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S. HRG. 113–618 

THE U.S.-KOREA FREE TRADE AGREEMENT: 

LESSONS LEARNED TWO YEARS LATER 

HEARING 

BEFORE THE

SUBCOMMITTEE ON INTERNATIONAL TRADE, 

CUSTOMS, AND GLOBAL COMPETITIVENESS 

OF THE

COMMITTEE ON FINANCE 

UNITED STATES SENATE 

ONE HUNDRED THIRTEENTH CONGRESS 

SECOND SESSION 

JULY 29, 2014 

( 

Printed for the use of the Committee on Finance 

RON WYDEN, Oregon, Chairman 

JOHN D. ROCKEFELLER IV, West Virginia 

CHARLES E. SCHUMER, New York 

DEBBIE STABENOW, Michigan 

MARIA CANTWELL, Washington 

BILL NELSON, Florida 

ROBERT MENENDEZ, New Jersey 

THOMAS R. CARPER, Delaware 

BENJAMIN L. CARDIN, Maryland 

SHERROD BROWN, Ohio 

MICHAEL F. BENNET, Colorado 

ROBERT P. CASEY, Jr., Pennsylvania 

MARK R. WARNER, Virginia 

ORRIN G. HATCH, Utah 

CHUCK GRASSLEY, Iowa 

MIKE CRAPO, Idaho 

PAT ROBERTS, Kansas 

MICHAEL B. ENZI, Wyoming 

JOHN CORNYN, Texas 

JOHN THUNE, South Dakota 

RICHARD BURR, North Carolina 

JOHNNY ISAKSON, Georgia 

ROB PORTMAN, Ohio 

PATRICK J. TOOMEY, Pennsylvania 

JOSHUA SHEINKMAN, Staff Director 

CHRIS CAMPBELL, Republican Staff Director 

SUBCOMMITTEE ON INTERNATIONAL TRADE, 

CUSTOMS, AND GLOBAL COMPETITIVENESS

DEBBIE STABENOW, Michigan, Chairman 

JOHN D. ROCKEFELLER IV, West Virginia 

CHARLES E. SCHUMER, New York 

MARIA CANTWELL, Washington 

ROBERT MENENDEZ, New Jersey 

SHERROD BROWN, Ohio 

MICHAEL F. BENNET, Colorado 

MARK R. WARNER, Virginia 

JOHNNY ISAKSON, Georgia 

ORRIN G. HATCH, Utah 

CHUCK GRASSLEY, Iowa 

PAT ROBERTS, Kansas 

JOHN THUNE, South Dakota 

ROB PORTMAN, Ohio 

(II) 

C O N T E N T S 

OPENING STATEMENTS 

Page 

Stabenow, Hon. Debbie, a U.S. Senator from Michigan, chairman, Subcommittee on International Trade, Customs, and Global Competitiveness, 

Committee on Finance ......................................................................................... 1 

Isakson, Hon. Johnny, a U.S. Senator from Georgia ............................................ 3 

Brown, Hon. Sherrod, a U.S. Senator from Ohio .................................................. 4 

WITNESSES 

Biegun, Stephen E., vice president, International Governmental Affairs, Ford 

Motor Company, Dearborn, MI ........................................................................... 6 

Murphy, Sean P., vice president and counsel, International Government Affairs, Qualcomm Incorporated, San Diego, CA .................................................. 8 

Morris, Shawna, vice president, trade policy, National Milk Producers Federation and U.S. Dairy Export Council, Arlington, VA .......................................... 10 

Rue, Michael, owner, Rue and Forsman Ranch, Inc., on behalf of the USA 

Rice Federation, Rio Oso, CA .............................................................................. 11 

ALPHABETICAL LISTING AND APPENDIX MATERIAL 

Biegun, Stephen E.: 

Testimony .......................................................................................................... 6 

Prepared statement .......................................................................................... 29 

Brown, Hon. Sherrod: 

Opening statement ........................................................................................... 4 

Isakson, Hon. Johnny: 

Opening statement ........................................................................................... 3 

Prepared statement with attachment ............................................................. 37 

Morris, Shawna: 

Testimony .......................................................................................................... 10 

Prepared statement .......................................................................................... 41 

Murphy, Sean P.: 

Testimony .......................................................................................................... 8 

Prepared statement .......................................................................................... 51 

Rue, Michael: 

Testimony .......................................................................................................... 11 

Prepared statement .......................................................................................... 60 

Stabenow, Hon. Debbie: 

Opening statement ........................................................................................... 1 

Prepared statement .......................................................................................... 66 

COMMUNICATIONS

Advanced Medical Technology Association (AdvaMed) ........................................ 69 

American Chemistry Council .................................................................................. 72 

National Association of Manufacturers .................................................................. 75 

National Pork Producers Council ........................................................................... 83 

(III) 

(1) 

THE U.S.-KOREA FREE TRADE AGREEMENT: 

LESSONS LEARNED TWO YEARS LATER 

TUESDAY, JULY 29, 2014 

U.S. SENATE,

SUBCOMMITTEE ON INTERNATIONAL TRADE,

CUSTOMS, AND GLOBAL COMPETITIVENESS, 

COMMITTEE ON FINANCE, 

Washington, DC. 

The hearing was convened, pursuant to notice, at 3:08 p.m., in 

room SD–215, Dirksen Senate Office Building, Hon. Debbie 

Stabenow (chairman of the subcommittee) presiding. 

Present: Senators Brown, Thune, Isakson, and Portman. 

Also present: Democratic Staff: Elissa Alben, International Trade 

Counsel; Jason Park, International Trade Counsel; and Jayme 

White, Chief Advisor for International Competitiveness and Innovation. Republican Staff: Richard Chovanec, Detailee; and Shane 

Warren, International Trade Counsel. 

OPENING STATEMENT OF HON. DEBBIE STABENOW, A U.S. 

SENATOR FROM MICHIGAN, CHAIRMAN, SUBCOMMITTEE ON 

INTERNATIONAL TRADE, CUSTOMS, AND GLOBAL COMPETITIVENESS, COMMITTEE ON FINANCE 

Senator STABENOW. Well, good afternoon. The Senate Finance 

Subcommittee on International Trade, Customs, and Global Competitiveness will now come to order. 

Thanks very much for being here today as we consider the lessons we have learned during the first 2 years of our free trade 

agreement with Korea. Because this is my first hearing as chair of 

the subcommittee, I would like to share my basic beliefs on international trade as we begin this discussion. 

Michigan is a State where we make things and grow things. I 

grew up with families whose quality of life was shaped in part by 

their ability to sell products in foreign markets. These products 

sold around the world because the people who made the cars and 

tilled the soil were good at it. This hard work powered the growth 

of our middle class in Michigan, just as it powered the growth of 

the middle class throughout America. 

We know this: if American workers and American businesses can 

compete on a level playing field, they will succeed in markets 

around the world, and our American middle class will thrive. Within this subcommittee, we have the opportunity to explore new markets on behalf of these workers and the businesses that employ 

them. In exchange for these opportunities, we allow products made 

2 

in other countries to compete in the United States. We are not 

afraid of competition. We welcome it. 

But the competition must be fair, and the playing field must be 

level. Too often in recent years, our workers and businesses have 

found themselves on a playing field that was tilted in one direction, 

littered with rocks and holes that could trip them up. 

We must resist being drawn into a race to the bottom on international trade. Trade agreements must be about creating opportunities to grow a middle class around the world, not lose our middle 

class in America, which I think is really our fundamental charge 

and challenge. 

Fortunately, the Republic of Korea is a trusted ally and a willing 

partner. I am grateful to Korean leaders for working with us when 

the Obama administration asked for better terms on behalf of our 

automakers. When our Nation entered into this agreement in 

March 2012, I was as optimistic as the administration and the 

business community that removing trade barriers would spur job 

growth and generate higher earnings for our workers. 

I am sure Korea had the same hopes. But for trade deals to 

thrive, they must be a win-win for both sides. So far, the Korean 

free trade agreement has fallen short of our hopes. The agreement 

aimed to narrow the trade deficit between the U.S. and Korea. Instead, the trade deficit has gone in the wrong direction. Even if you 

look at the most conservative numbers, that deficit has grown. If 

you look at the deficit in goods, in the things that we make, it has 

increased by nearly 50 percent. 

While our dairy producers have reaped many benefits through 

the trade agreement, they continue to face challenges when it 

comes to certain products that are blocked from the market based 

on geographical indications. We will hear more about that today 

from our witnesses. 

The agreement aimed to open Korea’s markets to American automakers, but agreeing to phase out tariffs on U.S.-made automobiles 

has not been enough. Due to non-tariff barriers, Korea remains one 

of the most closed auto markets in the world. 

Given our strong alliance with the Republic of Korea, I am hopeful that the expectations we had at the outset will be matched by 

real-world results, but to achieve these results we must have candid conversations about what is working and what is not, and that 

is why we are here. I also believe that it is very important that we 

apply what we learned here to the other major international trade 

agreements that are actively being negotiated right now. 

We also need to recognize that we have other tools for strengthening our Nation’s position in the international economy. By improving our infrastructure, our goods and services can move more 

smoothly; by reforming the tax code, we can give companies incentives to keep jobs in America; by offering job training to American 

workers, we can equip them for 21st-century markets; and by 

strengthening U.S. trade law, we can defend our companies against 

nations that manipulate their currency. 

