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40–312 2008

THE U.S.-KOREA 

FREE TRADE AGREEMENT NEGOTIATIONS 

HEARING 

BEFORE THE

SUBCOMMITTEE ON TRADE 

OF THE

COMMITTEE ON WAYS AND MEANS 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED TENTH CONGRESS 

FIRST SESSION 

MARCH 20, 2007 

Serial No. 110–26 

Printed for the use of the Committee on Ways and Means 

( 


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ii 

COMMITTEE ON WAYS AND MEANS 

CHARLES B. RANGEL, New York, Chairman 

FORTNEY PETE STARK, California 

SANDER M. LEVIN, Michigan 

JIM MCDERMOTT, Washington 

JOHN LEWIS, Georgia 

RICHARD E. NEAL, Massachusetts 

MICHAEL R. MCNULTY, New York 

JOHN S. TANNER, Tennessee 

XAVIER BECERRA, California 

LLOYD DOGGETT, Texas 

EARL POMEROY, North Dakota 

STEPHANIE TUBBS JONES, Ohio 

MIKE THOMPSON, California 

JOHN B. LARSON, Connecticut 

RAHM EMANUEL, Illinois 

EARL BLUMENAUER, Oregon 

RON KIND, Wisconsin 

BILL PASCRELL JR., New Jersey 

SHELLEY BERKLEY, Nevada 

JOSEPH CROWLEY, New York 

CHRIS VAN HOLLEN, Maryland 

KENDRICK MEEK, Florida 

ALLYSON Y. SCHWARTZ, Pennsylvania 

ARTUR DAVIS, Alabama 

JIM MCCRERY, Louisiana 

WALLY HERGER, California 

DAVE CAMP, Michigan 

JIM RAMSTAD, Minnesota 

SAM JOHNSON, Texas 

PHIL ENGLISH, Pennsylvania 

JERRY WELLER, Illinois 

KENNY HULSHOF, Missouri 

RON LEWIS, Kentucky 

KEVIN BRADY, Texas 

THOMAS M. REYNOLDS, New York 

PAUL RYAN, Wisconsin 

ERIC CANTOR, Virginia 

JOHN LINDER, Georgia 

DEVIN NUNES, California 

PAT TIBERI, Ohio 

JON PORTER, Nevada 

JANICE MAYS, Chief Counsel and Staff Director 

BRETT LOPER, Minority Staff Director 

SUBCOMMITTEE ON TRADE 

SANDER M. LEVIN, Michigan, Chairman 

JOHN S. TANNER, Tennessee 

JOHN B. LARSON, Connecticut 

EARL BLUMENAUER, Oregon 

BILL PASCRELL JR., New Jersey 

SHELLEY BERKLEY, Nevada 

JOSEPH CROWLEY, New York 

CHRIS VAN HOLLEN, Maryland 

KENDRICK MEEK, Florida 

WALLY HERGER, California 

JERRY WELLER, Illinois 

RON LEWIS, Kentucky 

KEVIN BRADY, Texas 

THOMAS M. REYNOLDS, New York 

KENNY HULSHOF, Missouri 

Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public hearing records 

of the Committee on Ways and Means are also published in electronic form. The printed 

hearing record remains the official version. Because electronic submissions are used to 

prepare both printed and electronic versions of the hearing record, the process of converting 

between various electronic formats may introduce unintentional errors or omissions. Such occurrences are inherent in the current publication process and should diminish as the process 

is further refined. 


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iii 

C O N T E N T S 

Page 

Advisory of March 13, 2007, announcing the hearing .......................................... 2 

WITNESSES 

The Honorable Karan K. Bhatia, Deputy U.S. Trade Representative, Office 

of the U.S. Trade Representative ........................................................................ 8 

Stephen E. Biegun, Vice President of International Governmental Affairs, 

Ford Motor Company ........................................................................................... 16 

Stephen J. Collins, President, Automotive Trade Policy Council ........................ 24 

Alan Reuther, Legislative Director, International Union, United Automobile, 

Aerospace and Agricultural Implement Workers of America ........................... 30 

Tami Overby, President and Chief Executive Officer, American Chamber 

of Commerce in Korea, on behalf of the U.S. Chamber of Commerce, the 

U.S.-Korea Business Council, the American Chamber of Commerce in 

Korea, and the U.S.-Korea FTA Business Coalition ......................................... 60 

Bob Stallman, President, American Farm Bureau Federation ............................ 68 

Robert Vastine, President, Coalition of Service Industries .................................. 81 

J. Patrick Boyle, President and Chief Executive Officer, American Meat Institute ........................................................................................................................ 84

Geralyn S. Ritter, Vice President of International Affairs, Pharmaceutical 

Researchers and Manufacturers of America ...................................................... 88 

Berton Steir, Executive Vice President, Paramount Farms, Los Angeles, California ..................................................................................................................... 92 

Calman Cohen, President, Emergency Committee for American Trade ............. 95 

SUBMISSIONS FOR THE RECORD 

American Council of Life Insurers, statement ...................................................... 112 

American Iron and Steel Institute, statement ...................................................... 113 

Automotive Trade Policy Council, statement ........................................................ 114 

California Farm Bureau Federation, statement ................................................... 119 

Center For Policy Analysis on Trade and Health, statement .............................. 121 

Korea International Trade Association, statement ............................................... 125 

Korea Policy Institute, statement .......................................................................... 128 

Korean Alliance against Korea-U.S. FTA, Seoul, Korea, statement ................... 133 

Korean Confederation of Trade Unions, Seoul, Korea, statement ....................... 135 

National Corn Growers Association, statement .................................................... 135 

National Pork Producers Council, statement ........................................................ 136 

The Honorable William J. Jefferson, statement ................................................... 143 

Walter B. McCormick, Jr., statement .................................................................... 143 


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(1) 

THE U.S.-KOREA 

FREE TRADE AGREEMENT NEGOTIATIONS 

TUESDAY, MARCH 20, 2007 

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON WAYS AND MEANS, 

SUBCOMMITTEE ON TRADE, 

Washington, DC. 

The Subcommittee met, pursuant to notice, at 2:48 p.m., in room 

1100, Longworth House Office Building, Hon. Sander M. Levin 

(Chairman of the Subcommittee), presiding. 

[The advisory announcing the hearing follows:] 


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ADVISORY 

FROM THE COMMITTEE ON WAYS AND MEANS 

SUBCOMMITTEE ON TRADE 

FOR IMMEDIATE RELEASE CONTACT: (202) 225–6649 

March 13, 2007 

TR–3 

Chairman Levin Announces a Hearing on the 

U.S.-Korea Free Trade Agreement Negotiations 

Ways and Means Trade Subcommittee Chairman Sander M. Levin today announced a hearing on negotiations to complete a free trade agreement between 

South Korea and the United States. The hearing will take place on Tuesday, March 

20, in the main Committee hearing room, 1100 Longworth House Office Building, 

beginning at 2:00 p.m. 

Oral testimony at this hearing will be from invited and public witnesses. Any individual or organization not scheduled for an oral appearance may submit a written 

statement for consideration by the Committee and for inclusion in the printed 

record of the hearing. 

FOCUS OF THE HEARING: 

The purpose of the hearing is to examine ongoing negotiations to conclude a free 

trade agreement between South Korea and the United States and to assess the state 

of the negotiations going into their final week. 

BACKGROUND: 

The Republic of Korea has the tenth-largest economy in the world, with a GDP 

per capita of over $24,000. Korea is also the United States’ seventh-largest trading 

partner, accounting for over $78 billion of bilateral trade in 2006. United States 

goods exports to Korea were $32 billion in 2006, while imports were $46 billion, resulting in a $13 billion U.S. goods trade deficit with Korea in 2006. Sixty percent 

of this deficit reflects the imbalance in U.S.-Korea automotive trade alone. Korea 

is a major destination for U.S. chemicals, petroleum products, and semiconductor 

machinery. Korea is a major exporter to the United States of automobiles, semiconductors, and steel. The United States is the largest source of foreign direct investment to Korea. 

On February 2, 2006, United States Trade Representative (USTR) Robert 

Portman and South Korean Trade Minister Kim Hyun-chong announced the countries’ intention to negotiate a free trade agreement (FTA). Negotiations began formally in May 2006. The eighth round of negotiations is scheduled to conclude today. 

Since May 2006, the two sides have reported progress in some areas such as some 

industrial tariffs, customs administration, some anti-corruption measures, and foreign investment; however, sharp differences remain over trade in autos, pharmaceuticals, and agricultural products and over Korean demands that the United 

States change its antidumping law. Both sides are still aiming to complete the negotiation before the end of March to comply with deadlines under the Trade Act of 

2002. 

A free trade agreement with Korea would be the second largest FTA in which the 

United States is a participant and the largest in which Korea is a participant. 

The hearing will focus on the major outstanding issues in the negotiation. These 

include opening Korea’s automotive market, which remains a sanctuary market essentially closed to any significant import competition almost 20 years after Korea 


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3 

lifted its formal ban on imports. Korea’s successful import substitution policy, before 

1988 and since, has resulted in a market with marginal import penetration of 3.6 

percent, virtually all of it concentrated in one segment of the market—luxury sedans—for which there is essentially no competition in Korea. Korea’s is the lowest 

level of import penetration of any major automotive producing economy in the 

world. 

The hearing will also focus on key agricultural benefits of increasing market access for U.S. farmers and also lingering issues such as Korea’s largely closed rice 

market and Korea’s repeated efforts to close its market to exports of U.S. beef. Additional issues to be explored will be concerns raised on pharmaceuticals, services, and 

investment and how the FTA will address these concerns. 

DETAILS FOR SUBMISSION OF REQUESTS TO BE HEARD: 

Requests to be heard at the hearing must be made by telephone to Katherine 

Wang at (202) 226–7215 no later than the close of business Thursday, March 15, 

2007. The telephone request should be followed by a formal written request faxed 

to Janice Mays, Chief of Staff, the Committee on Ways and Means, U.S. House of 

Representatives, 1102 Longworth House Office Building, Washington, D.C. 20515, 

at (202) 226–0158. The staff of the Committee will notify by telephone those scheduled to appear as soon as possible after the filing deadline. Any questions concerning a scheduled appearance should be directed to the Committee staff at (202) 

225–1721. 

In view of the limited time available to hear witnesses, the Committee 

may not be able to accommodate all requests to be heard. Those persons and 

organizations not scheduled for an oral appearance are encouraged to submit written statements for the record of the hearing in lieu of a personal appearance. All 

persons requesting to be heard, whether they are scheduled for oral testimony or 

not, will be notified as soon as possible after the filing deadline. 

Witnesses scheduled to present oral testimony are required to summarize briefly 

their written statements in no more than five minutes. THE FIVE-MINUTE 

RULE WILL BE STRICTLY ENFORCED. The full written statement of each witness will be included in the printed record, in accordance with House Rules. 

In order to assure the most productive use of the limited amount of time available 

to question witnesses, all witnesses scheduled to appear before the Committee are 

required to submit 200 copies, along with a CD ROM of their prepared statement 

for review by Members prior to the hearing. Testimony should arrive at the 

Subcommittee office, 1104 Longworth House Office Building, no later than 

close of business on Friday, March 16, 2007. The 200 copies can be delivered 

to the Subcommittee staff in one of two ways: (1) Government agency employees can 

deliver their copies to 1104 Longworth House Office Building in an open and searchable box, but must carry with them their respective government issued identification to show the U.S. Capitol Police, or (2) for non-government officials, the copies 

must be sent to the new Congressional Courier Acceptance Site at the location of 

2nd and D Streets, N.E., at least 48 hours prior to the hearing date. Please 

ensure that you have the address of the Subcommittee, 1104 Longworth 

House Office Building, on your package, and contact the staff of the Subcommittee at (202) 225–6649 of its impending arrival. Due to new House mailing procedures, please avoid using mail couriers such as the U.S. Postal Service, 

UPS, and FedEx. When a couriered item arrives at this facility, it will be opened, 

screened, and then delivered to the Committee office, within one of the following two 

time frames: (1) expected or confirmed deliveries will be delivered in approximately 

2 to 3 hours, and (2) unexpected items, or items not approved by the Committee 

office, will be delivered the morning of the next business day. The U.S. Capitol Police will refuse all non-governmental courier deliveries to all House Office Buildings. 

For questions, or if you encounter technical problems, please call (202) 225–1721. 

WRITTEN STATEMENTS IN LIEU OF PERSONAL APPEARANCE: 

Please Note: Any person(s) and/or organization(s) wishing to submit for the hearing record must follow the appropriate link on the hearing page of the Committee 

website and complete the informational forms. From the Committee homepage, 


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http://waysandmeans.house.gov, select ‘‘110th Congress’’ from the menu entitled, 

‘‘Hearing Archives’’ (http://waysandmeans.house.gov/Hearings.asp?congress=18). Select the hearing for which you would like to submit, and click on the link entitled, 

‘‘Click here to provide a submission for the record.’’ Once you have followed the online instructions, completing all informational forms and clicking ‘‘submit’’ on the 

final page, an email will be sent to the address which you supply confirming your 

interest in providing a submission for the record. You MUST REPLY to the email 

and ATTACH your submission as a Word or WordPerfect document, in compliance 

with the formatting requirements listed below, by close of business Tuesday, April 

3, 2007. Finally, please note that due to the change in House mail policy, the U.S. 

Capitol Police will refuse sealed-package deliveries to all House Office Buildings. 

Those filing written statements who wish to have their statements distributed to 

the press and interested public at the hearing can follow the same procedure listed 

above for those who are testifying and making an oral presentation. For questions, 

or if you encounter technical problems, please call (202) 225–1721. 

FORMATTING REQUIREMENTS: 

The Committee relies on electronic submissions for printing the official hearing record. As always, submissions will be included in the record according to the discretion of the Committee. 

The Committee will not alter the content of your submission, but we reserve the right to format 

it according to our guidelines. Any submission provided to the Committee by a witness, any supplementary materials submitted for the printed record, and any written comments in response 

to a request for written comments must conform to the guidelines listed below. Any submission 

or supplementary item not in compliance with these guidelines will not be printed, but will be 

maintained in the Committee files for review and use by the Committee. 

1. All submissions and supplementary materials must be provided in Word or WordPerfect 

format and MUST NOT exceed a total of 10 pages, including attachments. Witnesses and submitters are advised that the Committee relies on electronic submissions for printing the official 

hearing record. 

2. Copies of whole documents submitted as exhibit material will not be accepted for printing. 

Instead, exhibit material should be referenced and quoted or paraphrased. All exhibit material 

not meeting these specifications will be maintained in the Committee files for review and use 

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Note: All Committee advisories and news releases are available on the World 

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If you are in need of special accommodations, please call 202–225–1721 or 202–226–

3411 TTD/TTY in advance of the event (four business days notice is requested). 

Questions with regard to special accommodation needs in general (including availability of Committee materials in alternative formats) may be directed to the Committee as noted above. 

f 

Chairman LEVIN. We’ll begin. Let me briefly describe the structure of this hearing. We’ve tried to structure it—I felt strongly 

about this and I talked to the Ranking Member—to see if we could 

have a somewhat lively discussion that took on the outstanding 

issues—and there are a good number of them relating to the U.S.- 

Korea Free Trade Agreement. 

Sometimes hearings tend to be kind of segmented, and I think 

as a result we don’t have enough of a real discussion. So, here’s 

what we’re going to do this time. Ambassador Bhatia will go first 

and give us his opening remarks. We’re going to ask everyone to 

try to keep to 5 minutes except maybe the Ambassador. 

Then we’ll have the second panel, which is going to focus in on 

one of the issues that’s outstanding. Perhaps the most visible, but 


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there are many—there are several other outstanding issues as well 

as automotive. This panel will be on automotive issues. 

Then the Ambassador has agreed that he’ll come back here, having heard that testimony, and be open to questions on what he 

heard from that panel but everything else, the other issues, the agricultural issues, the service issues, the industrial, the intellectual 

property issues, and so forth. Then we’ll call the panel back, the 

three who testified on automotive to answer Q&A from the Members here. 

Then we’ll have the third panel, and if you’ve seen the list, it covers other outstanding issues. I mentioned them, and there are several others, and then we’ll have the Q&A. 

We have about 3 hours, I think, before the next vote; it’s not 

sure. The Ambassador has to leave after perhaps an hour-and-ahalf, so we’ll try to adhere to the 5-minute rule. 

So, I’ll give an opening statement. Mr. Herger will. Then, Ambassador, if you will, take over. 

The negotiation of the U.S.-Korea Free Trade Agreement (FTA) 

is indeed significant, and I want to underline that. Korea is the 

United States’ seventh largest trading partner and the world’s eleventh largest economy. The U.S.-Korea Free Trade Agreement 

would be the largest and most commercially significant bilateral 

FTA negotiated by this Administration. 

As the Administration completes its eighth round of negotiations, 

several outstanding issues remain, including services, telecommunications, intellectual property and agriculture; including 

beef and rice. 

That’s a lot to chew on. Most challenging is Korea’s massive NonTariff Barriers (NTBs), to America’s industrial products in general 

and automotive products in particular. Since the outset, Korea has 

had an economic iron curtain against these products, using a combination of tariffs, taxes and regulations. 

The U.S.-Korea Free Trade Agreement is a key test of the approach we take to trade policy. It’s a test whether we need to shape 

the terms of expanded trade or assume, no matter how imbalanced, 

that leaving it alone to work it out on its own is the best approach. 

It is a test specifically of whether we will be active or passive in 

the face of longstanding harmful practices of the Korean government to discriminate against our products in their domestic market. It is also a test of our willingness to stand up for our domestic 

industry. 

Today we will hear compelling testimony on the history of our 

trade relationship with Korea as I mentioned in the automotive 

sector. The facts tell a real life story. Korea is the fifth largest producer and the ninth largest consumer automotive market in the 

world. We now have in our country an $11 billion deficit in auto 

trade, which is 82 percent of the total deficit between our two countries. 

Last year, Korea sold 700,000 vehicles in the United States The 

United States sold only 4,000 in Korea. The significance of Korea’s 

non-tariff barriers—and I want to emphasize this—even goes beyond this important FTA. If U.S. Trade Representatives (USTR) 

fails to deal with it decisively it will reinforce the lack of active consideration of NTBs in the World Trade Organizations (WTO) Doha 


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Round negotiations, which have to date made no real progress on 

outstanding NTB issues in the entire global trading system. 

We know through experience, two previous Korean commitments 

in Memorandum of Understanding (MOUs), that they were not 

worth the paper they were written on, what will not work to end 

these non-tarrif barriers to U.S. exports. We need a very new approach. 

At the beginning of March a broad, bipartisan group of legislators, House and Senate, transmitted to the President the specific 

negotiating position that moves beyond previous negotiating strategies and embarks on such a new approach, the conditions Korea is 

obtaining addition access to the U.S. market on reciprocal opening 

of the Korean automotive market. 

There are two key components to the bipartisan congressional 

proposal. The first part addresses the phase out of the 2.5 percent 

U.S. passenger vehicle tariff and creates a positive incentive for 

Korea to open its market to U.S. autos. The second part addresses 

Korea’s current non-tariff barriers and creates a mechanism available to all industries for the United States to take action against 

future non-tariff barriers. 

So, far there has been no meaningful movement by the Korean 

government. It clings to its persistent denial that there has been 

a government policy to shelter its market, a denial that flies in the 

face of facts on the ground over the decades. The response by 

USTR has included so far another form of denial, a denial that 

Korea cares very much about the 2.5 percent tariff, thereby undercutting U.S. leverage, and a denial that the one-way street will 

continue to be harmful because it’s believed Korea will be shifting 

far more production to the United States 

Since the Korean government has made it clear that the early 

elimination of the United States. 2.5 percent passenger vehicle tariff is a top priority, I have no idea why we would be conceding any 

leverage. As I have communicated, and the Ambassador knows, to 

USTR, a focus of future Korean increases in U.S.-based production 

is speculative and in any event misses the point. 

Increased domestic production will not necessarily result in fewer 

exported autos from Korea. Just look at the Japanese experience. 

Over the last 10 years, as Japanese production in the United 

States has increased, their exports to the United States have doubled from 1.2 to 2.4 million. From 2005 to 2006, Japan exported an 

additional half a million cars to the United States. Eighty percent 

were Toyotas. Nearly half of all Toyotas sold in the United States 

last year were exported to the United States. 

It also misses the point that a large portion of the content of Korean cars assembled in the United States comes from Korea, and 

it also misses the point that the FTA must be structured to assure 

that the Korean market becomes fully open to U.S. automotive and, 

I emphasize this, other industrial goods. 

Congress cannot do the negotiating to end one-way streets in 

trade with Korea, but we can make it clear the type of agreement 

that we can support. My hope is that the message is becoming 

clear to USTR. We need a shift in negotiating strategy to an active, 

results-oriented approach that demands and measures commitments by the Korean government. To do less would be to do more 


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of the same, and that should not and cannot result in an FTA acceptable to this Congress in my judgment and to the American people. 

Mr. Herger, for your opening statement. 

Mr. HERGER. Thank you, Chairman Levin. There’s no doubt 

that the U.S.-Korea FTA negotiations that we are here this afternoon to discuss is a huge opportunity for both of our countries. 

Korea is the world’s tenth largest economy and our seventh largest 

goods trading partner, with an annual Gross Domestic Product 

(GDP) rapidly approaching $1 trillion and a per capita income over 

$20,000. 

Bilateral trade between our countries already tops $70 billion. 

An agreement will reduce trade barriers for export of U.S. services, 

agriculture and manufactured goods as well as increase IPR protection. Expanded commercial ties will strengthen our political partnership with this critical ally in Northeast Asia. Indeed, USTR has 

described this FTA as the most significant trade negotiation in the 

past 15 years. 

As we approach the concluding days of these negotiations, Ambassador Bhatia, I know you will not rest unless this huge opportunity translates into a great deal for the United States. To that 

end, I will make four brief points. 

First, Korea needs to put rice on the negotiating table so that our 

farmers can put their rice on Korean dinner tables. U.S. exports of 

rice are subject to a harsh quota system and industrial use restrictions in Korea. Of the small amount that even makes it into Korea, 

the overwhelming majority sits in the food processing warehouses 

not in retail stores. 

This FTA must have comprehensive product coverage including 

meaningful access for rice. Anything less would be a terrible disappointment. 

Second, the U.S. beef industry has worked tirelessly to implement Bovine Spongiform Encephalopathy (BSE) safeguards to ensure the safety of U.S. beef. We know that U.S. beef and beef products are safe regardless of age so long as specified risk materials 

have been removed, and we expect the international standard will 

be formally established shortly. 

Reports that Korea does not plan to reopen its markets to bone 

and beef products, notwithstanding scientific evidence, are deeply 

troubling. Korean officials should commit to implementing the 

Operational Independent Evaluator (OIE) recommendation instead 

of using U.S. beef as a negotiating ploy. 

Furthermore, I strongly urge USTR to reject out of hand any 

offer from Korea to allow beef access only in exchange for U.S. 

abandonment of its rice demands. The exclusion of either rice or 

beef from this important agreement will risk Congressional passage. 

Third, the U.S.-Korea FTA should include a robust investor state 

dispute settlement mechanism, and I urge the Administration to 

resist any efforts to limit this vital tool. The model investment provisions that we have developed in prior agreements are essential 

to preserving the rights of U.S. investors abroad. At the same time, 

they are well balanced, so that they do not threaten the ability of 

our Federal or State governments from regulating. 


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Finally, I remain very concerned about the lack of market access 

for U.S. autos in Korea. Our market is open with no non-tariff barriers and minimal duty, however Korean duties, taxes and stealthy 

and pervasive non-tariff barriers created by an opaque and discriminatory regulatory process combine to effectively foreclose market access for our companies. I reject the claim that Koreans just 

don’t like American cars. The very existence of the barriers proves 

that the Korean industry knows Korean consumers will buy our 

cars. 

That said, we have to carefully consider the right approach to 

breaking down these barriers on autos. Managing trade through 

the establishment of market access quotas is not the answer and 

will create a dangerous precedent that we can’t sustain. We must 

be able to show U.S. automakers and their workers that Korea 

won’t establish disguised trade barriers and will instead utilize 

transparent regulations and standards. Korea’s overtures on this 

issue thus far have been completely unsatisfactory. 

Finally, I would like to welcome Mr. Berton Steir, representing 

Paramount Farms of California, which is seeking duty-free treatment on pistachios in Korea. Paramount’s situation is a prime example of the benefits U.S. interests stand to gain with a robust and 

comprehensive agreement. 

Mr. Bhatia, thank you for appearing before us today. I look forward to your testimony. 

Chairman LEVIN. Ambassador, welcome. Take over. 

We discussed your time limit is 4:30. I think we can accomplish 

your testimony, the testimony of the first panel and a chance for 

all of us to talk with you. Welcome. 

STATEMENT OF KARAN K. BHATIA, DEPUTY U.S. REPRESENTATIVE, OFFICE OF THE U.S. TRADE REPRESENTATIVE 

Mr. BHATIA. Thank you. Thank you very much Chairman 

Levin, Ranking Member Herger, distinguished Members of the 

Committee. I’m really delighted to be able to join you here today 

to discuss our FTA negotiations with South Korea. 

Mr. Chairman, I appreciate your recognition of the time constraints that we’re under. This week we have both the Koreans in 

town to continue the negotiations and obviously a short period of 

time, so I appreciate that. 

However, I wouldn’t want to suggest—leave anyone with the impression that, by virtue of the way this hearing has been structured of my being able to be here for the questions after the auto 

panel, that somehow we place less importance on the other outstanding issues that will be addressed in the third panel. 

I want you to know that we will certainly have people here to 

witness that third panel, and I want you to know that I personally 

have met with many members of the third panel as well, and I just 

leave that out there. 

It has been a little more than a year since our FTA negotiations 

were launched here on Capitol Hill with strong bipartisan support. 

Today, 13 months later, we are nearing the end of the negotiating 

process. While a number of critical issues remained outstanding, 

it’s our hope that those issues can be resolved and that by the end 


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9 

of this month we will be in a position to notify Congress of our intent to sign the Korea-U.S. Free Trade Agreement. 

Let me start with a brief word of background about South Korea 

for the panel. As many of you may know, 40 years ago Korea was 

among the poorest countries in Asia. It possessed a largely agricultural economy and a per capita GDP barely over $100. Politically, 

from the period following the Korean war until the late eighties, it 

was ruled by a string of authoritarian governments. 

Today, after a period of extraordinary economic growth, Korea is 

the world’s 11th largest national economy with approximately a 

trillion dollars in GDP. Its economy is diversified and dynamic. It 

is the world’s 11th largest import market. It is our seventh largest 

trading partner and seventh largest export market, and it’s also 

one of our faster growing major trading partners with U.S. goods 

exports to Korea growing by approximately 17 percent last year. 

Korea today enjoys a vigorous, multi-party democracy, strong 

public participation in its political system, strong labor unions and 

an independent judiciary. 

I would also note that we and Korea, the U.S. and Korea, enjoy 

a close military relationship. We have been strong partners in the 

war on terrorism and have been working closely together to promote a safe and secure Korean Peninsula. 

Against that backdrop, let me briefly outline the benefits that I 

believe the U.S. potentially stands to reap from a high quality, 

comprehensive, free trade agreement with South Korea. From an 

economic perspective, the U.S.-Korea FTA offers us an opportunity 

to grow our already significant bilateral trade and investment relationship. 

Just to place that relationship in perspective, the $78 billion in 

bilateral goods trade that we currently have with Korea is more 

than 70 percent of the total bilateral trade that we enjoy with all 

10 trading partners with whom we have implemented FTAs since 

2000 combined. That’s the case even though Korea’s current average tariff for industrial goods is approximately 7 percent and for 

agricultural products is approximately 52 percent. 

So, when you think about the greater market access that would 

accrue under an FTA, under which U.S. exports would be expected 

to grow significantly, one can see the benefits that could potentially 

accrue from the U.S.-Korea FTA. Studies have estimated that the 

potential income gains to the U.S. economy from the FTA range 

from $17 billion to $43 billion. 

However, the benefits for the United States would go beyond 

market access. The FTA would also eliminate trade distorting barriers to investment and increase the protections enjoyed by American investors in Korea, strengthen intellectual property rights of 

American innovators, address anti-competitive business conduct, 

reduce non-tariff barriers and enhance the transparency of the Korean regulatory system. 

By establishing a stronger economic relationship, a KORUS FTA 

would also broaden and modernize our strategic alliance with 

Korea. It will help ensure that the U.S. partnership with Korea, 

which has been centered on defense ties for more than half a century, remains a vital force for stability at a time of change and 


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challenge on the Korean Peninsula and in the broader Northeast 

Asia region. 

Now it bears noting that the KORUS FTA would offer a unique 

preferential advantage to American companies doing business in 

the Korean market at a time when many of our global competitors 

are actively seeking to lock up East Asia’s fast growing economies 

into economic relationships that exclude the United States and 

U.S. firms. 

It’s worth reflecting for a moment on that trend. Today there are 

176 free trade agreements in existence in the Asia-Pacific region 

alone and many more either under consideration or negotiation. 

China, Japan, India and the European Union (EU), among others, 

have concluded or are actively pursuing FTAs with East Asian 

trading partners. A number of these FTAs unfortunately do not 

constitute high standard, comprehensive FTAs of the variety that 

the United States negotiates. 

They do however afford preferential trading positions to the companies of those countries and do have the effect of placing U.S. 

businesses, workers and farmers at a relative disadvantage in accessing fast-growing East Asian markets. One potential effect of 

this web of arrangements is to encourage U.S. companies seeking 

to compete in these markets to relocate production to those countries. 

Now against that backdrop, I would submit, the KORUS FTA 

takes on added significance. To date we have concluded two East 

Asian FTAs with Singapore and Australia, important but smaller 

economies in this important region. A successful FTA with Korea 

could provide an important boost to U.S. efforts to remain an active 

economic presence in a strategically vital region that accounted last 

year for over 37 percent of total world GDP, 26 percent of global 

trade flows and 29 percent of U.S. exports. It would establish a 

model that we believe could be replicated with other East Asian 

economies and could help us expand trade liberalization throughout the region. 

Let me finally turn briefly to the status of the KORUS negotiations. As the Chairman mentioned, we have concluded eight rounds 

of negotiations. I am pleased to report that the most recent round 

in Seoul did result in good progress with the successful closing of 

competition, government procurement and customs chapters and 

important progress in areas including investment, market access, 

telecommunications, services generally and financial services in 

particular. 

A group of Korean negotiators, as I mention, is in Washington 

this week to continue work toward resolution on the outstanding 

issues. Let me be clear. A final agreement has not yet been 

reached. Significant issues remain in a number of chapters, but I 

do believe that there is a strong commitment on both sides to work 

hard in the time remaining to conclude a high quality, comprehensive, balanced and ultimately successful FTA. 

