every one of those cars, we
cannot continue the business.
The Korean companies will average those costs over hundreds
of thousands of cars, so the cost-per-unit to make any
adjustments like this is insignificant. We watch it closely. We
have a team. We have been in Korea for 20 years. We are not new
to that market. The reason why we were so concerned about the
free trade agreement to begin with is because, since 1995, we
have had a toe-hold, trying to build a business. But, Madam
Chairman, after 20 years, to be selling 7,000 cars per year in
one of the top 10 auto markets outside the United States is a
challenging business case to maintain.
The irony is, it would be good for the Koreans to open the
market. They would have better prices, their consumers would
have more choices, they would remove a major irritant in U.S.-
Korean economic relations. Auto trade represents over 90
percent of the U.S. auto deficit with Korea. It is an urgent
matter for them to address this, not just for us.
Senator Stabenow. Let me ask one other quick question
regarding moving forward with Japan, because I know in
conversations that I have had directly with your company, there
is great concern that, here we go again into another market,
and certainly currency manipulation, the concern about the
difference in price that results from that, is of deep concern.
I believe that any trade agreement going forward needs to
correct that with enforcement mechanisms.
But on non-tariff trade barriers, there I was fascinated by
a conversation that I had a while ago. As a daughter of a car
dealer who grew up on and had my first job on a car lot, to
hear the fact that it was so tough to even get the automobiles
onto the car lot to be able to try to sell them, what is that
like in Japan as we go forward here, looking at non-tariff
trade barriers?
Mr. Biegun. Again, Japan, like Korea, has an extremely low
import penetration when it comes to automobiles. In fact, Japan
has now surpassed Korea as the most closed automotive market in
the world. These barriers tend to become most aggressive as we
begin to grow our market share, as we have done occasionally
over the course of the past several years.
In Japan, there are a number of costly technical revisions
that need to be made to automobiles to comply with Japanese
standards. The Japanese do clear out a little bit of space for
a few thousand vehicles per year that can come in without
modification, but in essence that pushes the automakers to
simply steer to the left and take the low-volume exemption
rather than grow into the bulk of the market, because there is
no certainty that we will have access to the market.
Looking at the tariff barriers--which USTR is trying right
now to clear in the TPP negotiations--is important. But absent
addressing the other factors that keep us out of the market, it
is almost irrelevant. If currency manipulation continues, we
will have a pretty good sense of the limits of our ability to
reach into that market.
The business case to invest in modifying products to get
into a market in which you are permanently locked into a small,
small share of the market, is a very difficult business case to
make inside a company. We are willing to invest the money to
get into the market, but there has to be some reasonable
expectation that the government will not use other policies to
keep the importers out.
Senator Stabenow. Thank you. I know I am out of time, but,
Mr. Rue, I want to ask you, how big an opportunity are U.S.
rice farmers losing in Korea by not being a part of this trade
agreement?
Mr. Rue. Thank you for that. Well, for example, the
existing access that we were able to negotiate when they asked
for an extension of special treatment under the Uruguay Round
garnered about a 50,000-ton access that was country-specific.
But more importantly, it opened up the balance of that
access that is not country-specific. That is over 400,000 tons
today. This access is entirely through a state trading
enterprise, and so, while we do have access, it is through a
state trading importing enterprise run by the Korean
government. They are able to manage that to the degree they
want.
The opportunity we lost, I believe, in the Korea Free Trade
Agreement was an opportunity to have access that allowed us to
in fact directly reach consumers and processors so we would
have an opportunity to build a market share and a trading
relationship that would have support both on the Korean side
and benefit them directly, as well as on the U.S. side.
Senator Stabenow. Well, we hope future trade agreements
will correct that. So I have taken extra time. We will add a
minute to each of my colleagues if you would like to take a
little bit more time.
Senator Isakson?
Senator Isakson. Thank you, Chairman Stabenow.
Cheese is my favorite food, so, when you start talking
about cheese, you have my attention. [Laughter.]
I want to make sure I heard you correctly, because you
named all my favorite cheeses too, when you were going down
that litany. But, if I understood you correctly, you said the
E.U. colluded with the South Koreans to restrict the import of
certain types of cheeses from the United States into South
Korea. Is that correct?
Ms. Morris. Yes. The European Union, in its negotiations
with Korea, made it a requirement of closing the agreement to
include these geographical indication restrictions that
specifically crowd out imports of the types of products that I
named from the U.S. and other suppliers around the world. So
those products can only be shipped now to Korea from specific
European manufacturers.
Senator Isakson. Well, that seems like a dangerous practice
if it ever caught fire on any number of different types of
products, because it is basically a conspiracy. You had two
conspirators, and you unwittingly were affected by their
negotiation without your ability to have any say. Is that
right?
Ms. Morris. I would absolutely agree with your
characterization of the issue, Ranking Member Isakson.
Senator Isakson. Then I heard you say that you thought our
embassies ought to do a better job of monitoring the
negotiations of the countries where they represent us to try to
catch this. Is that right?