In international trade, it is our responsibility to drive a tough, 

fair bargain with foreign countries that seek access to American 

markets. There must be no doubt that we will be exporting our NaVerDate Mar 15 2010 16:30 Apr 09, 2015 Jkt 000000 PO 00000 Frm 00006 Fmt 6633 Sfmt 6633 R:\DOCS\94044.000 TIMD
3 

tion’s products and not our jobs. I have every confidence that, with 

smart trade policies, we will be successful. 

[The prepared statement of Senator Stabenow appears in the appendix.] 

Senator STABENOW. Now it is my great pleasure to turn this to 

our distinguished ranking member, Senator Isakson. I am so very 

pleased to have him as my partner in leading this subcommittee. 

Senator Isakson? 

OPENING STATEMENT OF HON. JOHNNY ISAKSON, 

A U.S. SENATOR FROM GEORGIA 

Senator ISAKSON. Well, thank you, Chairman Stabenow. It is a 

pleasure to serve with you, and I have looked forward to this opportunity for many days. I am glad we could finally have this hearing together, and I appreciate your opening remarks. 

I have voted for every free trade agreement that I have had the 

possibility of voting for since I have been in the Congress of the 

United States in the last 16 years. One of the ones I was proudest 

of was President Bush’s proposal that he signed in 2007, and the 

Senate finally ratified in 2011. That free trade agreement has 

served Americans and served South Korea well. 

I have a warm place in my heart for South Korea. In 1988, I took 

a trade mission from the State of Georgia to Seoul, South Korea, 

to take 23 Georgia companies to do some business in Korea. By the 

time we left, the Coca-Cola company had made the contract to purchase the office systems for the Coca-Cola USA headquarters being 

built in Atlanta, and Dalton Carpet and Shaw Industries had sold 

carpet to the Korean Textile Federation for a new facility they were 

building. So I believe in international trade creating jobs in my 

State, but also creating jobs in South Korea. I have been proud to 

be a part of that. 

I am also appreciative of our steadfast loyalty to each other, in 

terms of our mutual defense, and have had the privilege of going 

where the peace agreement was signed between North and South 

Korea and visiting some of the 30,000 U.S. troops who are stationed in South Korea, helping to carry out their message which is 

ahead of them all, which is their slogan, ‘‘The United States Army 

at the DMZ.’’ I appreciate very much our steadfast work with them. 

In the past 2 years since the FTA agreement was put in force, 

we have already seen positive results emerge in my home State of 

Georgia, with increased exports in aerospace products, pulp and 

paper, engines and turbines, agricultural products, and chemical 

products. The U.S.-Korea Free Trade Agreement has paved the 

way for $800 million in exports from Georgia to South Korea, and 

in 2013 almost $7 billion in Korean investment across the United 

States of America. 

Korean investment in Georgia has been welcomed to boost our 

State’s economy. According to Georgia’s Department of Economic 

Development, Georgia is home to 62 Korean companies/facilities, 

over 23 of which are manufacturing facilities. The Kia Motors Manufacturing Company in West Point, GA represents a $1.1-billion investment in my home State, providing jobs, directly or indirectly, 

for over 10,000 Georgians. On July 11, 2013, the 1 millionth Kia 

Motorcar was built in the United States at that plant. 

4 

Kia is a member of the Association of Global Automakers. I 

would like to ask unanimous consent from the chairman that their 

statement for this hearing be put in the record. 

Senator STABENOW. Without objection. 

[The prepared statement of the Association of Global Automakers 

appears in the appendix on p. 39.] 

Senator ISAKSON. Today we will hear testimony from witnesses 

who have different experiences with the U.S.-Korea free trade 

agreement. I am looking forward to a fruitful discussion and the 

benefits of their knowledge and experience they have had with this 

agreement, but I also understand that there have been challenges. 

As we discuss these challenges, we do so not only with our trade 

relationship with South Korea in mind, but also with an eye towards the ongoing trade negotiations with others. 

However, it will be extremely difficult to make any progress on 

these issues without a renewal of Trade Promotion Authority for 

the President of the United States. Without TPA, the administration continues to negotiate from a weaker position, and Congress’s 

priorities are notably absent from the important trade talks of the 

Trans-Pacific Partnership. 

As the ranking member of the Trade Subcommittee on the Finance Committee, with the Trans-Pacific Partnership, the TransAtlantic Trade and Investment Partnership, and the AGOA Act— 

the African Growth and Opportunity Act—I know how important 

it is for TPA to be authorized for the President so he can negotiate 

knowing he has the full faith of the Congress behind him and has 

an up-or-down vote on, finally, ratification. 

So I hope, although I know there are differences, that we can 

note the importance of Trade Promotion Authority and the need to 

have it. The President called for it in his State of the Union address, many members of Congress have called for it, and I hope 

that it will happen. 

The bipartisan Congressional Trade Priorities Act of 2014 introduced by Senator Hatch and former Senator Baucus would renew 

TPA and address some of the issues that are so important to our 

witnesses in the future agreements. For example, this important 

legislation would make addressing the issue of currency manipulation a principal negotiation objective of the United States in trade 

talks. 

Until the Senate acts on renewing TPA, Congress’s priorities on 

this and other important issues will remain on the sidelines. I 

would like to thank our witnesses for being here to testify today, 

and I thank the chairman for giving me the opportunity to speak. 

Senator STABENOW. Thank you very much. I know that Senator 

Brown would like to make a brief opening statement as well. 

[The prepared statement of Senator Isakson appears in the appendix.] 

OPENING STATEMENT OF HON. SHERROD BROWN, 

A U.S. SENATOR FROM OHIO 

Senator BROWN. Thank you, Madam Chairman. I will be brief. I 

never trump the distinguished chairman of our subcommittee, but 

she said she comes from Michigan where they make things and 

grow things. Her neighbor immediately to the south makes things, 

5 

grows things, and mines things too, I would add, with our oil and 

gas industries. So, not to ever show up the chairman, but thank 

you. I appreciate Ranking Member Isakson’s comments about currency too. 

This hearing is important for a whole number of reasons. I opposed the original Korea trade agreement. Like most Americans, I 

support trade, I want more of it, but I want trade that benefits our 

workers. I think too many of our trade agreements have undermined U.S. manufacturing, especially small manufacturers further 

down on the supply chain and their employees. 

I thought the Korea FTA followed this flawed model, and I was 

skeptical that it would yield reciprocal market access for U.S. companies. I believed, and I continue to believe now, that there is another way forward on trade. 

For example, the Korea agreement does not include disciplines 

on currency. There is no recourse for U.S. companies that face disadvantages due to an under-valued won. I appreciate the chairman’s leadership on that currency issue and the whole host of ways 

that she has addressed that. 

I think the hearing today is especially timely. TPP and TTIP 

both are advancing. Congress continues to urge the administration 

to negotiate high-standard and better, more level trade agreements 

for American workers. I think this hearing can help lead to that. 

So, I thank the chairman. 

Senator STABENOW. Thank you very much. 

We are very pleased to have four distinguished witnesses with us 

from different parts of the economy, with different perspectives. We 

appreciate all of your time. 

Let me introduce our four witnesses. Our first witness is Stephen 

Biegun, vice president of international governmental affairs for 

Ford Motor Company, a company I know a little bit about. Before 

joining Ford, Mr. Biegun worked as National Security Advisor for 

former Senate Majority Leader Bill Frist, and prior to that he 

served the White House as Executive Secretary of the National Security Council. Welcome. 

Our next witness is Sean Murphy, vice president and counsel of 

Qualcomm, based in San Diego. Mr. Murphy manages Qualcomm’s 

international public policy agenda on issues such as international 

trade, technology policy, competition and innovation, and intellectual property. He has represented the company before industry associations and multilateral institutions, including the United Nations, the World Trade Organization, and the World Bank. Welcome as well. 

Our third witness is Shawna Morris, vice president of trade policy, National Milk Producers Federation and U.S. Dairy Export 

Council, based in Arlington, VA. Ms. Morris has worked with Congress and other government officials negotiating U.S. free trade 

agreements and resolving bilateral trade barriers. She is an advocate for the U.S. dairy industry’s priorities in international trade. 

Welcome. 

Our final witness is Michael Rue, who will be speaking on behalf 

of the USA Rice Federation, which is based in Rio Oso, CA. Mr. 

Rue is vice chairman of the Federation’s International Trade Policy 

Subcommittee. He chairs the Federation’s Subcommittee on Asian 

6 

Trade Policy, and serves on the Subcommittee on European Union 

Trade Policy. 

So we will begin with Mr. Biegun. As you know, we ask for 5 

minutes of testimony verbally. You are welcome to give us in writing whatever you have; we would certainly welcome that. 

So, Mr. Biegun, welcome. 

STATEMENT OF STEPHEN E. BIEGUN, VICE PRESIDENT, 

INTERNATIONAL GOVERNMENTAL AFFAIRS, FORD MOTOR 

COMPANY, DEARBORN, MI 

Mr. BIEGUN. Thank you, Madam Chairman. I do have a statement that I would like to submit for the record. 

Thank you, Madam Chairman, thank you, Ranking Member 

Isakson and Senator Brown, for the invitation to appear today. 

Also let me thank you on behalf of the 72,000 men and women who 

work for Ford Motor Company across the United States of America. 

We deeply appreciate the commitment of this committee to make 

trade work for American manufacturers. 

