CRS & Committee Reports Highlight Past Industry Concerns on KORUS

These reports indicate that although much of the U.S. business community supports the pending² KORUS FTA, some argue that the agreement does not go far enough in addressing certain South Korean trade barriers.

Past Concerns with the FTA Include Beef, SPS, Ag Products, Pharma IPR, Etc.

The following are concerns about the KORUS FTA that were expressed in 2007 by the industry advisory committees and/or highlighted by the CRS:

Auto tariffs, standards. In December 2010, the U.S. and South Korea made several significant changes to the 2007 agreement that altered the original tariff elimination schedule for passenger cars and trucks, added a special vehicle safeguard, and expanded the exemption for U.S. car manufacturers from South Korean standards as long as they meet U.S. federal safety standards. (See ITT's Online Archives or 06/14/11 news, 10120628, for BP summary of the auto-specific provisions of the KORUS FTA.)

Textile provisions. In 2007, industry expressed concerns on the FTA's use of the yarn-forward rule of origin for textile and apparel imports and on the lack of cumulation provisions. (See ITT's Online Archives or 06/15/11 news, 11061519, for BP summary of the textile and apparel provisions of the KORUS FTA.)

Beef restrictions. In 2007, the beef industry was disappointed by the failure of negotiations to produce agreement on a clear path to reopening the Korean market to beef imports from the U.S. In 2008, U.S. and South Korean negotiators reached a separate agreement to lift South Korea's ban on U.S. beef imports that was imposed due to a 2003 discovery of mad cow disease in the U.S. cattle herd. (See ITT's Online Archives or 06/30/08 news, 08063010, for BP summary of the 2008 negotiations.)

Some Members of Congress had previously stated that they would not approve KORUS if South Korea did not agree to fully reopen its market to U.S. beef. In May 2011, USTR announced that the U.S. will request consultations under the 2008 beef protocol with Korea to discuss its full implementation and application after the KORUS FTA enters into effect. (See ITT's Online Archives or 05/05/11 news, 11050512, for BP summary of USTR's commitment to request consultations on the beef issue.)

Slower phase-out of pork tariffs. The CRS reported that as revised by the December 2010 negotiations, the FTA would more slowly phase out South Korea’s 25% tariff on 90% of the U.S. pork (primarily frozen product). The phase-out would now occur by January 1, 2016. This is two years longer than what both sides had agreed upon in the 2007 FTA text (i.e., January 1, 2014). South Korea also secured a safeguard to protect against import surges of these fresh pork products, which would expire at the end of 10 years.

Long phase-out of poultry tariffs. In 2007, industry said that it would prefer a more rapid phrase-out of the tariffs on poultry.

Restrictions on ag service trade. In 2007, industry sought greater clarity from the U.S. regarding Korea’s Annex II reservation which would permit Korea to restrict certain cross border trade with respect to services incidental to agriculture and livestock, such as certain polishing and processing activities. Industry stated it had expected the U.S. to ensure that this reservation would be narrowly limited to incidental services as intended, and to not allow this reservation to be applied to broader distribution or value-added processing activities.

Tariffs on processed ag products. In 2007, industry noted that nearly all tariffs on processed agricultural goods would be eliminated immediately. For some products, including certain U.S. distilled spirits exports, which are subject to longer term tariff phase outs, industry urged a more rapid elimination of tariffs.

Exclusion of rice. South Korean negotiators succeeded in excluding the entry of U.S. rice on preferential terms. In 2007, industry stated that this would establish the undesirable precedent for future FTA partners that the principle of commodity exclusions is acceptable to the U.S. Industry noted that this had also been the case in the Australia FTA which excluded sugar as a protected commodity.

TRQs for U.S. oranges. The CRS and the 2007 industry committees reported that Korea will continue to permanently maintain its 50% tariff on orange imports from the U.S. for the period September 1 to March 1 (subject to any WTO mandated reduction). The countries' also agreed to an initial 2,500 MT duty free tariff rate quota (TRQ) for "in-season" U.S. navel oranges (a variety that is not produced in Korea), which would increase at a compound 3% annual rate in perpetuity. Shipments in excess of the quota amount during this six-month period would continue to be subject to the 50% tariff. Industry urged U.S. negotiators to either phase out the 50% over quota duty within a more reasonable period of time, or to substantially increase TRQ beyond the limited annual 3% increase.