Ms. Morris. We believe that that is something that could
help this issue immensely. As I mentioned in my testimony,
Korea was the first instance where we saw the E.U. put in place
restrictions on the use of common names such as cheese types in
its FTAs, but now it is popping up in a number of other markets
around the world.
It is extremely difficult for us as an industry to monitor
the situation effectively in every single one of those markets.
We believe that better use of our embassy personnel,
specifically through the Foreign Agricultural Service, could
help get information in advance so that we can engage
proactively before the agreement is concluded and try to best
preserve U.S. market access opportunities with those trading
partners.
Senator Isakson. Well, carried to the extreme, if collusion
like that were a common practice, you could have the European
Union saying to Korea, you cannot import any automobile named
Explorer, or like my hybrid Escape, just by the type of car. It
would close the market, even though you are saying you are
opening the market by negotiating the free trade agreement. Is
that right?
Ms. Morris. It is certainly, in our view, a very serious
non-tariff type barrier that is comparable to other cases as
well.
Senator Isakson. I would defer to the chairman and
distinguished gentleman from Ohio, Mr. Portman, on this. But it
might be worthy of us taking steps for a provision like that to
be part of our negotiated agreements so it automatically
invalidates the free trade agreement we have entered into with
somebody if they collude or conspiratorially in any way prevent
access to U.S. products without us being a party to it.
Ms. Morris. We certainly think that, through TPP and other
agreements, that the U.S. should be looking at ways to use
those agreements that we are involved in proactively to try to
address the issue ahead of time rather than simply reacting
after the fact.
Senator Isakson. I want to discuss that with Ambassador
Froman, because I think, with my love for cheese, I do not want
any lack of access, whether I am in South Korea or South
Chicago. [Laughter.]
So, thank you, Madam Chairman.
Senator Stabenow. Well, I am with you on that. So, we will
pursue it.
Senator Portman?
Senator Portman. Thank you, Madam Chairman. The
geographical indicators are a frustration. What the Europeans
do, as Senator Isakson said well, is they do these agreements,
including one with Canada recently, where they impose their
view on these GIs, which we have been fighting for years, as
you know. It is frustrating.
You have said in your testimony that Korea's restricted
access for these products is a result of its FTA with the
European Union. You stressed at the outset that this is not a
flaw in KORUS, so we continue to strongly support the agreement
and its approval by Congress, because you have seen some market
access improvements overall.
But I will tell you, for Ohio, the Blue Jacket Dairy in
Bellefontaine, OH, the Heini's Cheese Dairy in Millersburg, OH,
the Great Lakes Cheese Company in Hiram, OH, they all make
feta, brie, gorgonzola, and other cheeses that are affected
directly by this Korean adoption of the European standards in
their E.U. agreement. So, it is a huge problem.
I will not ask you the question, because I think you
answered Senator Isakson's question well, but let me just ask a
general question of the group here. I have been critical on
autos, critical on cheese, and I mentioned some other concerns
I have.
I will say that, but for this agreement, we would not have
the export growth we have had in Ohio. Our exports to Korea
have increased 19.5 percent from 2012 to 2013. I do think, as
again their economy begins to pick up, we will see more growth,
but we have to have a more level playing field.
I think the other issue here--and I want to hear from you
all on this--is, what impact has this had on our relationship
with one of our strongest allies in a more general sense? And
they are an ally, in the region and globally, and have stood
with us, including during some tough times in the last several
years.
In February of 2006 when we announced this negotiation, I
stood with Korean Minister Kim, and there was a big bipartisan
group from Congress here, including Senator Carper, by the way,
who is still here on the committee. We talked about the
economic benefits, we talked about what could happen, we talked
about the fact that this was the tenth-biggest economy in the
world.
Again, the situation was that, at one time, we were the
biggest trading partner, and now it has shifted over to China.
At that press conference, we also talked about how this was
beyond trade, that for more than 50 years we had stood together
and that Korea strongly reflected the values that this country
holds dear, including democracy and freedom.
The distinction between North Korea and South Korea could
not be more clear. At that time, Korean Trade Minister Kim
said, ``This is the most important event since the signing of
the military alliance with the United States in 1953.'' So they
obviously viewed this as an important agreement.
I guess I would ask, since many of you work closely with
businesses in Korea and around Asia, how important is this
trade agreement to our relationship with the Republic of Korea
and with Asia generally, and, therefore, how important is it
that we get this implementation right? I would open it up. Mr.
Biegun?
Mr. Biegun. Senator Portman, we have been involved in many
trade negotiations around the world, and it certainly can be
the case that you describe. But something that we have learned
in the course of these negotiations is that geopolitics makes
for lousy free trade agreements, but really good free trade
agreements make for great geopolitics.
What do I mean by that? If you negotiate a bad free trade
agreement because you want to strengthen the relationship, you
actually import into that relationship a lot of tension and
disagreement. But if you take a clear-eyed look at what the
economic opportunity is, have a fair agreement in which both
sides are equally committed to implementing it, and you
approach it from an economic perspective, you produce a
foundation for the relationship that is unsurpassed.