Trade is not an after-thought for Ford Motor Company’s business. One hundred and 10 years ago when our company was founded, Henry Ford exported the sixth vehicle made by the Ford Motor 

Company. Since then, we have become one of the largest exporters 

and largest importers in the global economy. 

It is a little-known fact to many people that the automotive sector is the number-one sector of exports from the United States 

economy, and, within that sector of exports, Ford Motor Company 

is the number-one exporter of American-made automobiles to markets around the world. We are very proud of our trade pedigree 

and, as you can see by the scale of our business, trade is a foundation of Ford Motor Company’s model. 

Now, we have supported every free trade agreement that has 

been passed by the United States since we began negotiating free 

trade agreements about 2 decades ago. But I will say that, when 

the KORUS agreement was first proposed 7 years ago, we had deep 

skepticism that it would be able to change the nature of a Korean 

market which was the most closed automotive market in the entire 

world. 

With slightly more than 5 percent import penetration, Korea 

ranked dead last among the 32 OECD countries in terms of import 

access. By way of comparison, on average, normal markets around 

the world have about 50 percent import presence in their markets. 

Korea was a definite outlier. 

So we had our concerns, and, when the agreement was originally 

signed, it actually confirmed all of our concerns in that it failed to 

address the barriers to automotive trade with Korea. However, 

with the support of many members of this committee, with the support of our partners in the United Auto Workers, and with our fellow companies in the U.S. auto industry, we were able to work 

with the administration to renegotiate the agreement. 

Our strategy in the renegotiation of the agreement 3 years ago 

was basically to create time and space for the export of American 

automobiles. How would we do that? Working with U.S. negotiators 

and the Koreans, we set up a model in which up to 25,000 

7 

American-made vehicles per year could come into Korea, built to 

American regulatory standards. 

Now, America’s regulatory standards are not second to Korean 

regulatory standards—in some cases, they actually exceed them— 

but they are different. But they are different because for decades 

the Korean government has used slight tweaks of its regulatory 

system to add cost to importers to keep them out of the Korean 

market. 

So with the negotiations we created space to get our vehicles into 

the market, and then we also created time. We created time by delaying for 4 years the removal of tariffs on the import of Korean 

vehicles in the United States. During that 4-year period, it was our 

anticipation that we would be able to build a toe-hold for a business in Korea that, up to that point, only had one dealership in the 

entire country of Korea. 

Now, compare that to the Korean manufacturers who had 1,500 

dealerships across the United States of America and sold and imported hundreds of thousands of vehicles per year. Our goal was 

to use that time and space to get a toe-hold so, when the tariffs 

went away, we could at least have some equivalent opportunity. It 

would never be in balance, but it would be some equivalence of opportunity. 

I explained in detail in my written testimony what kind of barriers we have seen since, but I have to tell you, in short, our view 

of the agreement to date has been disappointment. Yes, we have 

to some degree increased the number of vehicles that we have exported and sold in Korea. We have done that with tens of millions 

of dollars of expenditure in expanding our business and marketing 

expenses. 

We are falling woefully short of the numbers that were negotiated in the agreement to allow us to build a toe-hold in the business. There is an urgency here. The clock is ticking. In 2 years, the 

tariffs go away, and we still are left guessing in the Korean market 

what the rules will be to export American cars in the coming year. 

So what are the lessons learned for this committee and for companies like ours? We do not regret supporting the agreement. We 

still think that we can make it work. But we have to be able to 

use the enforcement mechanisms quickly, not just to help our own 

companies, but quite frankly to help the Korean government learn 

the disciplines of free trade. 

I actually think we would have helped the Korean government 

had we used elements like the snap-back provision in the agreement early on. We would have sent a message through the bureaucracy that compliance is not negotiable. 

The second lesson we learned is that regulatory systems do matter. Our free trade agreements have to make sure that our trading 

partners accept American-made goods that are built to the highest 

standards of safety and environmental performance. 

Lastly, as a couple of the Senators did mention, currency matters. Currency is the medium in which trade flows. The Korean 

government has intervened in its currency over a number of years, 

and, absent the disciplines against that kind of practice in a free 

trade agreement, we will not see any trading partners cease and 

desist. 

8 

Let me conclude by saying that we are committed to the Korean 

market. We have a wonderful team of men and women in Korea 

who are working every day to build a healthy and growing business 

in that market. We want to serve the Korean customers with some 

of the best automobiles in the world. All we ask is that the Korean 

government get out of the way and let us go about our business. 

Thank you. 

Senator STABENOW. Thank you very much. 

[The prepared statement of Mr. Biegun appears in the appendix.] 

Senator STABENOW. Mr. Murphy, welcome. 

STATEMENT OF SEAN P. MURPHY, VICE PRESIDENT AND 

COUNSEL, INTERNATIONAL GOVERNMENT AFFAIRS, QUALCOMM INCORPORATED, SAN DIEGO, CA 

Mr. MURPHY. Chairman Stabenow, Ranking Member Isakson, 

Senator Brown, I am pleased to be here today to discuss the U.S.- 

Korea FTA, KORUS. Qualcomm has been, and remains, a strong 

supporter of this historic agreement. Since KORUS entered into 

force a little more than 2 years ago, it has opened the Korean market to U.S. goods, services, and investment. It has also enhanced 

the basic framework for U.S. free trade agreements, creating an 

updated model upon which to build the Trans-Pacific Partnership, 

the Trans-Atlantic Trade and Investment Partnership, and the 

Trade in Services Agreement. 

Korea is important to Qualcomm because it is one of the world’s 

most sophisticated mobile communications markets. Korean cell 

phone manufacturers and mobile service providers are among our 

most-valued partners. 

Qualcomm is a world leader in 3G, 4G, and next-generation mobile technologies. Seventy percent of our 30,000-plus employees are 

here in the United States, and about 65 percent of them are engineers and scientists. If you have a smartphone, a tablet, or other 

advanced wireless device, chances are you are using our technology. 

Qualcomm develops and channels its technologies into Korea and 

global markets in two ways. First, we sell advanced semi-conductor 

chipsets and software that are incorporated into mobile devices 

that are manufactured by our customers and sold globally. Second, 

we own tens of thousands of technology patents worldwide, and we 

broadly license our inventions to more than 270 licensees across 

the global mobile industry. Under KORUS, Korea has become the 

tenth-largest export market for the United States in goods and the 

sixth-largest trading partner overall. Bilateral trade in goods today 

tops $100 billion, about one-third greater than when negotiations 

began in 2006. 

Consider the ways in which the agreement promotes a competitive environment for U.S. companies in Korea. For example, 

KORUS eliminates 95 percent of all Korean tariffs on U.S. industrial goods by 2016; it establishes rules to reduce Korean non-tariff 

barriers; it liberalizes services markets in a number of sectors; it 

adopts the principle of technology neutrality, which obliges Korea 

to refrain from discriminating in favor of Korean businesses and 

technologies when it sets technical standards or licenses services; 

it enhances transparency and due process in Korean competition 

9 

law matters; it incorporates state-of-the-art protections for intellectual property rights; and it includes strong investment protections 

in Korea and enhanced transparency in Korean regulation and 

rulemaking. 

KORUS has yielded important benefits that have helped to level 

the playing field and create new market opportunities. However, 

we are only 2 years into implementation, which coincided with a 

slow recovery from a painful global economic recession. We acknowledge that some U.S. firms have concerns about KORUS implementation. That issues of this nature arise is to be expected, 

given the size and complexity of the bilateral trade and investment 

relationship. Fortunately, KORUS provides a structure for regular, 

ongoing, bilateral dialogue about specific challenges. 

If resolutions cannot be reached through consultation, KORUS 

establishes an enforceable dispute settlement mechanism. KORUS 

implementation is also happening in parallel with the roll-out of 

Korean President Park’s ‘‘Creative Economy’’ agenda, which is designed to deregulate and stimulate the Korean economy through innovation. 

One form of regulatory intervention is antitrust enforcement, 

which should be grounded in rigorous economic and competitive 

effects-based analyses, which are crucial to understanding 

innovation-driven economies. 

In concluding, I would like to recap by addressing the main question this hearing poses: what are the lessons learned from KORUS 

after 2 years? First, we are better off with KORUS than without 

it. The agreement strengthened bilateral trade and economic relationships and provided a framework for broadening and deepening 

these ties. 

Second, it is possible to negotiate a state-of-the-art agreement between trading partners that have different interests and complex 

national economies, and such agreements can deliver concrete benefits. 

Third, KORUS is still a work in progress with respect to the 

phase-in of certain obligations, but it is improving the ability of 

American companies and investors to compete in Korea. Implementation questions and new challenges will inevitably arise and need 

to be addressed through the consultative and dispute settlement 

mechanisms established in the agreement. 

Fourth, KORUS updated the model for U.S. free trade agreements and paved the way for TPP and TTIP. 

Finally, our experiences with KORUS should inform the important debate about Trade Promotion Authority and help us identify 

updated negotiating objectives for the 21st-century trading system. 

As implementation of KORUS proceeds, Qualcomm looks forward 

to seeing the full benefits of continuing economic integration, innovation, job growth, and consumer choice in both the U.S. and Korean economies. 

Thank you again for the opportunity to share Qualcomm’s views, 

and congratulations on your inaugural hearing as chairman. 

Senator STABENOW. Thank you very much. 

[The prepared statement of Mr. Murphy appears in the appendix.] 

Senator STABENOW. Ms. Morris, welcome. 