While I’d be happy to discuss the elements of a successful FTA 

in greater detail during the Q&A period, let me just identify a few 

elements up front, including the following. First, a unique and unprecedented array of strong, enforceable commitments designed to 

level the playingfield for American auto manufacturers seeking to 


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access the Korean market, a strong agricultural market access 

package that affords America’s farmers and ranchers greater access 

to Korea’s agricultural markets, a strong industrial good market 

access package that affords America’s manufacturers, consumers 

and industrial goods greater access to Korea’s market, a strong investment chapter that contains key protections for American companies seeking to invest in Korea, a strong pharmaceutical chapter 

that ensures Korea’s pricing and reimbursement system for drugs 

and devices is transparent, non-discriminatory and promotes access 

to innovation, a strong services chapter that ensures American 

services suppliers can compete in the Korean market on a level 

playingfield in a wide range of sectors, and strong chapters on 

labor and the environment. 

In sum, Mr. Chairman, I believe this FTA offers us the opportunity to establish a unique relationship, a partnership with one of 

the world’s fastest growing and most dynamic economies while solidifying our competitive presence in Asia. We are working hard in 

the time remaining to achieve this outcome by concluding a fair, 

comprehensive and strong agreement that will significantly benefit 

American workers, farmers, manufacturers and service providers. 

Thank you. 

[The prepared statement of Mr. Bhatia follows:] 


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Mr. LEVIN. Thank you, Ambassador. All right. We’ll now, according to the procedure outlined ask Steve Biegun, the vice president of international government affairs, Ford Motor Company; 

Steve Collins, president of the Automotive Policy Trade Council 

and Allen Reuther, the legislative director for the United Automobile Workers if you’ll come forth. As is always true your full 

statement will be placed in the record, and if you could try to sum 

up your testimony within 5 minutes. 

Welcome. Welcome. I guess we’re going alphabetically. That’s an 

advantage of Biegun starting with a B. Welcome, and please proceed. 

STATEMENT OF STEPHEN E. BIEGUN, VICE PRESIDENT OF 

INTERNATIONAL GOVERNMENTAL AFFAIRS, FORD MOTOR 

COMPANY 

Mr. BIEGUN. Thank you, Mr. Chairman. My name is Steve 

Biegun and I’m a vice president with Ford Motor Company. I’d like 

to thank you, Ranking Member Herger and the other Members of 

the Subcommittee for the opportunity to testify today on this crucially important issue. On behalf of the entire Ford Motor Company, I would also like to thank all of you for the close scrutiny 

you give to these trade issues, which are hugely consequential for 

the American automotive industry. 

Ford Motor Company is a world leader in the manufacturing and 

sale of automotive products with 280,000 direct employees worldwide and over 100,000 employees here in the United States. We 

have a long and proud history. Founded in 1903, we actively compete in over 200 markets worldwide and our brand is among the 

most recognized and respected around the globe. 

Ford has been operating in South Korea since 1995. Today we 

have one dealership. We have 14 showrooms and 24 service centers 

countrywide selling both the Ford and Lincoln models of our cars. 

The majority of the vehicles that we sell in South Korea are manufactured in the United States of America. 

Unfortunately today, after 12 continuous years of effort and investment, Ford Motor Company sells less than 1,700 vehicles per 

year in South Korea. That’s fewer vehicles than we sold a decade 

ago and the equivalent number of vehicles that we sell in a single 

year at an average dealership in northern Virginia. 

Why is this the case? Is it the quality of the imported cars? We 

have done a comparison of quality among the imports and the Korean-made vehicles and found that case by case the quality of imports equals or exceed the Korean vehicles in the Korean market. 

Is it the cost? Certainly the Korean tax and tariff structures are 

specifically designed to make imports more costly. Still this cost is 

not enough to explain the relative absence of imported vehicles. 

Are Korean consumers so particular that they prefer a different 

mix or type of vehicle than U.S., European and Japanese customers? Again, we have done side by side comparison of the major 

volume vehicles sold in the South Korean market today, and we 

found that in every case there is a comparable and better non-Korean choice available on the global marketplace. 

Or is there something more insidious occurring, something that 

keeps imports out of the market? Now let me be clear from the 


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start. Ford Motor Company supports trade liberalization. We have 

supported every single free trade agreement negotiated by the 

United States Government since this process began in the sixties. 

In fact, our industry provided the original impetus for United 

States free trade policy. When joined by General Motors and 

Chrysler, we successfully pushed for the U.S.-Canada Auto Pact in 

1965. This free trade agreement with our close ally and neighbor 

Canada became the foundation for the U.S.-Canada Free Trade 

Agreement, which itself soon expanded to become the North American Free Trade Agreement. 

Mr. Chairman, as much as the United States automobile industry has supported open, global trade in our products, there are 

some competitors who are noteworthy exceptions to this rule. The 

government of Japan has, for decades, kept tight restrictions on 

those who sought to invest in the Japanese automotive industry 

and they virtually blocked the entry of imports for quite a long 

time. 

While today with the Japanese industry so well developed that 

it is a market that is difficult to penetrate for other reasons, the 

Japanese government still provides large scale assistance to its 

automotive exporters by keeping the value of the yen deeply discounted to provide a price advantage over U.S.-built vehicles in our 

own market. 

However, as bad as Japan’s history has been on automotive trade 

issues, it does not hold a candle to the record of the Korean government. While I spoke earlier about Ford’s lack of access into the Korean market, it’s important to note that we are not alone. Let me 

emphasize this point. No manufacturer from any country can make 

significant sales into the Korean market, not Ford, not General Motors, not Toyota, not Volkswagen, nobody can get significant vehicles into this market. 

While total import penetration into the Korean market remains 

low, Korean manufacturers today freely export 70 percent of their 

own production around the globe including into this market. In 

2006 alone Korean auto producers exported 700,000 vehicles into 

the United States while we in turn exported 4,000 into Korea. As 

a result, and to no one’s surprise, 80 percent of the $13 billion U.S. 

trade deficit with South Korea is automotive products. 

Real market access for imported vehicles into Korea is prevented 

not by price, quality or consumer preference but by an elaborate 

layering and ever changing presence of non-tariff barriers that 

work effectively to block our products. The witness to my left, Mr. 

Collins, will get into a little bit more detail on that, so I won’t repeat what he’s going to say in a moment. 

Mr. Chairman, I stated at the outset that Ford Motor Company 

supports free trade. I suppose we may be old fashioned though in 

one respect. When our government negotiates a free trade agreement we want the other party in the negotiation to support free 

trade too. Nothing in Korea’s approach to this negotiation suggests 

to the automobile industry that the Korean government has the 

slightest intention to open the market to our products. 

U.S. manufacturers proposed early on in these FTA negotiations 

a non-traditional approach to gain real, sustained and meaningful 

access to the Korean market. We are convinced a traditional apVerDate Aug 31 2005 04:43 Jul 23, 2008 Jkt 040312 PO 00000 Frm 00021 Fmt 6633 Sfmt 6602 E:\HR\OC\40312.XXX 40312

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proach simply will not work. The method we propose would place 

the burden on Korea to first open its market and identify the techniques it has used to block imports and then come up with the solutions. 

In the past, it’s felt a bit like the old arcade game Wac-A-Mole. 

New regulations pop up each time we whack one down. I would 

hope the United States Trade Representative has had enough of 

that game and will insist that the Korean government come up 

with solutions, remove the obstacles and allow consumers in Korea 

the same full range of choices that the American consumer has. 

In short, the Koreans broke their market and it’s their responsibility to fix it. Earlier this month, a letter from several Members 

of Congress was sent to the President, a bipartisan group of 15 

Members proposed an innovative and thoughtful approach on dealing with the longstanding issue of lack of market access. We fully 

support this proposal. 

While press accounts suggest that automotive trade issues have 

been put off virtually to the end of this negotiation, the possibility 

of finding an agreement on this vitally important issue does not appear to be promising. Korean government representatives deny 

that any steps are currently being taken to impede imports into 

their market, a statement that is on its very face ludicrous. 

Mr. Chairman, the United States automobile industry is in the 

midst of a difficult restructuring. We have made painful decisions 

to shed jobs and idle plants in order to become more competitive 

and restore profitability to our business in the face of tough competition. 

Yet you have not heard us ask for protectionist policies to close 

off opportunity for anyone in our market. To the contrary, all we 

ask is the same level of access to their market. The United States 

passenger car market is today the most free and open in the world. 

Anyone can do business here. As a company that operates and competes in 200 markets globally, Ford sees the real and tangible benefits of such policies. 

Free trade lowers transaction costs. It improves efficiency and 

enables us to more effectively meet the demands of our customers 

here in the United States and abroad. However, free trade must 

truly be free, not encumbered by the layers of restrictions that are 

set up only to protect domestic industries. That is why we are 

hopeful that this negotiation, our last best chance, will result in 

real and meaningful market access for American automotive products in Korea. If it does not, then it is our view that it should not 

be approved. 

Thank you, Mr. Chairman. 

[The prepared statement of Mr. Biegun follows:] 


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Chairman LEVIN. Thank you very much. 

Mr. Collins. 

STATEMENT OF STEPHEN J. COLLINS, PRESIDENT, 

AUTOMOTIVE TRADE POLICY COUNCIL 

Mr. COLLINS. Thank you, Mr. Chairman. Mr. Chairman; Mr. 

Herger, Ranking Member; Members of the Committee, I am Stephen Collins, the president of the Automotive Trade Policy Council, 

and I appreciate the time to talk this afternoon about the importance also of automotive trade issues during the U.S.-Korea FTA. 

I am testifying today on behalf of our member companies, General Motors Corporation, Ford Motor Company, and 

DaimlerChrysler, whose views I am representing here today. I 

want to make a few general comments in opening. 

Number one, U.S. auto companies have supported U.S. trade liberalization initiatives by Republican and Democratic Administrations for decades. This includes all the bilateral FTAs that have 

been presented to this Congress and previous congresses since 

2000. Association of Tin Producing Countries (ATPC) and our companies hope to see the U.S. reach a strong, solid and credible agreement with Korea that will eliminate all tariff and non-tariff barriers and allow U.S. auto companies to fully participate in that 

market. 

Number two, as has been noted, and if you would look at the 

chart there, it’s very clear. Auto trade is the huge factor in our 

trade relationships. It’s 82 percent of the deficit with Korea. That’s 

up from 35 percent 5 years ago. It’s $11 billion. It’s 30 percent of 

Korea’s exports to the U.S. It is the biggest traded product. Therefore, by itself, that defines a major degree of attention. It’s also now 

become a huge problem that is unresolved, one with a week and 

a half to go in this negotiation. 

The Korean government however has created this problem, and 

it is the Korean government that has the responsibility and is the 

party that has to resolve this. The U.S. auto industry has earned 

a seat at this table for this discussion. In simple numbers, U.S.-Korean auto trade is so lopsided that it cannot be seriously justified 

by any credible, objective economic or market-based rationales. 

I’d like to you look in your material there on chart number two. 

Chart number two shows that this is not just a U.S. issue, that—

if you look at it, it will show—these are the sales—it’s in your 

packet as well—of all foreign cars from Japan and Europe in Korea 

and the U.S. in Korea last year. It shows that nobody is doing well 

in Korea. There is no automaker that is selling in serious numbers 

in Korea. 

Korea unacceptably and unjustifiably restricts sales of foreign 

automobiles across the board. Next, I want to say that U.S. auto 

companies have worked together with USTR for a decade. We have 

been at this for over 10 years to deal with this huge blot on our 

country’s trade relationship, and we have not together been able to 

succeed in opening the Korean market. 

All past efforts including two bilateral U.S.-Korea auto agreements in 1995 and 1998 have failed to open that market although 

negotiated in good faith. So, we have to try something different. I’d 

like to explain our position briefly. 


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The position of ATPC is—well, first I’d like to say we understand 

there have been some mischaracterizations both in Seoul and here 

in Washington about what we are asking for and seeking in this 

negotiation as a remedy to Korea’s closed market. Let me be very 

clear. We are not seeking managed trade. We are not seeking guaranteed sales in Korea as some have suggested. 

These are incorrect but quite quick and simple labels that have 

been used to gloss over the serious efforts by many trade practitioners to an innovative approach to deal with a unique and intractable problem that we have faced. We believe that the standard 

trade negotiating approach, which was reminiscent and which we 

pursued together with USTR in the ’nineties through two bilateral 

agreements, which is apparently being used now by U.S. negotiators, will result in a one-way, one-sided agreement that benefits 

only Korea. 

ATPC has consistently recommended that opening the Korean 

auto market will require the willingness to take new approaches. 

Given Korea’s dismal past record, we have recommended that preferential access to the U.S. auto market be provided when the Administration and the Congress can reasonably be satisfied that all 

trade barriers to auto imports have been removed and the Korean 

market is seen to be fully open to the sale of the U.S. and other 

imported cars. 

Mr. Chairman, I have put in my statement a discussion of the 

multiplicity of non-tariff trade barriers that have been used by 

Korea for many years. You’ll have a chart in your materials and 

one here. They range from some years back outright bans on imports of automobiles to the use of high tariffs, discriminatory taxation, the use of tax audits on people who purchased imported cars, 

a shifting maze of overlapping regulatory and endless regulatory 

barriers that have effected imports more than any other factor. 

This is—we try to capture this in one chart here, but just to give 

you a sense of—there is a maze here of things that no one has been 

able to cut through, and it is not accidental. 

My time is up. I want to summarize with just 30 seconds of comments on where we see the current status. 

Where are we now 2 weeks before the deadline? ATPC, number 

one, has offered on behalf of the industry a comprehensive proposal 

for addressing the totality of the problem. The USTR appears not 

to have accepted our recommendations. Number two, the Korean 

government, to our knowledge has not, in a year, come forward 

with a proposal that addresses the closed automotive market. 

Number three, as has been mentioned, a bipartisan group of 

Congress this month has offered a comprehensive auto proposal 

which we believe has been very helpful and constructive, and we 

commend those, including Chairman Levin, who have been instrumental in that. We appreciate the effort. 

I want to just leave you with one thought, and then I’ll stop. Last 

week it came to our attention—and I can’t corroborate this personally, but others can—that the Korean government has indicated 

that its number one objective now from the United States in this 

negotiation is the immediate removal of U.S. automobile tariffs, its 

number one negotiating objective. 


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I find that rather fascinating and amazing as a negotiating strategy, but that’s where we are. After all of this where we feel all of 

the impetuses on the Korean side, the Koreans are saying, our 

number one objective is that you, the United States, give us immediate access, preferential access to your market. We haven’t seen 

anything offered back. 

Thank you, Mr. Chairman. 

[The prepared statement of Mr. Collins follows:] 

Statement of Stephen J. Collins, President, 

Automotive Trade Policy Council 

I. Introduction 

Mr. Chairman/Members of the Committee: 

Thank you for the time to discuss the importance of automotive trade issues in 

the ongoing U.S.-Korea FTA negotiations. I am testifying today on behalf of General 

Motors Corporation, Ford Motor Company and DaimlerChrysler Corporation—who 

are the members companies of the Automotive Trade Policy Council and whose 

views I am presenting today. 

I want to begin with several comments relating to the current situation: 

1. The U.S. auto companies have supported U.S. trade liberalization initiatives by Republican and Democratic Administrations for decades. This includes all the bilateral FTAs presented to the Congress since 2000. We have also 

offered extensive support to USTR in this Korean initiative from the beginning of 

this negotiation. These three companies have spent many years trying to open the 

Korean auto market. ATPC’s hope is to see the U.S. reach a strong, solid and credible agreement with Korea that will eliminate all tariff and non-tariff barriers and 

allow U.S. auto companies to fully participate in that market. 

2. Auto trade is a large portion of U.S.-Korea trade and has now become 

a big problem in this negotiation. But the Korean government created this 

problem and the Korean Government is the party that has to resolve it. The 

auto industry has earned a seat at this table. The U.S. now has an $11 billion deficit in auto trade with Korea, which is 82% of the total deficit between our two counties. In simple numbers, U.S.-Korean auto trade is so lopsided that it cannot be seriously justified by any credible economic or market—based rationales. 

Last year, Korea exported about 700,000 cars, vans and SUVs to the United 

States. Our market is open and Korean competitors have been welcomed and given 

a fair shot a success here. On the other side, U.S. auto exports to Korea totaled just 

over 4,000 last year. Amazingly, auto imports from the entire world represented just 

3.6% of the Korean market. This is not a picture of a healthy, mature, and mutually 

beneficial trading relationship 

3. A Free Trade Agreement is primarily about trade. There have been 

changes in investment patterns in the auto business, both here and in Korea. Recently, Korea has opened up to foreign investment in its auto sector. In 2002, General Motors invested in Korea, acquiring certain assets of the bankrupt Daewoo Motors and creating a new company which produces cars there. 

On the U.S. side, Hyundai/Kia has also made investments here, with one assembly plant operating and another under construction. But auto investment is not the 

topic of this FTA. It’s all about trade and market access. 

4. Korea’s auto market is not just closed to the U.S. auto industry. European and Japanese automakers are doing no better in Korea and share the same 

view—that Korea unacceptably and unjustifiably restricts sales of foreign automobiles. 

5. The U.S. auto companies have worked together with USTR for over a 

decade to deal with this serious and glaring blot on our countries’ trade relationship and have not succeeded in opening the Korean auto market. However, all past efforts, including two bilateral auto trade (MOU) agreements negotiated in good faith by USTR in l995 and l998 using the strongest U.S. trade policy 

tools, have failed to open the Koran auto market. That is not the fault of past UTSR 

efforts, or the efforts of U.S., European or Japanese companies to get access to that 

market. The reason is the refusal of the Korean government to remedy and reverse 

these blatantly unfair and self-serving policies. 

II. The Position of ATPC on the U.S. Korea FTA 

We understand that there has been some mischaracterization in Seoul and in 

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rean auto market. Let me be very clear: We are not seeking ‘managed trade’ or ‘guaranteed sales in Korea’, as some have suggested. These are incorrect, yet quick 

and simple labels that have been used to gloss over the serious efforts by many 

trade practitioners to an innovative approach to deal with a unique and intractable 

problem. 

We believe that the standard trade approach, reminiscent of the old U.S.-Korea 

MOUs of the l990s, which is apparently being used by our U.S. negotiators, will result in a one—sided agreement that benefits only Korea. We believe that the U.S.- 

Korea FTA is the absolutely last chance for USTR, in close consultation with the 

Congress, to get this right. Otherwise one of the largest and most active auto markets in the world will remain closed to access by the U.S. 

ATPC has consistently recommended opening the Korean auto market will require 

the their willingness to take new approaches. Given Korea’s dismal past record, we 

have recommended that preferential access to the U.S. auto market be provided 

when the Administration and the Congress can be reasonably satisfied that all trade 

barriers to imported autos have been removed and the Korean market is seen to 

be fully open to the sale of U.S. and other imported cars. 

III. Why is the Korean Auto Market Closed? 

Let me summarize the major facts about this case, and explain how Korea?s system of tariffs, taxes, and particularly nontariff barriers that keep foreigners restricted in the market. 

Chart #1 shows the sales by all foreign automakers in Korea last year. In a country that produced 3.8 million cars, and had domestic sales of 1 million last year, 

Korea imported a total of 40,000 cars and trucks from the rest of the world. I would 

draw your attention in Chart #1 to the fact that this is a grand total of a 3.6 % 

market share for all imported cars. In comparison, of the 30 OECD industrialized 

countries where the average level of imports for autos is over 40%, Korea ranks 

30th out of 30. 

Chart #2 shows the breakdown of the sale of imports in Korea by automaker. As 

you can see, no one is selling any respectable volume in Korea. The vast majority 

of those imported car sales are in the highest-end luxury segment. While our companies’ sales in Korea were small, you will notice that high volume European automakers sales were also minimal while the Toyota, and Nissan brand, which are the 

number one and two automakers in Japan, did not sell a single car in Korea. This 

is not a picture of a normal, healthy, competitive automotive market. 

So what is the problem? 

IV. What Specifically Causes the Problem of Selling Imported Cars in 

Korea? 

Chart #3 summarizes the story and the continuing problem. For a long time, 

Korea has very effectively used a whole arsenal of trade tools, starting with outright 

imports bans, high tariffs, discriminatory taxes and a stifling maze of overlapping 

and never ending regulatory nontariff barriers to keep placing hurdles for imported 

cars. 

Bans on Imported Autos 

Prior to l995, as this chart shows, the Korean government was quite clear about 

its policy: 

• All imported cars were legally banned in Korea until 1989, while the country 

was furiously building its own auto industry • Japanese cars remained banned until l999 • Very high tariffs (50%) were applied 

Tax Audits on Purchasers of Imported Cars 

After those outright bans were dropped, Korea switched to other NTBs that were 

very effective. Korea employed one of the most effective tools when it directed that 

all purchasers of imported cars would automatically have their taxes audited. After 

the U.S. repeatedly complained, these automatic tax audits stopped, but the perception and a lingering fear remains 

Just last year in a highly publicized move, Korean tax authorities ordered all of 

the country’s import car dealers to report to their federal tax agency the names, addresses and relevant personal information of the purchasers of all foreign cars. Now 

I ask, if you were thinking about buying a new car, wouldn’t you find that intimidating? 

High, Discriminatory Taxes on Imported Autos 

Korea has also freely used its tax structure to make it far more expensive to purchase an imported car. Korea has nine different layers of tariffs and taxes on autos. 


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With an overall tax burden of over 70% for imports versus 56% for domestic autos, 

the effects of cascading taxes on top of the tariff puts imports at a 14% percentage 

point price disadvantage vis-&-vis domestic vehicles. 

To make matters worse, many of the taxes are applied at a rate much higher for 

imported cars, based on engine size, configuration or other artificial means. The end 

result is that much higher taxes are added to imported cars, on top of the 8% import 

tariff. 

The Web of Regulatory NTBs 

When compared to other partners with whom the U.S. has engaged in Free Trade 

Agreements, Korea is unique in the both the scope and intensity of its use of Non 

Tariff Barriers to restrict imports. This pervasive use of NTBs in restricting trade 

calls for different kinds of solutions than U.S. trade negotiators have faced before. 

This is the most complex and most difficult issue to summarize for those outside 

of the business. But all foreign automakers are in consensus that Korea pursues a 

rolling series of regulatory NTBs that, de facto, severely restrict the ability to market imported cars into Korea. These include regulations that are often trivial, imposed without warning and developed with no input from foreign automakers. They 

have the effect of knocking out or severely limiting the ability of foreign automakers 

to get cars to the market in Korea. 

Every year, the issue is different—tinted windshields, frequencies for remote keyless entry systems, bumper configurations, power window requirements, and license 

plate sizes. Just last week, we were notified of a change in the auto insurance policies that arbitrarily placed imported vehicles are in the highest risk classification. 

The result is owners of imported vehicles will pay the highest premium possible for 

their auto insurance, (both Ford and DaimlerChrysler were placed in Class #1, the 

most expensive), as well as a totally unacceptable process foreign companies must 

use to certify compliance with these regulations. 

The NTBs vary from one wave to another, but the result is the same: a revolving 

set of costly hurdles placed in front of any foreign automaker trying to sell in Korea. 

I want to share with you the conclusion of the European Auto Manufacturers Association (ACEA) in their statement to European Governments and the EU Commission describing the situation: 

‘‘Korea has a number of nontariff barriers in place which prevent market access 

of European vehicles to the Korean market. In general, the import situation is characterized by a lack of transparency, little or no lead-time and adoption of unique 

standards and inadequate action of EU or U.S. standards in the fields of safety and 

environment—As a result no foreign automakers—E.U., U.S. or Japan—has been 

able to achieve a significant market share’’. 

Over the past nine years, following the l998 U.S.-Korea bilateral auto MOU agreement, Korea has introduced more than 15 new auto technical regulations that have 

served as barrier to auto imports. 

Here are three quick examples of a few of the past and current NTBs: 

1. License Plate Size—The Korean government proposed a new regulation that 

would change the size and shape of a car’s license plates, with little notice or opportunity to comment. License plates in Korea have traditionally been the same size 

as found in the United States. 

At first blush, this may appear to be a minor nuisance with little impact on U.S. 

automakers. However, given the fact that the front and back bumpers of cars are 

designed around the size and shape of a license plate, this type of requirement 

would lead to almost a million dollars per model being spent to meet the new requirement. Domestic automakers that are selling hundreds of thousands per vehicle 

model can afford the cost spread over a large number of sales, but importers that 

are lucky to sell a few hundred of a particular model would not be able to justify 

the cost and would have necessitated pulling most U.S. models out of the Korean 

auto market, or taking a heavy loss on every vehicle sold. 

The Korean authorities were forging forward with this regulation, despite the devastating impact it would have on imports, and that it would not have any societal 

benefit. Fortunately efforts were made, including the intervention by USTR Zoellick, 

to get the Korean government to drop the proposed regulation. Although successful, 

the fact that a U.S. cabinet official had to personally intervene with the highest levels of the Korean government to resolve a license plate issue demonstrates the level 

of the NTB problem. 

2. Self-Certification Investigation Change—After the current FTA negotiations began, Korea proposed making a major change to its auto safety certification 

process that would reverse commitments and progress made in past agreements 

with the United States to ‘‘not take any new measures that directly or indirectly 

adversely affect market access for foreign passenger vehicles’’. 


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The proposed change would: 

• adversely impact import automakers, but have no impact on Korean automakers; 

• significantly increase the certification burden, with no societal benefit, and; 

• withdraw commitments made under the two previous U.S.-Korea bilateral auto 

agreements. 

This is a transparent effort to further thwart import automakers to the benefit 

of the Korean automakers, and should be permanently dropped as part of this FTA 

3. Korea’s new auto emissions regulations (K–ULEV)—now effective 2009. 

While this proposed new rule is based on California’s stringent emissions regulations, Korea made some significant changes in its implementation that results in 

a disproportionate burden being placed on importers, over domestic automakers. 

This is what is called ‘‘cherry picking’’ from regulations. The immediate result is 

while Korea’s emissions regulations offers no higher level of emissions containment, 

some imported cars will be withdrawn from sale in the market and fewer new import models will be exported. 

The California and Korean regulations achieve the same emissions outcome, but 

the Korean regulation does not provide the flexibility that was purposely designed 

into the California program. U.S. automakers meet the California regs, but will not 

be able to offer their vehicles for sale to consumers in Korea. The U.S. Government 

has tried to help U.S. automakers with this barrier, but to no avail. 

In advance of the launching of the U.S.-Korea FTA negotiation, Korea agreed to 

delay full implementation of the K–ULEV regulation until 2009. Although somewhat helpful, the two-year delay only puts off the problem until a later date. It did 

not the fix the problem. Korea’s K–ULEV regulations should be modified to allow 

vehicles that meet California regulations to meet the Korean regulations. 

The importance of eliminating the current auto NTBs cannot be overstated. Full 

access will not be achieved unless this is accomplished. But equally important is 

getting a commitment from Korea that will avoid the implementation of future auto 

NTBs. 

For more than a decade, the U.S. auto industry has worked with various USTRs 

and their staff who have spent many months negotiating with the Koreans to eliminate one after another unnecessary NTB. The persistence of USTR efforts to get rid 

of a single NTB—as minor as license plate sizes—has succeeded, but at a high cost 

in U.S. government resources, both politically and financially. Inevitably, within 

weeks of the resolution of one ?show stopper’ NTB, another one pops up to replace 

it. 

Korea’s track record of using NTBs to protect its auto market is endless and has 

no equal in any other OECD country. And its does not deserve to be glossed over 

or tacitly accepted by the United States in formalizing an FTA with one of America’s 

largest trading partners. 

V. What has the U.S. done about this situation? 

The seriousness of problems caused by Korea’s closed auto market is not new. 

They were recognized as severe enough a decade ago that USTR filed a Section 301 

unfair trade practices case against Korea’s auto policies, one of the rare uses of that 

powerful tool in U.S. trade law. USTR then negotiated two specific auto trade MOU 

agreements with Korea (in l995 and l998) in which Korea clearly and formally committed to eliminate anti—import policies, as well as tax and regulatory NTBs that 

discriminated against U.S. auto products. 

Chart #4 highlights just some of the still current goals and commitments of those 

l995 and l998 agreements that were not achieved. These were two solid, if traditional, trade agreements designed to reduce market barriers. They looked outstanding on paper. But they did not work, because Korea countered with a new 

strategy to implement a powerful mix of non-tariff barriers. The results: Despite two 

tough negotiations and auto trade agreement with Korea in l995 and l998, exports 

of U.S. autos to Korea barely moved from 4000 in 1995 to 4,500 in 2006. Imports 

from all countries are also dismal. 

ATPC believes that Korea’s obvious failure to meet its commitments and promises 

to the U.S. in these two formal trade agreements is both a loud warning and a legitimate basis for insisting that we not repeat the same mistake a third time. This 

is why we have urged that any FTA with Korea must be creative, assertive and reflect the reality of auto trade with Korea. We have urged USTR to look beyond the 

traditional negotiating strategy, not because our industry inherently deserves something better or special, but because there is such a clear, unquestionable trail of evidence of the failure of Korea to live up to previous agreements with the USG. 


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VI. The Current Status of the Negotiations 

So where are we now, less than two weeks before the deadline for completing 

these negotiations? 

1. Immediately after the launch of these talks, ATPC offered a comprehensive proposal to USTR for addressing the totality of barriers that have prevented access to 

the Korean market and the failure of two prior U.S. trade auto agreements. This 

proposal placed the responsibility fully on the Korean government to demonstrate 

that commitment by results and not just promises. The USTR appears not to have 

accepted this approach. 

2. The Korean Government, to the best of our knowledge, has not come forward 

with a proposal that fully addresses the closed market issue. 

3. Earlier this month, a bipartisan group of members of the House and the Senate, including Chairman Rangel and Chairman Levin, sent a letter to the President 

presenting a ‘‘Congressional Proposal to Open Korea Automotive Market’’. The members proposed ‘‘moving beyond previous negotiating strategies and embarking on a 

new approach that addresses the United States’ legitimate concerns that Korea will 

not obtain additional access to the U.S. market unless there is reciprocal opening 

of the Korean auto market’’. The Congressional proposal deals with both the respective countries’ automotive tariffs and a system for addressing both current and future NTBs in Korea auto market, and other sectors as well’’. 

4. ATPC deeply appreciates this effort by Members to offer a constructive proposal 

to secure a fair trade deal for the U.S. auto industry in an FTA with Korea. ATPC 

said that this Congressional proposal ‘‘captured the industry’s frustration with Korea’s refusal to abide by past auto trade commitments by ensuring that the Korean 

government will have to provide U.S. automakers with real and meaningful access 

to Korea’s auto market if they are to be given preferential access to our market’’. 

