Solving the Auto Riddle May be Key to KORUS FTA
August 8, 2010
With an ambitious deadline of the Seoul G-20 Summit to resolve any remaining concerns regarding the KORUS FTA, the key to moving the agreement to a vote in early 2011 may be finding a way to solve the riddle of autos. While many of the concerns of the auto industry and its supporters predate the KORUS FTA, it has been largely unclear what measures would be needed to resolve this concern.
In recent remarks, Steve Biegun, Ford’s vice president for international governmental affairs, was quoted as saying that "We want to see complete elimination of Korean barriers to the market. We want to see a rapid increase in imports. We want to see it done in an enforceable way." He also emphasized that a quota is not needed and that "It’s really going to be up to the Koreans, if they’re willing to make the steps necessary to open up the market." While Biegun’s remarks are designed to lay out expectations, they also raise a series of questions about his argument given the provisions already in the FTA and recent trends in car sales in Korea.
+ What are the barriers to the Korean market that are not addressed by the FTA and how can they be fixed in an enforceable manner? Members of Congress and the auto industry have previously expressed concerns that the provisions of the FTA do not go far enough to address the discriminatory nature of Korea’s engine displacement tax and issues related to Korea’s automotive safety and environmental regulations and certifications. However, most discussion of barriers in Korea has focused on a general concern about non-tariff barriers without specifics.
+ What would qualify as a "rapid" increase in imports in Korea? Since 2000, the sale of imports in Korea have risen from 4,414 vehicles, or 0.42 percent of the Korean auto market, to a high water mark of 61,648 in 2008 and 6.04 percent of the Korean auto market. Early 2010 date indicates these sales figures will easily be passed this year. Through June, 41,947 imports, representing 6.64 percent of the Korean auto market, have been sold in Korea. Since 2002, sales of BMWs, the leading foreign seller in Korea, have grown from 2,232 to 9,652 in 2009.
The greatest hurdle, however, may be the issue of trust. In the 1990s, the United States and Korea negotiated two memoranda of understanding in the hopes of opening the Korean market to U.S. autos to little success. Shortly before the KORUS FTA negotiations were concluded, members of the auto industry and its supporters in Congress put forward a proposal that would have utilized a non-traditional approach to this issue. It called for Korea to only gain additional access to the U.S. market after U.S. producers had gained meaningful and sustained access to the Korean market and placed the burden of proof on Korea to demonstrate that it does not have barriers to the sale of U.S. autos in its market. The industry and its supporters felt this non-traditional approach was justified because of the U.S. government’s long history of unsuccessful attempts to open Korea’s market to U.S. autos.
U.S. Beef Producers Uncertain About Pushing to Further Open Korean Market to U.S. Beef
With memories of the 2008 street protests against U.S. beef still fresh in the minds of U.S. beef exporters and growing sales in Korea, there is growing sentiment within the U.S. beef industry to avoid any measures that would undermine the progress made since the Korean government reopened markets to U.S. beef products under 30 months of age. Through the first five months of 2010, U.S. beef accounted for more than 30 percent of Korean beef imports, trailing only Australia, with New Zealand being the third largest source of beef imports for Korea. Currently, Korea is negotiating FTAs with both countries. However, the sentiment is not uniform within the industry. R-Calf, in a press release, called for the FTA to be renegotiated to better protect the interests of U.S. ranchers.
More difficult to reconcile may be the political side of the issue. At the recent annual dinner of the Washington International Trade Association, Senator Max Baucus placed Korea’s current restriction on imports of U.S. beef in the context of the global rules based trading system and Korea’s obligations under the World Animal Health Organization. In reference to Korea, Senator Baucus asked "If we do not require our FTA partners to comply with a rules-based trading system, then what is the value of that system? And if we do not require compliance form our FTA partners, how can we expect it from others?"
Growing Lines of Support and Opposition in the House
While the administration works to find solutions to the issues of beef and autos, growing opposition and support for the FTA is developing in Congress. In the last month, two letters signed by over 100 members of Congress have been sent to President Barack Obama regarding the FTA utilizing similar arguments, but contrasting rhetoric to make their case. These two letters likely represent the core opposition and support for the FTA in the House of Representatives, with the agreements ultimate fate likely to be decided by the remaining 210 members.
The first letter, organized by Congressman Michael Michaud and signed by 109 Democrats, calls for significant revisions to the financial services, investment, and labor chapters, as well as a need to address Korea’s non-tariff barriers. In the letter, the signees argue that "At a time when our economy is struggling to recover from the worst downturn since the Great Depression, it is unthinkable to consider moving forward with another job-killing FTA," and that "without major changes [it] will exacerbate the U.S. trade deficit [and] further erode the U.S. manufacturing base."
The second letter, a bi-partisan effort organized by Congressmen Adam Smith and David Reichert, expressed support for the president’s efforts to move the KORUS FTA forward and applauded his commitment to resolve outstanding issues related to beef and autos by the Seoul G-20 Summit. In the letter, the members noted that "Trade, especially when fair, reciprocal, and enforceable with a close trading partner, is integral to our economic recovery strategy. Furthermore, preparing KORUS for Congressional consideration would continue our partnership with a democratic ally that has a strong record on labor rights and environmental protection."
by Troy Stangarone (ts@keia.org)
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