Potato, tobacco TRQs. In 2007, industry stated that fresh U.S. potato imports in Korea faced TRQs increasing annually at 3%. Industry had urged U.S. negotiators to phase out these duties or substantially increase the annual quota beyond the 3% increase. Industry stated that a thorough review of all TRQs should have been completed prior to the signing of the FTA, particularly for the TRQ limitation for tobacco products, for which the FTA does not provide a phase out schedule.

Market access for peanuts. In 2007, industry expressed concern that Korea achieved additional market access for peanuts. Although Korea did not produce a significant amount of peanuts at that time, industry stated that access could encourage transshipment of peanuts and peanut products into the U.S.

Prohibitive honey duties. In 2007, the honey-producing industry noted that high tariffs had seriously hampered the ability of its exporters to sell honey in South Korea. Imports outside a limited TRQ were charged a prohibitive tariff that would remain permanently in place under the KORUS FTA.

SPS dispute measures. According to the CRS, the KORUS FTA would establish a bilateral standing committee to address food safety and animal/plant life or health issues that frequently emerge in agricultural trade. However, there are no commodity-specific sanitary and phytosanitary (SPS) provisions to address outstanding issues, such as Korea’s import health requirements on U.S. beef imports or Korean standards that have prevented sales of some U.S. horticultural products to that market. The text of the SPS chapter specifically states that neither the U.S. nor South Korea has recourse to pursue dispute settlement to address any SPS issue that arises. Instead, any matter would be resolved using the formal process established under the World Trade Organization's SPS Agreement. (CRS report on dispute settlement under the KORUS FTA is available here.)

Food additives for fruits, vegetables, processed foods. In 2007, certain agricultural groups raised concerns about Korea’s implementation of SPS measures on food additives and those that have restricted U.S. fruit and vegetable exports. Industry had stated that processed foods containing certain food additives would be denied entry to the South Korean market as Korea did not permit the use of a number of food additives that were approved by the Food and Drug Administration and commonly used in U.S. manufactured processed food products.

Long tariff phase-out for dairy, whey products. In 2007, industry expressed concerns that cheeses, processed dairy, and whey products would be subject to some of the longest tariff phase-out schedules in the entire FTA.

Geographical indications for dairy. The CRS reported that the U.S. dairy sector has expressed concern that the geographical indications (GI) provisions that apply to various cheeses from the European Union under the EU-South Korea FTA would undercut the potential benefits of the KORUS FTA for U.S. cheeses with identical names that sell in the Korean market. USTR has held talks on this matter separate from those that concluded in the 2010 negotiations, and is reportedly still working on solutions to address these concerns. (See ITT's Online Archives or 05/06/11 and 02/18/11 news, 11050622and 11021826, for BP summaries of the EU-Korea FTA, which takes effect July 1, 2011.)

Steel non-tariff barriers. In 2007, some industry members stated that the extent of unfair trade practices in Korea, such as the dumping of excess steel capacity and use of government subsidies by the steel industry, harmed U.S. producers and their workers.

Semiconductor rule of origin. In 2007, industry noted that while the zero tariff coverage provided in the FTA's Market Access Chapter was broad for information technology products, the rule of origin for semiconductor products was such that not all semiconductor products fabricated in the U.S. would receive zero tariff coverage.

Tariffs for paper & wood products. Industry noted in 2007 that Korea had a pattern of government subsidies to the paper and wood products industries. Therefore, industry argued that the FTA should include commitments to strong subsidy disciplines. Industry urged the U.S. to continue to seek the immediate elimination of all paper and wood tariffs in future FTAs as the long phase-out period would minimize the benefits of tariff reductions and further erode U.S. export competitiveness.