We are not aware of whether U.S. negotiators have accepted any or all of the recommendations contained in this Congressional proposal to resolve the auto issue. 

5. The latest information we have received concerning the negotiations is most 

disturbing. It is now widely reported that the Korean Government has demanded 

the immediate elimination of the U.S. auto tariffs as their number one priority in 

this negotiation. 

Finally, Mr. Chairman, ATPC does not know what will happen over the next two 

weeks. But we do know with certainty the record of Korea over the past two decades. 

I would like to leave you, and the U.S. negotiating team, with what President Roh 

of Korea told his negotiators last week in his Cabinet meeting as they prepared for 

the final stretch of these talks, as publicly reported in the Korea Times on March 

15: 

President Roh told his team: 

‘‘I will give you some instructions in principle: Please consider real economic benefits—act just like merchants. And do not consider security or other non-economic 

factors.’’

Thank you 

f 

Chairman LEVIN. Thank you very much. 

Mr. Reuther. 

STATEMENT OF ALAN REUTHER, LEGISLATIVE DIRECTOR, 

INTERNATIONAL UNION, UNITED AUTOMOBILE, AEROSPACE 

AND AGRICULTURE IMPLEMENT WORKERS OF AMERICA 

Mr. REUTHER. Mr. Chairman, my name is Alan Reuther. I am 

the legislative director of the UAW. We appreciate this opportunity 

to testify on the negotiations between the United States and Korea 

on a free trade agreement. 

Korea is the fifth largest producer and third largest exporter of vehicles in the world. In 2006, the U.S. had an $11.6 billion automotive trade deficit with Korea. U.S. exports of automotive products to Korea represented just 6 percent of Korean imports into the 

U.S. of similar products. Historically, Korea has kept its market almost completely closed to U.S.-built automotive products. This has 


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been accomplished through a combination of tariff and non-tariff 

barriers. Despite previous agreements and memoranda of understanding with Korea to eliminate its barriers to imports of automotive products, the Korean market remains essentially closed to 

any significant import competition. Meanwhile, the U.S. automotive trade deficit with Korea soared from $1.3 billion in 1994 to 

$11.6 billion last year. 

At the outset of the U.S.-Korea negotiations, U.S. producers 

urged the Bush Administration to insist that Korea first meet concrete benchmarks for opening its auto market to imports before the 

U.S. allows any further access to our market. Regrettably, USTR 

flatly rejected this position. 

Recently a broad bipartisan group of Members of Congress sent 

a comprehensive proposal to President Bush on how any Korea free 

trade deal should treat automotive trade between the two countries. This proposal contained incentives for Korea to open its market to U.S. autos, a mechanism to dismantle Korea’s non-tariff barriers and safeguards against a surge in automotive imports from 

Korea. Most importantly, it stipulated that the U.S. tariff on imported pickup trucks should be left for resolution to multilateral 

WTO negotiations. 

Unfortunately we understand USTR also has rejected this bipartisan auto proposal. Instead, USTR appears to be pursuing an 

agreement that would eliminate U.S. automotive tariffs, thereby 

giving imports from Korea even greater access to our auto market. 

At the same time, USTR seems to be content with an agreement 

that would allow the Korean government once again to make 

meaningless promises about eliminating its non-tariff barriers with 

no guaranteed outcome. As a result, the agreement being negotiated by USTR is likely to exacerbate our auto trade deficit with 

Korea and jeopardize tens of thousands of additional automotive 

jobs in the U.S. 

Since Korea is already a major global producer and exporter of 

automotive products, the elimination of our automotive tariffs could 

quickly lead to a ramping up of production capacity by traditional 

Korean companies for exports to our market. In addition, foreign 

auto companies would be encouraged to locate production in Korea 

to take advantage of the elimination of U.S. automotive tariffs. 

Our fear of a surge in automotive imports from Korea is not alleviated by the fact that Korean companies will be sourcing some vehicles from facilities located in the U.S. Korean auto companies 

sold about 750,000 vehicles in the U.S. last year. 550,000 of these 

vehicles were imported. The U.S. market share of the Korean companies is expected to grow in the coming years. Thus notwithstanding any expected investments by Korean automakers in the 

U.S., most Korean vehicles will still be imported from Korea. 

It is also important to recognize that vehicles assembled in the 

U.S. by Korean auto companies still have very high levels of parts 

imported from Korea. Production and employment at traditional, 

U.S. auto parts suppliers is threatened by these Korean parts imports. 

The damage that would be done by a surge in Korean automotive 

imports cannot be offset by toothless promises by the Korean government to address non-tariff barriers that keep U.S.-built autoVerDate Aug 31 2005 04:43 Jul 23, 2008 Jkt 040312 PO 00000 Frm 00035 Fmt 6633 Sfmt 6602 E:\HR\OC\40312.XXX 40312

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motive products out of their market. There is every reason to expect that Korea will continue to use a variety of measures to keep 

its market closed to automotive imports notwithstanding any promises about the elimination of non-tariff barriers. 

UAW believes the only way to ensure that this situation changes 

is to insist on results oriented auto provisions in any trade deal 

with Korea. Simply stated, we must insist that Korea make tangible progress in opening its automotive market before the U.S. allows additional access to our market. 

For USTR to give away the economic benefit of access to our 

market without requiring the Korean government to first implement concrete changes necessary to alter our automotive trade imbalance is nothing more than continuing to conduct business as 

usual and irrationally expecting different results. 

In conclusion, the UAW continues to be deeply concerned that 

the U.S.-Korea Free Trade Agreement being negotiated by USTR 

could have an extremely negative impact on U.S. automotive production and employment. We urge you and your colleagues in the 

House to reject any trade deal that fails to include at least the requirements in the bipartisan Congressional auto proposal. Thank 

you. 

[The prepared statement of Mr. Reuther follows:] 


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Chairman LEVIN. Thank you very much. All right. If you would 

recess and the Ambassador will come forth, we have 55 minutes of 

his time. That means that if each of us, including myself and the 

Ambassador, if we take 5 minutes, we’ll all have a chance. So, let’s 

do that. 

Ambassador, welcome back. Thank you. As you said, and I said 

the same, there are lots of issues that are going to be presented 

to you. We wanted the automotive panel to have a crack at this because of its importance and their other important issues, but also 

to try to have some meaningful back-and-forth and not kind of the 

sometimes very segmented and not always productive discussion. 

Let me just say preliminarily, if I might, because we’re going to 

be talking not only about automobiles but these other issues, as I 

heard you and listened to this panel and have gone over the materials, with only a week-and-a-half, we have 11 days before, if that’s 

the decision, you would present to us a notification and an agreement itself under the present Trading Partners Agreement (TPA). 

It strikes me—I just want to say this more generally -that if there’s 

any chance of success there’s going to have to be a different approach than is usually employed, that there’s going to have to be 

enough back and forth with this Congress as it’s now constituted 

that there’s basic agreement before rather than after notification, 

because otherwise, if there isn’t and the determination of the Administration is to present something that it thinks that it knows 

has some very considerable difference of opinion, hoping to play one 

against another or to squeeze out a majority, I don’t think, under 

present circumstances, as important as the U.S.-Korea FTA is, that 

it will work. 

So, I want to say to you, if I might, that I hope that there will 

be a different approach than is usually employed. It means a much 

more intense back and forth because we can now probe with you 

each of these areas and try to get you publicly to commit to where 

you’re going. I don’t think that will work, but the question is 

whether between the Congress and the U.S. government there can 

be enough back and forth so that the content is not only well 

known but essentially basically agreed to before notification because—look, you laid out on page four what a successful FTA 

would be, what the elements are, and you talk about a strong Ag 

Marx-Ex agreement, a strong industrial goods market agreement, 

an enforceable commitment regarding automobiles, a strong investment chapter, a strong services chapter. 

I don’t think your testimony would ever say we’re going to come 

forth with a weak industrial market access or a weak investment 

package or weak services, and so forth on Ag. So, essentially what 

you’ve done is to leave out the gist of the agreement in each of 

these critical areas, and here we are 10 days away. 

So, let me just ask you, and I’ll conclude—they didn’t run the 

clock on me, but they should on the Chairman in this case anyway. 

Was there anything said before by the auto panel or by Mr. Herger 

or myself that you disagreed with? 

Mr. BHATIA. Well, Mr. Chairman, there’s been a lot said in the 

course of the various testimonies. Let me—maybe I could start out 

just by touching on the point that you just made and then talk a 


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little bit about some of the auto panel testimony, which I listened 

to very carefully. 

As you know, Mr. Chairman, we have been coordinating with the 

Congress on the Korea FTA since its outset. The FTA was launched 

here in a very bipartisan way with Members, both Republicans and 

Democrats, lending their support to the launch—and have been intimately involved in briefings with staffers, and that has continued. 

Indeed just last week, or I guess it was the week before, I had 

the pleasure of coming and visiting with you. I’ve had the pleasure 

of visiting with other members of this Committee on automotive 

and other issues, and I will commit to you to continue to do that. 

I think that is important. I think it is important that we bring 

home an FTA that is a strong FTA that all the Members of this 

Committee feel confident that we have negotiated as strong an 

agreement as possible. Let me, if I may—— Chairman LEVIN. Let me just ask you, will that mean—because 

I think we have to do differently than has been true under this Administration and sometimes previous. Are you going to show to us, 

discuss with us what you’re tabling? 

We have—there is a standard process, as you know, Mr. Chairman, whereby we show the Committee text before we table it and 

we give the Committee Members an opportunity to respond back. 

We have been doing that from the very beginning. I don’t see the 

reason why that will change. Now there is a point here obviously 

where at the end of the negotiation we’re going to have to figure 

out a method of coordinating, but I have, as a matter of fact, with 

the anticipation of negotiations potentially next week in Seoul, I 

have already asked our staff to make sure that we have telephone 

numbers for all of the key staff members on the Committee. 

So, I don’t anticipate an end to that coordination. Indeed, I look 

forward to it continuing. Perhaps, if I may spend a few moments 

just on the automobile subject because this is one that has from the 

very beginning, Mr. Chairman, been a singular focus of mine and 

of ours at USTR. We have paid a great deal of attention to many 

subjects in this FTA, but we’ve been aware from the very beginning 

that the automobile area is going to be an important one. 

I can tell you that I have spent a substantial amount of time 

studying and researching both the Korean automotive market as 

well as the U.S. automotive market and penetration into that market. Let me, if I can, briefly describe what we’re seeing and then 

why I believe the strategy that we are approaching makes sense. 

On the Korean automotive market there is no question that you 

have seen, going back from the ’70s and ’80s up until certainly the 

beginning of the 2000 period, an array of problems for American 

companies and for foreign manufacturers, foreign Open Ended 

Markets (OEMs) generally accessing the Korean market. 

You have seen that in terms of a number of factors. When we 

have spoken—I’ve spoken with independent analysts; I’ve spoken 

with investment bankers. I’ve spoken with management consultants to try and get the clearest picture possible, as well as our industry, I should point out, to try and get the clearest picture possible of what are the key impediments. 

I come up with four, generally four areas of impediments you 

come up with. Indeed, these are reflected, I would note, in Steve 


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Collins’s testimony and previous things that have been submitted 

to us by the auto companies. You see tariffs. You see taxes. There 

is a tax structure that applies to automobiles in Korea that 

through its application has effectively penalized large engines, 

large cars, which tend to be what we produce more. You have seen 

non-tariff technical regulations serve to impede market access, and 

last you’ve got sort of a catch-all that’s described as everything 

from consumer preferences to anti-import preferences or biases. 

So, that is the realm of things that we have seen, and we have 

seen, notwithstanding recent growth, fairly substantial recent percentage growth in the import penetration into Korea, you have 

seen it over a very low base. So, the total numbers remain low. 

On the other side of the equation, in here into the United States, 

you’ve seen substantial Korean car penetration going in the neighborhood of 700,000 to 800,000 cars last year. An interesting feature 

of this is that you have seen the manufacturing—is the change that 

you are seeing take place in Korean sales in the United States. 

So, right now, today, about 22 percent of Korean cars sold in the 

United States are made in the United States, principally in a factory in Alabama. Three years from now you are going to see probably 60 to 70 percent of Korean cars sold in the United States manufactured in the United States. So, we are seeing a strong shift in 

Korean production into the United States, and this is consistent 

with what we’re seeing Hyundai and Kia doing globally. 

Chairman LEVIN. Mr. Ambassador, I promised everybody—— Mr. BHATIA. I apologize. 

Chairman LEVIN. No, no. I just want to say then to you because 

you mentioned that to me a week or so ago—— Mr. BHATIA. Yes. 

Chairman LEVIN. Number one, when you say that, essentially 

you say that the problem is likely in part to solve itself. 

Mr. BHATIA. No. 

Chairman LEVIN. Also, I just want to tell you, those projections 

are pure speculation. Number two, they assume a stagnant amount 

of overall Korean production. As has been true of Japan, as it has 

increased production here there has continued to be a major flow 

of exports from there. 

So, when you assume 60, 70 percent of the cars that Kia sells 

will be made here, I challenge that. 

Mr. BHATIA. Mr. Chairman, I’m just going by the numbers that 

I’m seeing based on every independent survey that I’ve seen. 

Chairman LEVIN. Well, talk to the U.S. auto industry. 

Mr. BHATIA. Also, if I may, Mr. Chairman, if I could just sort 

of summarize here. So, our strategy with respect to the Korean 

automotive market has been to say, all those barriers and things 

that have been keeping our cars out, the tariffs, the eight percent 

tariffs, the tax differential, the non-tariff barriers and all of the 

other anti-import and other things, those need to be addressed in 

this FTA and those will be addressed in this FTA. We will have 

those addressed. 

What we have not adopted, and I will be clear about this, what 

we have not adopted is an approach—and I use the term that Mr. 

Reuther from the UAW used is an approach that seeks ‘‘a guaranteed outcome’’ because——


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Chairman LEVIN. Okay. Let me just interrupt so others—our 

proposal that was done on a nonpartisan basis doesn’t include that. 

So, don’t label a proposal for what it is not. It isn’t, so you—and 

in these next 10 days we need to sit down—if you’re going to have 

a chance of passing it, I think, as to any of these products, to have 

a much more active involvement of this Congress, otherwise I think 

you’re headed for failure. 

Mr. Herger. 

Mr. HERGER. Thank you, Mr. Chairman. Mr. Bhatia, I would 

like to focus your attention on rice for a moment. 

Mr. BHATIA. Yes. 

Mr. HERGER. The U.S.-Korea FTA must be comprehensive and 

its product coverage such that provisions on rice are included in 

the agreement’s final terms. I believe this is critical not only as a 

substantive issue but also from a procedural standpoint product exclusion and FTAs make bad policy. 

To this end, I’m troubled by reports that the Koreans continue 

to be unwilling to engage with U.S. negotiators on rice issues. Do 

I have your commitment not to exclude rice from this FTA? 

Mr. BHATIA. Mr. Chairman, we have been dealing with the rice 

issue from the very outset, and at the very launch of the negotiations, we made clear to the Korean government that this deal must 

be a comprehensive one and it must be comprehensive in the agricultural area. 

We have maintained that position up to this point, and I can assure you that we are maintaining that position all the way to the 

very end, that we are pushing them for this to be a comprehensive 

agricultural deal. 

Mr. HERGER. Thank you. I am also a strong supporter of the 

investment provisions in our prior agreements, including the investor-state dispute settlement mechanisms because they give U.S. investors access to substantive and procedural rights they might not 

otherwise have in the course of our trading partners. 

Given the lack of transparency that pervades the Korean system, 

I believe it is especially important in this FTA to maintain the 

model provisions that we’ve used in prior agreements. I understand 

that Korea wants to protect it’s ability to protect low income housing and real estate values, and I believe we can do so without loopholes and without undermining the core protections. 

Mr. Bhatia, do I have your commitment to protect our investors 

abroad by utilizing these comprehensive model provisions and not 

straying from them? 

Mr. BHATIA. Mr. Herger, this is another area where, from the 

very outset, we have been clear with the Koreans that we believe 

a principal benefit not only to the United States but also to Korea 

is greater investment flows that will flow from the FTA. However, 

those will only happen with very strong investment provisions, including investor-state dispute rights. 

We have been pushing that steadfastly with the Koreans, and I 

can assure you that we are continuing to do so. 

Mr. HERGER. Thank you. I also understand that you’re using 

this potential agreement as leverage to push Korea on a parallel 

track on sanitary and phytosanitary issues such as beef. 


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As you know, Peru and Colombia, through a similar parallel 

track recently lifted their restrictions to allow imports of U.S. bonein and boneless beef regardless of age and to recognize U.S. inspections as equivalent. 

I would expect to see implementation of this international standard by Korea. Could you comment on whether there has been 

progress in these negotiations? 

Mr. BHATIA. The beef issue and ensuring that the Korean market is open to beef consistent with international standards, OIE 

standards has been a consistent message that we have delivered to 

Korea. 

We have made it very clear that we don’t believe this Congress 

will approve any FTA that does not—in the event Korea were not 

employing those practices, was not open to American beef consistent with international standards. Thus far, I cannot tell you 

that there has been a resolution to this issue, but I can tell you 

our team, our Ag team is in Korea right now, as we speak, addressing this issue. It’s my hope that there will be a satisfactory resolution. 

Mr. HERGER. Thank you very much. Thank you, Mr. Chairman. 

Chairman LEVIN. Thank you. Mr. Tanner. 

Mr. TANNER. Thank you very much, Mr. Chairman. Ambassador, thank you for your time. 

I guess I’m as big a believer in engagement and trade as anybody 

on the panel, but it’s becoming harder to follow USTR’s regimen 

with respect to some of the enforcement mechanisms as well as just 

the negotiation itself. 

The regulatory excesses that we hear about in the Korean government with respect to automobiles is very troubling, and it 

makes it harder and harder for those of us who believe in trade to 

sell these agreements. Also there’s, I’m told, an issue about telecommunications and ownership—49 percent versus virtually unfettered access here. 

How close are you to resolving some of these so that we can truly 

represent to the American people that we have, one, a fair deal to 

America and second that it’s enforceable? Thank you. 

Mr. BHATIA. Thank you, Congressman. We’re not done with the 

FTA yet, and one of the outstanding issues that remains to be resolved is this issue of foreign direct investment in telecommunications. We have been addressing with the Koreans this week, and 

we’ve got negotiations ongoing right now, but I can’t—as of the beginning of this hearing I can’t tell you that issue has been resolved, 

but we have made very clear to Korea that all of our FTAs here 

to date have contained liberalization, opening of the telecommunications sector. That’s our expectation in this agreement as well. 

So, this is in the process of negotiation, but we are pushing very 

hard. If I may make a point, just the point about regulator fairness 

and openness, because believe me, this is a key area for us across 

the board. It’s not just automobiles; it’s other areas as well. We recognize that there is concern about the transparency, about the fairness of the Korean regulatory process. We have been at the forefront of that. 

We have been negotiating with the Koreans for many years. Also, 

the reason we believe in this FTA, Congressman, is we believe this 


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offers us an opportunity through overriding commitments, commitments to make sure that, for instance the Korean government 

doesn’t treat Korean firms through regulatory or other processes 

more favorably than foreign firms by making sure that there’s 

transparency by setting up processes whereby there can’t be private deals cut between the government and industry but rather 

there has to be regulations published and opportunity for people to 

comment, Committees for government and industry to work in a 

transparent way. 

Those possibilities coming from this FTA, I believe, could radically benefit, dramatically benefit both our industry but also Korea 

as it’s trying to move on a path of reform. So, the question at the 

end of the day is how do we move Korea and the bilateral U.S.- 

Korea relationship to a more successful place to address these 

kinds of regulatory issues? 

I would submit to you that a strong FTA, a fair FTA, which is 

what you were talking about—and that is the only kind of FTA we 

will bring back—would be an FTA that did that and that ensured 

that we had not only strong commitments but also strong dispute 

settlements in the event that there was ever a problem. 

Chairman LEVIN. Thank you very much. Mr. Lewis. 

Mr. LEWIS. Thank you, Mr. Chairman. Mr. Ambassador, I’ve got 

a small but it’s a very important issue for my state and my district 

specifically. 

As you know, Korea is a leading importer of bourbon, and we 

have worked with USTR in the past to ensure that other FTAs include a provision recognizing bourbon as a distinctive product of 

the United States. This has been an important anti-counterfeiting 

tool. Do you anticipate in this FTA to include this provision? 

Mr. BHATIA. Yes, Congressman, I do. We’re very familiar with 

the issue. I think we’ve made clear to Korea that all of our FTAs 

to date have addressed that issue satisfactorily. Although I don’t 

believe we’re quite there yet, I’m optimistic that we will be. 

Mr. LEWIS. Listen, I appreciate it. I yield back my time. 

Mr. BHATIA. Thank you. 

Chairman LEVIN. Thank you very much, Mr. Lewis. 

Mr. Larson. 

Mr. LARSON. Thank you, Mr. Chairman and thank you, Mr. 

Chairman for setting up this panel in the manner that you have 

to provide us with an opportunity to have our USTR respond to the 

panelists. Let me cut right to the chase. 

As part of the FTA that you’ll bring back, will that include as 

the—I believe the panelists were seeking and asking for—minimally the bipartisan congressional auto proposal? 

Mr. BHATIA. Mr. Congressman, we have reflected carefully upon 

the bipartisan proposal that has been submitted and there are 

some elements of the bipartisan proposal that——

Mr. LARSON. Is that a ‘‘yes’’ or a ‘‘no’’? 

Mr. BHATIA. Well, I think it depends what you mean. I think 

there are some elements that we are pushing very hard for. For instance there is clearly a strong focus on a strong dispute settlement 

system. There is a strong focus on NTBs, but there are a couple 

of features that I think both—that we do not believe is the most 

effective way to address the problem of U.S. market access into 


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Korea nor would they frankly be—they would be deal-killers with 

Korea, I believe, nor at the end of the day do we believe they’re 

necessary to be able to address the problems that we’ve talked 

about. 

Mr. LARSON. Also, how about a deal-maker or-breaker with the 

U.S. Congress? 

Mr. BHATIA. Congressman, I believe, and I would ask you to believe, to hope, that we will bring home a deal, including a deal on 

autos——

Mr. LARSON [continuing]. What you had to say to Mr. Tanner 

with respect to the FTA agreement, but then there seems to be a 

lot of ambiguity. Let me ask a second question, then. With regard 

to labor standards, where are we with respect to that, what kind 

of FTA agreement are we going to get with this? 

Mr. BHATIA. I think you will have a very strong FTA with respect to labor standards with Korea, Congressman. Korea is perhaps a little different from some of the other trading partners 

we’ve negotiated FTAs with in that it is a developed or very close 

to being developed economy. It has vigorous labor unions, vigorous 

labor activity, strong industrial relations regime, strong labor laws. 

Korean strikes and so forth are probably more commonplace in 

Korea than they are in the United States. I don’t believe we have 

the same set of concerns there, and I’m confident that we’ll bring 

back a very strong chapter on labor. 

Mr. LARSON. Well, as Chairman Rangel often points out, sometimes we’re taken aback in Congress because we think that the 

USTR should really be out there progressively advocating on our 

behalf. I don’t doubt your sincerity, but there seems to be a lot of 

ambiguity in the negotiation process with respect to—especially as 

it relates to automobiles. 

Mr. BHATIA. Congressman, a couple of things. First of all we’re 

right in the midst of this negotiation. We have a lot still to go on. 

We have a public audience here, so there are certain things that 

I would probably not prefer get transferred to our negotiating partners who are doubtless watching this. So, but I will say that there 

is no ambiguity and there should be no ambiguity in terms of our 

commitment to make sure that the deal that we bring back on 

autos addresses what we believe are the key impediments that 

have prohibited and barred thus far—let’s put it this way, that are 

the reason that you see far lower foreign OEM penetration into 

Korea than you do into other Organization for Economic Co-operation and Development economies. 

Mr. LARSON. I just wanted you to know, as our representative, 

that there’s no ambiguity up here either. 

Mr. BHATIA. Thank you. 

Chairman LEVIN. Thank you. Mr. Brady. 

Mr. BRADY. Thank you, Mr. Chairman, Ambassador [continuing]. If you care about finding new customers for American 

products and services, and especially customers who can afford to 

buy our products and services, it’s easy to get excited about the 

possibility of this agreement. The potential for a U.S.-Korean free 

trade agreement, it has potential to a blockbuster agreement, both 

from an economic standpoint because of the major market and from 


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a strategic standpoint in our entry in competition in the Asian region. 

I say potential, because clearly, 2 weeks from now I think if 

Korea doesn’t come forward with strong positions in autos and rice 

and beef, and just as importantly, in other services areas where we 

are running a strong surplus today in Korea but we need regulations, investments and lifting of restrictions to allow us to be in 

there in telecommunications, for example. Clearly, this could be a 

missed opportunity, which would be a shame. 

In the area beyond auto and rice and beef, as we look at telecommunications, which you addressed, in the area of biopharmaceuticals, where there’s been real concerns about the regulatory 

process, not being able to really see the reimbursement and pricing 

mechanisms that are so important to that, we can compete. We’ve 

got the innovative health care or health products for Korea. 

What is your approach, what is your plan to make sure we’ve got 

not only more market access in biopharmaceuticals but real commitment to transparency within the pricing and reimbursement 

structure? 

Mr. BHATIA. Thank you, Congressman. The pharmaceutical 

area is one that, like automobiles, like some of the others, have 

been flagged from the very beginning as being an area of, that’s 

going to be a major focus in this FTA. We have had a number of 

rounds of discussions with the Koreans now in the pharmaceuticals 

area. The agreement is not concluded in the pharmaceuticals area. 

We have been basically approaching this on a—there are several 

core issues in the pharmaceuticals area. One is obviously the set 

of intellectual property rights and protections that our pharmaceutical companies value highly and that we believe are important 

not only for the U.S. to be able to compete effectively in those markets, but also for Korea to be able to step up with its own IPR regimes. That’s an area that we have been pushing very hard on. 

The second is an array of commitments that have to do with 

making sure that Korea’s system for pricing and reimbursement is 

transparent, is fair, that it appropriately values innovation, that 

there is effectively a system that our companies feel confident in 

doing business, so they feel confident in doing business there. So, 

we have been pushing very hard on that leg as well. 

At this point, I can’t tell you we’ve got it resolved, but I can tell 

you that we have been pushing it very hard, and it’s my hope that 

we’ll have a satisfactory resolution in that area. 

Mr. BRADY. I wish you well in the negotiations these next 10 

days, because, some of the criticisms we’ve heard in this Committee 

has been that we need to pursue trade agreements in meaningful 

markets. 

Mr. BHATIA. Absolutely. 

Mr. BRADY. We need to pursue them with countries that have 

strong labor standards and enforcement. This agreement meets 

both those criterias if—if, again, Korea comes to the table in a substantial way. So, I wish you the best of luck. 

Mr. BHATIA. Absolutely. Thank you very much. 

Chairman LEVIN. Thank you. Thank you. Mr. Blumenauer. 

Mr. BLUMENAUER. Thank you, Mr. Chairman. I do appreciate 

the special focus that has been made on the disparity in terms of 


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treatment with the automobile industry. I look forward to some 

positive result that comes from that. I also—I’ve got another hearing I’m going to be slipping off to, so I’m not going to be able to 

be forward with the agricultural testimony that’s coming, but I, too, 

am interested in that. 

Two observations. One, I don’t need an answer now, but just, the 

U.S.-Australia agreement only included government-to-government 

investor dispute resolution, not investor-state relations. 

Mr. BHATIA. Yes. 

Mr. BLUMENAUER. It seems, given that Korea is a functioning 

democracy now with a more mature legal system, it’s much more 

comparable to what the Australian model was versus one in Latin 

America. I would hope that we are going to focus on the state-tostate investor protections that are much less likely to undercut environmental protections. At some point if you have some feedback 

there, I would be interested. 

In addition, since my time is limited, I wanted to focus on one 

area, somewhat narrow perhaps, but we’ve watched the United 

States, your predecessors in the ’eighties in USTR be very aggressive in dealing with opening up the cigarette market to American 

tobacco products. There was a zeal in the Reagan Administration 

to do that, and they were quite successful. Also, in that time, we’ve 

seen an explosion in cancer-related deaths in South Korea. We’ve 

seen I think it was in 1988, just 1 year, we watched smoking rates 

of male teen Koreans increase more than 10 percent, and they 

quadrupled for young female smokers. Now we’re looking at twothirds of the males in Korea who are smoking. 

I’m curious if you can talk about what specifically is the tobacco 

measures that are included here. Is this being pursued aggressively 

to undermine the ability of the Korean government to provide some 

protection to try and push back on what is their number one health 

problem? 

Mr. BHATIA. Congressman, I apologize. I may have to get back 

to you with more specifics. My general understanding is that we 

are not treating, we certainly have not treated tobacco differently 

from other commodities in the agricultural negotiations. Also, if I 

may, because I’m just not up to speed with where we are. 

Mr. BLUMENAUER. Well, we were pretty aggressive, and it was 

301 provisions that were pursued. Also, this is one area where I 

think the world would suggest relax. Let’s not undermine their 

ability to try and deal with something that is lethal, that with the 

explosion of American product, imported tobacco into Korea over 

the last 20 years, it has made a huge impact on the health of average Koreans and undermined their ability to perhaps be a little 

protectionist, but protectionist in a way that saves Korean lives. 

This is something that I would be keenly interested in. I think 

hopefully this Congress we’ve even taken away the ashtrays in the 

House of Representatives finally, so that the pages aren’t subjected 

to second-hand smoke. Maybe we can cut the Koreans a little slack. 

Mr. BHATIA. Again, if I may, perhaps I can get back to you——

Mr. BLUMENAUER. Great. 

Mr. BHATIA [continuing]. On the subject of where we—what the 

posture is on tobacco. 

Mr. BLUMENAUER. Great. I would really appreciate it. 


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Mr. BHATIA. Good. Thank you. 

Mr. BLUMENAUER. Thank you very much, sir. 

Mr. BHATIA. Thank you. 

Mr. BLUMENAUER. Thank you, Mr. Chairman. 

Chairman LEVIN. Thank you. Mr. Pascrell. 

Mr. PASCRELL. Thank you, Mr. Chairman. I don’t know really 

where to start, Mr. Bhatia. I was waiting for an answer, still waiting for an answer from the Chairman’s question to you. You know 

what? I think it needs to be very clear, because we’ve gone through 

this ritual many times since 1996 or ’97, and we need to commit, 

I think, ourselves to not finalizing one more job-killing trade agreement. 

