Korea Legal.org

By Don Southerton, Editor

Since 2006, BCW has been following the KORUS FTA discussions. As strong supporters of free trade, globalization, and the Hyundai Kia Motor Group and its US operations, we have provided research, numerous updates, and insights to US and Korean leadership. We have maintained an active role in supporting the treaty and US-Korea relations along with maintaining close ties with Koreans and Americans officials and scholars highly involved in KORUS.

Last week, after months of talks, an agreement was reached ( it still needs to be ratified by the U.S.). We provide the following key points. Part 1 includes general terms of the agreement. Part 2 is related to the auto sector, with Part 3 focuses on auto parts.

Part 1.  Pending Congressional Approval

The United States and the Republic of Korea signed the United States-Korea Free Trade Agreement (KORUS FTA) on June 30, 2007. If approved, the Agreement would be the United States’ most commercially significant free trade agreement in more than 16 years.

The U.S. International Trade Commission estimates that the reduction of Korean tariffs and tariff-rate quotas on goods alone would add $10 billion to $12 billion to annual U.S. Gross Domestic Product and around $10 billion to annual merchandise exports to Korea.

Under the FTA, nearly 95 percent of bilateral trade in consumer and industrial products would become duty free within three years of the date the FTA enters into force, and most remaining tariffs would be eliminated within 10 years.

For agricultural products, the FTA would immediately eliminate or phase out tariffs and quotas on a broad range of products, with almost two-thirds (by value) of Korea’s agriculture imports from the United States becoming duty free upon entry into force.

For services, the FTA would provide meaningful market access commitments that extend across virtually all major service sectors, including greater and more secure access for international delivery services and the opening up of the Korean market for foreign legal consulting services.

In the area of financial services, the FTA would increase access to the Korean market and ensure greater transparency and fair treatment for U.S. suppliers of financial services.

The FTA would address non-tariff barriers in a wide range of sectors and includes strong provisions on competition policy, labor and environment, and transparency and regulatory due process.

The KORUS FTA would also provide U.S. suppliers with greater access to the Korean government procurement market. In addition to strengthening our economic partnership, the KORUS FTA would help to solidify the two countries’ long-standing geo-strategic alliance.

As the first U.S. FTA with a North Asian partner, the KORUS FTA could be a model for trade agreements for the rest of the region, and underscore the U.S. commitment to, and engagement in, the Asia-Pacific region.

The Obama Administration will seek to promptly and effectively address the issues surrounding the KORUS FTA, including concerns that have been expressed regarding automotive trade.

Part 2 Auto Sector

The following are the major aspects of the supplementary alterations on auto trade and other issues in the South Korea-U.S. free trade agreement.

1. Automotive safety standards South Korea agreed to soften its auto safety standards for U.S.-made cars. In the previous deal, there was an automatic two-year grace period before U.S. auto manufacturers had to meet any new Korean regulations related to self-certification for safety standards. 

The supplemental agreement allows for 25,000 cars per U.S. automaker – or almost four times the number allowed in the 2007 agreement — to be imported into Korea if they meet U.S. safety standards.

2. Automotive emission standards South Korea will exempt low-volume importers from its ultra low emissions vehicle (ULEV) standard that is scheduled to take effect from 2015. Under the new standard, South Korea will apply tougher efficiency criteria for vehicles, requiring vehicles to reduce their greenhouse gas emissions to 140 grams per kilometer. Under the supplemental agreement, all U.S. autos will be considered compliant with new Korean environmental standards on fuel economy and greenhouse gas emissions, developed since the 2007 agreement, if they achieve 119 percent of the targets in these regulations.

3. Automotive tariffs elimination Under the 2007 agreement, all tariffs on automotives would have been immediately eliminated gradually within three years after the implementation of the accord. The new agreement allows the U.S. to keep its 2.5 percent tariff on autos in place until the fifth year. At the same time, South Korea will immediately cut its tariff on U.S. auto imports in half (from 8 percent to 4 percent), and fully eliminate the tariff in the fifth year.

4. Tariffs on pick-up trucks In 2007, the U.S. agreed to phase out its 25 percent tariff on South Korean trucks in 10 years. But the new agreement allows the U.S. to maintain its tariff until the eighth year and then phase it out by the tenth year.

5. Tariffs on electric cars Under the 2007 agreement, the U.S. and South Korea would have eliminated tariffs on electric cars and plug-in hybrids by 10 years after the implementation of the accord. The new agreement calls for South Korea to immediately reduce its electric car tariffs from 8 percent to 4 percent, and both countries will then phase out their respective tariffs by the fifth year.

6. Special safeguard for automotive industry The previous agreement had no provision on safeguard measures specific to the auto industry. Under the 2010 supplemental agreement, both sides agreed to introduce safeguard measures for motor vehicles.

Part 3, Regarding Auto Parts

BCW sees no changes from the 2007 agreement, “Tariffs would be immediately reduced to zero in each country for auto parts imported from the other.” That said, there are however a few exceptions regarding tires and some plastics.  As soon, as a final agreement is ratified, BCW will provide an itemized list of those items still with tariff restrictions and a timeline for their reduction.

For additional questions, please contact Don Southerton,  dsoutherton@bridgingculture.com 1-310-866-3777