Pharmaceutical IPR protection. The CRS reported that the U.S. industry and government have complained for years about a number of South Korea’s pharmaceutical policies that allegedly are designed to protect South Korean industry, which predominately produces generic drugs. Specifically, industry cited concerns with the failure of the South Korean government to protect from competitors, proprietary data submitted by manufacturers for market approval. In addition, the South Korean government has, in some cases, approved the marketing of some pharmaceuticals before it determined that the applicant was the rightful owner of the patent and trademark.

Content restrictions, etc. for audiovisual products. In 2007, the audiovisual sector was primarily concerned with the FTA's provisions on new services and delivery platforms.

Lack of transparency in regulation. In 2007, U.S. exporters and trade negotiators identified the lack of transparency of South Korea’s trading and regulatory systems as a significant barrier to trade within many product sectors.

Restrictions have more impact on SMEs. In 2007, industry stated that South Korea's restrictions in investment and ownership in land would severely restrict the opportunities for small, medium, and minority U.S. businesses to initiate or expand their ownership in business operating in South Korea. South Korea's ability to maintain or adopt restrictions on software and technology investment and development by foreign parties would also have a larger impact on small, medium, and minority entrepreneurs compared to larger businesses.

Employment effects. The CRS reported that opponents to the KORUS FTA have argued that it could lead to an overall loss of up to 159,000 jobs in various sectors of the economy. (CRS report on the potential employment effects of the KORUS FTA is available here.)

Inadequate labor standards. In 2007, labor representatives stated the FTA did not contain enforceable provisions requiring that the government meet its obligations under the International Labor Organization (ILO) core labor standards, etc.

Outward processing zones, Kaesong Industrial Complex. The CRS reported that inclusion of goods from the Kaesong Industrial Complex (KIC), a free trade zone located in North Korea, was one of the most politically sensitive issues in the negotiations. General opposition to the inclusion of such goods has been centered on conditions for North Korean workers and the income the KIC would provide for the North Korean government.

(In April 2011, an Administration official testified at a congressional hearing that the KIC would not receive any benefits under the KORUS FTA and any change of how the KIC is treated under the KORUS FTA would require Congress to pass and the President to sign legislation. See ITT's Online Archives or 04/08/11 news, 11040816, for BP summary. CRS report on the KIC is available here.)

Absence of preference clause. In 2007, various industries noted that past FTAs have included a “preference clause” that ensured that U.S. exporters would receive treatment no less favorable than that provided to any other supplier to a trading partner’s market. The absence of such a clause in the KORUS FTA was an issue of concern, particularly since Korea was potentially in negotiation on a FTA with Canada, which competes with the U.S. in supplying wheat, barley, barley malt and other products.

Foreign investment requirements. National treatment of investments would provide that one party to the agreement will treat covered investments and investors from the other party no less favorably than it treats domestic investors and investments. According to industry in 2007, the KORUS FTA includes an exception to the national treatment principle. Industry stated that it preferred that the FTA not include this exception.

Investor-state arbitration for national treatment violations. In 2007, industry stated it was disappointed by provisions in the Financial Services chapter, which did not provide financial institutions with investor-state arbitration for national treatment violations and which could allow governmental restrictions on financial services activities.

¹USTR Trade Advisory Committees, Agricultural Technical Advisory Committees for Trade (ATAC), and the Industry Trade Advisory Committees

²The proposed KORUS FTA was signed in 2007, and if implemented, would eliminate tariffs on over 95% of industrial and consumer goods within five years. According to the CRS, the White House has indicated that it would like to see Congress approve the KORUS FTA implementing legislation by July 1, 2011. Others hope for approval by August 2, the date Congress recesses for the summer. However, the Administration has said that it will not submit the pending FTAs (including the KORUS FTA) until it reaches an agreement with Congress on renewing Trade Adjustment Assistance (TAA) consistent with the 2009 expansion to service workers, etc.

(See ITT's Online Archives or 12/06/10 news, 10120628, for BP summary of the modifications to the KORUS FTA from the 2010 negotiations.

See ITT's Online Archives or 05/14/11 news, 11051720, for BP summary of the Administration stating that it would not submit the implementing legislation for the pending KORUS and other FTAs until it has an agreement with Congress to renew the TAA.)

Advisory Group reports on the KORUS FTA are available here.

CRS report on the sector-specific issues of the KORUS FTA is available here.