You know what we’re doing? We’re telling UAW workers—I want 

to talk about telecommunications and pharmaceuticals, but I’ve got 

to—I have to respond to this, if you don’t mind. We’re telling them 

that you’re going to be laid off because of specific imports, but you 

will be rehired at a later time when we begin to manufacture those 

same cars here in the United States which will lay off Korean 

workers. You know, I feel like I’m in a dental chair, the dentist 

chair. There’s Muzak in the background, beautiful music about 

globalization, as the dentist prepares to work on me. We need to 

come to the reality of what is happening. 

No one is against trade, but no trade is free. It comes with a 

price. We want it therefore to be fair. I hope you’ll eventually answer the Chairman’s question sometime this century. Also, I want 

to talk about two things. I want to talk about telecommunications, 

and I want to talk about pharmaceuticals. Some real issues that 

are outstanding before I can come even remotely close to lending 

my support to the so-called Korea Free Trade Agreement. 

From the Iron Curtain Korea has imposed on our automotive 

market, to the gaps in certain basic international labor organization standards that exist, there’s some real problems here. There 

are many industries that feel that the USTR—Korea’s not the problem. You’re the problem. USTR is the problem. They haven’t really 

taken our interests in mind, kept them in mind while we’re negotiating. 

Let’s take a look at the telecommunications sector. An important 

objective of the Korea FTA should be to improve the market access 

to the telecommunications sector. Korea currently restricts foreign 

equity in that sector to 49 percent, open to—in contrast, the U.S. 

telecommunications market is totally open to Korean carriers. Totally open to Korean—that’s got to matter for something. Korea’s 

largest wire line carrier, Korea Telecom, already has an Federal 

Communications Commission (FCC) license as a facilities-based 

telecommunications carrier, as well as a capacity on the China-U.S. 

undersea cable that it can use end-to-end. 

Korea’s largest wireless carrier, SK, provides services in the 

United States in conjunction with Earthlink. U.S. carriers should 

have the same opportunities to provide their customers in Korea 

with the full range of products and services as Korea companies 

enjoy here in the United States. If this 49 percent equity restriction 

has not yet been removed, how will USTR make clear to the Korean government representatives that addressing this concern is 


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critically important? Would you give me two sentences, three sentences in response to that very specific question? 

Mr. BHATIA. We have done it. We have done it. I have met last 

week with the U.S. industry on this question. I have raised this 

issue directly at senior levels with the Korean government. We are 

pushing them on it on an almost-constant basis. 

Mr. PASCRELL. Mr. Bhatia, would you put that in writing to my 

office this week? 

Mr. BHATIA. Happy to do so. 

Mr. PASCRELL. I would like to see it in writing. I want to get 

to the pharmaceuticals now if I may, Mr. Chairman. 

Chairman LEVIN. Okay. There isn’t much time because—— Mr. PASCRELL. I still have a few seconds left. 

Chairman LEVIN. You do. 

Mr. PASCRELL. According to the latest statistics from the 

Health Institute in New Jersey, a lot of pharmaceuticals in New 

Jersey. Sixty-five thousand people are employed. It’s important to 

me. I should not have to ask whose ox is going to be gored next, 

from textiles to whatever to widgets. I’m concerned about everybody. I want to be concerned. You should be concerned. I would like 

your assistance that you’re giving the pharmaceutical industry the 

same priority that is given to automobiles, cattle ranchers. Can you 

assure me that USTR is going to do that also? 

Mr. BHATIA. Congressman, we have been in contact with the 

pharmaceutical industry from the outset of these negotiations. I 

have conducted—I can’t count how many conference calls with senior executives from the pharmaceutical industry on this subject. I 

have been involved in negotiations directly with the trade minister 

on the subject of the pharmaceutical industry. I can assure you 

that it remains a high priority for us and will remain a high priority for us—— Mr. PASCRELL. Would you also put that in writing—— Mr. BHATIA. Absolutely. 

Mr. PASCRELL [continuing]. With an explanation to my office? 

Mr. BHATIA. Absolutely. 

Mr. PASCRELL. Mr. Chairman, before I bow out here, can I 

have also from the representative today, sometime during this 

week, and to the entire Committee, I want him to explain to us the 

core labor rights that are being forwarded in this negotiation so 

that we have a good handle before they make this quote/unquote 

‘‘deal.’’ I want him to explain to us and address the issue of where 

it’s taking place within the negotiations. 

Chairman LEVIN. You should prepare a question and we’ll send 

it to him. So, now Mr. Meek and Mr. Weller, you each have 5 minutes. I guess under the rules, Mr. Meek, you’re next, because you 

were here. 

Mr. MEEK. You can go to Mr. Weller. 

Chairman LEVIN. Pardon? 

Mr. MEEK. You can go to Mr. Weller if he wants. 

Chairman LEVIN. Okay. Mr. Weller? 

Mr. WELLER. Thank you, Mr. Chairman, and thank you, Mr. 

Meek. Appreciate the opportunity, Ambassador. Thank you for 

coming before the Committee today. 

Mr. BHATIA. Thank you. 


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Mr. WELLER. I represent a very trade-dependent district. Exports are the reason we’re seeing growth in the economy, the Joliet 

area that I’m representing. I would note that just this past year, there was about $35 million worth of manufactured goods that left 

my district were exported to Korea. We’ve seen in Illinois overall 

exports to Korea go up about 16 percent. 

So, Korea is a very important market for Illinois, and particular 

for my district, in manufactured goods as well as agricultural 

goods. The International Trade Commission projects that if you’re 

successful in negotiating a good, fair and balanced agreement, we 

could see about a 37-percent increase in exports coming from Illinois——

Mr. BHATIA. Yes. 

Mr. WELLER [continuing]. To Korea. So, I encourage you to continue moving forward. I share the concerns that several colleagues 

have raised about telecommunications. Appreciate your working to 

address that. You know, when I talk with my manufacturers that 

serve the Korean market, they tell me that their chief competition 

in Korea is China. We always had a lot of debate in this Committee 

and in this Congress about whether or not there’s any merit in 

having a free trade agreement with anyone. 

We’ve seen with the, frankly, the failure of the Doha round of the 

WTO to make progress and increased effort by our competition, 

global competition, for various markets for bilateral agreements. 

Can you tell us where the Chinese and also where the Europeans 

are with—in the type of trade agreement, this framework that they 

currently have and where they are with any future bilaterals? 

Mr. BHATIA. Yes, Congressman. This actually is the subject of 

some not insubstantial concern for us. I touched on this briefly in 

my opening remarks. We are seeing a very aggressive effort by 

China, increasing effort by the EU, increasing effort by Japan to 

conclude preferential trade agreements with trading partners in 

the region. Korea, for instance, has—— Mr. WELLER. Of course, we’re seeing that here in Latin America——

Mr. BHATIA. Absolutely. Absolutely. The danger, needless to 

say, of this is that we will be late to the game or not in the game 

at all, that the template will have been set by another trading partner, or that we’ll never be able to get into that market because the 

deal will have been struck between China and a trading partner 

or Japan and a trading partner. 

In today’s globalized world, needless to say, the competitive dynamic is so—it’s so strong that not having the ability to compete 

in Korea on a level tariff basis or a level regulatory basis with a 

trading partner from another major—from another country, is a 

real, real disadvantage to our trading partners. 

So, that’s the reason why I believe, and I believe, we, the U.S. 

Trade Representative’s Office, believes we need to be active out 

there. We need to have a major trading agreement with major—we 

need to have major trading agreements with major trading partners in Asia, because it is such a dynamic region. There are many 

people who have told me similar stories about the importance of 

Korea as an export market for their districts. It’s important that 

we be able to secure that position in the future. 


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Mr. WELLER. Korea represents for us the first major Asian FTA 

for the United States in an Asian country. Is that correct? 

Mr. BHATIA. Yes. We’ve concluded agreements with Singapore 

and Australia, but this would be the first major industrial—— Mr. WELLER. Economically, Korea is larger than Canada or 

Mexico combined? 

Mr. BHATIA. Yes. It’s larger than either Canada or Mexico in 

terms of GDP. That’s right. 

Mr. WELLER. Economically, it has huge potential. Just review 

for me again. China, does it currently have a bilateral agreement 

with Korea? 

Mr. BHATIA. It’s in the process of negotiating. 

Mr. WELLER. They’re negotiating one. Japan, do they have a bilateral agreement? 

Mr. BHATIA. Again, in the process of negotiating one. The EU 

has indicated that they are about to. 

Mr. WELLER. Have the Europeans begun, or they’re—— Mr. BHATIA. They’re about to this spring. I think a lot of—in 

Korea, there’s a sense that if this doesn’t come together, they would 

probably turn their attention to some of those other FTAs. 

Mr. WELLER. Well, thank you, Mr. Chairman. Ambassador, I 

encourage you to continue pursuing this negotiation. It is very, 

very important in my district and the manufacturers and the farmers that—— Mr. BHATIA. Thank you very much, Congressman. 

Mr. WELLER. Thank you. 

Chairman LEVIN. Mr. Meek, thank you for your courtesy. You 

have the last 5 minutes. 

Mr. MEEK. Thank you, Mr. Chairman. We’re very friendly from 

Florida, so we’re used to being nice to folks. Mr. Ambassador, it’s 

a pleasure having you before the Committee, and as you know, 

many of us here have a lot of unanswered questions. We don’t 

know exactly what we’re going to get by the end of the month, but 

we hope it is a product that we can hopefully endorse. 

I have two questions. One is automotive, one is telecommunications. I’m just hoping that you could give the Committee some 

sort of estimate on the potential of job creation and also economic 

impact if we were to open Korea’s automotive market, what Korea’s 

automotive market will have on the U.S. Can you give me a little 

insight of how many jobs and how will it impact our economy? 

Mr. BHATIA. Congressman, it’s difficult to do any predictions, 

because there are a number of different variables. Also, let me—

maybe I could just point you to some examples from prior FTAs, 

what we’ve seen happen in the automotive industry in previous 

FTAs. 

First of all, let me take the example of Chile, which was a partner that had a tariff roughly comparable, I think it was 6 percent 

rather than 8 percent. It also had taxes, a domestic tax structure 

that our industry felt was a barrier to effective entry into the Chilean market. 

The FTA that we concluded in Chile came into effect in 2004. 

From 2004 to ’06, exports have increased by more than 200 percent, from 46 million to 139 million dollars. Jordan is another example. Jordan-U.S. passenger car and truck exports have gone 


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from really a de minimis amount, $4 million, to more than $100 

million, $102 million since the FTA came into effect in ’01. Australia has also been a positive example. Car and trucks exports 

went up 47 percent. 

So, I think there is a history of FTAs being successful in opening 

markets. Now in this case, with Korea, we obviously have a more 

complex situation and have come up with a much more or are pursuing a much more complex, detailed answer to that. 

Mr. MEEK. Well, Mr. Ambassador, that’s the reason why I asked 

the question, because here we have a number of new Members that 

are Members of Congress, and they have to go back home, including myself, and explain to their constituents how this agreement 

will increase jobs. So, I guess a number of potential jobs that can 

be created will be helpful for us. 

I know that you’re in the middle of negotiating, but I think that 

using the numbers or potential of what could happen in other examples, we need some hard numbers. Apparently, you’re not there 

yet. 

Mr. BHATIA. Well, it just, in terms of increased exports, we 

can—how those exports translate into jobs is a complex equation, 

but we can work on that. 

Mr. MEEK. Let me ask the second question. An important objective in the Korea FTA is improving market access for the telecommunications sector. Korea currently restricts foreign equity in 

that sector to 49 percent in contrast to the U.S. telecommunications 

market that is totally open to Korean carriers. 

In a free trade agreement, the U.S. carriers could have the same 

opportunities that are provided to customers in Korea with a full 

range of products and services as Korean companies enjoy in the 

U.S. Again, dealing with the 49 percent issue I think is very, very 

important. I’ve been talking with my staff a lot about this. It’s, 

again, we have these free trade agreements. Who are we representing? Are we representing Koreans, or are we representing 

the great U.S. of A? Can you talk to me a little bit about that and 

shed some light on it? 

Mr. BHATIA. I can assure we are representing the great U.S. of 

A and not only those sectors but others, including others that have 

not gotten as much discussion today, but we are pursuing U.S. interests——

Mr. MEEK. Where are we on the 49 percent? 

Mr. BHATIA. Well, this I had mentioned—the issue had come up 

with a few other questioners. We have been as clear as we can be 

with the Koreans that the model of our FTA is that there is an 

opening to allow for foreign, in this case U.S., ownership and control of telecommunication services, and we have made that point 

very clear to the Koreans, and we are pushing on it very hard. 

Mr. MEEK. Are we going to get what they will get from us? 

Mr. BHATIA. That’s—the goal would be for—the same way the 

U.S. market is open to Koreans today, and the hope is through the 

FTA and the idea is through this FTA to be able to gain that same 

access into Korea. 

Mr. MEEK. So, we would look for parity versus? 

Mr. BHATIA. Yeah. We would look for our companies to be able 

to compete effectively in those markets through addressing the 


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FTA restriction among other practices. There are other issues in 

the telecommunications area. 

Mr. MEEK. Thank you, Mr. Ambassador. 

Mr. BHATIA. Thank you. 

Mr. MEEK. Thank you, Mr. Chairman. 

Chairman LEVIN. Well, Mr. Reynolds, I think you said you were 

going to pass? All right. The ambassador—do you want to ask a 

quick question? Please, go ahead. 

Mr. REYNOLDS. Mr. Chairman, I’m just aware of the ambassador’s time, and I just want to urge him that he just take into consideration many of the challenges we’ve heard today on agriculture, 

auto and some of the things that our Ranking Member has outlined 

in the original opening remarks. 

Chairman LEVIN. Thank you. Thank you so much for being 

here. I think this has been important. As you leave, could I just 

reinforce what I referred to earlier, Ambassador? When you talk 

about bringing home an agreement, in part because of its importance, in part because of the time squeeze, though it’s conceivable 

it could go beyond, and also because of the dynamic within this 

Congress, let me suggest the notion of bringing home won’t work. 

Since that kind of assumes a distance and you’re bringing it home 

when we need a much more collaborative effort. 

You said it’s to be—you warned the Koreans if there’s no real 

breakthrough, which I think means no more restrictions—unless 

there’s a clear health need, Congress won’t approve. I hope you’ll 

convey and feel the same thing is true in other areas. So, it isn’t 

bringing home, and it’s not briefing staff, as important as that is. 

It’s revising the relationship, because what was true perhaps in 

previous years isn’t true anymore. I hope that’s clear. 

We would like to see a successful negotiation. Congress needs to 

be a much more active, meaningful partner. When it comes to the 

crunch, if Congress isn’t part of the crunch, I think crunch will lead 

to failure. So, let me leave it at that. I hope we convey that message from people who believe in expanded trade but who believe it 

has to have a shape and conditions that would allow this Congress 

to approve it, and we’re far, far away. 

Thank you very much. 

Mr. BHATIA. Thank you very much, Mr. Chairman. 

Chairman LEVIN. Now the other panel will join us. We’ll see 

how many questions there are. Thanks again, Mr. Ambassador. 

Then is the next panel kind of revving up? It may not be very long. 

Thank you for your patience, Mr. Biegun and Mr. Collins, Mr. 

Reuther. I think it was useful to do it this way. All right. Who 

would like to start? Mr. Larson? Mr. Tanner, do you want to start? 

Okay. Mr. Larson, go ahead. Then Mr. Herger and then myself and 

Mr. Meek and maybe I’ll come last. 

Mr. LARSON. Thank you very much, again, Mr. Chairman, and 

let me concur that I like the format, because more often than not 

when we have and conduct these hearings, there isn’t a chance to 

have the panelists actually to respond themselves to what they just 

heard. 

I had a couple of specific questions as it related to the ambassador. They had to deal with the bipartisan agreements, minimally 

embracing those bipartisan agreements, and then also living up to 


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and presenting us with an FTA that has labor standards. Did you 

feel that the ambassador adequately answered those, and what’s 

your sense of how the USTR is pursuing down those lines? 

Chairman LEVIN. Mr. Biegun, do you want to? 

Mr. BIEGUN. I’d be happy to speak to the bipartisan proposal 

for resolving this. Though we’ve been in close communication with 

USTR on what the industry wants, we’ve been passing each other 

like ships in the night. 

We don’t want guaranteed access to the Korean market. We want 

to see the Korean market look like a normal market, and that, in 

our view, will guarantee that we’ll be able to have access to it. This 

is a subtle but important difference. We don’t seek to sell X number 

of Fords or X number of U.S. cars, but it’s our view that if the Korean market is even half the level that’s the average import penetration for all the rest of the automotive markets in the world, then 

they won’t have the temptation or the ability to use the tricks 

they’ve used to keep it closed. 

You can’t use nontariff barriers when there’s a substantial import presence in the market. We could make the changes. We can 

afford to. We can shift with the domestic industry just as they do 

here when National Traffic Safety Administration (NTSA) or the 

Environmental Protection Agency (EPA) require new things in the 

U.S. market. Once you get a critical mass, you’re impervious to 

these kind of maneuvers. So, we’re not seeking guarantees. We’re 

looking for a test to show that the market is the same. 

Mr. LARSON. The ambassador kept on referring to the fact that 

they had—it’s transparent, their negotiations are more transparent 

than ever, the regulations are more transparent. Has that been 

your experience? 

Mr. BIEGUN. In 1995, the United States had a comprehensive 

agreement to eliminate all such measures. It failed. In 1998, the 

United States had another comprehensive negotiation to eliminate 

all such measures. It failed. We sell less cars today as an industry 

in Korea than we did in 1998 when the last agreement was negotiated. 

Mr. REUTHER. Just to reinforce that, I think it was quite clear 

from the ambassador’s response that they have no intention of 

meeting the minimum requirements that were set forth in the bipartisan Congressional proposal, and we deeply regret that. It 

looks like they’re following the same path that they did in 1995 

and 1998, and we think they’re going to get exactly the same result. 

On the issue of worker rights, other than saying it’s going to be 

a strong proposal, they indicated absolutely nothing. So, far on 

Peru and Colombia, as well as Korea, it’s been our impression that 

they’re absolutely opposed to including the internationally recognized worker rights in the core text of the agreement, enforceable 

just like commercial provisions. So, we again expect the agreement 

to be totally inadequate in that area. 

Mr. LARSON. Thank you. 

Chairman LEVIN. All right. Thank you. Mr. Herger. 

Mr. HERGER. Thank you, Mr. Chairman. It seems to me that 

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rean market, namely the complete lack of transparency in Korea 

for setting rules, regulations and standards. 

The solution we employ must solve this problem not only for 

autos but for these other sectors as well. Maybe starting with you, 

Mr. Collins, what Office of Women’s Health do we find a solution 

that addresses the unfair rulemaking process and the lack of transparency that systematically slams the Korean market shut for U.S. 

beef, rice, pharmaceuticals as well as autos, just to name a few? 

Mr. COLLINS. A very good question, Mr. Herger, for many industries. We—and I’ll speak with experience of the auto industry. 

I think when you’re dealing with a country that has decided to use 

its regulatory system as a method of control, controlling trade, or 

a method of protection and has gotten used to that as an active 

governmental structure using multiple ministries, you start with 

transparency. I think that is a start. However, that is just the 

start. I think it gets you to the table. It gets you to at least a minimum of information. However, I think you have to go from there. 

Based on our experience, because we’ve been going round and 

round for 15 years with this problem, what we found was that, for 

example, with Korea, we’d have a new, nontariff barrier that would 

stop us cold. We have one now sitting on the table that would shut 

out 40 percent of our cars in a year that happened to pop up this 

year. 

However, there’s one of these every year. Usually, without transparency, it comes up suddenly, but then even when it becomes 

transparent, it becomes raised—we have to go to USTR—it then 

becomes, one issue becomes a bilateral issue that gets raised higher 

and higher and higher till finally it’s up to the cabinet level on, in 

our case, the placement of where you put a license plate. It has to 

go to the cabinet to be resolved. It uses huge amount of political 

capital and energy, and actually it’s good Korean strategy, because 

it takes up a lot of our time and your time and the USTR’s time. 

You finally get a resolution of it. You put that away, and six— three months later, there’s another one, and you start the process 

all over again. I’m sure other industries can report the same thing. 

It’s more than—transparency is critically important, absolutely. 

However, it’s the building blocks from which you say we’ve got to 

get a system, got to get a handle on looking at what’s going on here 

in our industry and other industries and how to deal with that if 

we’re having—talking about a mature, equal relationship, how we 

deal with that as a trade, the biggest trade barriers that we face 

in the country structurally and systemically, not just with what’s 

up now, but what’s coming in the future. 

Mr. HERGER. Anyone else want to comment? Yes? 

Mr. BIEGUN. Mr. Herger, I think you also need to get the incentive system right, and this is the part of the proposal which we as 

an industry early on engaged with USTR on. We propose to go 

ahead and support the tariff reductions but put them 15 years out, 

and they can come forward if the Korean market begins to resemble a normal market. 

We cannot find every trick that they use to keep our products 

out, nor can we in one agreement block every barrier that they 

might propose the day the ink dries on that agreement. What we 

suggest is you get the incentives right; that they have an incentive 


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to stop using these tricks, and then we have confidence to invest 

in the Korean market. The global industry, we can tell you first 

hand, is competitive. It’s good. It’s tough. 

They’ll get into the Korean market, and it will become a normal 

market, not through managed trade, not through guaranteed opportunity, but by the routine access that global automotive makers 

have in our own market where about 50 percent of the market will 

be owned by nondomestic brands by the end of this year. 

Mr. HERGER. Would you like to distinguish between the controlled market and the other kind of market that you’re? 

Mr. BIEGUN. In what respect, sir? 

Mr. HERGER. How you would do it. You know, we can say we’re 

going to say that you have to sell X thousand number of cars, but 

that could be looked at as controlled market. How would you look 

at opening this market without having it actually setting—— Mr. BIEGUN. You see, it’s not USTR’s job to open the Korean 

market to Japanese cars. In addition, if the Koreans continue to 

block Japanese cars, then the same tools will block our cars. If they 

continue to block European cars, BMWs and Volkswagens and all 

the rest, they’ll continue to block our cars. 

We actually think that there does have to be an agreement, a 

comprehensive agreement on the Korean side, to completely open 

its market. Also, there has to be some sort of guarantee, some sort 

of incentive that they don’t reinstitute those mechanisms the day 

after the agreement is signed. That’s what we experienced in ’95 

and ’98. 

It’s a little bit like Charlie Brown coming at Lucy while she’s 

holding the football. We took a kick at it ’95, and we fell flat our 

back. We took a kick at it in ’98 and fell flat on our back. There’s 

that football sitting out there on the field again, and Lucy’s holding 

it, and we just don’t want to be Charlie Brown again. 

Mr. HERGER. Very good [continuing]. Thank you. 

Chairman LEVIN. All right. I was going to ask about the USTR’s 

notion that the Korean production was going to shift dramatically 

to the United States 

There are other panelists waiting. I treated this in my opening 

statement. I think it is an excuse. It is an excuse for essentially 

ending up with nothing or a very weak agreement. 

Mr. Biegun. 

Mr. BIEGUN. I really did want to comment on that, Mr. Chairman. We do not want to stop them from manufacturing here. Do 

not get me wrong. It does not make our business easier when they 

manufacture here. We do not want to stop them. 

We want access to their market. What possible bearing does 

their investment here have on our access to their market? I do not 

care if they make all their cars here. We still want to get in their 

market. That is all we ask in this negotiation. 

We do not want to limit that. We think that is just a distraction. 

Mr. REUTHER. Mr. Chairman, as you indicated in your opening 

statement, even with additional production facilities in this country, as the Korean share of the U.S. market rises, we are still likely 

to see increased imports from Korea. 

On the top of that, if the pick-up truck tariff is eliminated, we 

will probably see foreign producers from other countries locating 


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production capacity in Korea to take advantage of the duty free access to pick-up trucks. 

We think the trade balance will get even worse between our two 

countries. 

Chairman LEVIN. Mr. Collins, very briefly. 

Mr. COLLINS. To follow on my two colleagues, yesterday in 

Automotive News, which is dated March 19, ‘‘Hyundai Plans Luxury Car for the United States in 2008.’’ Hyundai Motor says it will 

launch a luxury car in the United States next year, built in Korea. 

The point that you made in your statement and the others have 

made that this is not a static situation, that the Korean auto makers are going to grow and build on it, probably much like the Japanese model has verified by this. 

Chairman LEVIN. We have urged that the 25 percent tariff 

should not be determined bilaterally but through the discussions. 

Thanks very much. We appreciate your comments. 

Now, let’s have the next panel. Thank you all for your patience. 

Thanks again. 

Thank you so much. Mr. Herger and I just had a brief chat. We 

are going to make sure that your testimony reaches everybody. The 

second panels always bump into this. We are going to send a note 

to all of the Members, not only of the Subcommittee, but the Full 

Committee, with your testimony. 

Furthermore, you are going to raise some very important issues, 

we do not mean for a second these are secondary issues. We assure 

you of that. We are going to have a very active back and forth with 

USTR as to these issues, as well as the others. 

When I commented about ‘‘bringing home,’’ I do not like that figure of speech. I think it does not involve Congress or yourselves effectively enough. 

I guess we will go with Ms. Overby with the American Chamber 

of Commerce in Korea, and Mr. Stallman, you are the President of 

the American Farm Bureau Federation. 

Mr. Vastine, you are with the Coalition of Service Industries. Mr. 

Boyle, you are President and chief executive officer of the American 

Meat Institute. 

Ms. Ritter, you are Vice President of International Affairs for the 

Pharmaceutical Research and Manufacturers of America. Mr. Steir, 

Executive Vice President of Paramount Films. 

Mr. STEIR. Farms. 

Chairman LEVIN. What did I say? 

Mr. STEIR. Films. 

Chairman LEVIN. Paramount Farms. You wish you were head 

of Paramount Films. It is Paramount Farms. That is pistachio’s, is 

it not? 

Mr. STEIR. Yes, sir. 

Chairman LEVIN. We have a lot back in the room, by the way. 

We like pistachio’s on this Committee. 

Cal Cohen, we welcome you. 

If each of you would take 5 minutes, and go forth. Thanks. 


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STATEMENT OF TAMI OVERBY, PRESIDENT AND CHIEF EXECUTIVE OFFICER, AMERICAN CHAMBER OF COMMERCE IN 

KOREA, ON BEHALF OF THE U.S. CHAMBER OF COMMERCE, 

THE U.S.-KOREA BUSINESS COUNCIL, AND THE U.S.-KOREA 

FTA BUSINESS COALITION 

Ms. OVERBY. Thank you. Good afternoon. My name is Tami 

Overby. I am speaking on behalf of the U.S. Chamber of Commerce, the U.S.-Korea Business Council, the American Chamber of 

Commerce in Korea, and the U.S.-Korea Free Trade Association 

Business Coalition. 

Due to of the shortness of time, we are submitting our more detailed FTA papers for the record. 

Chairman LEVIN. It will be so introduced and the same will be 

true for all of you. Thank you. 

Ms. OVERBY. Thank you. Our organization strongly support an 

FTA with Korea that is comprehensive in scope and fully consistent 

with the WTO’s framework for liberalized trade. 

We urge negotiators to ensure that the agreement eliminates tariff and non-tariff barriers in the Korean market as rapidly as possible. 

We also call for an FTA that provides for transparent and predictable regulatory and rulemaking procedures across all sectors in 

the Korean economy. 

We are now at a critical moment in the FTA negotiations with 

Korea. We call on leaders of both countries to make completion of 

these negotiations a top priority. A gold standard FTA with Korea 

would serve as a new model for future FTAs in the important Asia 

Pacific region, and would bring substantial and tangible benefits in 

a number of ways, create new access in a dynamic market. 

Korea is already our seventh largest two way trading partner, 

our second largest market for U.S. services in Asia, our seventh 

largest market for U.S. agriculture goods, our ninth largest destination for U.S. Information and Communications Technology 

(ICT) exports. 

Studies by several leading United States and Korean experts 

have indicated that a comprehensive FTA will stimulate U.S. exports to Korea to the benefit of U.S. businesses, farmers, and workers, and will create new opportunities for U.S. goods and services. 

Enhancing regulatory transparency. The FTA provides a landmark opportunity to enhance regulatory transparency in Korea, 

one of the most significant market access barriers affecting U.S. 

companies in Korea in virtually all sectors. 

Leveling the playingfield. There are numerous non-tariff barriers 

affecting U.S. companies across all sectors. 

This FTA is an opportunity to obtain strong commitments by 

Korea to address these barriers in a meaningful way. 

Promoting liberalization and regional trade leadership. A comprehensive FTA with Korea will be the United States’ first FTA 

with the Northeast Asian economy. This deal gives the United 

States a preferential position with the world’s tenth largest economy, one in which the United States has been losing market share 

to China and the EU in recent years, and would also provide an 

opportunity for the United States to shape the future trade agenda 

in Asia. 


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Outstanding FTA negotiation priorities. While progress has been 

made, a number of priority issues for our organizations remain to 

be fully addressed. 

In the area of agriculture, an agreement must be comprehensive, 

and the Korean market must be fully re-opened to U.S. beef imports. 

Automobiles. Korea remains the most closed auto market in the 

industrialized world, and our organizations have called for an FTA 

that addresses in a comprehensive manner the longstanding tariff 

and non-tariff barriers that have been effective in keeping the Korean auto market closed, and that includes special measures to ensure real and meaningful import market access. 

Pharmaceuticals. Our organizations continue to view the FTA as 

an ideal means to address longstanding issues and to enhance the 

access of Korean patients to leading U.S. medical products, to further improve the transparency and accountability of Korea’s national health insurance system, and to secure better and lasting 

recognition of the value of innovative U.S. biomedical discoveries. 

Investment. We believe that an FTA with Korea must include 

strong investment protections and investor state dispute settlement 

procedures. 

Further, the agreement should guard against investment caps 

and limitations on majority ownership by U.S. companies. 

If an FTA with Korea is not concluded, not only would these and 

other critical issues remain, but resolving them could become even 

more challenging. 

Moreover, if we miss this opportunity to complete an FTA with 

Korea, American manufacturers and farmers would lose the chance 

to gain new access in the Korean market, and also could lose market share as Korea concludes other bilateral trade agreements with 

other countries. 

Korea is already negotiating FTAs with Japan and Canada, 

among others, and has announced its intention to launch negotiations with the EU in May, and is studying possible FTA talks with 

China. 

In conclusion, while issues remain, we are optimistic that a commercially meaningful agreement can be concluded in time for Congress to consider it under the current TPA. 

An agreement would bring real benefits for the U.S. and Korean 

workers and businesses, and will reinforce our two countries’ economic leadership in the region. 

Our organizations are firmly committed to working with Congress and the Administration to secure a successful U.S.-Korea free 

trade agreement. 

Thank you very much for the opportunity to testify today. 

[The prepared statement of Ms. Overby follows:] 


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Chairman LEVIN. I want to thank you very much. 

Mr. Stallman. 