10 

STATEMENT OF SHAWNA MORRIS, VICE PRESIDENT, TRADE 

POLICY, NATIONAL MILK PRODUCERS FEDERATION AND 

U.S. DAIRY EXPORT COUNCIL, ARLINGTON, VA 

Ms. MORRIS. Chairman Stabenow, Ranking Member Isakson, 

thank you for the opportunity to present the views of the National 

Milk Producers Federation and the U.S. Dairy Export Council on 

the first 2 years of the U.S.-Korea Free Trade Agreement. 

Trade is increasingly important to the U.S. dairy industry. We have gone from exporting less than $1 billion in dairy products in 

1995 to a record $6.7 billion in exports last year. We are now the 

world’s leading exporter of skim milk powder, cheese, whey products, and lactose. Korea is an important market for U.S. dairy exports, which is why NMPF and USDEC strongly supported the 

U.S.-Korea Free Trade Agreement, or KORUS. 

The agreement ultimately will eliminate nearly all Korean dairy 

tariffs. It was not perfect, but it certainly was very good. As a result of its initial market access expansions, U.S. dairy exports to 

Korea in 2013 totaled more than $300 million. That is more than 

double the average of the previous 3 years. 

This type of deep and broad trade liberalization seen in KORUS’s 

dairy provisions can be a good model for Trans-Pacific Partnership 

negotiations with Japan and Canada. In undertaking such strong 

dairy commitments, Korea made a difficult decision to prioritize 

the achievement of a strong FTA. This type of commitment to high 

standards is just as important in TPP. 

Despite these overall positives, however, a new type of trade barrier unfortunately popped up in Korea just prior to implementation 

of KORUS. Since mid-2011, Korea has restricted access for certain 

U.S. cheeses, namely gorgonzola, feta, asiago, and fontina. This is 

the direct result of its separate FTA with the European Union. 

In a nutshell, the E.U. has been leaning on countries around the 

world to block imports of products by confiscating common food 

names and reserving them exclusively for itself. It does this 

through the abuse of geographical indications regulations. Since 

approval of the E.U.-Korea FTA, the E.U. has expanded around the 

world the model it first developed in that agreement. E.U. pressure 

has resulted in similar restrictions in Central America, Peru, Colombia, and most recently in South Africa. 

Canada has also agreed to restrict cheese names, and we understand the E.U. is pursuing similar objective in Singapore, Japan, 

the Philippines, Malaysia, and Vietnam, as well as in China. It is 

also clear that the E.U. wants to impose these types of strict GI 

rules on the U.S. through the Trans-Atlantic Trade and Investment 

Partnership. 

This is an outcome that we, and many members of Congress, 

deemed entirely unacceptable this past spring as we instead insisted that the existing restrictions driven by E.U. efforts be rolled 

back. As the CEO of Sartori Company, a 4th-generation familyowned cheesemaker, put it, ‘‘If we are not able to use these common names that our customers have become familiar with, we are 

going to sell less cheese, and we are going to have less employees 

working for us.’’ 

It is going to hurt rural America, because they are the foundations supplying the milk for the cheese products. We greatly appreVerDate Mar 15 2010 16:30 Apr 09, 2015 Jkt 000000 PO 00000 Frm 00014 Fmt 6633 Sfmt 6633 R:\DOCS\94044.000 TIMD
11 

ciate the work USTR, USDA, and the U.S. Patent and Trademark 

Office have devoted to this issue. Both Ambassador Froman and 

Secretary Vilsak have been clear about the serious nature of the 

E.U.’s attacks. 

As the administration continues to work to prevent barriers to 

U.S. exports, it will be useful to draw upon the experience in 

Korea. There are a few critical lessons that we learned from the 

Korean situation. First, we need to do a better job of fully employing our embassy resources to try to find out about these E.U. deals 

before they are signed and sealed. 

Second, the GI letter exchange USTR conducted with Korea remains a process we believe could be used elsewhere to clarify our 

rights. It was not perfect, since it left in place barriers against 

some U.S. cheese exports, but it was very helpful. 

Third, GIs are no longer simply about intellectual property. Instead, this issue also requires concrete work in defense of U.S. market access opportunities. We know that we have to fight to keep 

these markets open. 

Finally, where we can be involved in negotiating on the topic of 

GIs directly, we need to be. The greatest opportunities currently 

are in TPP and in the World Intellectual Property Organization. 

The U.S. needs to lead in promoting a more balanced and WTOcompliant path forward. 

Although I represent the U.S. dairy industry, NMPF and USDEC 

are collaborating with many other industries, including the wine 

and meat sectors in fighting the E.U.’s aggressive stance. Together 

with these groups, we look forward to continuing to work closely 

with the administration on how to ensure that all of our trade 

agreements are operating in a way that maximizes opportunities 

for U.S. exporters. 

I appreciate this chance to explain how the U.S.-Korea free trade 

agreement has benefitted the U.S. dairy industry and to elaborate 

on a trade barrier that has limited access to that market for some 

of our most important products. 

Senator STABENOW. Thank you very much. 

[The prepared statement of Ms. Morris appears in the appendix.] 

Senator STABENOW. Mr. Rue, welcome. 

STATEMENT OF MICHAEL RUE, OWNER, RUE AND FORSMAN 

RANCH, INC., ON BEHALF OF THE USA RICE FEDERATION, 

RIO OSO, CA 

Mr. RUE. Thank you, Chairman Stabenow, Ranking Member 

Isakson. Thank you very much for holding this hearing and giving 

us an opportunity to share the lessons that we have learned and 

the experiences we have had in the aftermath of the Korea Free 

Trade Agreement. I am a rice producer and rancher from the Sacramento Valley in California. I am testifying today on behalf of the 

USA Rice Federation. 

The USA Rice Federation is a global advocate for all segments 

of the rice industry, with a mission to promote and protect the interests of producers, millers, processors, merchants, and allied 

businesses. We are active in all rice-producing States. Nationally, the U.S. rice industry contributes $35 billion in economic activity. It provides and generates jobs not only for rice proVerDate Mar 15 2010 16:30 Apr 09, 2015 Jkt 000000 PO 00000 Frm 00015 Fmt 6633 Sfmt 6633 R:\DOCS\94044.000 TIMD
12 

ducers and processors, but for all those involved in the value chain, 

generating over 128,000 jobs. About 85 percent of the rice that is 

consumed in the United States is produced domestically. Despite 

significant foreign trade barriers, many of which you have heard 

about today, the U.S. remains the largest non-Asian exporter of 

rice in the world and consistently ranks in the top five exporters 

worldwide. 

The key lesson learned from our trade policy and negotiating experience with the Korea Free Trade Agreement is that product exclusions should be a non-starter and have no place in a modern 

comprehensive trade agreement. As you know, rice was completely 

excluded from the Korea Free Trade Agreement at the insistence 

of the Korean government and with the acquiescence, unfortunately, of the U.S. Government. Not only were U.S. rice producers 

and processors denied the opportunity to improve on the limited access in Korea that was obtained in the WTO’s Uruguay Round 

agreement, the exclusion of rice in KORUS gives support today for 

those in the negotiations involving the Trans-Pacific Partnership, 

primarily Japan, who seek to turn back the clock and retreat from 

the principles of a comprehensive trade agreement. Rice and the 

other so-called sensitive agricultural commodities face the real 

prospect of sub-standard market access gains if Japan is allowed 

to prevail with this line of negotiating tactic in the Trans-Pacific 

Partnership. 

As I mentioned, U.S. rice received access in Korea as a result of 

the Uruguay Round agreement in 1994. This access, while significant, was insufficient and permitted the Korean government to 

keep an absolute lid on the amount of rice imported. The quality 

of access under the Uruguay Round was poor, as it denied suppliers like the United States direct access to Korean consumers, 

thus preventing any opportunity to establish and promote commercial markets. 

The access of some 20 years ago was also negotiated when Korea 

was considered a developing country and the market access bar 

was set low. For example, I would like to point out that in the Uruguay Round, for the first 10 years of that agreement, no U.S. rice 

was actually sold to Korea. Only when Korea sought an extension 

of special treatment in 2004 were conditions provided in those negotiations that allowed U.S. rice to find success in entering Korea. 

Korea’s wish to join TPP offers an opportunity to fail or redress 

the decision. It is also an opportunity to set comprehensiveness and 

trade liberalization as conditions of entry for Korea as a TPP partner. We believe that U.S. negotiators have learned a key lesson, of 

course, that product exclusions have no place in trade policy today, 

and we acknowledge and appreciate the ongoing active support and 

strong efforts of administration negotiators in TPP to obtain meaningful improvements in access for U.S. rice, especially in Japan. 

However, as we all know, much more work needs to be done. We 

would hope that the U.S. and other TPP participants will move forward without Japan if Japan is not able to show the kind of ambition that needs to be shown. 

We also have begun to work now with U.S. negotiators as Korea 

seeks to transition from the rice import regime set up 20 years ago 

to a tariff-based system. This emerging negotiation is an opporVerDate Mar 15 2010 16:30 Apr 09, 2015 Jkt 000000 PO 00000 Frm 00016 Fmt 6633 Sfmt 6633 R:\DOCS\94044.000 TIMD
13 

tunity to advance market access across not only rice, but other important agricultural commodities. 

I conclude this statement with a wholehearted endorsement of 

trade agreements. The U.S.-Colombia Trade Promotion Agreement, 

for example, has been a great success for the U.S. rice industry. 