So, on Korea, I would say the jury is out. As I said in my
testimony before you arrived, we do not regret having supported
this agreement, but we are deeply disappointed by the level of
the commitment that the Korean government has shown to date in
implementing it.
I do not want to sound impatient, but there is some
urgency. We carved out a 4-year window in which the U.S.
automobile industry can get a toe-hold in the Korean market
before the tariffs go away. We are 2 years into that 4-year
period. As I said a moment ago, we do not even know what
vehicles it is legal to sell next year. It is unacceptable for
countries like Korea, regardless of how good a friend they are,
to not fulfill their commitments on a free trade agreement.
Senator Portman. Mr. Murphy?
Mr. Murphy. Thank you for the question, Senator Portman. I
would say that the agreement has had a very beneficial effect
on the overall bilateral economic relationship. In addition to
the direct benefits and gains we have seen in terms of market
access and important rules that are helping to propel American
and Korean businesses alike, the agreement has set up a number
of important mechanisms for ongoing dialogue between our
economic officials, including at the Cabinet level.
We have talked about some of the implementation issues and
new problems that have arisen. The 21 committees that the KORUS
establishes created an important framework for ongoing and
continuous dialogue. I believe that can only help to strengthen
the relationship, help improve implementation, and make sure
that the benefits that all of us who supported KORUS expected,
will come to pass.
I would also say that, since KORUS, the U.S. and Korea
relationship has been strengthened in other forums. For
example, at the World Trade Organization, the United States has
been pushing very hard for expansion of the Information
Technology Agreement, which lowers and reduces tariffs on a
range of high-tech products.
Korea has been a very good ally to the United States, and
it has exhibited a leadership in the WTO that is of common
interest to both economies. So that is just one example of how
the relationship has been beneficial in terms of bilateral
engagement, but also on the multilateral front.
Senator Portman. Thank you.
Ms. Morris?
Ms. Morris. Thank you, Senator Portman. As you mentioned, I
have spent a fair amount of time in my testimony focusing on
one type of non-tariff barrier that has troubled our products
in that market, even though it was unrelated to the actual
KORUS text itself. We continue to believe that KORUS was the
right decision to approve and that it has been, overall, very
beneficial to U.S. dairy exports and to the relationship with
that country as a trading partner.
I would also note that, in our view, it was particularly
important in hindsight, because we are not the only ones active
in that sphere. The Europeans, of course, put their agreement
into place. They are a major dairy exporter. Australia just
concluded its negotiations recently with Korea, so it will soon
have an FTA. They are also another major dairy exporter. So
without that, the U.S. actually would have been at a risk of
moving backward in terms of market access opportunities rather
than moving forward, thanks to KORUS.
Senator Portman. Ms. Morris, as you will recall, we were
way behind, and it took us much longer to put our agreement in
place. In the interim period, the others came in and have
captured some market share. Even though you say your market
share overall has improved, it could have been even better, and
it would have made it even more difficult for foreign
competitors to come in if we had acted sooner. But we learn
lessons as we go along.
Mr. Rue?
Mr. Rue. Thank you. Obviously, having rice excluded from
KORUS, on a personal level, it has not been a great benefit.
However, I acknowledge the advantages and the progress that we
have made in, not only other agricultural products, but
industrial and intellectual products as well.
I think I would repeat what Mr. Biegun has said, that it
underlines the importance of the overall relationship, not only
the economic one but the geopolitical one as well, that you
have a comprehensive, fair agreement that covers all products
and that each of the participants feel like they are dealt with
in a fair relationship. That can only strengthen the
relationship overall. Thank you.
Senator Portman. Yes. And I think the exclusion is a big
mistake, and we should not negotiate agreements with those
exclusions. The agreement also does give us a forum to discuss
all these issues, which is important. With regard to some
issues we talked about today, autos in particular--GIs are more
complicated because of the E.U. agreement--we ought to use
those forums and resolve these issues. Certainly, as trading
partners that are important and as friends and allies, this is
to both countries' advantage.
Thank you, Madam Chairman.
Senator Stabenow. Thank you very much. And thank you to
each of you for your insights today. This has been very
helpful. By strengthening and better enforcing our trade
agreement with the Republic of Korea, I believe we will
strengthen the bond between our two nations. We need to be
focused on that.
In addition, if we can get this done right as we start out,
hopefully we will open new markets to American companies in
agriculture and manufacturing where we see some real
challenges, and that is going to lift wages and create quality
middle-class jobs, which is the bottom line of what we want to
see happen.
So we look forward to working with the Korean government as
well as with all of you, with all Americans who have a stake in
this trade partnership. Finally, the experience we have had
through our agreement with Korea gives us a clear sense of how
to move forward on future trade agreements. We need to learn
from what we are doing now so that we can strengthen agreements
and not make the same mistakes and build on what is working.
These are valuable lessons.
So again, we appreciate all of you being here. Any
additional questions for the record should be submitted to the
committee clerk. The deadline is 5 p.m. on Friday, August 1st.
The subcommittee meeting is adjourned.
[Whereupon, at 4:27 p.m., the hearing was concluded.]
A P P E N D I X
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