STATEMENT OF BOB STALLMAN, PRESIDENT, 

AMERICAN FARM BUREAU FEDERATION 

Mr. STALLMAN. Mr. Chairman, Ranking Member Herger, Members of the Committee, I certainly appreciate the opportunity to address the U.S.-Korea negotiations today. 

My name is Bob Stallman. I am a rice and beef producer from 

Texas and President of the American Farm Bureau Federation. 

Overall, trade is important to U.S. farmers and ranchers. U.S. 

agriculture is dependant on trade for several reasons. 

First, roughly 25 percent of total market cash receipts for agriculture comes from exports. In addition, 96 percent of our current 

or potential customers live outside the borders of the United 

States, and last, agricultural productivity is increasing nearly twice 

as fast as domestic demand for agricultural products. 

It is critical for U.S. agriculture that industry, Congress and the 

Administration work together to further open and develop world 

markets. 

USDA estimates that in 2007, the U.S. ag trade surplus will rise 

to $8 billion, but we will not be able to maintain this surplus unless action is taken to ensure our international competitiveness. 

We believe South Korea is an important component of the current trade agenda this Congress will have to address. Other important components this Committee and Congress should support and 

vote on as soon as possible are the Peru, Columbian and Panama 

trade agreements. 

We have estimated that these three agreements represent more 

than an additional $1.5 billion per year in U.S. agricultural exports 

after full implementation. We cannot let this opportunity slip away. 

In addition, we urge you to support extension of trade promotion 

authority. Without this, our government will be locked out of any 

further trade negotiations allowing our competitors ample time and 

opportunity to increase their competitive advantage in markets 

that are important to us. 

When USTR announced its intent to negotiate a bilateral free 

trade agreement with South Korea, we understood that the negotiations would not be easy, but we also recognized the potential for 

growth in this market. 

Korea is a major global market for agricultural products and the 

United States is one of the key suppliers of that market. 

South Korea was the fifth largest export market for agricultural products in 2004. Of the $10.5 billion in agricultural goods that 

South Korea imported, $2.5 billion of that came from the United 

States. In 2004, the United States had an agricultural trade surplus with South Korea of $2.3 billion. 

Reflecting on the diversity of Korea’s import demands, the 

United States supplied a wide range of agricultural products in 

2004, including corn, soybeans, wheat, processed foods, cotton, 

fresh citrus, nuts, and fruit juices. In prior years, Korea was a 

major market for U.S. beef. U.S. exporters supplied nearly $790 

million in beef and beef staples as recently as 2003. 


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While the United States is a significant supplier of the South Korean food and fiber market, our market share is decreasing. The 

United States’ market share of South Korea’s agricultural imports 

has fallen from nearly 45 percent in 1996 to less than 30 percent 

in 2004, a 30 plus percent drop. 

Other countries are moving in and increasing their share of the 

South Korean agricultural market. Those are Australia, New Zealand, Canada, the EU, and China. 

Korea maintains high import tariffs on many products ranging 

from just over 1 percent to nearly 500 percent, depending on the 

commodity. 

An agreement will give U.S. exporters expanded access by removing restrictions due to Korea’s tariffs, as well as providing a competitive advantage over other suppliers. 

Eliminating or even significantly reducing these high tariff rates 

through this agreement could be extremely beneficial to the United 

States’ agricultural sector. 

Mr. Chairman, we understand there is not much time left in 

order to conclude these negotiations. We remain committed and 

hopeful that USTR and Korean negotiators can successfully complete negotiations under the terms and existing time line of TPA. 

We commend USTR for their dedication to this agreement, and 

appreciate their diligence in working with us and others in the ag 

community. 

There are some very significant issues that have not yet been resolved. Currently, Ambassador Crowder and the agriculture negotiating team are in Seoul to try to resolve these issues. 

Farm Bureau representatives and others from the U.S. ag community are there also to convey the importance of these negotiations. 

I am sure you are aware of some of the sensitive issues, including rice, citrus and beef. We must secure additional market access 

for all commodities, including rice and citrus. 

The issue for beef is a little larger. While it does include market 

access, it also involves SPS issues. 

We remain optimistic that with the recent preliminary OIE announcement that the United States is a controlled risk for BSE. 

The Koreans should begin to fully open their beef market to the 

United States. 

Let me be clear. The Farm Bureau will not support passage of 

a Korea FTA without resolution of the beef issue. 

In conclusion, assuming a successful end of the negotiations and 

resolution of the beef issue, the opportunity for U.S. agriculture 

under a U.S.-Korea trade agreement could prove as great as or 

greater than our previous bilateral or regional trade agreements. 

Thank you. I look forward to your questions. 

[The prepared statement of Mr. Stallman follows:] 


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Chairman LEVIN. Thank you very much. 

Mr. Vastine. 

STATEMENT OF ROBERT VASTINE, PRESIDENT, 

COALITION OF SERVICE INDUSTRIES 

Mr. VASTINE. Thank you very much, Mr. Chairman, and Members of the Subcommittee, for this opportunity to testify on the 

U.S.-Korea FTA on behalf of U.S. services companies. 

Services represent 80 percent of U.S. employment or 92 million 

American jobs, and 77 percent of economic output, and the United 

States is the world’s largest services trader with a surplus of $73 

billion last year, its 35th consecutive year of surplus. 

In spite of this record of success, our service sector is restricted 

by a host of barriers that block our growth in foreign markets. That 

is why efforts to open up key markets such as Korea are so very 

important, and why CSI and its member companies very enthusiastically support this agreement. 

Success for services in this FTA means that Korea will make it 

much easier for our firms to conduct cross border trade, and to establish their commercial presence there. That is, to invest in Korea. On cross border trade, the United States exported $10 billion of U.S. services to Korea in 2005, a surplus of $4 billion over imports. 

Separately, sales of services of U.S. affiliates operating in Korea were $4.3 billion, more than any other FTA partner except the 

North American Free Trade Agreement (NAFTA). 

We also seek national treatment and domestic regulation. We 

seek the right for our firms to be treated the same as Korean firms 

in that market. Very considerable progress seems to have been 

made in this difficult negotiation to date. 

On financial services other than insurance, Korea is expected to 

bind its already substantially open market so that U.S. firms can 

establish in Korea a direct home office branches or in any other 

legal form suitable to their operations there. 

We believe Korea will commit to greater regulatory transparency, 

including the right to notice and comment, a right which we accept 

as almost proforma here in the United States, but which of course 

is not available to us in Korea. 

We expect Korea to allow U.S. securities and fund management 

companies to perform basic managerial functions at their home offices, rather than be required to perform them in Korea at much 

greater expense, and we expect that foreign portfolio managers will 

be allowed to do their jobs from home or regional offices, not be required to do them in Korea. 

On insurance, the FTA is expected to permit foreign firms to operate much more freely, to increase substantially their foreign currency reserves, to allow banks to distribute insurance products, to 

adopt a new approach to regulation that will allow firms to offer 

products in Korea unless explicitly prevented from doing so. 

U.S. firms hope this FTA will go beyond other FTAs by embracing reforms that Japan and the United States bilaterally agreed to 

in the nineties. Those reforms resulted in quadrupling U.S. insurance firms’ share of business in Japan. 

There is at least one remaining issue here, however, and that is 

rules ensuring a level playingfield between Korea Post and private 


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insurance companies have yet to be agreed. Also, of interest to all 

financial services providers are indications that Korea will lift its 

very onerous restrictions on cross border data flows, making it 

much easier for foreign firms to do business from Seoul with the 

rest of the world. 

On express delivery, we expect the FTA to clarify that the Korean Postal Service Act, which could severely impair U.S. companies’ operations, will ensure a level playingfield for our companies, 

FedEx and UPS, and their 600,000 U.S. employees. 

On telecommunications, of course, a major unresolved issue is 

Korea’s 49 percent limit on ownership by foreign telecom providers. 

Much has been said about that. It would be extremely unfortunate 

if the Koreans do not see their way to lifting that limit, and we 

hope and expect that can be accomplished. 

On E-commerce, we expect this FTA to apply the same high 

standards set in other FTAs, to enable our very efficient and competitive E-commerce practitioners’ businesses to continue to do 

business. 

On audio-visual services, Korea applies many restrictions on U.S. 

suppliers of A/V services, but as a signal of its intent at the outset, 

Korea cut in half, to 73 days, its requirement that its movie theaters devote 146 days a year to showing Korean films. Much more 

needs to be accomplished here, and we hope that can be done as 

well. 

To conclude, services negotiations seem to have made very considerable progress. More remains to be done. We hope and expect 

that the remaining issues will be resolved. Also, like the Farm Bureau, we support the implementation of the Peru, Columbia and 

Panama agreements, as well as passage of TPA. 

Thank you very much, Mr. Chairman. 

[The prepared statement of Mr. Vastine follows:] 

Statement of Robert Vastine, President, Coalition of Service Industries 

Mr. Chairman, I would like to thank you for the opportunity to testify before the 

Trade Subcommittee of the House Committee on Ways and Means on the U.S.- 

Korea Free Trade Agreement. My name is Bob Vastine, and I am the President of 

the Coalition of Service Industries (CSI). CSI is the leading business organization 

dedicated to the reduction of global barriers to U.S. services exports. Our overriding 

objective is to obtain commercially significant trade and investment liberalization in 

all forums for services trade: financial and payments services, express delivery and 

logistics, telecommunications, energy services, computer and related services, travel 

and tourism, audio-visual services, accounting, legal, and other professional services. 

We believe such liberalization is a vital U.S. national interest and will also contribute to economic modernization and growth in emerging markets and the developing world. 

The services sector represents the largest part of U.S. employment and economic 

output, and the U.S. is the world’s largest and most competitive services trader. 

However, the service sector is also the most restricted, with a host of market access 

barriers and other restrictions that hinder this dynamic sector’s growth in foreign 

markets. That is why efforts to open up key markets such as Korea are so important 

to our sector. 

Korea is a very important market for U.S. services, and CSI and its member companies enthusiastically support this negotiation. The size and potential of the Korean market, combined with the prevalence of barriers to U.S. services companies 

in that market, make this negotiation the most commercially significant of all recent 

FTAs. And in those FTAs, USTR has taken a comprehensive approach to market 

access, which gives us the opportunity to achieve new liberalization and lock in existing liberal practice across a wide range of service sectors in which U.S. companies 

are world leaders. 


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1World Bank, World Development Indicators Database. 

2OECD Indicators 2006. 

3 U.S. Bureau of Economic Analysis, Survey of Current Business, October 2006. 

Korea has a population of more than 48 million, with a 2004 GDP of $680 billion. 

The services sector makes up about 55% of Korea’s GDP, compared with 41% for 

industry, and 4% for agriculture.1 Korea’s total services exports worldwide were $41.4 billion in 2004, with total services imports reaching $50.1 billion the same 

year.2

U.S. crossborder exports of services to Korea were $10.2 billion in 2005, while im- ports were $6.3 billion, netting a U.S. services trade surplus of almost $4 billion. 

Leading U.S. crossborder services exports include travel and other transportation 

services, education, financial services, and a broad range of business, professional, 

and technical services, among others. Separately, sales of services by U.S. affiliates 

with a presence in the Korean market in 2004 were $4.3 billion.3 U.S. services trade 

with Korea is well in excess of that with any other recent FTA partner, including 

Australia and Singapore, and is second in Asia only to Japan. 

This has been a difficult and complex negotiation, and while much progress has 

been made, there are a number of issues yet to be resolved. In particular, investment restrictions in telecommunications, restrictions in the audiovisual sector, the 

discriminatory treatment of U.S. insurance providers vis-a-vis Korea Post, and other 

issues must be addressed. However, we are optimistic that they can be resolved successfully, and we support the continued efforts of our negotiators to do so. Successful 

resolution of the key outstanding issues will ensure very broad and active support 

from the service sector for the passage of this agreement by the Congress. 

KEY SERVICE SECTORS 

The following is a brief summation of objectives in this agreement for several 

major service industries. 

Financial services (except insurance). We are encouraged by progress that has 

been made to date in the financial services portion of the negotiation. Due to Korea’s strong desire to become a regional hub for financial services, we expect most U.S. 

negotiating objectives to be achieved and anticipate that certain areas of this agreement will go beyond previous model FTAs, thereby assuring U.S. financial services 

providers access to this important and growing market. We expect that existing liberal practices—such as the right of foreign banks to establish as branches or subsidiaries, will be bound in the agreement. 

We anticipate that Korea will address the financial services industry’s need for 

regulatory transparency, particularly with regard to having administrative guidance 

in writing and providing more than 20 days to comment upon proposed regulations, 

as is the case now. We expect that onerous restrictions on cross-border data flows 

will be lifted. Moreover, we are optimistic that restrictions prohibiting the performance of certain functions, such as legal, accounting, human resource, and other activities, by the U.S. parents of Korean subsidiaries will be lifted. In addition, we expect that portfolio managers will be permitted to manage their portfolios from their 

regional or head offices outside of Korea. 

While remaining hopeful that the financial services chapter will be concluded in 

a timely manner, it is important to note that Korea has yet to indicate its willingness to accept the standard concept of most favored nation (MFN), whereby both 

trading partners agree that if either of them liberalizes further in the context of another FTA, then that liberalization is offered automatically to the other trading 

partner. We believe Korea should also accept the ‘‘Ratchet Clause,’’ which means 

that if in the future it unilaterally liberalizes a measure which it had listed as an 

exception, then that liberalization automatically becomes bound in the Agreement; 

the benefit of that liberalization can never be taken away from the U.S. 

Insurance. The life insurance sector is key to the economies of both South Korea 

and the United States, and a substantial outcome for life insurance sector in the 

FTA will be very beneficial for both economies. South Korea is the world’s eighth 

largest insurance market with total premium volume of more than $65 billion. The 

South Korean insurance and retirement security market would be by far the largest 

insurance market to be included in a FTA with the United States. The financial sector reforms that South Korea would undertake as a result of the FTA would contribute to a stronger and more resilient economy and help it to deepen capital markets and investment for the long term. 

There has been good progress on insurance issues to date. If concluded, the FTA 

will set a new standard for addressing regulatory and market access barriers. We 

are encouraged by progress on issues of importance to the insurance sector such as 

an increase in the allowance of foreign currency reserves, bancassurance reform, 


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and adoption of a negative list approach to financial sector regulation. We are hopeful that the issues of importance to U.S. insurers that remain unresolved, including 

levelling the playing field between private insurance companies and the government-owned Korea Post, will be settled satisfactorily in the coming days. 

Express delivery. We expect the U.S.-Korea FTA negotiations to result in improved 

conditions for U.S. express delivery companies operating in Korea. Currently, U.S. 

express delivery companies are subject to the Korean Postal Service Act, which, if 

implemented, could severely impair their market access in Korea. The agreement 

should clarify existing law and ensure a level playing field for U.S. express providers. UPS and FedEx, who together employ over 600,000 Americans, will continue 

to create U.S. jobs through the increased trade that liberalization of the Korean 

market will facilitate. 

Telecom. A major outstanding issue in the negotiation is the onerous barrier to 

entry to its market that Korea imposes by limiting foreign direct investment (FDI) 

in facilities-based telecommunications service providers to 49%. U.S. free trade 

agreements with other countries do not have a similar restriction, nor do Korean 

companies face such a restriction in the United States. Failure to resolve this issue 

would enshrine Korea companies’ ability to operate in the United States while maintaining an unacceptable barrier to entry for U.S. companies in Korea. A telecom 

chapter will be meaningful only if the FDI limit is lifted. 

Korea is one of the world’s most important markets for international telecommunications services. An FTA with a meaningful telecommunications chapter 

will increase investment and trade opportunities and will provide substantial benefits to both the United States and Korea. We support the continued efforts of our 

trade negotiators to eliminate this barrier. 

E-Commerce. We anticipate that the E-Commerce language in the FTA will maintain the high standards set in previous agreements. In particular, we expect the 

agreement to ensure that duties on digital products delivered on physical media will 

be assessed on the basis of the value of the carrier medium, and that products delivered electronically will not be subject to customs duty. More broadly, we expect the 

agreement to ensure that no significant reservations will be taken that will impede 

the growth of Internet-delivered services. 

Audiovisual services. The U.S. is a world leader in entertainment and audiovisual 

services, yet in many markets around the world, this industry is subject to excessive 

restrictions. Korea is no exception, and it is important that the FTA address the 

myriad restrictions that now hamper the industry’s ability to compete in the Korean 

market. 

An important step in this direction was taken prior to the formal launch of the 

negotiations, when Korea announced that its screen quota, which protected its domestic film industry by mandating that movie theaters devote 146 days per year to 

showing domestic films, would be halved. However, we continue to encourage USTR 

to address the many other barriers in the Korean market, including foreign equity 

limitations in pay TV and in related cable and satellite television infrastructure. 

Korea also imposes a variety of restrictions on foreign content in cable and satellite 

television broadcasting. In addition, Korea continues to impose quotas in free-overthe-air broadcasting, restrictions on language dubbing of foreign content, and advertising restrictions. 

Korea too stands to gain tremendously from additional liberalization in the audiovisual sector; combined with its exceptionally high broadband penetration rates, further liberalization will support and complement Korea’s emphasis on the development of its information technology sector. 

In short, to date there has been substantial progress in the services provisions of 

the Korea-U.S. FTA. We look forward to further progress on the issues outlined 

above in order that we can fully support and advocate Congressional passage of this 

agreement. I would be pleased to answer any questions you might have. 

f 

Chairman LEVIN. Thank you. 

Mr. Boyle. 

STATEMENT OF J. PATRICK BOYLE, PRESIDENT AND CHIEF 

EXECUTIVE OFFICER, AMERICAN MEAT INSTITUTE 

Mr. BOYLE. Good afternoon, Mr. Chairman, Ranking Member 

Herger, Congressman Larson and Brady. Thank you for the chance 

to appear before you today. 


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The American Meat Institute represents 250 of the Nation’s most 

well known meat and poultry companies. Collectively, they produce 

90 percent of our beef, pork, lamb and veal, and 70 percent of our 

turkey products in the United States. They employ 500,000 workers and contribute $100 billion to our Nation’s economy. 

From the U.S.-Israel free trade agreement, through NAFTA and 

Central American Free Trade Agreement (CAFTA), the U.S. meat 

and poultry industry has consistently supported FTAs, and has 

benefited from the resulting market access to new international 

customers. 

Nearly 20 percent of our U.S. chicken production is exported; 17 

percent of our pork, and prior to December 2003, more than 12 percent of our beef. 

As the Committee knows, December 2003 was the time that we 

diagnosed our first case, of BSE the first of three, in the U.S. cattle 

herd. We found it in Washington State in an older cow imported 

from Canada. We immediately lost about 85 percent of our beef exports valued at about $7 billion, as trading partners such as Korea, 

banned U.S. beef. 

Prior to the ban on beef trade, Korea was the beef industry’s 

third largest market, with 2003 sales in excess of $750 million. 

Beginning as long ago as 1989, the U.S. had implemented multiple controls and testing programs to minimize the introduction of 

BSE and to prevent its spread amongst the U.S. cattle herd. According to the World Organization for Animal Health data, the U.S. 

has the lowest rate of BSE per 100,000 head of cattle of any nation 

that has ever diagnosed BSE in its domestic herd. 

Today we can say with great confidence that our cattle herd is 

healthy and our beef is safe. In fact, since December 2003, while 

countries such as Korea continue to prohibit U.S. beef imports, 

Americans have happily consumed 60 billion pounds of American 

beef. 

Earlier this month, the World Organization for Animal Health’s 

expert panel recommended a preliminary designation for the 

United States as a controlled risk country for BSE. This designation affirms the effectiveness of our BSE prevention and control 

programs. Under such a designation, U.S. cattle and all beef products can be safely traded in accordance with international guidelines, guidelines endorsed by countries such as the United States 

and Korea, and guidelines which are enforceable under the WTO 

dispute settlement process. 

For the past 3 years, the U.S. government has been attempting 

to convince Korea to re-open its market to U.S. beef imports, and 

as a condition of commencing FTA negotiations a year ago, a preliminary agreement was reached with Korea in January of last 

year. 

Specifically, the Koreans agreed to allow resumption of U.S. beef 

imports in a two phrased approach, first re-opening the market to 

boneless beef from animals less than 30 months of age, and second, 

permitting full restoration of trade for all beef and beef products 

from animals of all ages upon conclusion of these FTA negotiations. 

This second condition is consistent with recently negotiated FTAs 

with Panama, Columbia and Peru, as well as with Russia, as part 

of its WTO accession talks. 


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U.S. beef has earned the trust of the international community, 

and we deserve the same response from Korea through these FTA 

negotiations. 

Unfortunately, with Korea, 14 months later, the initial opening 

for boneless beef has yet to occur, because the Koreans refuse to 

accept commonly used commercial definitions for boneless product. 

Instead, they subject our imported shipments to x-ray screening 

searching for cartilage the size of my little pinky’s fingernail. 

Late last year, three relatively small initial shipments of beef 

from three different U.S. suppliers were x-rayed and rejected by 

the Koreans. The tenderloins that I buy at the local grocery store 

and thoroughly and confidently enjoy with my family, could not 

pass these extreme Korean inspection requirements. 

Reports this week from our agricultural trade negotiations in 

Seoul are not particularly encouraging. 

Mr. Chairman, the prolonged trade ban that Korea persists in 

maintaining on U.S. beef imports is both frustrating and unacceptable. Despite the overwhelming scientific evidence supporting the 

safety of U.S. beef, more than 17 years of domestic BSE controls 

and animal surveillance, an international expert panel’s designation of the health of our herd and the safety of our beef, and a year 

old agreement with the Koreans to restore trade at least partially, 

the ban on all U.S. beef exports to Korea persists. 

Regrettably, American Meat Institute (AMI) will not be able to 

support an FTA with a trading partner unwilling to abide by its 

bilateral commitments and permit trade under science based international guidelines. 

For these reasons, we appreciate the support of this Committee, 

and would encourage you to communicate and continue to communicate to the Korean government that the resumption of full beef 

access, pursuant to international standards, must occur prior to the 

conclusion of these important negotiations. 

Should this ban be resolved and full market access restored, AMI 

stands ready to be a strong supporter of the U.S.-Korean FTA, as 

we always have been in the past. 

Thank you very much. 

[The prepared statement of Mr. Boyle follows:] 

Statement of J. Patrick Boyle, President and Chief Executive Officer, 

American Meat Institute 

Good afternoon Mr. Chairman, Ranking Member, and Members of the Committee. 

Thank you for allowing me the opportunity to appear before this Subcommittee. My 

name is Patrick Boyle and I am president of the American Meat Institute (AMI). 

For more than 100 years, AMI has provided service to the nation’s meat and poultry 

industry—an industry that employs nearly 800,000 individuals and contributes approximately $100 billion to the nation’s economy. 

AMI members include 250 of the nation’s most well-known meat and poultry 

packers and processors. Collectively, they produce 90 percent of the beef, pork, veal 

and lamb food products and 75 percent of the turkey food products in the U.S. 

Among AMI’s member companies, 60 percent are small, family-owned businesses 

employing fewer than 100 individuals and some are publicly traded and employ tens 

of thousands. These companies operate, compete, sometimes struggle and mostly 

thrive in what has become one of the toughest, most competitive and certainly the 

most scrutinized sectors of our economy: meat and poultry packing and processing. 

The members of AMI have supported and benefited greatly from the existing free 

trade agreements (FTA). The economic well-being of meat and poultry packers and 

producers is closely tied to our competitiveness in accessing global markets. From 

the Israel FTA to CAFTA and NAFTA, the U.S. meat and poultry community has 


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consistently benefited from the market access to new, international consumers. In 

fact, Mexico and Canada are currently two of the largest export destinations for beef 

and beef variety meats, accounting for more than 2/3 of all beef trade and more than 

$1 billion in sales. AMI pork packing members have also benefited from trade. Nearly 17 percent of U.S. pork production is exported and the value of pork exports has 

increased by more than 350 percent since NAFTA’s passage. Korea is currently the 

fourth largest market for U.S. pork products. AMI is fully prepared to be a strong 

and vocal supporter of this agreement should this ban on beef end and full market 

access for beef is restored. 

Prior to the ban on beef trade, South Korea was the beef industry’s third largest market, with 2003 sales in excess of $750 million. Additionally, it was an attractive 

market because Korean consumers purchased a broad spectrum of products, from 

high value cuts to variety meats that tend to do better in international markets— thereby, increasing the overall return for packers and producers of beef. Particularly 

important was the fact that 40 percent of exports to the Korean market were what 

the industry calls ‘‘bone-in’’ product. In Korea’s case, it was predominately short 

ribs. 

The trade ban followed the December 2003 diagnosis of a single case of BSE in 

an imported Washington state cow born before feed restrictions were implemented. 

The case was detected through the U.S.’ routine and aggressive surveillance program, which began shortly after the UK’s BSE crisis and long before BSE was ever 

diagnosed in the U.S. In fact, the United States was the first BSE-free nation ever 

to launch a surveillance program for the disease. 

It was just one part of our nation’s extraordinary, focused, and disciplined steps 

designed to prevent a disease that ravaged Europe. These measures also included 

import controls and careful feed restrictions. 

After we detected the first of three total cases in the U.S., we enhanced our interlocking system of firewalls even further and today, we can say with great confidence 

that our herd is healthy and our beef is safe. According to World Organization for 

Animal Health (OIE) data, the U.S. has the lowest rate of BSE per 100,000 head 

of any nation that has ever had BSE in its herd. This is testament to the effectiveness of our preventive measures. 

During the past two and half years, the U.S. and Korean governments had a number of negotiating sessions to resolve this ban. Very early in these negotiations, the 

beef industry conveyed to USDA and USTR that unless beef trade is normalized, 

the beef industry will not support and would actively oppose Congressional passage 

of a potential FTA. A preliminary agreement was reached in January 2006. As a 

condition of commencing FTA negotiations, the Koreans agreed to allow resumption 

of U.S. beef imports in a two phased approach: first, immediately allowing boneless 

beef from animals less than 30 months, and second, allow beef and beef products 

from animals of all ages upon conclusion of the FTA negotiations. 

The slow opening of markets was accepted under the expectations that meaningful amounts of product would begin to move and government officials could resolve 

remaining sanitary and phytosanitary issues on the basis of internationally accepted 

scientific principles. 

For the ensuing nine months, the U.S. and Korea were simultaneously negotiating 

the FTA and the technical terms and conditions relating to permitting boneless U.S. 

beef exports. In early September 2006, the two governments announced the reopening of trade under the first phase. However, the omission of a very common commercial bone tolerance has effectively precluded any meaningful resumption of trade 

and resulted in Korea rejecting three shipments of beef. 

In December, three separate shipments from three different companies were rejected because bone fragments were found by the Korean government. Two of the 

three companies had performed their own x-ray testing to identify bones chips before shipping, and none were found. 

On January 4, 2007, the beef industry informed USTR Ambassador Crowder that 

Korea needs to engage now—before progress is made in the FTA negotiations—on 

how the Korean government will fully restore beef trade. The industry is willing to 

have a Korean two-step process similar to the WTO Accession agreement with Russia, but Korea has refused to enter into theses discussions at this point in time. The 

current Korean import requirements for U.S. beef do not come close to a first stage 

of reopening trade. The beef industry is united and has informed USTR and USDA 

that they will not support an FTA with Korea if U.S. beef exports are not normalized. 

On March 12, 2007, a World Organization for Animal Health (OIE) expert panel 

recommended a preliminary designation for the U.S. of a ‘‘Controlled Risk’’ country 

for BSE. This designation affirms the U.S.’ proactive and effective commitment to 

preventing BSE and controlling it should it did occur. Under such a designation, 


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U.S. cattle and products from cattle of all ages can be safely traded in accordance 

with international guidelines, due to our interlocking safeguards. 

The facts are indisputable. No nation acted with as much forethought as the U.S. 

to prevent a disease, detect it if it existed and control and destroy it if it occurred. 

Using a surveillance system that far exceeds international guidelines, we have detected only three cases in a 100 million head herd. More importantly, no BSE-related human illness has even been associated with eating U.S. beef. 

We have earned the right to trade in the international arena under international 

guidelines. 

Mr. Chairman and Members of the Committee, our industry, workers and producers that supply us livestock have been significant beneficiaries of free trade 

agreements. Every billion dollars in meat exports adds 13,000 U.S. food manufacturing jobs. The USDA has reported that the income multiplier from meat exports 

is 54 percent greater than the income multiplier from bulk grain exports. Tallying 

in hides and related beef products, the U.S. is estimated to export $4 billion in 2007. 

The prolonged trade ban Korea maintains on U.S. beef imports is frustrating to 

many of our members and cattle producers. For our members, it means fewer sales, 

less jobs, and a negative impact on the communities where we operate. For producers, the impacts are similar with less destinations and consumers to demand 

their product. Despite the overwhelming scientific evidence supporting the safety of 

U.S. beef, more than 17 years of controls, a preliminary expert panel designation, 

and an agreement to restore trade, the ban persists. Therefore, we urge you and 

your colleagues to communicate to the South Korean government that the resumption of full beef access must occur prior to the conclusion of the FTA negotiations. 

Should this ban be resolved and full market access restored, we stand ready to be 

strong, vocal supporters of this agreement and its Congressional passage. 

Thank you for the opportunity to present these views before you today. 

f 

Chairman LEVIN. Thank you. 

Ms. Ritter. 

STATEMENT OF GERALYN S. RITTER, SENIOR VICE PRESIDENT OF INTERNATIONAL AFFAIRS, PHARMACEUTICAL RESEARCH AND MANUFACTURERS OF AMERICA 

Ms. RITTER. On behalf of the Pharmaceutical Research and 

Manufacturers of America, I would like to thank you, Chairman 

Levin, Ranking Member Herger, and Subcommittee Members for 

holding today’s hearing. 

We appreciate the opportunity to address the most economically 

significant FTA in recent years. PhRMA views the U.S.-Korea FTA 

as an important opportunity to do three things, enhance the access 

of Korean patients to innovative medicines, improve the transparency and predictability of Korea’s national health insurance system, and secure better recognition of the value of innovative American biomedical discoveries. 

To put my testimony in a bit of context, I would like to start by 

giving you some quick background on the Korean system. 

Korea has a single payer system, so access to the government 

health care system is access to the Korean market. There is no real 

private market outside the government system. The government 

system is it. 

Innovative pharmaceutical products are mainly imported into 

Korea from United States and other international companies. Foreign producers only gained access to Korea’s market at all in 1999, 

and then only after intense pressure from the U.S. government. 

Korea’s policies have long favored its domestic industry, which 

still holds a disproportionately large share of the market. 


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Adding to these longstanding concerns, on May 3, 2006, 1 week 

before the first round of the U.S.-Korea FTA negotiations started, 

the Korean government announced an entirely new reimbursement 

system for pharmaceuticals. 