Not only has it opened an important new market for U.S. rice, but 

the creative thinking of U.S. negotiators put in place a quota management regime that has returned $6 million last year to State rice 

research boards generated from the management of those quotas. 

Because trade agreements work for rice, and because we face intense protectionism and government intervention overseas, we will 

stay at the negotiating table and very much appreciate the support 

of this subcommittee and its support and defense of U.S. agriculture. 

Thank you again for this opportunity. 

Senator STABENOW. Thank you very much to each of you. 

[The prepared statement of Mr. Rue appears in the appendix.] 

Senator STABENOW. Mr. Biegun, let me start with you, talking 

about currency. As you know, Senator Lindsey Graham and I, as 

co-chairs of the Manufacturing Caucus, put together a letter some 

time ago. We had 60 members of the Senate, which is a pretty substantial group of people, who signed the letter to the administration about future trade agreements, wanting to make sure that we 

were addressing currency manipulation. 

The Treasury Department’s April 2014 report to the Congress on 

international exchange rate policies specifically notes Korea’s continued foreign exchange intervention, concluding that Korea should 

limit such intervention to ‘‘exceptional circumstances’’ and ‘‘increase the transparency of their interventions in foreign exchange.’’ 

How have Korea’s currency policies affected your ability to compete in the auto market? 

Mr. BIEGUN. Thank you very much, Senator. Thank you for your 

leadership on the letter that was sent from the U.S. Senate. That 

letter has significantly changed the nature of the debate over currency disciplines in free trade negotiations, and we deeply appreciate that change. 

Currency manipulation is a significant problem for industries 

like ours that build high-value items in the United States economy. 

A country like Korea will use its currency policy from its central 

bank to intervene in currency markets, to buy U.S. dollars, to sell 

their own currency, the Korean won, and in doing so they simply 

drive up the price of our products coming into Korea. 

Now, the Treasury’s criticism is very much welcome. The problem with the Treasury’s criticism is, it is not matched by any action. In fact, in the months since the Treasury Department published that report, the Korean government has several times intervened directly in the market in an attempt to weaken the Korean 

currency, specifically to aid the domestic export industry, and they 

did so non-transparently. They do it through third parties. It is recognizable to companies like ours that track global currency flows. 

But they do it, and nothing happens. 

As a result, we get a triple-whammy from this currency manipulation. Number one, imported vehicles coming into the market to 

compete with our products that are built right here in the United 

14 

States undercut us in price, not because they are better, not because they are built at a better cost, but simply because of the effect of a weakened currency. 

Number two, when we export an American-made car into their 

market, we essentially pay a tariff on that export. When they move 

the value of the dollar up 10 percent, we have a 10-percent duty 

on an export into the market. 

Third, we are not just a U.S. and Korean manufacturer, we export vehicles around the world. We go head-to-head with Koreanmade products in markets around the world. Every export we send 

from the United States to the Middle East, to Europe, to Asia, goes 

head-to-head with Korean products made in Korea that are subsidized by currency manipulation. 

So it is absolutely critical that future trade agreements have disciplines against this pernicious practice which can completely erase 

the benefits of a well-negotiated free trade agreement. 

Senator STABENOW. Thank you very much. I appreciate it. 

Ms. Morris, talk a little bit more with me and the subcommittee 

on the whole question, which I find to be an important issue, of our 

developing a trade agreement with another country, then another 

country develops a trade agreement with them, and somehow 

through the back door that comes back to affect what we already 

agreed to, which is very worrisome, I think, when you look at the 

implications of that in the long run. 

It really means the value of the hard-fought deal we negotiate for 

dairy is not as valuable as the industry planned for, so I think that 

is a pretty big issue. How much of U.S. dairy export growth consists of products with common cheese names? 

Ms. MORRIS. Well, thank you for that. I certainly agree with the 

view that this is a serious concern to have another country directly 

striving to undercut the market access that our negotiators have 

worked so hard to carve out for U.S. exporters. This was particularly the case in Korea, where cheese plays such a major role in 

U.S. exports to that market. 

It is by far the largest dairy product sector that we ship to that 

country, so it certainly was an area that we highly prioritized during the KORUS negotiations. So to find out years afterward that 

another partner had effectively blocked out access for a number of 

U.S. companies that had looked forward to exporting to that market, certainly diminished the value of the agreement, particularly 

for those companies and for the industry as a whole. 

I would say most troubling is the fact that we have seen this 

model replicated now over and over with a number of other trading 

partners, particularly with U.S. free trade agreement partners 

where the European Union has put in place similar restrictions 

against our cheese exports directly to try to undercut them. It is 

something that we think definitely needs more attention. We need 

to try to find out what is happening before it is too late and then 

tackle it appropriately to address the market access impacts. 

Senator STABENOW. Great. Thank you very much. I think it is a 

really important thing we have to weave our way through in future 

agreements as well in how we address this. 

Senator Isakson? 

15 

Senator ISAKSON. Mr. Biegun, welcome back to Capitol Hill. Who 

bought the sixth Ford? 

Mr. BIEGUN. Pardon me? 

Senator ISAKSON. Who bought the sixth Ford? You said the first 

five—— 

Mr. BIEGUN. It was exported to Canada. 

Senator ISAKSON. To Canada? 

Mr. BIEGUN. Yes, sir. 

Senator ISAKSON. Not too far away. I just had to ask. 

Mr. BIEGUN. Just across the river. 

Senator ISAKSON. I just wanted to find out how trade was working back in 1903. [Laughter.] 

I really appreciate your comments and your remarks about enforcement mechanisms in KORUS. In particular, I think you were 

the one who stated that the lesson learned in the last 2 years is 

to quickly seize the opportunity to use those enforcement mechanisms to protect your interests. Is that right? 

Mr. BIEGUN. Yes, sir. I think there is a reason why they are in 

the agreement. As I said in my testimony, the irony is, I think we 

probably would have helped the Korean government make its way 

along the road of free trade a lot faster had we used them initially. 

By choosing instead to renegotiate some of these areas of dispute, 

we just ate up time on the clock while we were trying to build a 

business, and the Korean bureaucracy, still to this day, is left to 

its own devices, even to subvert the intent of some of the elected 

officials in Korea. 

Senator ISAKSON. Well, I want to underscore the importance of 

your remarks. All the remarks were fantastic, but it was so important to me, because I remember when we did the permanent normal trade relations with China, and being from the State of Georgia where we export a lot of textiles, for a long time our market 

share was eroded away by China at a rapid rate, and we looked 

the other way on the enforcement mechanisms through the WTO 

to protect our market share. So, we have to stay vigilant. 

Do you think the mechanisms that are in the KORUS agreement 

are a good example or a good template for what we might do with 

TTIP or the Trans-Pacific Partnership? 

Mr. BIEGUN. Yes, sir. When it comes to the area of regulatory differences, I think the agreements are good. They were in a renegotiation of the document. So one of the issues that did come up after 

the agreement came into force is what force of law they had in the 

agreement, because some of them were in a side letter. 

We would certainly argue that these dispute resolution and snapback measures should be up front, part of the core FTA, and we 

should be forward-leaning and use them when we see non-compliance. 

Senator ISAKSON. And that enforcement is a partnership between 

you the exporter and manufacturer and the U.S. Trade Representative. Is that not correct? 

Mr. BIEGUN. That is right, Senator. We do work very closely with 

the U.S. Trade Representative. They, on our behalf, work very hard 

to get the Koreans to comply with these agreements. 

I think the one thing we have to avoid is the temptation to start 

renegotiating. We need to just go at it, if there is non-compliance, 

16 

just straightforward and honestly say so, and we will probably do 

ourselves and our trading partners a big favor in doing so. 

Senator ISAKSON. Thank you. 

Mr. Murphy, you used the term ‘‘embracing state-of-the-art intellectual property protections’’ in KORUS as one of the main values 

of that to Qualcomm. Can you explain why those protections are 

so important to Qualcomm and what you think these protections 

mean for future trade agreements? 

Mr. MURPHY. Yes. Thank you, Senator. I appreciate the question. 

As I said in my opening remarks, Qualcomm owns tens of thousands of patents worldwide. We are one of the largest filers of patents before the Korea Intellectual Property Office. Patents are fundamental to our business. 

The KORUS intellectual property chapter raises and imposes 

standards that go far beyond the minimum standards of the WTO 

TRIPS agreement. Let me give you a few examples. First, in the 

area of patents, the agreement expands the scope of subject matter 

eligibility in Korea. In addition, it extends the term of the patent 

for those products that are regulated and require prior market approval or testing before they can be commercialized. So, in other 

words, if your patent term is eroded during the time that your 

product is being assessed, you can potentially make up that lost 

time and still have exclusive protection. 

In addition, for those products where there is a requirement for 

testing or approval, the data that the patent owner or company 

would provide to the government agencies responsible for the testing is required to be kept confidential and exclusive. So, in other 

words, the data that you are using to get market approval will not 

be leaked to your competitors. 

In other areas, copyright for example, the agreement helps move 

the Korean copyright regime closer to U.S. law, specifically the Digital Millennium Copyright Act. In addition, with respect to Internet 

domain names, there is a mechanism in place to ensure that a company that does not own a trademark cannot then cyber-squat, or 

assert rights to the domain name. This ensures that the legitimate 

trademark holder has first priority. 

Senator ISAKSON. Thank you very much. 

I will wait. Are we going to have a second round? 

