[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 

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                      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.]
    
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