This was a major setback. The new system is very complicated. 

There is huge scope for bureaucratic manipulation in it, and it is 

much more restrictive toward patients’ access to medicines. Worse, 

the infrastructure does not exist in Korea to implement the new 

system effectively. 

I should also note that local generic producers are to be grandfathered into the new system, at least in the near term. 

The end result is massive business uncertainty for U.S. companies, and reduced access to medicines for Korean patients. 

Our industry is worse off today in Korea than before these FTA 

talks began. I am sorry to say that. 

You basically have a black box. If you want to bring a new product to market in Korea, you have to reach into the black box and 

hope that you pull out a set of reasonable conditions for market access. That is what the core of this FTA is about for us, opening that 

black box. 

We need some sunshine, but more than just transparency, we 

need real disciplines on what happens in that black box. We need 

rules that matter. So, far, unfortunately, and despite some strong 

efforts from USTR, Korea is resisting a very reasonable set of proposals. 

There are two chapters in the agreement that are critical to our 

industry, the chapter on pharmaceuticals trade, of course, and the 

intellectual property rights chapter. 

Within the pharmaceuticals chapter, we are extremely concerned 

about provisions regarding government reimbursement regulations. 

These regulations need to be developed and applied in a way that 

recognize the value of innovation. They should provide innovative 

products with some measure of predictability and guard against 

bureaucratic arbitrariness. 

We are also concerned, as I mentioned, about the lack of transparency and accountability in Korea’s reimbursement and listing 

decisions. 

This has been a difficult issue for years in Korea, but it is particularly bad now under this new system. In order to ensure fairness and due process, the new system should include an independent appeals mechanism to serve as a check on what happens 

in that black box. That kind of appellate body has to have some 

teeth. It should have the authority to overturn reimbursement and 

listing decisions where appropriate. 

The final issue I want to mention is intellectual property. The IP 

chapter of the FTA needs to contain strong commitments to protect 

confidential pharmaceutical test data. 

The agreement also needs to require that Korea adopt a patent 

linkage system. A patent linkage system just ensures that the right 

hand of the Korean government knows what the left hand is doing. 

You cannot have a patent authority on the one hand giving you a 

patent with the exclusive right to market a product and the regulatory authority on the other approving infringing products for 

marketing. There has to be a coordination mechanism there. 


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In conclusion, I just want to reiterate the importance of this 

agreement to the American pharmaceutical industry. We know resolution of these issues will not be easy, but the U.S. positions are 

reasonable and they are achievable. 

We are committed to working with USTR in the final days of 

these negotiations. We want to support the agreement, but it is 

going to be tough. We are pretty far from the finish line right now, 

and time is short. 

Thank you. 

[The prepared statement of Ms. Ritter follows:] 

Statement of Geralyn S. Ritter, Vice President of International Affairs, 

Pharmaceutical Researchers and Manufacturers of America 

On behalf of the Pharmaceutical Research and Manufacturers of America 

(PhRMA), I would like to thank Chairman Levin and the Subcommittee members 

for organizing today’s hearing and for providing PhRMA the opportunity to speak 

on one of the most economically significant FTAs in recent years. Over the years, 

the Chairman and members of this committee have been very helpful in addressing 

pharmaceutical market access issues in Korea and other countries. PhRMA has 

viewed the U.S.-Korea FTA as a significant opportunity to enhance access of Korean 

patients to leading U.S. biomedical products; further improve the transparency and 

accountability of the National Health Insurance system; and secure better and lasting recognition of the value of innovative American biomedical discoveries for better 

healthcare outcomes. As the FTA negotiations head into the final stages, PhRMA 

believes it is critically important that any final agreement meaningfully address the 

pharmaceutical sector for it to be a success. 

Impediments to Market Access: The operating environment in Korea has for 

many years presented numerous challenges for PhRMA’s member companies. Innovative products, which are mainly imported into Korea by U.S. and other multinational producers, only gained access to Korea’s national healthcare system in late 

1999, after intense pressure from the U.S. Government. Given that Korea has a single payer system, access to the national healthcare system is critical to have any 

meaningful right to participate in the Korean market. Since 1999, U.S. and other 

multinationals have continued to face a range of market access impediments, including shifting standards of review for having new innovative products listed on the 

national reimbursement list and lax enforcement of intellectual property rights. Indeed, Korea’s policies have long favored the domestic industry, which has disproportionately large share of the Korean market. While favoring domestic producers, 

Korea has maintained policies that disadvantage U.S. and other innovative companies, an approach that places Korean patients at a serious disadvantage as compared to their OECD counterparts. As an OECD member economy, Korea should instead establish policies that encourage research and development of innovative products which would lead to new cures that benefit patients worldwide. 

While the U.S. Government has attempted to address these market access barriers through various bilateral agreements and ongoing consultations over the years, 

these efforts have yielded very few positive, concrete results. The FTA, therefore, 

provides an unparalleled opportunity to obtain government-level commitments from 

Korea that substantively address key issues of concern to the U.S. pharmaceutical 

industry. 

Korea’s New Reimbursement System: Adding to the existing market access 

issues, on May 3rd, 2006, the week before the first round of negotiations, the Korean Government proposed an entirely new reimbursement system for pharmaceuticals. This was a major setback for PhRMA’s members. The new system will further discriminate against U.S. research-based pharmaceutical companies and increase market access barriers. Perhaps most significantly, innovative drugs will no 

longer be available under Korea’s national healthcare system unless they can meet 

a number of complicated new requirements. These requirements have not been 

spelled out clearly, and the infrastructure is not in place to effectively administer 

the new system. At the same time, local generic products will be grandfathered into 

the new system, at least in the near term. Further, the new system will overturn 

longstanding commitments previously reached between the U.S. and Korea on how 

market access decisions would be made for innovative products. As a result, the new 

system will restrict U.S. pharmaceutical manufacturers’ access to the Korean market and in turn Korean patients’ access to new, innovative medicines. While the new 

system lowers the reimbursement level of generic producers—a step that has local 


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producers up in arms—it does not go nearly far enough to address the imbalance 

in treatment between foreign innovative companies and local generic producers. 

Over the strong objections of the U.S. Government and the innovative pharmaceutical industry, regulations implementing the new system were finalized on December 29, 2006. Despite a detailed submission made by the innovative industry 

and extensive comments from the U.S. Government, the Ministry of Health and 

Welfare (MOHW) did not address any industry or U.S. Government concerns in 

these final regulations. 

PhRMA is committed to working with the U.S. Government through the remaining weeks of the FTA negotiations to address problems we have identified related 

to the Korean market and the new reimbursement system and to ensure that the 

outcome does not further restrict market access for U.S research-based pharmaceutical companies. However, we are concerned that to date, there has been very 

little movement by Korea on the priority issues that U.S. negotiators have put forward. 

Pharmaceuticals Chapter: With regard to the pharmaceuticals chapter in the 

FTA, PhRMA member companies have three key priorities: (1) that Korea adopt an 

appropriate approach to reimbursement procedures so that U.S. research-based 

pharmaceutical manufacturers have fair and timely access to the market and Korean patients have timely access to life saving medicines; (2) that an independent 

appeals mechanism be put in place to resolve any disputes on reimbursement decisions; and (3) that the FTA address longstanding concerns regarding fair business 

practices in the Korean market. 

1. Government Reimbursement Regulations: Government reimbursement regulations should be developed and applied in a way that adequately recognizes the value 

of innovation and provides predictability. The Government’s reimbursement decisions should be based on published, clear and objective criteria which all stakeholders have participated in developing, as well as transparent processes and appropriate deadlines. 

Through the new system, the Korean reimbursement authorities are also empowered to make decisions as to which drugs will be reimbursed under the national 

healthcare system based on cost-effectiveness analysis without adequate regard to 

medical need. Experience in other countries that have tried such an analysis shows 

that these methods can significantly limit patients’ access to life saving medicines. 

Further, lessons learned from other countries show that without an adequate phasein period, to allow for the development of adequate procedures, guidelines, data and 

administrative resources, patients have been inappropriately denied access to advanced medical treatments. 

2. Independent Appeals Mechanism and Transparency: Lack of transparency in 

Korea’s reimbursement and listing decisions has been a difficult long-standing issue 

U.S. pharmaceutical companies have had to face in Korea. In order to ensure fairness and due process, PhRMA believes that the new system should include an independent appeals process that would have the authority to overturn reimbursement 

and listing decisions. Ideally, this independent appeals process would include a 

panel of experts that would review reimbursement and listing decisions to determine if the decision is in line with the regulations and guidelines for the system. 

To be effective, this appeals mechanism will also require improved transparency 

throughout the reimbursement and listing process. 

3. Fair Business Practices: Certain business practices in Korea also continue to 

impede market access for PhRMA member companies. A major Korean Government 

report released in 2005 identified a number of private sector practices currently 

seen in the Korean market that must be effectively resolved, including payment to 

hospitals by companies for formulary access and to physicians for prescribing medicines. PhRMA and its member companies fully support the Korean Government’s 

ongoing efforts to ensure appropriate practices and believe that this issue should be 

addressed in the context of the FTA. Korea should take concrete steps to ensure fair 

business practices in the private market and to provide the opportunity to monitor 

and address the development of these efforts. 

Intelectual Property Rights Chapter: As in previous FTAs with developed 

countries, the intellectual property rights chapter of the FTA should require that: 

(1) Korea agree to implement at least 5 years of data exclusivity; and (2) Korea 

adopt a patent linkage system. 

1. Data Exclusivity: The U.S. research-based pharmaceutical industry remains 

hopeful that through the FTA negotiations Korea will agree to implement at least 

5 years of data exclusivity. 


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2. Patent Linkage: Unlike the United States, Korea does not currently have a patent linkage system and the FTA should require Korea to enact one. In the absence 

of a linkage system, PhRMA member companies have encountered instances of generic products being registered and brought to market while patents are in force. 

An effective patent linkage system prevents the registration of a generic form of a 

patented medicine while a patent is still in force, thereby preventing unnecessary 

litigation and confusion. 

Conclusion: In conclusion, we realize that substantive resolution of our priority, 

long-standing issues in Korea will not be easy. However, the purpose of entering 

into a Free Trade Agreement is to lower barriers and create a better operating environment for companies operating in the partner country. As such, what PhRMA 

seeks from this FTA is to address long-standing barriers to U.S. pharmaceutical 

companies in a commercially meaningful way—in other words, we seek to ensure 

that with Korea’s implementation of its new system that we do not end up worse 

off than before the FTA negotiations began. Our priority asks are reasonable and 

achievable, and we remain committed to working with the U.S. Government to resolve these critical areas in the FTA. 

f 

Chairman LEVIN. Thank you very much. 

Mr. Steir. 

STATEMENT OF BERTON STEIR, EXECUTIVE VICE PRESIDENT, 

PARAMOUNT FARMS, LOS ANGELES, CALIFORNIA 

Mr. STEIR. Chairman Levin, Ranking Member Herger, Congressman Brady, Congressman Larson, I am pleased to testify 

today on behalf of Paramount Farms, and many U.S. pistachios 

growers. 

Paramount Farms is America’s largest producer of pistachios. 

The pistachio industry farming operations are located throughout 

the State of California. Pistachios are also grown in New Mexico, 

Nevada, Arizona, and plantings are now taking place in Texas. 

The United States is the second largest producer and exporter of 

pistachios in the world, the world’s largest is Iran. By contrast, 

South Korea does not grow any pistachios and has no domestic pistachio industry to protect. 

However, the South Korean market represents tens of millions of 

dollars annually for U.S. pistachio growers. That is, of course, contingent on the elimination of South Korea’s tariff on U.S. pistachios. 

The latest information on the negotiations that are going on is 

that pistachios are bundled together with various other tree nuts, 

for which the U.S. Trade Representative is trying to negotiate an 

across the board reduction of tariffs. 

Pistachios are not a controversial line item in these talks, and 

deserves to be separated out for immediate duty free treatment. 

That is why the pistachio industry is closely monitoring the Korea 

trade agreements and negotiations, and that is why I am here 

today. 

The U.S. industry produces an average of 250 million pounds of 

pistachios a year, and employs thousands of people. The industry 

has grown more than three times in value in the past ten years to 

over $500 million in annual sales. We expect the industry will grow 

to over $1 billion in the years to come. 

Exports are fundamental to this growth, and we see South Korea 

as a huge market. Unfortunately, South Korea applies a 30 percent 

tariff on raw pistachios and a 45 percent tariff on packaged pisVerDate Aug 31 2005 04:43 Jul 23, 2008 Jkt 040312 PO 00000 Frm 00096 Fmt 6633 Sfmt 6602 E:\HR\OC\40312.XXX 40312

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tachios. This is in comparison to only 8 percent for almonds and 

hazelnuts. This limits our exports seriously and severely. 

The U.S. pistachio industry’s experience in Europe provides a 

model, the type of model we envision for South Korea. Actually, 

Europe does grow some pistachios. However, nevertheless, it has 

created an entire industry in roasting, packaging and marketing 

imported U.S. pistachios. 

The value added by this industry is considerable. In 2005, Eu- rope sold approximately $1 billion worth. It imported pistachios at 

a cost of $500 million creating an additional $500 million in domestic value added business. 

Several European brands proudly promote their products as 

being pistachios from California U.S.A. and America. It is important to note that low tariffs made all this possible. 

The current duties in the European Union are 1.6 percent for 

raw pistachios, compared to 30 percent in South Korea. This is 20 

times higher. 

South Korea could, like the EU, have the potential to create a 

domestic pistachio industry using U.S. pistachios, by importing not 

only for its domestic market, but also for value added resale in 

neighboring countries. This will not only benefit South Korean 

roasters and packages, but also South Korean retailers and exporters. 

At current prices, South Korea could expect to sell as much as $100 million worth at retail. However, the current tariffs severely 

limits U.S. pistachio imports and prohibits this market from being 

realized. 

Pistachios are not a controversial line item in the Korean-U.S. 

free trade agreement talks, because South Korea does not grow any 

pistachios and has no pistachio industry. As a result, U.S. pistachios do not compete with any domestic South Korean product, 

and do not pose a threat to the South Korean market. 

I submit to you that in this case, pistachios are a definition of 

a line item that deserves immediate duty free treatment. This is 

why the U.S. pistachio industry has been pressing for the immediate duty free treatment for pistachios in the Korea-U.S. free 

trade agreement. 

This position is strongly endorsed by many of your colleagues in 

the California Congregation Congressional Delegation. 

I have attached a testimony of a November 2006 letter signed by 

17 members of the California Delegation, including both U.S. Senators. 

In closing, California pistachio growers, as well as those in New 

Mexico, Nevada, Arizona and Texas, need your help. There is absolutely no justification for any import duty to apply to U.S. pistachio 

imports to South Korea. 

On behalf of the U.S. pistachio industry, I ask you to encourage 

our negotiators not to settle for anything less than immediate duty 

free treatment so U.S. pistachio growers can increase their exports 

and also provide South Korea with a new domestic and export industry. 

This is a win-win situation for both sides. 

I thank you, and thank you, Mr. Herger, for complimenting me, 

and hope you will be able to have some influence. 


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[The prepared statement of Mr. Steir follows:] 

Statement of Berton Steir, Executive Vice President, Paramount Farms, 

Los Angeles, California 

Mr. Chairman and Members of the Committee: 

I am pleased to testify today on behalf of Paramount Farms and the U.S. pistachio industry. Paramount Farms is America’s largest producer of pistachio nuts. 

The pistachio industry’s farming operations are located throughout the State of California. Pistachios are also grown in New Mexico, Nevada, Arizona, and Texas. 

The U.S. is the second largest producer and exporter of pistachios in the world; 

the world’s largest producer is Iran. By contrast, South Korea does not grow any 

pistachios and has no domestic pistachio industry. Nevertheless, the potential South 

Korea market represents tens of millions of dollars annually for the California pistachio industry. However, this is contingent on the elimination of South Korea’s tariffs on U.S. pistachios. 

Our latest information is that pistachios are bundled together with various other 

tree nuts for which USTR is trying to negotiate an across-the-board reduction in tariffs. Pistachios are not a controversial line item in these talks and deserve to be separated out for immediate duty free treatment. That is why the pistachio industry is 

closely monitoring the Korea-U.S. Free Trade Agreement (KORUS FTA) negotiations and that is why I sit before you today. 

The U.S. Pistachio Industry and the South Korean Market 

California is home to approximately 98 percent of U.S. pistachio production. The 

industry produces an average of 250 million pounds of pistachios a year and employs thousands of Californians. The industry has grown more than three times in 

value in the past ten years to over $500 million in annual sales today. We expect 

industry sales will grow to over $1 billion in the coming years. Exports are fundamental to this growth, and we see South Korea as a huge market. 

Unfortunately, South Korea applies a 30 percent tariff on raw pistachios and 45 

percent tariff on packaged pistachios, compared to 8 percent for raw almonds and 

hazelnuts. This limits our exports severely. Iranian exports can also be found in 

South Korea. We understand the Iranians have a history of not playing by the rules 

in order to avoid tariffs and saturate various markets with their product. The U.S. 

pistachio industry cannot—and will not—compete under such conditions. We prefer 

to compete in a free trade environment where our product can thrive. 

Value to South Korea 

The U.S. pistachio industry’s experience in the European pistachio market provides a model for what we envision in South Korea. Europe grows modest amounts 

of pistachios but has created an entire industry in roasting, packaging, and marketing nuts including pistachios from the U.S. The value-added generated by this 

industry in considerable. In 2005, Europe sold approximately $1 billion in imported 

pistachios at an import cost of $500 million, creating $500 million in domestic valueadded business. Several domestic European brands have even been established 

which market their products as featuring pistachios from ‘‘California, U.S.A.’’ It is 

important to note that low tariffs made this market possible: Current duties in the 

European Union (EU) are 1.6 percent for raw pistachios. 

Like the EU, South Korea has the potential to create a domestic pistachio industry using U.S. pistachios. This will not only benefit South Korean roasters and packagers, but South Korean retailers as well. At current prices, South Korea can expect 

to sell as much as $100 million at retail, resulting in $50 million in domestic valueadded business. However, the current tariff severely limits U.S. pistachio exports 

and prohibits this market from being realized. 

A Superior, Cost-Competitive U.S. Product 

Where there is a level playing field, the differentiators between the U.S. and Iran 

become the product itself, and cost. U.S. pistachios are higher quality and healthier 

than pistachios from Iran, and in markets where free trade is permitted, U.S. pistachio producers out-compete Iranian producers. 

Iranian pistachios are frequently contaminated with high levels of aflatoxin, a 

naturally occurring carcinogen. Their pistachios are also lower quality and are treated with bleach to mask imperfections. [HOLD UP BAG OF IRANIAN PISTACHIOS.] These are Iranian pistachios. You can tell they are Iranian pistachios 

because they are unnaturally white due to the bleaching process. [HOLD UP BAG 

OF U.S. PISTACHIOS.] These are U.S. pistachios. They are naturally clean. Because of our highly technical processing we do not need to bleach our pistachios, and 

I assure you they taste much better. 


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The U.S. pistachio industry has made significant investments to incorporate 

aflatoxin preventative measures into its farming and processing operations. The results of these safeguards are considerable: Shipments of Iranian pistachios to the 

EU are frequently rejected due to high aflatoxin levels. This is reflected in Iran’s 

share of the EU market. In 2003, Iranian producers commanded a 73.8 percent 

share of the EU’s pistachio market. In 2005, the Iranian share had shrunk to 43.5 

percent, while the U.S. increased its market share to 56.5 percent. 

The bottom line? Where free trade is permitted, the U.S. simply out-competes its 

Iranian counterparts by providing a healthier, cost competitive product. If tariffs are 

eliminated, we expect the same results in South Korea. 

No Threat to the South Korean Market 

Pistachios are not a controversial line item in the KORUS FTA talks because 

South Korea does not grow any pistachios and has no pistachio industry. As a result, U.S. pistachios do not compete with any domestic South Korean product and 

do not pose a threat to the Korean market. 

It is understandable that some tariffs—tariffs on U.S. products that compete with 

same or similar South Korean products—must to be phased out over 3, 5 or even 

10 years to allow the domestic market time to adjust to increased foreign imports. 

However, where no domestic market exists— such as for pistachios—there is no justification for any tariff to apply to a product for any period of time. 

In fact, I submit to you that in the immediate case, pistachios are the definition 

of a line item that deserves immediate duty free treatment. This is why the U.S. pistachio industry has been pressing for immediate duty free treatment for pistachios 

in the KORUS FTA. This position is strongly endorsed by many of your colleagues 

in the California Congressional Delegation. I have attached to my testimony a November 2006 letter signed by 17 Members of the California Delegation including 

both Senators. 

Closing 

In closing, California pistachio growers—as well as those in New Mexico, Nevada, 

Arizona, and Texas—need your help. There is absolutely no justification for any import duty to apply to U.S. pistachio imports to South Korea. On behalf of the U.S. 

pistachio industry, I ask you to encourage our negotiators not to settle for anything 

less than immediate duty free treatment so that U.S. pistachio growers can increase 

their exports and provide South Korea with U.S. pistachios, the best pistachios in 

the world. 

Mr. Chairman, I thank you for the opportunity to testify before you today. I am 

happy to answer any questions you may have. 

f 

Chairman LEVIN. I thank you very much. 

Mr. Cohen. 

STATEMENT OF CALMAN J. COHEN, PRESIDENT, 

EMERGENCY COMMITTEE FOR AMERICA TRADE 

Ms. COHEN. Thank you, Mr. Chairman, Ranking Member 

Herger, and Congressman Brady, for the opportunity to appear before the Subcommittee this afternoon. 

I am testifying today on behalf of Emergency Committee For 

American Trade (ECAT) an association of chief executive officers of 

leading U.S. business enterprises with global operations that was 

founded some four decades ago to promote economic growth 

through expansionary trade and investment policies. 

As a cross-sectoral group, ECAT strongly supports the conclusion 

of a comprehensive, high standard, and commercially meaningful 

FTA with Korea that creates concrete new trade and investment 

opportunities for U.S. companies, farmers, workers, and their families. 

Given the detailed testimony provided today by my colleagues in 

many sectors, I will focus my oral testimony today on the very imVerDate Aug 31 2005 04:43 Jul 23, 2008 Jkt 040312 PO 00000 Frm 00099 Fmt 6633 Sfmt 6602 E:\HR\OC\40312.XXX 40312

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portant and cross cutting investment issues that are critical to the 

successful conclusion of these negotiations. 

Foreign investment by U.S. companies, supported by core investment access and protections, is a key driver of U.S. economic 

growth, productivity, and exports. Indeed, the largest market for 

U.S. exports is foreign based subsidiaries of U.S. companies. More 

broadly, U.S. investment abroad is important for broader national 

U.S. interests, such as developing stable sources of energy supplies, 

continuing U.S. leadership in creating new and advanced technologies, and promoting stability, economic development, and the 

rule of law. 

Three primary issues are being discussed by U.S. and Korean negotiators: access for investment, commitments to core investment 

protections, and investor-state—dispute settlement. 

First, investment access. ECAT members seek the reduction and 

binding elimination of foreign equity limitations in all major sectors, from telecommunications and broadcasting operations to distribution of agricultural and manufactured goods. Such access, I 

emphasize, is critical to ensure that the market access commitments that we receive from Korea in other chapters are actually 

meaningful. 

Second, investment protections. The objective of the investment 

negotiations is to ensure that U.S. investors in Korea have the 

same levels of protection for their investments that Korean investors already have in the United States, including protections related to national treatment, most favored nation treatment, expropriation, fair and equitable treatment, full coverage of investment 

agreements, and the free transfer of capital. 

It is critical, therefore, to U.S. competitiveness that the United 

States in the negotiations reject proposals to limit investment protections against discriminatory, arbitrary or expropriatory government activity; restrict the transfer of capital; or create exceptions 

from the key protections. Such diminutions to the high standard 

model U.S. text would deny U.S. investors precisely the protections 

that are needed to address the barriers that have long pervaded 

the Korean economy. 

In short, not to have these protections would provide a safe harbor to Korean regulators to block U.S. participation in the Korean 

economy. 

It also would put U.S. investors at a competitive disadvantage, 

since Korea already has provided strong investment protections to 

competitors in the United Kingdom, Germany, the Netherlands, as 

well as others. 

For financial institution investors, in particular, the expropriation protections are absolutely vital, since the United States has 

not sought to ensure rights of such investors to bring claims with 

respect to discrimination. 

Third, investor-state dispute settlement. Investor state provisions 

are in thousands of international instruments, including the investment treaties and free trade agreements that Korea has concluded 

with other governments. 

Investor-state dispute settlement is vital for all U.S. industries 

to be able to address barriers and government actions that would 

deny effective access to the Korean economy. The ability to bring 


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such cases must apply fully to investors in each of these sectors 

and for all breaches of the FTA, as well as breaches of a special 

type of investment agreements that govern much of U.S. investment abroad in natural resources, infrastructure, and other major 

areas. 

Several issues remain outstanding. We understand the Korean 

negotiators are pushing back on core protections, are seeking major 

exceptions, and are continuing to resist opening their investment 

market in key areas. ECAT urges U.S. negotiators to reject the 

weakening of investment protections and the denial of investment 

access. 

In sum, ECAT urges U.S. negotiators to continue to work to conclude a comprehensive and commercially meaningful FTA that protects and promotes investment. 

Such an outcome will receive ECAT’s strong support. Thank you 

for the opportunity to testify. 

[The prepared statement of Mr. Cohen follows:] 


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Chairman LEVIN. I want to thank you and to all of you. This 

has really been an informative panel. 

Let me just ask a few questions and turn it over to Mr. Herger 

and to Kevin. Mr. Boyle, you at the end of your testimony, and you 

repeated it or said it here, ‘‘We urge you and your colleagues to 

communicate to the South Korean government that the resumption 

of full beef access must occur prior to the conclusion of the FTA negotiations.’’

I think that is a good idea. 

Mr. BOYLE. I appreciate that, Mr. Chairman. 

Chairman LEVIN. It is interesting. I would simply ask my colleagues that we think about that. Also, ask all of us to ask ourselves do we not need something, if not identical, comparable in 

other fields. 

The problem is that if we say kind of over time reduce your regulations, or in this case, abide by some decent standards, it may or 

may not happen. That is one of the dilemmas we have with a regulatory system that is so opaque, and that has truly been used in 

many cases to shelter a local market. 

I have to think that was true of beef. Essentially, what you are 

saying is tear down that wall before, and to the extent we can do 

that, I think we should. 

Let me just say a few words to you, Ms. Ritter, and then my colleagues will take over and maybe have questions of others. 

What I said about beef is a bit of a puzzle as to pharmaceuticals, 

because with this new system, it is really hard to see how we set 

up a structure so there is any assurance, not only they grandfathered in certain entities, I do not quite know what is meant by 

an independent appeals system, so how do we approach this FTA 

with any assurance that there will be a major relaxation and in the 

end, not only diminution but end of a regulatory structure that essentially has a very un-level playing field for American pharmaceuticals? 

As you know, it is no surprise. We at times have leaned on the 

pharmaceutical industry in FTA negotiations thinking that some of 

the provisions were perhaps too stringent in terms of access to 

medicines where they are really needed. 

Here, we are dealing with essentially an industrialized society 

with a substantial pharmaceutical industry; right? 

How do we frame this so that we really have any assurance? I 

do not quite see even with your recommendations how we are sure 

over a reasonable period of time we get there. 

Ms. RITTER. This is a very complex and complicated set of 

issues in Korea. Our approach, and we have worked closely with 

USTR, and I think the approach the USTR has been advocating 

with Korea, is to tackle it on several levels. 

Transparency is important. Transparency does matter. I think it 

can make a difference here, and an appeals mechanism is part of 

that, that regulatory decisions need to be subject to some kind of 

independent review, and you need to know the basis on which 

those decisions were made. 

Transparency alone is not enough. You really have to get to the 

core of how these reimbursement and listing decisions are made, 


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and we need to have some assurances as to what the rules are 

going to be, and some level of predictability. 

We have worked, I think USTR has worked, to engage Korea on 

the regulations that they have put in place around this new system, and to date, Korea has taken into account not a single one of 

the recommendations either that the industry has made or that the 

U.S. Government has made to make those rules clearer, more predictable, so that business knows what to expect when it reaches 

into the black box. 

Chairman LEVIN. Send us whatever you would like to. How we 

handle this challenge has some relevance, I think, to how we handle others. 

With beef, essentially you are saying change before. That is, pardon the pun, clear cut; right? A good cut of beef. 

Ms. RITTER. Right. 

Chairman LEVIN. I do not quite see—there seems to me there 

is a lot of work to do with there being assurance that the tangle 

of regulation does not end up more or less where we are today. 

Ms. RITTER. I think that is right. We would be happy to follow 

up and provide more of the technical details. 

Chairman LEVIN. Do that. 

Ms. RITTER. That is one of the reasons it is also important that 

this FTA put in place ongoing mechanisms to review and continue 

the consultations to ensure that real market access opening happens. 

Chairman LEVIN. Mr. Herger? 

Mr. HERGER. Thank you, Mr. Chairman. I want to thank each 

of our members on this panel. 

Mr. Stallman, back to rice again. I am not naive. I am very much 

aware of the very sensitive and tough issue that rice is to the Koreans. That said, U.S. rice farmers do not get anything close to a fair 

shake when it comes to selling into the Korean market. I am aware 

of tariffs, quotas, and use restrictions that require U.S. rice to be 

processed instead of sold in the retail stores where Korean consumers shop. 

Can you elaborate on the various mechanisms that Korea maintains to block U.S. rice from competing in the Korean market, and 

are there others that I have not mentioned? 

Mr. STALLMAN. I am not aware of all. You have to look at what 

we have access to now. They have a 5 percent in quota tariff. They 

do not even have an over quota tariff because they do not import 

any rice over the quota, and the quota was established in the Uruguay Round agricultural agreement. That was a demand, that they 

had to have some opening of their market, which at least indicates 

they are willing to do that, if they are pushed. 

There are quota’s of about 225,000 metric tons in the Uruguay 

round agreement. The United States has about 50,000 tons of that. 

As you said, once the rice gets into Korea, then their consumers 

do not have the opportunity to see if they even like it or not because they use mechanisms, and frankly, Japan has been guilty of 

some of the same thing, used mechanisms to keep it out of the consumer market. 


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Once again, we knew rice was going to be a very sensitive issue 

in these negotiations. We recognized that. It is going to be one of 

those 11th hour issues that are resolved at the very end. 

Our policy is very clear, that trade agreements need to be comprehensive and there should be no exclusions, and we expect the 

Koreans, if they want an agreement that U.S. agriculture can support, to do something in terms of granting more access into their 

rice market through this FTA. 