Senator STABENOW. Yes. 

Senator ISAKSON. Thank you. 

Senator STABENOW. Thank you. 

Senator Brown? 

Senator BROWN. Thank you, Madam Chairman. 

Mr. Biegun, your comment about the relative number of dealerships I thought was particularly compelling and stunning, so thank 

you for that. 

I want to talk about TPP. The negotiations with Japan on autos 

and agricultural products have been challenging because, like 

Korea, Japan seems to be reluctant to open its markets to sensitive 

products, especially autos. From your company’s perspective, Mr. 

Biegun, what are the risks to U.S. auto companies and workers as 

the administration rushes to complete a TTP agreement that does 

not include enforceable currency provisions and does not address 

the non-tariff barrier issues we have seen with Korea? If those 

17 

issues are not remedied to your satisfaction, would you support the 

agreement? 

Mr. BIEGUN. Yes. Thank you very much, Senator Brown. Thank 

you for everything you have done to help make the automobile industry strong in the State of Ohio. The question is the one that 

weighs on our mind right now. Ford Motor Company was a strong 

supporter of the launch of the Trans-Pacific Partnership negotiation. With its original 9 members, and later with 11 members, we 

thought that it made an enormous amount of sense. 

But I have to tell you that we did have pause to reconsider when 

Japan was added as a 12th member of that negotiation. We are 

deeply skeptical that there will be anything in this negotiation that 

opens the Japanese auto market to the export of U.S. automobiles. 

Japan, today, has no tariff on automobiles. You do not pay a 

penny in tariff to get an automobile into Japan. Japan is the thirdlargest auto market in the world and has the least number of imports of any major auto market in the world. Japan is completely 

closed, and it does not have a tariff. 

So what are the challenges? Well, certainly there is a major issue 

of non-tariff barriers. Many of the things that we work with to try 

to get into the Korean market are nearly existential challenges 

when it comes to setting up a business in Japan. But more so, 

Japan has a record of being one of the largest manipulators of currency in the global economy. By moving the value of the yen to 

weaken 20 or 25 percent, they do, de facto, impose a 20- or 

25-percent tariff on every vehicle we try to export to Japan. 

So we are deeply concerned about Japan’s entry into the TPP, 

and, more so than that, we are deeply concerned with the impact 

it has had on the negotiations themselves. Without a doubt, negotiations are now delayed. 

The ambitions are now far lower than they had been before 

Japan entered. We think that, unfortunately, this is driving the negotiation to be a repeat of the Doha Round that will be an endless 

discussion of how not to open markets. That is a real lost opportunity for the U.S. economy. 

Senator BROWN. You mentioned non-tariff barriers. What should 

we do differently in TPP to ensure we eliminate non-tariff barriers 

before the agreement is actually signed? 

Mr. BIEGUN. So USTR does have a team working on non-tariff 

barriers with Japan. The problem is that they are spending 99 percent of their time on 1 percent of the problem. The mother of all 

non-tariff barriers is currency manipulation, so we have to have 

disciplines against currency manipulation. 

And by the way, this is not a novel idea. Japan has agreed, as 

a member of the IMF and the WTO, not to intervene in its currency for purposes of facilitating its exports. It has already agreed 

in principle. What is lacking is enforcement, and that is what we 

need in our free trade agreements. 

The other thing I would say is, the lesson of KORUS and the future challenges of markets like Japan and also the Trans-Atlantic 

Trade and Investment Partnership is, we should negotiate these 

agreements to ensure that products like American automobiles that 

are built to world-class standards of safety and environmental performance can drive out of the factory, drive onto the ship, get to 

18 

the shores of the foreign market, and get to the customers with a 

minimal amount of revisions. 

Non-tariff barriers really are the last tool to obstruct trade as we 

see tariffs reducing around the world. Addressing regulatory barriers and arresting currency manipulation will be huge improvement in generating U.S. exports. 

Senator BROWN. Let me shift in my last minutes. Are you concerned with harmonization of auto safety standards within TTIP, 

or does that typically in your mind work to the advantage of U.S. 

automakers? 

Mr. BIEGUN. To be clear, the specific term—— 

Senator BROWN. Defining the term, right. 

Mr. BIEGUN. Yes. Harmonization is not actually the goal of the 

TTIP. What the goal of the TTIP is is to create a body of evidence 

that suggests that U.S. safety and environmental standards provide an equivalent outcome as European safety and environmental 

standards. That means they do not have to be identical, but that 

means what every customer knows: when you fly to Europe and 

you rent a car at a rental lot and you get in the car and you buckle 

your seat belt, you do not have any question in your mind that you 

are safely secured into the cockpit of the car, and that it is going 

to perform to a high level of safety. 

The same goes for Europeans when they come to the United 

States. Customers know this, and that is a reality. Still, because 

of the importance that is attached to automotive safety, it is incumbent upon us in the industry to provide the data to regulators that 

proves factually that that is the case, not just because it is the perception of us or customers. So that is what we are doing. 

If that happens, we believe this will open a significant amount 

of new trade between the United States and Europe, which right 

now only sees a very small amount of trade in the area of premium 

vehicles. So, from a Ford Motor Company perspective, we do fully 

endorse the efforts to create regulatory mutual recognition between 

the U.S. and Europe, and we think it will expand the export of U.S. 

automobiles to Europe. 

Senator BROWN. Thank you. 

Senator STABENOW. Thank you. 

Senator Portman? 

Senator PORTMAN. Thank you, Madam Chairman. Thank you for 

holding this hearing. 

I appreciate all the witnesses today. I did not get to hear all your 

testimonies, but I got to look at some of what you had to say. It 

is really important that, after we complete these agreements, that 

we do have this ability to look back and see how it is working or 

not working. 

As some of you know, I was very involved in the launch of this 

trade agreement, thinking that KORUS was critical for us to have 

a better footprint, frankly, in that part of the world. At the time, 

the U.S. was the single-largest trading partner with the Republic 

of Korea. By the time we completed the agreement, China was by 

far the largest trading partner, and now we are attempting to regain some of that ground through KORUS. 

We just had the 2-year anniversary of its entry into force, and 

sometimes you have to wait a while, so 2 years may not be an apVerDate Mar 15 2010 16:30 Apr 09, 2015 Jkt 000000 PO 00000 Frm 00022 Fmt 6633 Sfmt 6633 R:\DOCS\94044.000 TIMD
19 

propriate marker to make the final judgment, but the bottom line 

is, I think we have seen some progress. We have also seen some 

problems. I think Mr. Biegun just talked about some of the nontariff barrier issues with these trade agreements. We tend to make 

great progress on the tariff side. 

In fact, we have already gone through a couple of rounds of tariff 

reductions, and that is positive. We have seen U.S. trade and services exports combined up about 4 percent between 2011 and 2013. 

I think those results would be a whole lot better if our economies 

were better, including the Korean economy, which took a dip during that period. The slow-down over the last 2 years has meant 

that it has just not been as strong as it could have been. 

But the bottom line is, we have seen expanded opportunities for 

services, we have seen expanded opportunities for our U.S. goods, 

and we have seen improved transparency in much of the regulatory 

system. We have stronger intellectual property protection, and so 

on. 

So I think, again, your judgment is a little premature. I think we 

are making general progress on the tariff reductions and progress 

on our degree of exports, but we still have big challenges. I think 

currency is certainly one of them. That was not something we addressed in the trade agreements, and we will see what we do going 

forward on that, but I do think currency is an issue, and I do think 

it affects trade. 

I am concerned about transparency in medical device reimbursement. I am concerned about the non-tariff barriers in the auto industry that we talked about. I am concerned about—by the way, 

Korea is a great opportunity for autos, including for exports from 

Ohio. We have a bunch of plants in Ohio, including Ford Motor 

Company plants, that produce parts, transmissions, engines, and so 

on, for cars like the Explorer, which are exported all over the 

world. So we want more of that market share. 

By the way, I am told that the vast majority of Hondas that are 

in the Korean market are now exported from Marysville, OH. So, 

there is an opportunity here for us to do even more, but we have 

to get at those non-tariff barriers. Then there are some Customs 

issues too. Again, both of our economies are weaker than we would 

hope they would be, and so hopefully these numbers will end up 

being stronger. 

To Ford, quickly, you mentioned the regulatory burdens and currency manipulation. The Korea situation is one we need to deal 

with, and we are talking about that, but also they have talked 

about joining the TPP, as you know. 

Their interest in joining, I think, should wait until we have full 

implementation of the KORUS issues, in my view. But I would just 

ask you, how problematic have these non-tariff barriers been to 

your U.S. workers as you look at TPP potentially including Korea? 

Mr. BIEGUN. Thank you, Senator Portman. Thank you for working so closely with us and our UAW partners to raise the issue of 

currency in Ohio as well. As I was saying earlier, it really has 

changed the tenor of the debate on that issue. 

The lesson that we have learned from these non-tariff barriers in 

Korea—and it will apply to Japan as well—is that the best solution 

would simply be for us to be able to sell our cars at our standards 

20 

in these markets. Now, that may not be possible in all cases, I understand. I am realistic when it comes to the fact that each country 

has a sovereign right to set its own regulatory system. 

But the problem that you have with markets like Korea and 

Japan is, they have a long record of using the establishment of 

those regulations as a trade barrier, so there is a special burden 

on them to create a level of transparency and predictability in their 

regulatory changes that at least is equivalent to what their manufacturers face here in the United States, and we simply do not have 

that. 

