[Federal Register Volume 63, Number 214 (Thursday, November 5, 1998)]
[Notices]
[Pages 59836-59837]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-29681]



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OFFICE OF THE UNITED STATES TRADE REPRESENTATIVE

[Docket No. 301-115]


Section 304 Determination: Korean Barriers to Auto Imports

AGENCY: Office of the United States Trade Representative.

ACTION: Notice of determination under section 304 of the Trade Act of 
1974, as amended.

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SUMMARY: Having concluded the investigation undertaken pursuant to 
section 302 of the Trade Act of 1974, as amended (``Trade Act''), the 
United States Trade Representative (``USTR'') has determined pursuant 
to section 304(a)(1)(A)(ii) of the Trade Act that certain acts, 
policies, and practices of the Government of the Republic of Korea 
related to exports of U.S. motor vehicles to the Korean market are 
unreasonable and discriminatory and burden or restrict U.S. commerce. 
The Korean government, however, has agreed to take several measures to 
resolve the matters under investigation. Therefore, pursuant to section 
304(a)(1)(B) of the Trade Act, the USTR has determined that the 
appropriate action in this case is to terminate the investigation and 
to monitor under section 306 the Korean government's implementation of 
these measures to eliminate those acts, policies, and practices.

EFFECTIVE DATE: October 20, 1998.

FOR FURTHER INFORMATION CONTACT:
Mary Latimer, Director of Korean Affairs, Office of Asia and the 
Pacific, (202) 395-3077.

SUPPLEMENTARY INFORMATION: On October 1, 1997, pursuant to Executive 
Order No. 12901 of March 3, 1994, as extended by Executive Order No. 
12973 of September 27, 1995, regarding the ``Super 301'' annual review, 
the USTR identified as a ``priority foreign country practice'' the 
Government of the Republic of Korea's barriers to auto imports. On 
October 20, 1997, also pursuant to Executive Orders 12901 and 12973, 
the USTR initiated an investigation under section 302(b)(1)(A) of the 
Trade Act (19 U.S.C. 2412) with respect to certain acts, policies, and 
practices of the Korean government that pose barriers to imports of 
U.S. motor vehicles into the Korean market.
    On October 28, 1997, (62 FR 55843), the USTR invited written 
comments on the acts, policies and practices of the Korean government 
that were the subject of this investigation, including the amount of 
burden or restriction on U.S. commerce caused by these acts, policies 
and practices, and the determinations required under section 304 of the 
Trade Act regarding whether they are actionable under section 301, and 
if affirmative, the appropriate action, if any, to take in response.
    During the course of this investigation, the U.S. and Korean 
governments held a series of consultations on the matters under 
investigation. Specific Korean government practices raised during the 
consultations included an array of cumulative tariff and tax 
disincentives that have a discriminatory effect on imports, onerous and 
costly standards and certification procedures, financing restrictions, 
and a climate of bias against imported vehicles. While some of these 
barriers were addressed in a 1995 bilateral agreement between the 
United States and Korea, implementation of that agreement had been 
disappointing, especially as new practices had been introduced that 
undermined the 1995 agreement. Also discussed during the consultations 
was the application of the market economic reform measures that Korea 
is undertaking to the operation of the Korean motor vehicle sector.
    On October 20, 1998, the United States and Korea concluded a 
Memorandum of Understanding (MOU) to improve market access of U.S. and 
other foreign motor vehicles to the Korean market. The new MOU 
addresses certain acts, policies, and practices that are unreasonable 
and discriminatory and burden or restrict U.S. commerce and were the 
subject of the section 301 investigation. Specifically, the MOU 
provides that the Government of the Republic of Korea will:
    (a) Reduce specific motor vehicle-related taxes that have 
significantly increased, in comparison to Korean vehicles, the purchase 
price of and cost of retaining foreign motor vehicles, including: a 30 
percent reduction in the Special Consumption tax until at least July 
2005, and a 40 percent reduction in the rate applied to U.S.-type 
vehicles under the Annual Motor Vehicle Registration tax; not increase 
the tax differentials between engine-displacement based categories; 
eliminate an Education tax and the Rural Development tax on motor 
vehicles in Korea; equalize the Subway Bond purchase and revenue 
requirements for Korean and domestic foreign motor vehicles within 
engine-displacement categories; and, in the longer term, simplify 
Korea's motor vehicle tax structure and reduce the tax burden on Korea 
motor vehicle purchases;
    (b) Lower Korea's WTO tariff bindings on motor vehicles from 80% to 
its current applied rate of 8% and actively participate in future 
multilateral negotiations aimed at reducing or eliminating tariffs in 
this sector;
    (c) Revise standards and certification procedures that have imposed 
increased costs and time delays on imported motor vehicles through 
redundant testing and excessive documentation requirements through a 
number of actions, including: institution of a self-certification 
system by 2002 that will allow U.S. manufacturers to certify compliance 
of their own products with Korean safety standards; acceptance of U.S. 
headlamp standards; and significant streamlining of the current safety 
and environmental standards certification system;
    (d) Institute an expeditious and efficient secured financing system 
for the purchase of motor vehicles that will enable Korean consumers to 
more easily finance purchases of U.S. vehicles; and
    (e) Continue government efforts to improve public perception of 
imports by: addressing instances of anti-import activity targeting 
foreign motor vehicles, such as discriminatory use of tax audits; 
encouraging equal treatment of foreign and Korean motor vehicles; and 
actively promoting Korean understanding of the benefits of free and 
open trade and competition; Sport utility vehicles and minivans are 
specifically included in the scope of the MOU.
    The MOU also sets forth goals and general policies, including the 
goals of substantially increasing market access for foreign motor 
vehicles in Korea and establishing conditions so that the Korean motor 
vehicle sector operates according to market principles. In that regard, 
the Korean government confirmed that it is implementing a wide range of 
economic reform measures, including structural reforms of the financial 
and corporate sectors, and that it expects these reforms will create a 
dramatic change in the Korean business environment and contribute to a 
more market-oriented and transparent Korean motor vehicle industry.

Section 304 Determination

(1) Korea's Acts, Policies, and Practices
    Having concluded the investigation undertaken pursuant to section 
302 of the Trade Act and on the basis of consultations with the 
Government of the Republic of Korea, the affected U.S. industry, and 
the relevant private sector advisory committees, the USTR has 
determined pursuant to section 304(a)(1)(A)(ii) of the Trade Act that 
certain acts, policies, and practices of

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the Korean government related to exports of U.S. motor vehicles to the 
Korean market are unreasonable and discriminatory and burden or 
restrict U.S. commerce.
(2) U.S. Action
    The Government of the Republic of Korea has agreed to take several 
measures, described above, to resolve the matters under investigation. 
Therefore, pursuant to section 304(a)(1)(B) of the Trade Act, the USTR 
has determined that the appropriate action in this case is to terminate 
the investigation and to monitor under section 306 the Korean 
government's implementation of these measures to eliminate those acts, 
policies, and practices.
Joanna K. McIntosh,
Chairman, Section 301 Committee.
[FR Doc. 98-29681 Filed 11-4-98; 8:45 am]
BILLING CODE 3190-01-M