Mr. HERGER. Thank you. Again, as a point of precedence, we 

certainly cannot allow this one area to be out and others in. 

Mr. Cohen, we have heard today that Korea has in the past used 

domestic regulations, non-transparency, to favor domestic concerns 

and inhibit trade. 

Given this history, is it not important that USTR continue to 

press its model investment chapter, which is written carefully, for 

the purpose of protecting countries’ legitimate regulatory actions 

while at the same time allowing foreign investors the right to obtain arbitration in cases of illegitimate takings by the host country? 

Ms. COHEN. Absolutely. I think that it is critical that the Administration continue to press in this area. Indeed, the argument 

that American business is making with regard to investment is for 

the key investment protections to be available to U.S. investors, 

just as they are available to investors from other countries around 

the world. 

As I mentioned, Korea has agreements with countries such as 

Germany and the United Kingdom which provide for just such protections. 

Failure to provide our investors with similar protections would 

put them at a competitive disadvantage. Right now, Korean investors in the United States have access to fair, non-discriminatory 

dispute settlement arise. All we are asking for is similar treatment 

in Korea. 

Mr. HERGER. Thank you. Ms. Overby, would you want to comment on that? 

Ms. OVERBY. Yes. I would also like to make one additional 

point, that there are two very clearly different groups of officials 

operating in the Korean government today—those who genuinely 

want and embrace the change in real competition that an open 

market will bring and those that are still clinging to the past protective practices. 

We cannot miss this key opportunity to strengthen the hand of 

the reformers in Korea. If we let the closed market team gain the 

upper hand, the United States is going to lose out on our best 

chance to resolve a very large number of market access problems 

that we have in Korea, and put in place binding disciplines and ongoing consultations that will help us address issues that we are unable to address in the context of this agreement. 

Perhaps even more importantly, if this deal falls apart, we believe the United States will lose its ability to lead in shaping the 

trade agenda in Asia, possibly for decades. Our competitors are not 

standing idly by while we debate how or where we want to assert 

our economic presence in Asia. 


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Rather, Korea and the EU are going to launch their FTA negotiations in May. Japan has asked the Koreans to re-start their stalled 

FTA. Korea has already launched a study group with China. 

If we miss this chance, we run the risk that others are going to 

decide the rules for the future while we are left out on the side 

lines. 

Mr. HERGER. Thank you. 

Chairman LEVIN. Mr. Brady? 

Mr. BRADY. Thank you, Mr. Chairman. This has been a great 

panel, although I find myself suddenly craving cheeseburgers with 

rice and pistachio ice cream. I think as a show of bipartisanship, 

if you would order that in for everyone in the room, Mr. Chairman, 

that would be very helpful, I think. 

Let me continue on a serious note. 

Chairman LEVIN. I agree with that, by the way. 

Mr. BRADY. I hope the Korean negotiators are listening carefully to this panel because the positions you have outlined on market access, regulatory reforms, are just critical to this agreement. 

It has tremendous potential because of its size and strategic interest, but these issues have to be addressed. 

They are real deal killers at this panel right now. I hope the Korean negotiators are listening carefully, because it reflects the opinion of much of us in Congress today. 

Let me ask you this. Each of you represents members in export 

oriented industries that can both improve our trade deficit, create 

jobs. We are not just buying America here at home. We are selling 

America around the world. 

As you look at Korea and you look at the growing Asia market 

for customers, if this is a good solid trade agreement we can all 

support, do you see this as a model or a foot hold for new customers in that growing region? 

I will leave it to you to comment. 

Ms. OVERBY. Absolutely. I represent 1,100 American companies 

living and working in Korea every day. I will tell you that this deal 

is a wonderful chance for us to expand that market and grow that 

market into China. Absolutely, without a doubt. 

Mr. BRADY. Thank you. 

Mr. STALLMAN. Absolutely, too. We always said that we need 

to focus on those markets for agriculture that hold some real promise, given the economic status of South Korea, even though they 

designate themselves as a developing country, they have a high per 

capita income. They have very little arable land relative to their 

population. They are an outstanding market given those two facts 

for U.S. agricultural products. 

We need to break down the barriers to get our products in there. 

This is a real opportunity and probably the first one really under 

free trade agreements or bilateral agreements where we believe we 

have the opportunity to get into a real high value market. 

Mr. BRADY. Thank you. 

Mr. VASTINE. Congressman, we feel, of course, the same way. 

The Korean market is an extremely important one. We are doing 

well there. We could do very much better. 

The irony of this is that the people who will do best are the Koreans by embracing the most modern types of infrastructure services, 


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like telecommunications and financial services, and the other services we mentioned. 

The Koreans will put themselves in a position of being a much 

more dynamic successful economy. 

It is a known disadvantage that they resist modernizing and 

opening up their telecommunications market. They will benefit 

much more than we actually from that. 

Mr. BRADY. Thank you, sir. 

Mr. BOYLE. Congressman, to the extent there are lower tariffs 

that translate into greater market access for our poultry and pork 

processors within the American Meat Institute, that will be a potential growth opportunity for them. 

The beef issue is somewhat distinct. We are not asking for a 

precedent setting breakthrough in market access. We want a restoration of the status quo ante. We lost that almost $800 million 

a year market overnight. We obviously have not got it back overnight. We think the decision day is coming closely. 

Just like my colleague here who says that the Koreans will be 

the beneficiary of the restoration of our beef export opportunities, 

it is evident when one goes grocery shopping in Korea. 

I was in Seoul two or three weeks ago. I am going back this coming week. The price of beef in Korea, while already high before the 

U.S. product was banned, is double what it was back then. 

In 2003, a pound of ground chuck beef cost $16 in Korea. Could 

you imagine that? Today, it is $35 for ground chuck. That is an expensive cheeseburger to go with your pistachio ice cream, Congressman. 

The Koreans will benefit. It is not going to adversely affect to a 

significant extent the Korean beef industry. We coexisted with 

them as we grew that market over the last 20 years. They are enjoying what I may characterize as windfall profits near term, but 

the restoration of the status quo is what the beef industry seeks. 

Mr. BRADY. You bet. Great point. 

Ms. RITTER. Absolutely. Korea is an extremely important market for the American pharmaceutical industry. I think a good 

strong agreement here very much could potentially do a lot to 

strengthen that market, not only for the U.S. industry but also for 

Koreans themselves. 

Mr. BRADY. You bet. 

Mr. STEIR. The EU, European Union, had a small domestic industry to protect, and when they dropped the tariff to 1.5 percent, 

which is practically no tariff at all, the market exploded. The domestic industry thrived and benefited from that. 

Ms. COHEN. Congressman Brady, for the members of ECAT, the 

Korean market is extremely important. We recognize that Korea is 

the seventh-largest trading partner of the United States, with tremendous additional economic potential. 

We want to see the investment provisions in the FTA done right, 

and we recognize, as has been corroborated many times in many 

studies, that U.S. exports follow U.S. investment overseas. 

If the investment provisions are written in the right way in the 

U.S.: Korea FTA to be non-discriminatory and, there by, support 

U.S. investment, you will see much further U.S. investment, and 


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as a result, significant additional exports of U.S. services and products to Korea. 

We see a good, solid, trade agreement as my colleagues have just 

suggested, as a potential win-win, a win for the United States and 

a win for Korea, for opening markets in Korea. Thank you. 

Mr. BRADY. Right. Thank you, sir. I thank the Chairman. 

Chairman LEVIN. Thank you, Mr. Brady. 

This has been an excellent panel, an excellent hearing. I have a 

letter from the Governors of the State of Michigan and the State 

of Ohio, and without objection, I would like to enter them into the 

record. So, ordered. 

[The information referred to follows:] 


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Chairman LEVIN. Thank you very much. Thank you for your patience. I hope it has been worth your time. It has been worth ours. 

Thank you very much. 

We are now adjourned. 

[Whereupon, at 5:44 p.m., the hearing was adjourned.] 

[Submissions for the Record follow:] 

Statement of American Council of Life Insurers 

The American Council of Life Insurers, the American Insurance Association and 

the Insurance Committee of the Coalition for Service Industries would like to express strong support for conclusion of a commercially meaningful free trade agreement with South Korea. Collectively, these groups represent over 800 U.S. insurance companies and millions of employees. 

The life insurance sector is key to both the economies of South Korea and the 

United States, and a good outcome for the life insurance sector under the KORUS 

FTA will be beneficial for both economies. In the United States, for example, life 

insurers provide the products that protect against life’s uncertainties. Our industry 

helps individuals and families manage the financial risks of premature death, disability, and long-term care. We enable employers to provide employees with critical 

retirement savings programs such as pensions and 401(k) plans. And through annuities, life insurers guarantee retirees an income for life, no matter how long they 

live. 

With nearly $4 trillion invested in the U.S., we help fuel our nation’s economic 

growth. We’re the largest holder of corporate bonds in the country, and with our 

long-term focus, life insurers provide businesses and governments the long-term 

capital they need to invest in roads, schools, and homes, and in the plants and 

equipment that create jobs. We fuel economic growth, help families secure their future, and guarantee a retirement income that lasts a lifetime. Our industry can 

serve similar functions in South Korea—and provide important means for enhancing 

the quality of life for families, households and workers in South Korea. 

Property and casualty insurers, many of which are represented by the American 

Insurance Association, likewise support economic development, provide security and 

compensation in the event of injury and property loss and help prevent losses 

through public safety advocacy and loss control services. For example, property and 

casualty insurers have invested more than $305 billion in municipal bonds, which 

provide critical infrastructure, including roads, bridges, schools, affordable housing 

and emergency services facilities. We can, if allowed, play a similar constructive role 

in Korea. 

We support the FTA with Korea because of its economic and commercial significance. South Korea is the world’s eighth largest insurance market with total pre- mium volume of more than $65 billion. The South Korean insurance and retirement 

security market would be by far the largest insurance market to be included in a 

FTA with the United States. The financial sector reforms that South Korea would 

undertake as a result of the FTA would contribute to a stronger and more resilient 

economy for the country and help it to deepen capital markets and investment for 

the long term. 

The United States and South Korea have now completed eight rounds of negotiations and we are pleased with the progress on insurance issues to date. This agreement is important to the U.S. insurance industry because, if concluded, it will set 

a new standard for addressing regulatory, as well as market access, barriers. Given 

the nature of the insurance business, regulatory hurdles and the need for a level 

playing field are often as critical as our ability to enter the market. 

We are encouraged by progress in the FTA negotiations on issues of importance 

to the insurance sector such as an increase in the allowance of foreign currency reserves, bancassurance reform, more regularized and transparent regulatory procedures, more fair and equal treatment for foreign insurers, adoption of a negative list 

approach to financial sector regulation and regional integration of data processing. 

We are hopeful that the issues of importance to U.S. insurers that remain unresolved, including leveling the playing field and other issues between private insurance companies and the government-owned Korea Post, will be settled satisfactorily 

in the coming days. We are in regular consultation with the outstanding and highly 

professional U.S. negotiating team as they continue their efforts to conclude these 

negotiations positively. 

From a strategic vantage point, South Korea is an important ally with whom the 

United States must work closely in order to continue advancing global security. 

From a trade standpoint, the consumers of both countries stand to gain significantly 


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from the broad benefits of a comprehensive agreement, as well as from the expanded and more stable financial development in the Northeast Asian regional economy that such an agreement will bring. In addition, an agreement of this high quality will help set the standard for future bilateral and multilateral progress, including at the WTO. 

Our industry is aware that a number of critical issues still need to be resolved 

in order for the United States to achieve its goal of concluding a strong and comprehensive agreement that will bring benefits across the board to the U.S. economy. 

However, we would like to share our optimism with regard to the current negotiations as they affect the insurance industry, as well as to emphasize the importance 

of the near-term conclusion of the agreement to our companies. We believe that the 

results achieved for the insurance sector to date in the KORUS FTA negotiations 

merit the Trade Subcommittee’s considered examination and strong support. We are 

hopeful that the other outstanding issues will be resolved in the days ahead, thereby allowing for timely consideration of such an important potential free trade agreement between two longstanding allies. 

f 

Statement of American Iron and Steel Institute 

The American Iron and Steel Institute (AISI), Steel Manufacturers Association 

(SMA) and Specialty Steel Industry of North America (SSINA), on behalf of our U.S. 

member companies, are pleased to submit written comments to the House Committee on Ways and Means regarding the proposed Republic of Korea-U.S. Free 

Trade Agreement (KORUS). 

Because the KORUS negotiation is now approaching the 11th hour, we will focus 

our statement on two issues of great importance to the American steel industry: (1) 

trade remedies and (2) steel rules of origin. 

Trade Remedies: Agree to No Weakening of the Statute—or the Process 

America’s steel industry is extremely concerned about reports that Korea has, as 

one of its top priorities in this free trade agreement (FTA) negotiation, the goal of 

achieving weakening changes to United States trade laws, particularly our antidumping (AD) and countervailing duty (CVD) laws. In this regard, we are equally 

concerned about reports of possible efforts to negotiate changes to the legal process 

by which AD/CVD actions are investigated and remedied. 

While we recognize that U.S. negotiators have thus far resisted agreeing to any 

changes to our AD/CVD laws, it is essential to stress that: (1) the United States 

must maintain the full integrity of its laws against unfair trade in this and all other 

trade negotiations; and (2) U.S. negotiators, therefore, need to continue to resist the 

inclusion, in the KORUS, of any changes to the AD/CVD laws or to the related legal 

process. 

The widely reported Korean desire to achieve ‘‘something’’ in the AD/CVD trade 

remedies area (i.e., some form of trade law weakening) is extremely troubling to 

America’s steel industry for two principal reasons. 

• First, steel producers in South Korea have had a long history of using marketdistorting practices in their exports of a variety of steel products to the United 

States. Our AD and CVD laws have been reasonably effective in addressing 

these practices, resulting in the imposition of specific trade case orders where 

appropriate. In view of this history, the United States should not agree to any 

FTA provisions that would weaken these vital laws or the related legal process 

in any way. 

• Second, the Korea FTA would be a very significant bilateral agreement, and any 

such weakening would set an extremely disturbing precedent for other future 

bilateral and multilateral negotiations. 

In sum, we believe that, at this critical time in the KORUS negotiation, it is important that the House Committee on Ways and Means make its views known in 

this area by urging our U.S. negotiators to agree to nothing in the AD/CVD area—

whether in substantive law or the legal process—that could have the effect of trade 

law weakening in any way. 

For many years, domestic steel producers have supported trade liberalization as 

long as it does not weaken U.S. trade laws. We would now like to make it clear 

that, if any trade law weakening is included in the final FTA with Korea, it will 

force us to oppose the KORUS. 


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Steel Rules of Origin (ROO): Go Back to the NAFTA Rules 

We are also concerned that, as things stand now in the KORUS negotiation, the 

U.S. government is once again prepared to accept steel ROO in an FTA that are 

less effective than those in the NAFTA. Our position is that we continue to support 

the steel ROO in the NAFTA and, regarding steel ROO in the KORUS, do not wish 

to see any departure from the sound and effective NAFTA ROO. 

Unfortunately—in the Central American Free Trade Agreement (CAFTA) and in 

the U.S.-Peru and U.S.-Colombia FTAs—the U.S. government agreed to accept more 

lenient and less effective steel ROO than exist in the NAFTA. In the KORUS negotiation, the U.S. government has continued a basic willingness to accept looser steel 

ROO than exist in the NAFTA—over the strong objection of domestic steel producers. 

For the record, America’s steel producers continue to support, for the KORUS and 

for all future U.S. efforts to negotiate FTAs: 

• The NAFTA ROO for steel products—so as to avoid conferring origin based 

merely on rolling or minor processing operations in an FTA country; and 

• Strict ROO across-the-board on manufactured products—so as to (1) avoid conferring FTA benefits based on a relatively lesser amount of processing in an 

FTA country, (2) ensure that the benefits go where they are intended and (3) 

ensure that the FTA not serve to incentivize and benefit products where value 

is added largely or substantially in third countries. 

Conclusions 

First and foremost, the United States should accept nothing in the KORUS that 

weakens U.S. AD/CVD laws, whether by change in statute or by change in process 

(e.g., accept no trade case ‘‘consultative mechanism’’). 

Second, at a time of growing and record trade deficits and the loss of millions of 

U.S. manufacturing jobs, the United States should rethink its willingness to accept 

looser rules of origin in the KORUS (and in future FTAs) than exist in the NAFTA. 

AISI, SMA and SSINA appreciate the opportunity to comment on this important 

issue. 

f 

Statement of Automotive Trade Policy Council, Inc. 

I. Introduction 

Thank you for the time to discuss the importance of automotive trade issues in 

the ongoing U.S.-Korea FTA negotiations. I am testifying today on behalf of General 

Motors Corporation, Ford Motor Company and DaimlerChrysler Corporation—who 

are the members companies of the Automotive Trade Policy Council and whose 

views I am presenting today. 

I want to begin with several comments relating to the current situation: 

1. The U.S. auto companies have supported U.S. trade liberalization initiatives by Republican and Democratic Administrations for decades. This includes all the bilateral FTAs presented to the Congress since 2000. We have also 

offered extensive support to USTR in this Korean initiative from the beginning of 

this negotiation. These three companies have spent many years trying to open the 

Korean auto market. ATPC’s hope is to see the U.S. reach a strong, solid and credible agreement with Korea that will eliminate all tariff and non-tariff barriers and 

allow U.S. auto companies to fully participate in that market. 

2. Auto trade is a large portion of U.S.-Korea trade and has now become 

a big problem in this negotiation. But the Korean government created this 

problem and the Korean Government is the party that has to resolve it. The 

auto industry has earned a seat at this table. The U.S. now has an $11 billion deficit in auto trade with Korea, which is 82% of the total deficit between our two counties. In simple numbers, U.S.-Korean auto trade is so lopsided that it cannot be seriously justified by any credible economic or market—based rationales. 

Last year, Korea exported about 700,000 cars, vans and SUVs to the United 

States. Our market is open and Korean competitors have been welcomed and given 

a fair shot a success here. On the other side, U.S. auto exports to Korea totaled just 

over 4,000 last year. Amazingly, auto imports from the entire world represented just 

3.6% of the Korean market. This is not a picture of a healthy, mature, and mutually 

beneficial trading relationship 

3. A Free Trade Agreement is primarily about trade. There have been 

changes in investment patterns in the auto business, both here and in Korea. Recently, Korea has opened up to foreign investment in its auto sector. In 2002, GenVerDate Aug 31 2005 04:43 Jul 23, 2008 Jkt 040312 PO 00000 Frm 00118 Fmt 6633 Sfmt 6621 E:\HR\OC\40312.XXX 40312

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eral Motors invested in Korea, acquiring certain assets of the bankrupt Daewoo Motors and creating a new company which produces cars there. 

On the U.S. side, Hyundai/Kia has also made investments here, with one assembly plant operating and another under construction. But auto investment is not the 

topic of this FTA. It’s all about trade and market access. 

4. Korea’s auto market is not just closed to the U.S. auto industry. European and Japanese automakers are doing no better in Korea and share the same 

view—that Korea unacceptably and unjustifiably restricts sales of foreign automobiles. 

5. The U.S. auto companies have worked together with USTR for over a 

decade to deal with this serious and glaring blot on our countries’ trade relationship and have not succeeded in opening the Korean auto market. However, all past efforts, including two bilateral auto trade (MOU) agreements negotiated in good faith by USTR in l995 and l998 using the strongest U.S. trade policy 

tools, have failed to open the Koran auto market. That is not the fault of past UTSR 

efforts, or the efforts of U.S., European or Japanese companies to get access to that 

market. The reason is the refusal of the Korean government to remedy and reverse 

these blatantly unfair and self-serving policies. 

II. The Position of ATPC on the U.S. Korea FTA 

We understand that there has been some mischaracterization in Seoul and in 

Washington about what we seek in this negotiation as a remedy to the closed Korean auto market. Let me be very clear: We are not seeking ‘managed trade’ or 

‘guaranteed sales in Korea’, as some have suggested. These are incorrect, yet quick 

and simple labels that have been used to gloss over the serious efforts by many 

trade practitioners to an innovative approach to deal with a unique and intractable 

problem. 

We believe that the standard trade approach, reminiscent of the old U.S.-Korea 

MOUs of the l990s, which is apparently being used by our U.S. negotiators, will result in a one—sided agreement that benefits only Korea. We believe that the U.S.- 

Korea FTA is the absolutely last chance for USTR, in close consultation with the 

Congress, to get this right. Otherwise one of the largest and most active auto markets in the world will remain closed to access by the U.S. 

ATPC has consistently recommended opening the Korean auto market will require 

the their willingness to take new approaches. Given Korea’s dismal past record, we 

have recommended that preferential access to the U.S. auto market be provided 

when the Administration and the Congress can be reasonably satisfied that all trade 

barriers to imported autos have been removed and the Korean market is seen to 

be fully open to the sale of U.S. and other imported cars. 

III. Why is the Korean Auto Market Closed? 

Let me summarize the major facts about this case, and explain how Korea?s system of tariffs, taxes, and particularly nontariff barriers that keep foreigners restricted in the market. 

Chart #1 shows the sales by all foreign automakers in Korea last year. In a country that produced 3.8 million cars, and had domestic sales of 1 million last year, 

Korea imported a total of 40,000 cars and trucks from the rest of the world. I would 

draw your attention in Chart #1 to the fact that this is a grand total of a 3.6 % 

market share for all imported cars. In comparison, of the 30 OECD industrialized 

countries where the average level of imports for autos is over 40%, Korea ranks 

30th out of 30. 

Chart #2 shows the breakdown of the sale of imports in Korea by automaker. As 

you can see, no one is selling any respectable volume in Korea. The vast majority 

of those imported car sales are in the highest-end luxury segment. While our companies’ sales in Korea were small, you will notice that high volume European automakers sales were also minimal while the Toyota, and Nissan brand, which are the 

number one and two automakers in Japan, did not sell a single car in Korea. This 

is not a picture of a normal, healthy, competitive automotive market. 

So what is the problem? 

IV. What Specifically Causes the Problem of Selling Imported Cars in Korea 

Chart #3 summarizes the story and the continuing problem. For a long time, 

Korea has very effectively used a whole arsenal of trade tools, starting with outright 

imports bans, high tariffs, discriminatory taxes and a stifling maze of overlapping 

and never ending regulatory nontariff barriers to keep placing hurdles for imported 

cars. 


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Bans on Imported Autos 

Prior to l995, as this chart shows, the Korean government was quite clear about 

its policy: 

• All imported cars were legally banned in Korea until 1989, while the country 

was furiously building its own auto industry 

• Japanese cars remained banned until l999 

• Very high tariffs (50%) were applied 

Tax Audits on Purchasers of Imported Cars 

After those outright bans were dropped, Korea switched to other NTBs that were 

very effective. Korea employed one of the most effective tools when it directed that 

all purchasers of imported cars would automatically have their taxes audited. After 

the U.S. repeatedly complained, these automatic tax audits stopped, but the perception and a lingering fear remains 

Just last year in a highly publicized move, Korean tax authorities ordered all of 

the country’s import car dealers to report to their federal tax agency the names, addresses and relevant personal information of the purchasers of all foreign cars. Now 

I ask, if you were thinking about buying a new car, wouldn’t you find that intimidating? 

High, Discriminatory Taxes on Imported Autos 

Korea has also freely used its tax structure to make it far more expensive to purchase an imported car. Korea has nine different layers of tariffs and taxes on autos. 

With an overall tax burden of over 70% for imports versus 56% for domestic autos, 

the effects of cascading taxes on top of the tariff puts imports at a 14% percentage 

point price disadvantage vis-&-vis domestic vehicles. To make matters worse, many 

of the taxes are applied at a rate much higher for imported cars, based on engine 

size, configuration or other artificial means. The end result is that much higher 

taxes are added to imported cars, on top of the 8% import tariff. 

The Web of Regulatory NTBs 

When compared to other partners with whom the U.S. has engaged in Free Trade 

Agreements, Korea is unique in the both the scope and intensity of its use of Non 

Tariff Barriers to restrict imports. This pervasive use of NTBs in restricting trade 

calls for different kinds of solutions than U.S. trade negotiators have faced before. 

This is the most complex and most difficult issue to summarize for those outside 

of the business. But all foreign automakers are in consensus that Korea pursues a 

rolling series of regulatory NTBs that, de facto, severely restrict the ability to market imported cars into Korea. These include regulations that are often trivial, imposed without warning and developed with no input from foreign automakers. They 

have the effect of knocking out or severely limiting the ability of foreign automakers 

to get cars to the market in Korea. 

Every year, the issue is different—tinted windshields, frequencies for remote keyless entry systems, bumper configurations, power window requirements, and license 

plate sizes. Just last week, we were notified of a change in the auto insurance policies that arbitrarily placed imported vehicles are in the highest risk classification. 

The result is owners of imported vehicles will pay the highest premium possible for 

their auto insurance, (both Ford and DaimlerChrysler were placed in Class #1, the 

most expensive), as well as a totally unacceptable process foreign companies must 

use to certify compliance with these regulations. 

The NTBs vary from one wave to another, but the result is the same: a revolving 

set of costly hurdles placed in front of any foreign automaker trying to sell in Korea. 

I want to share with you the conclusion of the European Auto Manufacturers Association (ACEA) in their statement to European Governments and the EU Commission describing the situation: 

‘‘Korea has a number of nontariff barriers in place which prevent market access 

of European vehicles to the Korean market. In general, the import situation is characterized by a lack of transparency, little or no lead-time and adoption of unique 

standards and inadequate action of EU or U.S. standards in the fields of safety and 

environment—As a result no foreign automakers—E.U., U.S. or Japan—has been 

able to achieve a significant market share’’. 

Over the past nine years, following the l998 U.S.-Korea bilateral auto MOU agreement, Korea has introduced more than 15 new auto technical regulations that have 

served as barrier to auto imports. 

Here are three quick examples of a few of the past and current NTBs: 

1. License Plate Size— The Korean government proposed a new regulation that 

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tunity to comment. License plates in Korea have traditionally been the same size 

as found in the United States. 

At first blush, this may appear to be a minor nuisance with little impact on U.S. 

automakers. However, given the fact that the front and back bumpers of cars are 

designed around the size and shape of a license plate, this type of requirement 

would lead to almost a million dollars per model being spent to meet the new requirement. Domestic automakers that are selling hundreds of thousands per vehicle 

model can afford the cost spread over a large number of sales, but importers that 

are lucky to sell a few hundred of a particular model would not be able to justify 

the cost and would have necessitated pulling most U.S. models out of the Korean 

auto market, or taking a heavy loss on every vehicle sold. 

The Korean authorities were forging forward with this regulation, despite the devastating impact it would have on imports, and that it would not have any societal 

benefit. Fortunately efforts were made, including the intervention by USTR Zoellick, 

to get the Korean government to drop the proposed regulation. Although successful, 

the fact that a U.S. cabinet official had to personally intervene with the highest levels of the Korean government to resolve a license plate issue demonstrates the level 

of the NTB problem. 

2. Self-Certification Investigation Change—After the current FTA negotiations began, Korea proposed making a major change to its auto safety certification 

process that would reverse commitments and progress made in past agreements 

with the United States to ‘‘not take any new measures that directly or indirectly 

adversely affect market access for foreign passenger vehicles’’. 

The proposed change would: 

• adversely impact import automakers, but have no impact on Korean automakers; 

• significantly increase the certification burden, with no societal benefit, and; 

• withdraw commitments made under the two previous U.S.-Korea bilateral auto 

agreements. 

This is a transparent effort to further thwart import automakers to the benefit 

of the Korean automakers, and should be permanently dropped as part of this FTA 

3. Korea’s new auto emissions regulations (K–ULEV)—now effective 2009. 

While this proposed new rule is based on California’s stringent emissions regulations, Korea made some significant changes in its implementation that results in 

a disproportionate burden being placed on importers, over domestic automakers. 

This is what is called ‘‘cherry picking’’ from regulations. The immediate result is 

while Korea’s emissions regulations offers no higher level of emissions containment, 

some imported cars will be withdrawn from sale in the market and fewer new import models will be exported. 

The California and Korean regulations achieve the same emissions outcome, but 

the Korean regulation does not provide the flexibility that was purposely designed 

into the California program. U.S. automakers meet the California regs, but will not 

be able to offer their vehicles for sale to consumers in Korea. The U.S. Government 

has tried to help U.S. automakers with this barrier, but to no avail. 

In advance of the launching of the U.S.-Korea FTA negotiation, Korea agreed to 

delay full implementation of the K–ULEV regulation until 2009. Although somewhat helpful, the two-year delay only puts off the problem until a later date. It did 

not the fix the problem. Korea’s K–ULEV regulations should be modified to allow 

vehicles that meet California regulations to meet the Korean regulations. 

The importance of eliminating the current auto NTBs cannot be overstated. Full 

access will not be achieved unless this is accomplished. But equally important is 

getting a commitment from Korea that will avoid the implementation of future auto 

NTBs. 

For more than a decade, the U.S. auto industry has worked with various USTRs 

and their staff who have spent many months negotiating with the Koreans to eliminate one after another unnecessary NTB. The persistence of USTR efforts to get rid 

of a single NTB—as minor as license plate sizes—has succeeded, but at a high cost 

in U.S. government resources, both politically and financially. Inevitably, within 

weeks of the resolution of one ?show stopper’ NTB, another one pops up to replace 

it. 

Korea’s track record of using NTBs to protect its auto market is endless and has 

no equal in any other OECD country. And its does not deserve to be glossed over 

or tacitly accepted by the United States in formalizing an FTA with one of America’s 

largest trading partners. 


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V. What has the U.S. done about this situation? 

The seriousness of problems caused by Korea’s closed auto market is not new. 

They were recognized as severe enough a decade ago that USTR filed a Section 301 

unfair trade practices case against Korea’s auto policies, one of the rare uses of that 

powerful tool in U.S. trade law. USTR then negotiated two specific auto trade MOU 

agreements with Korea (in l995 and l998) in which Korea clearly and formally committed to eliminate anti—import policies, as well as tax and regulatory NTBs that 

discriminated against U.S. auto products. 

Chart #4 highlights just some of the still current goals and commitments of those 

l995 and l998 agreements that were not achieved. These were two solid, if traditional, trade agreements designed to reduce market barriers. They looked outstanding on paper. But they did not work, because Korea countered with a new 

strategy to implement a powerful mix of non-tariff barriers. The results: Despite two 

tough negotiations and auto trade agreement with Korea in l995 and l998, exports 

of U.S. autos to Korea barely moved from 4000 in 1995 to 4,500 in 2006. Imports 

from all countries are also dismal. 