In the case of Korea, 2 years ago we could not tell you what cars 

it would be legal for us to sell in Korea today. Today, I cannot tell 

you with certainty what cars it will be legal for us to sell 1 year 

from now. In an industry in which these kind of decisions to assign 

products, to allocate vehicles like the Ford Explorer, are made 

under the most extreme interpretation of the bonus-malus law, 

which is an environmental provision currently under debate in 

Korea, next year we could have to pay $7,000 on every Ford Explorer we export from the United States to Korea. That would wipe 

us out. There would not be a single Explorer there. 

Now, I do not want to over-dramatize this. The Koreans are in 

negotiations. We have gotten assurances that, in all likelihood, this 

policy will evolve in a way that will not have a punishing impact 

on importers. But in a way, it does not matter, because right now 

I am not sure. 

So, when I go to the business and say, we need to spend tens of 

millions of dollars to make some adjustments in the Explorer line 

to be able to qualify for whatever is left in the Korean market, to 

qualify as far as regulations, it has to be justified against a reasonable expectation that those products will have access to the market. 

This is the Whack-A-Mole we talk about with regulatory systems 

in protected markets, and it is something where we really have to 

use our trade policy to carve out the space for American manufacturers to export. 

Senator PORTMAN. Yes. That certainty issue is critical. I was just 

at your transmission plant in the Cincinnati area, and also your 

engine plant in Cleveland. You guys are not weeks or months, you 

are years ahead in terms of your planning, and have to be. 

I know my time has expired. I would like another round, so I 

would hope that the chairman will give me that. But again, I appreciate all of you being here. I look forward to asking another 

question for the rest of the panelists. 

Senator STABENOW. Thank you very much, Senator Portman. We 

will have a second round. I think we all have additional questions. 

Mr. Biegun, let me continue with you, because I know there is, 

certainly in Michigan, great concern about our ability—we want to 

be selling automobiles in Korea, in Japan, and around the world 

and have equal access to markets that certainly other countries 

have in America right now, as we know. 

Just last weekend at an event in Seoul, the president of the U.S. 

Chamber of Commerce echoed many of the concerns that have been 

raised here today, that you have talked about, related to non-tariff 

barriers. He acknowledged that there is room for improvement, 

noting that ‘‘things are moving too slowly in areas where non-tariff 

21 

trade barriers restrict trade and where new rules or guidelines are 

required to meet the Korea Free Trade Agreement.’’ 

Could you talk a little bit more about how you would identify a 

new trade barrier or potential trade barrier, the process for preventing this before it got implemented? At this point, is there a 

way? 

Mr. BIEGUN. Yes. Certainly the highest level of transparency is 

important, which is one of the provisions in the KORUS, and the 

requirement for the longest lead time to notify manufacturers— 

which again is in the KORUS. The problem is, you do not know 

what you do not know. At times we have had this sense that our 

Korean competitors in Korea have known well in advance of us of 

some of the regulatory changes that were coming. 

When it is sprung upon us, even if it is a legitimate regulatory 

innovation in the economy, it has the effect of pushing our products, which are sold in relatively low numbers, out of the market, 

because we simply cannot afford it. We will sell 7,000 cars this 

year in a market of 1.5 million. If you add thousands of dollars of 

cost to every one of those cars, we cannot continue the business. 

The Korean companies will average those costs over hundreds of 

thousands of cars, so the cost-per-unit to make any adjustments 

like this is insignificant. We watch it closely. We have a team. We 

have been in Korea for 20 years. We are not new to that market. 

The reason why we were so concerned about the free trade agreement to begin with is because, since 1995, we have had a toe-hold, 

trying to build a business. But, Madam Chairman, after 20 years, 

to be selling 7,000 cars per year in one of the top 10 auto markets 

outside the United States is a challenging business case to maintain. 

The irony is, it would be good for the Koreans to open the market. They would have better prices, their consumers would have 

more choices, they would remove a major irritant in U.S.-Korean 

economic relations. Auto trade represents over 90 percent of the 

U.S. auto deficit with Korea. It is an urgent matter for them to address this, not just for us. 

Senator STABENOW. Let me ask one other quick question regarding moving forward with Japan, because I know in conversations 

that I have had directly with your company, there is great concern 

that, here we go again into another market, and certainly currency 

manipulation, the concern about the difference in price that results 

from that, is of deep concern. I believe that any trade agreement 

going forward needs to correct that with enforcement mechanisms. 

But on non-tariff trade barriers, there I was fascinated by a conversation that I had a while ago. As a daughter of a car dealer who 

grew up on and had my first job on a car lot, to hear the fact that 

it was so tough to even get the automobiles onto the car lot to be 

able to try to sell them, what is that like in Japan as we go forward 

here, looking at non-tariff trade barriers? 

Mr. BIEGUN. Again, Japan, like Korea, has an extremely low import penetration when it comes to automobiles. In fact, Japan has 

now surpassed Korea as the most closed automotive market in the 

world. These barriers tend to become most aggressive as we begin 

to grow our market share, as we have done occasionally over the 

course of the past several years. 

22 

In Japan, there are a number of costly technical revisions that 

need to be made to automobiles to comply with Japanese standards. The Japanese do clear out a little bit of space for a few thousand vehicles per year that can come in without modification, but 

in essence that pushes the automakers to simply steer to the left 

and take the low-volume exemption rather than grow into the bulk 

of the market, because there is no certainty that we will have access to the market. 

Looking at the tariff barriers—which USTR is trying right now 

to clear in the TPP negotiations—is important. But absent addressing the other factors that keep us out of the market, it is almost 

irrelevant. If currency manipulation continues, we will have a pretty good sense of the limits of our ability to reach into that market. 

The business case to invest in modifying products to get into a 

market in which you are permanently locked into a small, small 

share of the market, is a very difficult business case to make inside 

a company. We are willing to invest the money to get into the market, but there has to be some reasonable expectation that the government will not use other policies to keep the importers out. 

Senator STABENOW. Thank you. I know I am out of time, but, Mr. 

Rue, I want to ask you, how big an opportunity are U.S. rice farmers losing in Korea by not being a part of this trade agreement? 

Mr. RUE. Thank you for that. Well, for example, the existing access that we were able to negotiate when they asked for an extension of special treatment under the Uruguay Round garnered about 

a 50,000-ton access that was country-specific. 

But more importantly, it opened up the balance of that access 

that is not country-specific. That is over 400,000 tons today. This 

access is entirely through a state trading enterprise, and so, while 

we do have access, it is through a state trading importing enterprise run by the Korean government. They are able to manage that 

to the degree they want. 

The opportunity we lost, I believe, in the Korea Free Trade 

Agreement was an opportunity to have access that allowed us to 

in fact directly reach consumers and processors so we would have 

an opportunity to build a market share and a trading relationship 

that would have support both on the Korean side and benefit them 

directly, as well as on the U.S. side. 

Senator STABENOW. Well, we hope future trade agreements will 

correct that. So I have taken extra time. We will add a minute to 

each of my colleagues if you would like to take a little bit more 

time. 

Senator Isakson? 

Senator ISAKSON. Thank you, Chairman Stabenow. 

Cheese is my favorite food, so, when you start talking about 

cheese, you have my attention. [Laughter.] 

I want to make sure I heard you correctly, because you named 

all my favorite cheeses too, when you were going down that litany. 

But, if I understood you correctly, you said the E.U. colluded with 

the South Koreans to restrict the import of certain types of cheeses 

from the United States into South Korea. Is that correct? 

Ms. MORRIS. Yes. The European Union, in its negotiations with 

Korea, made it a requirement of closing the agreement to include 

these geographical indication restrictions that specifically crowd 

23 

out imports of the types of products that I named from the U.S. 

and other suppliers around the world. So those products can only 

be shipped now to Korea from specific European manufacturers. 

Senator ISAKSON. Well, that seems like a dangerous practice if it 

ever caught fire on any number of different types of products, because it is basically a conspiracy. You had two conspirators, and 

you unwittingly were affected by their negotiation without your 

ability to have any say. Is that right? 

Ms. MORRIS. I would absolutely agree with your characterization 

of the issue, Ranking Member Isakson. 

Senator ISAKSON. Then I heard you say that you thought our embassies ought to do a better job of monitoring the negotiations of 

the countries where they represent us to try to catch this. Is that 

right? 

Ms. MORRIS. We believe that that is something that could help 

this issue immensely. As I mentioned in my testimony, Korea was 

the first instance where we saw the E.U. put in place restrictions 

on the use of common names such as cheese types in its FTAs, but 

now it is popping up in a number of other markets around the 

world. 

It is extremely difficult for us as an industry to monitor the situation effectively in every single one of those markets. We believe 

that better use of our embassy personnel, specifically through the 

Foreign Agricultural Service, could help get information in advance 

so that we can engage proactively before the agreement is concluded and try to best preserve U.S. market access opportunities 

with those trading partners. 

Senator ISAKSON. Well, carried to the extreme, if collusion like 

that were a common practice, you could have the European Union 

saying to Korea, you cannot import any automobile named Explorer, or like my hybrid Escape, just by the type of car. It would 

close the market, even though you are saying you are opening the 

market by negotiating the free trade agreement. Is that right? 

Ms. MORRIS. It is certainly, in our view, a very serious non-tariff 

type barrier that is comparable to other cases as well. 

