By Peter A. Buxbaum, AJOTUS industries provided mixed reactions to the terms of a free trade agreement that has been concluded between the between the United States and the Republic of Korea. A series of strenuous compromises led to the conclusion of an FTA between the world’s number one and number ten economic powers, some of which did not go far enough to earn support in some US quarters.
After year-long negotiations, the FTA was concluded on April 1, 2007. The White House announced that President Bush intends to sign the agreement on July 1, after which the FTA will be sent to Congress for approval. The FTA negotiations were conducted under fast-track trade authority, which requires Congress to provide expedited consideration to the FTA, with no amendments and limited debate.
The automotive and agricultural sectors are not pleased with the agreement, arguing it does not go far enough to ameliorate trade disadvantages they have been operating under in recent years. Representatives of the services sector expressed satisfaction with the FTA, saying it will open the South Korea market to US insurance and financial services.
Elsewhere in the FTA, 95% of US-South Korean trade in consumer and industrial products will become duty-free within three years after the agreement enters into force. The remainder will be lifted within 10 years, according to analysis by the non-partisan Congressional Research Service. Over 60% of US-South Korea trade in textiles and apparel would become duty-free immediately.
“The United States and South Korea conducted the FTA negotiations with a high degree of political risk for both countries,” noted the Congressional Research Service report. “The results of the FTA negotiations were the product of much compromise.”
Those compromises are evident when it comes to the FTA provisions on automotive products and US beef exports. The US automotive industry had been pushing the US trade representative to negotiate an end to Korean quotas and tariffs on their products, as well as to non-tariff barriers, which include a complex tax regime.
Under the FTA, the US agreed to eliminate its 2.5% tariff on imports of smaller Korean cars, to phase out the tariff on larger South Korean vehicles over three years, and to phase out a 25% tariff on imports of South Korean light trucks over 10 years. South Korea agreed to eliminate its eight percent tariff on auto imports and to revise its tax regime to consolidate tax categories and to harmonize the applicability of taxes to US and Korean cars. South Korea would also reduce the excise tax on cars over three years, and reduce the number of cars that would be subject to the tax.
These provisions led Stephen Biegun, vice president for international governmental affairs at Ford Motor Company to comment, “The US-Korea agreement falls significantly short of free trade in the automotive sector.” The FTA “merely locks in the current unfair one-sided nature of the automotive trade between Korea and the US,” he added.
Biegun’s main complaint was that the FTA is not reciprocal. “The immediate and clear beneficiary of vehicle tariff provisions will be manufacturers exporting vehicles from Korea to the US,” he contended.
Sixth largest market for US agricultural exports.
Compromises were also evident on the issue of US beef imports. Under the agreement, over $1 billion worth of US farm exports to Korea will become duty-free immediately, while most remaining tariffs and quotas will be phased out over the first ten years the agreement is in force. Although these phase-outs are applicable to beef as well other meats, the Koreans did not commit to a specific date for accepting US beef exports. South Korea has banned US beef exports since a 2003 case of mad cow disease, when 23% of US beef exports went to Korea. The FTA also specifically excludes rice from the agreement.
Both of these issues led the National Council of Farmer Cooperatives to withhold support for the FTA. The NCFC is a Dallas-based organization that represents