Senator ISAKSON. I would defer to the chairman and distinguished gentleman from Ohio, Mr. Portman, on this. But it might 

be worthy of us taking steps for a provision like that to be part of 

our negotiated agreements so it automatically invalidates the free 

trade agreement we have entered into with somebody if they 

collude or conspiratorially in any way prevent access to U.S. products without us being a party to it. 

Ms. MORRIS. We certainly think that, through TPP and other 

agreements, that the U.S. should be looking at ways to use those 

agreements that we are involved in proactively to try to address 

the issue ahead of time rather than simply reacting after the fact. 

Senator ISAKSON. I want to discuss that with Ambassador Froman, because I think, with my love for cheese, I do not want any 

lack of access, whether I am in South Korea or South Chicago. 

[Laughter.] 

So, thank you, Madam Chairman. 

Senator STABENOW. Well, I am with you on that. So, we will pursue it. 

Senator Portman? 

24 

Senator PORTMAN. Thank you, Madam Chairman. The geographical indicators are a frustration. What the Europeans do, as 

Senator Isakson said well, is they do these agreements, including 

one with Canada recently, where they impose their view on these 

GIs, which we have been fighting for years, as you know. It is frustrating. 

You have said in your testimony that Korea’s restricted access 

for these products is a result of its FTA with the European Union. 

You stressed at the outset that this is not a flaw in KORUS, so we 

continue to strongly support the agreement and its approval by 

Congress, because you have seen some market access improvements overall. 

But I will tell you, for Ohio, the Blue Jacket Dairy in Bellefontaine, OH, the Heini’s Cheese Dairy in Millersburg, OH, the 

Great Lakes Cheese Company in Hiram, OH, they all make feta, 

brie, gorgonzola, and other cheeses that are affected directly by this 

Korean adoption of the European standards in their E.U. agreement. So, it is a huge problem. 

I will not ask you the question, because I think you answered 

Senator Isakson’s question well, but let me just ask a general question of the group here. I have been critical on autos, critical on 

cheese, and I mentioned some other concerns I have. 

I will say that, but for this agreement, we would not have the 

export growth we have had in Ohio. Our exports to Korea have increased 19.5 percent from 2012 to 2013. I do think, as again their 

economy begins to pick up, we will see more growth, but we have 

to have a more level playing field. 

I think the other issue here—and I want to hear from you all on 

this—is, what impact has this had on our relationship with one of 

our strongest allies in a more general sense? And they are an ally, 

in the region and globally, and have stood with us, including during some tough times in the last several years. 

In February of 2006 when we announced this negotiation, I stood 

with Korean Minister Kim, and there was a big bipartisan group 

from Congress here, including Senator Carper, by the way, who is 

still here on the committee. We talked about the economic benefits, 

we talked about what could happen, we talked about the fact that 

this was the tenth-biggest economy in the world. 

Again, the situation was that, at one time, we were the biggest 

trading partner, and now it has shifted over to China. At that press 

conference, we also talked about how this was beyond trade, that 

for more than 50 years we had stood together and that Korea 

strongly reflected the values that this country holds dear, including 

democracy and freedom. 

The distinction between North Korea and South Korea could not 

be more clear. At that time, Korean Trade Minister Kim said, ‘‘This 

is the most important event since the signing of the military alliance with the United States in 1953.’’ So they obviously viewed this 

as an important agreement. 

I guess I would ask, since many of you work closely with businesses in Korea and around Asia, how important is this trade 

agreement to our relationship with the Republic of Korea and with 

Asia generally, and, therefore, how important is it that we get this 

implementation right? I would open it up. Mr. Biegun? 

25 

Mr. BIEGUN. Senator Portman, we have been involved in many 

trade negotiations around the world, and it certainly can be the 

case that you describe. But something that we have learned in the 

course of these negotiations is that geopolitics makes for lousy free 

trade agreements, but really good free trade agreements make for 

great geopolitics. 

What do I mean by that? If you negotiate a bad free trade agreement because you want to strengthen the relationship, you actually 

import into that relationship a lot of tension and disagreement. But 

if you take a clear-eyed look at what the economic opportunity is, 

have a fair agreement in which both sides are equally committed 

to implementing it, and you approach it from an economic perspective, you produce a foundation for the relationship that is unsurpassed. 

So, on Korea, I would say the jury is out. As I said in my testimony before you arrived, we do not regret having supported this 

agreement, but we are deeply disappointed by the level of the commitment that the Korean government has shown to date in implementing it. 

I do not want to sound impatient, but there is some urgency. We 

carved out a 4-year window in which the U.S. automobile industry 

can get a toe-hold in the Korean market before the tariffs go away. 

We are 2 years into that 4-year period. As I said a moment ago, 

we do not even know what vehicles it is legal to sell next year. It 

is unacceptable for countries like Korea, regardless of how good a 

friend they are, to not fulfill their commitments on a free trade 

agreement. 

Senator PORTMAN. Mr. Murphy? 

Mr. MURPHY. Thank you for the question, Senator Portman. I 

would say that the agreement has had a very beneficial effect on 

the overall bilateral economic relationship. In addition to the direct 

benefits and gains we have seen in terms of market access and important rules that are helping to propel American and Korean businesses alike, the agreement has set up a number of important 

mechanisms for ongoing dialogue between our economic officials, 

including at the Cabinet level. 

We have talked about some of the implementation issues and 

new problems that have arisen. The 21 committees that the 

KORUS establishes created an important framework for ongoing 

and continuous dialogue. I believe that can only help to strengthen 

the relationship, help improve implementation, and make sure that 

the benefits that all of us who supported KORUS expected, will 

come to pass. 

I would also say that, since KORUS, the U.S. and Korea relationship has been strengthened in other forums. For example, at the 

World Trade Organization, the United States has been pushing 

very hard for expansion of the Information Technology Agreement, 

which lowers and reduces tariffs on a range of high-tech products. 

Korea has been a very good ally to the United States, and it has 

exhibited a leadership in the WTO that is of common interest to 

both economies. So that is just one example of how the relationship 

has been beneficial in terms of bilateral engagement, but also on 

the multilateral front. 

Senator PORTMAN. Thank you. 

26 

Ms. Morris? 

Ms. MORRIS. Thank you, Senator Portman. As you mentioned, I 

have spent a fair amount of time in my testimony focusing on one 

type of non-tariff barrier that has troubled our products in that 

market, even though it was unrelated to the actual KORUS text 

itself. We continue to believe that KORUS was the right decision 

to approve and that it has been, overall, very beneficial to U.S. 

dairy exports and to the relationship with that country as a trading 

partner. 

I would also note that, in our view, it was particularly important 

in hindsight, because we are not the only ones active in that 

sphere. The Europeans, of course, put their agreement into place. 

They are a major dairy exporter. Australia just concluded its negotiations recently with Korea, so it will soon have an FTA. They are 

also another major dairy exporter. So without that, the U.S. actually would have been at a risk of moving backward in terms of 

market access opportunities rather than moving forward, thanks to 

KORUS. 

Senator PORTMAN. Ms. Morris, as you will recall, we were way 

behind, and it took us much longer to put our agreement in place. 

In the interim period, the others came in and have captured some 

market share. Even though you say your market share overall has 

improved, it could have been even better, and it would have made 

it even more difficult for foreign competitors to come in if we had 

acted sooner. But we learn lessons as we go along. 

Mr. Rue? 

Mr. RUE. Thank you. Obviously, having rice excluded from 

KORUS, on a personal level, it has not been a great benefit. However, I acknowledge the advantages and the progress that we have 

made in, not only other agricultural products, but industrial and 

intellectual products as well. 

I think I would repeat what Mr. Biegun has said, that it underlines the importance of the overall relationship, not only the economic one but the geopolitical one as well, that you have a comprehensive, fair agreement that covers all products and that each 

of the participants feel like they are dealt with in a fair relationship. That can only strengthen the relationship overall. Thank you. 

Senator PORTMAN. Yes. And I think the exclusion is a big mistake, and we should not negotiate agreements with those exclusions. The agreement also does give us a forum to discuss all these 

issues, which is important. With regard to some issues we talked 

about today, autos in particular—GIs are more complicated because 

of the E.U. agreement—we ought to use those forums and resolve 

these issues. Certainly, as trading partners that are important and 

as friends and allies, this is to both countries’ advantage. 

Thank you, Madam Chairman. 

Senator STABENOW. Thank you very much. And thank you to 

each of you for your insights today. This has been very helpful. By 

strengthening and better enforcing our trade agreement with the 

Republic of Korea, I believe we will strengthen the bond between 

our two nations. We need to be focused on that. 

In addition, if we can get this done right as we start out, hopefully we will open new markets to American companies in agriculture and manufacturing where we see some real challenges, and 

27 

that is going to lift wages and create quality middle-class jobs, 

which is the bottom line of what we want to see happen. 

So we look forward to working with the Korean government as 

well as with all of you, with all Americans who have a stake in this 

trade partnership. Finally, the experience we have had through our 

agreement with Korea gives us a clear sense of how to move forward on future trade agreements. We need to learn from what we 

are doing now so that we can strengthen agreements and not make 

the same mistakes and build on what is working. These are valuable lessons. 

So again, we appreciate all of you being here. Any additional 

questions for the record should be submitted to the committee 

clerk. The deadline is 5 p.m. on Friday, August 1st. 

The subcommittee meeting is adjourned. 

[Whereupon, at 4:27 p.m., the hearing was concluded.] 

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