ATPC believes that Korea’s obvious failure to meet its commitments and promises 

to the U.S. in these two formal trade agreements is both a loud warning and a legitimate basis for insisting that we not repeat the same mistake a third time. This 

is why we have urged that any FTA with Korea must be creative, assertive and reflect the reality of auto trade with Korea. We have urged USTR to look beyond the 

traditional negotiating strategy, not because our industry inherently deserves something better or special, but because there is such a clear, unquestionable trail of evidence of the failure of Korea to live up to previous agreements with the USG. 

VI. The Current Status of the Negotiations 

So where are we now, less than two weeks before the deadline for completing 

these negotiations? 

1. Immediately after the launch of these talks, ATPC offered a comprehensive proposal to USTR for addressing the totality of barriers that have prevented access to 

the Korean market and the failure of two prior U.S. trade auto agreements. This 

proposal placed the responsibility fully on the Korean government to demonstrate 

that commitment by results and not just promises. The USTR appears not to have 

accepted this approach. 

2. The Korean Government, to the best of our knowledge, has not come forward 

with a proposal that fully addresses the closed market issue. 

3. Earlier this month, a bipartisan group of members of the House and the Senate, including Chairman Rangel and Chairman Levin, sent a letter to the President 

presenting a ‘‘Congressional Proposal to Open Korea Automotive Market’’. The members proposed ‘‘moving beyond previous negotiating strategies and embarking on a 

new approach that addresses the United States’ legitimate concerns that Korea will 

not obtain additional access to the U.S. market unless there is reciprocal opening 

of the Korean auto market’’. The Congressional proposal deals with both the respective countries’ automotive tariffs and a system for addressing both current and future NTBs in Korea auto market, and other sectors as well’’. 

4. ATPC deeply appreciates this effort by Members to offer a constructive proposal 

to secure a fair trade deal for the U.S. auto industry in an FTA with Korea. ATPC 

said that this Congressional proposal ‘‘captured the industry’s frustration with Korea’s refusal to abide by past auto trade commitments by ensuring that the Korean 

government will have to provide U.S. automakers with real and meaningful access 

to Korea’s auto market if they are to be given preferential access to our market’’. 

We are not aware of whether U.S. negotiators have accepted any or all of the recommendations contained in this Congressional proposal to resolve the auto issue. 

5. The latest information we have received concerning the negotiations is most 

disturbing. It is now widely reported that the Korean Government has demanded 

the immediate elimination of the U.S. auto tariffs as their number one priority in 

this negotiation. 

Finally, Mr. Chairman, ATPC does not know what will happen over the next two 

weeks. But we do know with certainty the record of Korea over the past two decades. 

I would like to leave you, and the U.S. negotiating team, with what President Roh 

of Korea told his negotiators last week in his Cabinet meeting as they prepared for 

the final stretch of these talks, as publicly reported in the Korea Times on March 

15: 

President Roh told his team: 


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‘‘I will give you some instructions in principle: Please consider real economic benefits—act just like merchants. And do not consider security or other non—economic 

factors.’’

f 

Statement of California Farm Bureau Federation 

California Farm Bureau Federation (CFBF) is writing you in response to the 

Ways and Means Committee hearing on U.S.-Korea Free Trade Agreement Negotiations. 

The California Farm Bureau Federation (CFBF) is the largest agricultural organization in the state, representing more than 91,500 members. In 2005, California agriculture received over $31.71 billion in farm revenue. Of that, more than $9 billion 

was exported. 

A U.S.-Korea FTA offers a great opportunity for expanding California’s agricultural exports to Korea. In 2005, Korea accounted for $278 million in California’s agricultural exports. As shown in the table below, California’s top agricultural exports 

to the region included oranges (fresh and juice), almonds, cotton, walnuts and hay. 

In order for this agreement to have the greatest long-term success it must include 

reducing tariffs and establishing a protocol for resolving new, and outstanding, nontariff barriers. We have recently released a report titled ‘‘U.S.-Korea Free Trade 

Agreement, What it would mean for California Agriculture’’ that you can access at 

http://www.cfbf.com/issues/pdf/KoreaFTA07.pdf. This report looks at the market opportunities for California agriculture in Korea and at its impact on Korean agriculture. 

Exports of California Agricultural Products to Korea, 1999–2005 

Value $000 

Commodity 1999 1 2000 1 2001 2002 2003 2004 2005p

Oranges, fresh2 14,512 41,000 51,152 70,877 81,101 88,846 96,670 

Almonds 11,326 11,000 13,903 17,409 21,382 25,781 34,608 

Cotton 69,656 88,000 99,969 37,626 29,328 28,034 33,214 

Walnuts 4,000 4,566 6,712 7,434 13,890 17,522 

Hay 4,189 13,000 14,961 17,600 17,745 17,120 14,282 

Hides & Skins3 17,167 16,390 18,721 15,113 13,878 

Tomatoes (processed) 9,276 8,000 9,710 11,364 10,938 11,387 12,300 

Wine 2,358 3,000 4,915 3,347 5,927 6,992 9,535 

Grapefruit (incl. 

juice) 1,004 2,028 4,001 5,107 8,914 

Rice 3,988 10,979 25,340 17,447 6,619 

Grape Juice 6,115 3,000 6,348 7,878 8,169 5,180 5,249 

Dairy and Products 12,096 28,000 16,816 17,938 11,419 4,200 6,279 

Raisins 2,444 2,568 2,669 2,631 3,653 4,159 

Table Grapes 451 0 2,202 2,273 2,955 

Lemons 2,443 3,398 2,542 2,749 2,950 

Orange Juice 3,295 3,779 2,976 2,955 2,392 


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1Office of the United States Trade Representative, ‘‘FTA: United States & Republic of Korea 

Economic and Strategic Benefits,’’ February 2, 2006. 2Office of the United States Trade Representative, ‘‘Trade Facts FTA: United States & Republic of Korea Opportunities for Agriculture.’’ February 2006. 

Exports of California Agricultural Products to Korea, 1999–2005—

Continued 

Value $000 

Commodity 1999 1 2000 1 2001 2002 2003 2004 2005p

Cherries 352 9 1,439 1,459 1,180 

Pistachios 587 475 434 532 914 

Kiwi fruit 57 0 1,438 1,924 859 

Lettuce 51 45 420 649 777 

Flowers 704 187 308 112 437 

Olives 9 161 382 834 382 

Beef (and products)4 37,795 51,000 21,022 39,781 52,956 114 243 

Total CA Export to 

Korea 178,000 262,000 279,415 274,000 312,010 259,000 278,556 

1Data provided for commodities with exports of more than $2 million in 1999 and 2000. 

2 Includes fresh oranges and orange juice from 1999 and 2000. 

3 Included in beef and products for 1999 and 2000. 

4 Includes beef and hides and skins from 1999 and 2000. 

pPreliminary figures 

Source: U.C. Agricultural Issues Center, Annual California International Agricultural Export estimates, 

2001–2005. 

Market Access 

Fresh fruits and vegetab les 

Our primary objective is to improve global market access for California agriculture. California’s fruit and vegetables are faced with excessive export tariffs that 

are four times greater than U.S. agricultural tariffs. Tariffs on California fresh citrus exports to Korea range from 40—144%. The Korean government views citrus as 

a sensitive product and has advocated that there be no reduction in tariffs, especially during its ‘‘in season.’’ Korea is California citrus growers’ largest export market. A free trade agreement with Korea must lower the tariffs being applied to California citrus products. Overall, the average applied tariff on California fruit and 

vegetable products is 53.6%, while, the United States imposes an average 6% applied tariff on fruits and vegetables, respectively.1 There must be fairness under this 

agreement. 

As we have advocated in the World Trade Organization negotiations, this free 

trade agreement must reduce tariffs for fresh fruit and vegetables in the Harmonized Tariff Schedule (HTS) Chapters 7 and 8. We recognize that because of the 

sensitivity of these negotiations there will have to be differing phase-outs of tariff 

schedules for each commodity. 

Beef products 

Prior to the beef ban in December 2003, the Korean market was an important 

market for our beef cuts and organs that are not primarily consumed in the U.S.. 

U.S. beef and offal products face an applied tariff of 8–40%.2 In addition to market 

access, a clear protocol, or timeline, for the acceptance of U.S. beef into Korea must 

be established prior to final acceptance of the agreement. We have relied too many 

times on agreements making promises of resolving phytosanitary issues only to continue negotiating after the finalization of an agreement, without results. 

non-tariff barriers 

In many cases, non-tariff barriers become the biggest issues that hold up the 

progress and success of an FTA. Similar to the Australian FTA, and others, this 

agreement must establish a protocol for both countries to effectively address on 

going phytosanitary issues. 


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1D. Woodward, N. Drager, R. Beaglehole, D. Lipson. Globalization, global public goods, and 

health. In: Trade in Health Services: Global, Regional and Country Perspectives. N. Drager and 

C. Vieira, Eds. Washington, DC: PAHO, 2002. pp 6–7. 2Sun Ha Jee, II Soon Kim, II Suh, Dongchun Shin and Lawrence J Appel (1998). Projected 

Mortality from lung cancer in South Korea, 1980–2004. International Journal of Epidemiology; 

27;365–69. 

We not only want expanded access for those commodities that currently export to 

Korea but those that have the potential to meet the needs of a growing and changing marketplace. 

Conclusion 

CFBF appreciates this opportunity to comment on the U.S.-Korea free trade 

agreement. Of all the agreements being negotiated this one has the most potential 

for the greatest gain for California producers. For more details on the opportunities 

and impacts of this agreement please refer to our ‘‘U.S.-Korea Free Trade Agreement, What it would mean for California Agriculture’’ that you can access at http:// 

www.cfbf.com/issues/pdf/KoreaFTA07.pdf. Please feel free to contact Rayne Thompson, in my office, with any questions. 

f 

Statement of Center For Policy Analysis on Trade and Health 

Tobacco Control 

According to the Pan American Health Organization and the World Health Organization, ‘‘Transnational tobacco companies—have been among the strongest proponents of tariff reduction and open markets. Trade openness is linked to tobacco 

consumption.’’ 1

It is not clear what The U.S Trade Representative has indicated that tobacco 

measures in the Korea-U.S. Trade Promotion Agreement will be similar to all recent 

U.S. trade agreements, which have included reductions in tariff and nontariff barriers to trade in tobacco products. These provisions are intended to increase consumption of tobacco products, which are lethal. Reducing tobacco consumption is a 

key public health goal of particular consequence for South Korea, where 67% of 

males smoke presently. 

Korea currently attributes the majority of its deaths to cancer. Cancer-related 

deaths rose from 13.8% to 21.4% of all deaths between 1980 and 1994—with cancerrelated mortality for men changing from 49.5 to 134.2/100,000, and for women from 

32.6 to 76.1/100,000. Since 1980, lung cancer has increased the most rapidly, and 

liver and lung cancer in men accounted for 65% of all cancer deaths from 1984–

1998.2

There is a lag period of between 20 and 30 years between tobacco consumption 

and tobacco-related deaths such as lung cancer. Mortality due to lung cancer is sure 

to increase and present significant problems for suffering individuals, for the national health care system, and in the loss of economic productivity due to premature 

deaths. 

Tobacco control measures appear to be achieving a slow decline in tobacco consumption in South Korea. In 1995, Korea passed the National Health Promotion Act 

(NHPA), which states that all public areas and facilities must assign smoking and 

non-smoking areas. The NHPA also restricts cigarette vending machines and selling 

to those under the age of 19. It requires health warnings on tobacco packaging and 

advertising. Annual per capita consumption declined from 130 in 1990 to 116 in 

2000. One goal of the NHPA is to reduce male smoking from 67% to 30%, and female smoking from 6.7% to 5%, by 2010. 

Korea has a 40% tariff on imported tobacco products. Korea originally planned to 

levy a 40 percent tariff on imported tobacco as its lifting of the state monopoly on 

cigarettes became effective in July 1, 2001. But, driven by pressure from the U.S. 

government and multinational cigarette producers, the Korean government reluctantly consented to phase in the tariff by 10 percent a year, gradually raising it to 

40 percent by 2004. This tariff will likely be eliminated by the agreement, which 

will likely increase consumption particularly among youth. 

The proposed liberalization of tobacco markets under the KORUS FTA has the potential to significantly hinder this progress. Korea had import tariffs on foreign cigarettes, until the 1980s, when the U.S. exerted pressure to liberalize the tobacco industry under the Special 301 provisions. In 1988 smoking rates among male Korean 

teens rose from 18.4% to 29.8% in a single year. The rates among female teens more 


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3 Callard, Chitanondh, and Weissman. Why trade and investment liberalization may threaten 

effective tobacco control efforts. Tobacco Control, 2001; 10:68–70 

4Shaffer ER, Brenner JE and Houston TP, International trade agreements: a threat to tobacco 

control policy. 

than quintupled—from 1.6% to 8.7%.3 These rises were due to decreased prices and 

increased advertising. 

This FTA includes NAFTA-like provisions that give investors, including tobacco 

companies, standing to challenge governmental regulations at the local, state, and 

national levels directly and seek compensation for profits lost due to rules that do 

not comply with strict investment obligations. 

Trade agreements enable the tobacco industry to challenge a wide range of tobacco control measures, unless tobacco products are specifically excluded from trade 

agreements: 4

• Tobacco tariffs—Tariffs can also be challenged as discriminatory and restrictive 

trade barriers. 

• Reducing exposure to secondhand smoke—Clean indoor air rules, including banning smoking in restaurants and bars, could face challenge as barriers to trade 

since these policies decrease cigarette consumption, and company profits. 

• Ingredient disclosure and warning labels—Under investor rights provisions, private corporations could sue for ‘‘expropriation’’ of property as a result of regulations on ingredient disclosure and warning labels. 

• Controlling sale and distribution of tobacco products—Wholesale and retail licensing, controls on vending machines, and restrictions on sales to children 

could be subject to challenge under rules governing distribution services in 

trade agreements. 

• Cigarette content regulation—Laws and regulations to enact tobacco control affecting cigarette content regulation, including fire-safe cigarettes, are subject to 

potential challenge trade rules. Consumer warnings could be required as a substitute for product regulation as they are less restrictive to trade, but they are 

also less effective tobacco control measures. 

• Advertising, promotion, sponsorship, and marketing restrictions—Partial bans 

of cigarette advertising could be challenged as trade violations under FTA trade 

rules affecting advertising. 

The investor-state provision in the Korea agreement makes tobacco control measures particularly vulnerable to challenge. 

CPATH recommends the following: 

1. Tariff and Nontariff Provisions: 

Exclude tobacco products from all trade rules and in each relevant Schedule and 

Annex, including but not limited to Market Access, Most Favored Nation, National 

Treatment, Services, Intellectual Property, Investment and Dispute Settlement and 

tariff reduction schedules. 

2. Insert the following: 

Notwithstanding any language to the contrary, nothing in this agreement shall 

block, impede, restrict, or modify the ability of any party to take or maintain any 

action, relating to manufactured tobacco products that is intended or expected, according to the party, to prevent or reduce tobacco use or its harms and costs or that 

is reasonably likely to prevent or reduce tobacco use or its harms, including tariffs 

and restrictions on the marketing of tobacco or tobacco products. 

3. Add: Provisions of the Framework Convention on Tobacco Control shall govern, 

in the event of any conflict with this Agreement. 

4. Eliminate the investor-state provision that gives foreign corporations greater 

rights than domestic investors to file trade challenges against tobacco control measures. 

Intellectual Property and Access to Affordable Medicines 

The U.S. persists in pressing for changes in Korea’s drug pricing system that are 

strongly opposed in Korea. Because several U.S. federal programs use reference 

pricing systems similar to Korea’s to provide affordable drugs, the U.S. is trading 

off our ability to provide affordable medicines at home in exchange for other economic benefits to the transnational pharmaceutical industry from this agreement. 

We are also trading off our ability to concentrate on other, more important objectives, such as opening up automobile markets, in return for questionable benefits 

to the transnational pharmaceutical industry and even fewer clear benefits to the 

American public. 


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The agreement proposes expanded protection of drug company monopoly rights. 

It is important to be clear about what this means for the people of Korea and the 

people of the U.S.: higher prices for people and delayed fair competition from generic 

competitors which would lower prices. On March 28, Korean trade negotiators reportedly capitulated to U.S. demands to implement new data exclusivity rules, patent extensions, and linkage between patent and drug marketing offices. These provisions, if implemented, will depress generic production and increase prices. Korea’s 

universal National Health Insurance system relies on generic medicines to control 

drug costs. Drugs already account for 30% of Korea’s health expenditures, more 

than other OECD countries. The average annual income in Korea is $16,000 a year. 

According to the Korea Policy Institute, ‘‘new drug prices are comparable to average factory prices in the U.S., the United Kingdom, Germany, France, Italy, Japan, 

and Switzerland. The Korean government has enacted cost containment measures 

in the area of pharmaceuticals—lowering the reimbursement costs for drugs and 

supporting the production of domestically produced generic drugs. The Korean 

Health Insurance Review Agency has a goal of reducing pharmaceutical costs from 

more than 29 percent of the national insurance payments to less than 24 percent 

by 2011. South Korea relies on the provision of generic drugs to control pharmaceutical costs in their public health care system.’’

The Korean Alliance Against KorUS FTA reports that people in Korea already 

suffer as a result. Han-ki Yoon, diagnosed with AIDS nine years ago, needs secondline treatments which are unavailable or unaffordable there. He reported that Roche 

has rights to sell Fuzeon in Korea, but refuses to do so, demanding a price of 

$20,000 a year per patient. 

Jung-ha Kim, whose bother died of leukemia in October, 2006, noted that the national health program now pays over $31 million a year to treat leukemia patients 

with Gleevec. 

The pharmaceutical industry has stated in its published remarks on trade advisory committees that trade negotiations have become the principal process through 

which it is able to ensure new standards of protection and enforcement. Some of 

these provisions, on reviews for government purchasing decisions, would be new to 

the U.S., and would not likely be independently approved here if proposed independently. Others, such as data exclusivity, are being imposed out of context of finely 

balanced U.S. rules. The drug industry is due reasonable compensation based on 

evidence that it is producing innovations and that these innovations are available 

to and benefiting populations who need them. To the contrary, however, stronger 

IP rules have coincided with diminished innovation, and reduced access to needed 

drugs. Drug company rights should be fairly balanced against people’s human right 

to medical care. The Korea agreement does not meet this test. 

A statement by majority Ways and Means Committee members on March 27, 

2007, indicates an intention to establish a fair balance between access to medicines 

and protecting pharmaceutical innovation in developing countries. However, it also 

calls for opening up Korea’s ‘‘closed markets’’ for pharmaceuticals and automobiles. 

We suggest the Committee reconsider important respects in which life-saving medicines and automobiles are not similar products. 

Restrictions on government purchasing 

The Korea Policy Institute reports: ‘‘Before the second round of talks, the South 

Korean government introduced plans to implement a ‘‘positive list’’ of reimbursable 

prescription drugs by the end of 2006. A ‘‘positive list’’ system creates a list of drugs 

with proven efficacy and price-competitiveness that will be reimbursed within the 

national health care system. This would replace the existing ‘‘negative list’’ system 

that only lists drug exclusions. The positive list system is not a unique intervention 

by the South Korean government. Indeed, it has been adopted in many OECD countries and is an effort towards keeping the high cost of health care expenditures 

down. Many U.S. states and HMOs are taking a similar approach of scrutinizing 

prescriptions drugs, encouraging the use of generics, and limiting reimbursements 

on brand name drugs.’’

The U.S. proposal calls for Korea to install an independent review board on government pricing and drug selection decisions, as Korea establishes a ‘‘positive list’’

program for selecting and pricing drugs in Korea. This provision would also subject 

to trade challenges several U.S. programs that use formularies and reference pricing 

(negotiated rates for a limited number of drugs in each therapeutic category). These 

U.S. programs include Medicare hospital drug purchases, Medicaid, Department of 

Defense, and Veterans Affairs, and federally authorized drug discount programs for 

other providers. These provisions were controversial in the Australia agreement. 

(see attached from CPATH.) 


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The U.S. has also required that Korea charge the average price for G7 countries 

(referred to as the A7 price) for each listed drug. 

The U.S. is trading off our ability to provide affordable medicines at home in exchange for other economic benefits to the pharmaceutical industry from this agreement. We are building a track record, with Australia and now with Korea, of using 

trade negotiations to establish policies that will prop up high drug prices at home 

and abroad. These policies would be unlikely to pass an independent vote in Congress, and do not balance Congress’ objectives in the Trade Act to assure affordable 

medicines while promoting intellectual property rights. 

CPATH recommends the following: 

1. Exclude TRIPS-plus provisions including data exclusivity, patent extensions 

and linkage, from the Korea agreement. 

2. Exclude provisions calling for outside review of government drug purchasing 

determinations in Korea and in the U.S. 

Attachment 

CPATH w Center for Policy Analysis on Trade and Health 

Bringing a Public Health Voice to Trade and Sustainable Development 

The U.S.-Australia Free Trade Agreement Can Challenge VA and Medicaid 

Drug Prices 

Summary 

The Australia Free Trade Agreement can expose U.S. drug discounts for programs 

including Veterans Affairs, Medicare and Medicaid, to greater leverage by the pharmaceutical industry through independent review processes that vary from current 

practices. 

U.S. health care consumers and professionals are not represented in trade negotiations. Trade agreements, which frequently lead to unintended consequences, increasingly address important issues of health and social policy. Congress can take 

steps now to assure that the U.S.-Australia FTA protects affordable drug prices, and 

to include the public health community in a transparent trade policy process. 

Australia FTA and Department of Veterans Affairs: 

The FTA gives drug companies the right to challenge drug listing and pricing decisions by the Department of Veterans Affairs. Independent reviews can delay procurement decisions, and allow companies to pressure agencies for higher prices. 

The VA system effectively achieves very low prices for medicines. Under the U.S.- 

Australia FTA, ‘‘suppliers,’’ defined as businesses, are authorized to challenge VA 

procurement decisions, including listing and pricing pharmaceuticals, through ‘‘at 

least one impartial administrative or judicial authority that is independent of its 

procuring entities’’(15.11.2). 

The FTA process described is different from the current domestic U.S. bid challenge system. The independent review body must have the power to overrule VA decisions promptly (Article 15.11.4) The General Accounting Office, presently the first 

line of review, can recommend but not override VA decisions. Court appeals, the second step, might not be considered prompt. A system that does meet these requirements could jeopardize the VA’s successful drug pricing system. 

The process is different from the World Trade Organization’s Government Procurement Agreement, Article XX: 1. The WTO requires only that interim corrective 

measures preserve commercial opportunities generally; U.S.-Australia gives specific 

rights to the complaining supplier to participate in the procurement opportunity at 

hand. 2. The WTO calls for procedures that can provide for interim measures (such 

as delaying a procurement decision). U.S.-Australia gives that power to the independent review authority, which is separate from the procuring entity. 3. The WTO 

has an exception for the public interest; U.S.-Australia has no such exception 

Grounds for filing a complaint do not need to include a charge of discrimination 

based on national origin. A supplier can assert failure to comply with the Federal 

Acquisition Regulations, in the case of the U.S.. The FTA requires that decisions 

do not have the ‘‘purpose or effect of creating unnecessary obstacles to trade.’’ A 

drug company with an office in Austalia could initiate a challenge. 

CPATH w Ellen R. Shaffer and Joe Brenner, Directors w 98 Seal Rock Drive, San 

Francisco, CA 94121 USA email: cpath@cpath.org w www.cpath.org 

The U.S. Trade Representative, and the General Counsel for the VA, have provided the following assurances: 


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1. The VA is not covered by the FTA’s Annex 2–C on pharmaceuticals. This is 

true. However, VA drug listing and pricing decisions are covered in another FTA 

section, Chapter 15 on Government Procurement. 

2. VA non-contracting measures will be protected by the ‘‘Exceptions’’ article of 

the FTA, which exempts measures necessary to protect human life or health. This 

is an extraordinarily sunny interpretation of the exception, which also requires 

countries to demonstrate that the measure in question does not provide a ‘‘disguised 

restriction on international trade,’’ and has failed in past cases to prevent arguably 

graver threats to life. 

3. The Australia FTA gives rights to drug companies to challenge drug purchasing 

and reimbursement decisions by Medicare and Medicaid, which could lead to higher 

prices. 

Annex 2–C on Pharmaceuticals applies to ‘‘federal healthcare authorities [that] 

operate or maintain procedures for listing new pharmaceuticals or indications for reimbursement purposes, or for setting the amount of reimbursement for pharmaceuticals, under its federal healthcare programs.’’ These programs are distinguished 

from those like the VA that procure drugs directly, and are covered by Chapter 15 

on Government Procurement. 

The USTR has stated that parts of Medicare would be covered by this provision. 

Annex 2–C would also apply to Australia’s Pharmaceutical Benefits Scheme, which 

negotiates low drug prices for Australians. 

The USTR has asserted that Medicaid would not be affected because it is a state 

program. However, These are strong grounds for disputing the USTR’s view. A federal authority, HHS, maintains the federal statute on drug price rebates for Medicaid programs. (Many states then proceed to seek further discounts.) Medicaid was 

created by federal law. 

Annex 2–C requires affected agencies to ‘‘make available an independent review 

process that may be invoked at the request of an applicant directly affected by a 

recommendation or determination.’’ The USTR has stated that ‘‘applicants’’ refers to 

program beneficiaries. A May, 2004, request to the Department of Health and 

Human Services to clarify this point has not been answered. Assuming that ‘‘applicants’’ includes drug companies, the California Senate Office of Research (SOR) has 

commented regarding Medicaid: ‘‘The . . . requirements that would appear to conflict with California current practice would be the independent review process, implemented at the request of an applicant, and the requirement that written justification for any decision be given to the applicant. In very general terms, the agreement 

would make drug pricing and regulation more difficult by expanding the basis for 

an applicant to challenge an administrative decision.’’ The SOR analyst agrees that 

failure to reach agreement on price could in this case be grounds for a request for 

independent review, a right that drug companies do not currently enjoy. 

Congress can take steps now to change the U.S.-Australia FTA and to protect U.S. consumers. 

VA drug procurement, Medicare and Medicaid could be excluded from the Agreement. Many procurement decisions are already excluded from the Australia FTA including motor vehicles and dredging at construction sites. The VA Counsel claims 

that Chapter 15 gives new access to U.S. contracts for Australian firms; however 

the USTR also claims that Australian drug companies have no such interest. Important government programs that provide benefits to millions, including vulnerable 

populations, can legitimately be excluded from this Agreement. 

f 

Statement of Korea International Trade Association 

The Korea International Trade Association (KITA), 460 Park Avenue, Suite 1101, 

New York, NY 10022, is registered with the U.S. Department of Justice, Washington, D.C. under the Foreign Agents Registration Act as an agent of KITA, Trade 

Tower Gangnam-gu, Seoul 135–729, Republic of Korea. This material is filed with 

the United States Department of Justice where the required registration statement 

is available for public inspection. 

I. Introduction 

The Korea International Trade Association (‘‘KITA’’) is an association of more 

than 60,000 Korean companies with diverse trading interests in the United States 

and globally. Our association is actively involved in monitoring developments related to the Korea-U.S. free trade agreement (‘‘KORUS FTA’’) negotiations. Given 

the breadth of interests KITA represents, the long-standing trade relationship beVerDate Aug 31 2005 04:43 Jul 23, 2008 Jkt 040312 PO 00000 Frm 00129 Fmt 6633 Sfmt 6621 E:\HR\OC\40312.XXX 40312

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tween both countries, and our member companies’ significant investment in the 

United States, I believe our perspective on the FTA concluded between Korea and 

the United States would be of significant value to the House Ways and Means Subcommittee on Trade. 

KITA has strongly supported the KORUS FTA negotiations since they were 

launched last February, recognizing that a balanced final agreement would offer 

many benefits and opportunities for both countries. However, KITA also understands that such an agreement poses many challenges and raises concerns on both 

sides of the bilateral trade relationship. KITA would like to balance the discussion 

on the impact of a KORUS FTA in both countries, and wishes to express our strong 

hope that U.S. and Korean businesses will work together in a final push to facilitate 

the implementation of the agreement. An expansion of trade between our two countries will only serve to benefit the U.S. and Korean economies in the long term. 

II. A KORUS FTA Will Benefit Both Countries 

The Korean government and business community recognize the need to further 

open Korea’s economy to remain competitive in the global economy. It is for this reason the Korean government has crafted a new trade policy that embraces the pursuit of FTAs on a multi-track basis. KITA believes that FTAs, especially one with 

the United States, will help Korea lock in needed economic reforms and further liberalize the Korean economy. Further, the KORUS FTA will benefit both countries 

because it will create meaningful new trade flows for goods, services and investment. 

Apprehension over market liberalization is not new or unique to the United 

States. For example, many KITA member companies in the agriculture and services 

sectors share concerns similar to those expressed by U.S. business interests. For 

perspective, however, it is worth noting the magnitude of the challenges faced by 

Korean industry and agriculture. When U.S. interests express concern about the impact of an FTA with Korea because Korea is the United States’ 7th largest trading 

partner, we must remind those interests that the U.S. economy is much larger in 

scale than Korea’s—U.S. GDP is 15 times larger than that of Korea—and is in fact 

Korea’s 3rd largest trading partner. 

What interests in both the United States and Korea need to realize is that the 

bilateral trading relationship is more complementary than competitive. Recent economic studies demonstrate that a KORUS FTA will lead to greater intra-industry 

trade that is beneficial to both economies, and show the deeper the liberalization 

of the Korean market, the greater the effect on overall GDP. This includes liberalization in sensitive Korean sectors. 

Studies undertaken by the Korea Institute for International Economic Policy 

(KIEP) estimate the benefits to Korea of a KORUS FTA to include $5.4—$8.2 billion 

in increased exports, and over $35 billion in income growth. Studies have also revealed that market liberalization frees up resources and can also strengthen the 

long term competitiveness of Korean industries. This is true for Korea, as KIEP has 

shown, but it is also true for the United States. 

KITA is pleased that both sides have worked through concerns over tough sectoral 

issues such as autos, pharmaceuticals and investment in order to conclude the 

KORUS FTA. All realized that there is too much to gain and too much to lose. 

III. A KORUS FTA is Necessary to Ensure the Continued Strength of the Bilateral 

Economic Relationship 

The close economic relationship between Korea and the United States makes an 

FTA between our two countries not simply important, but imperative. The following 

statistics are worth emphasizing here: Korea is the United States’ 7th largest trading partner and 6th largest export market for agricultural products. The United 

States is the number one source of foreign direct investment in Korea, the 2nd largest export market for Korean goods, and the 2nd largest investment destination for 

Korean companies. The KORUS FTA has significant commercial implications for 

trade in manufactured goods, as well as the service sectors. 

However, our strong economic relationship is not self-sustainable; we must continue to reinforce it. This fact is illustrated by considering the situation if the concluded FTA is not implemented. Though bilateral trade volume is increasing, each 

country’s share of trade in the other country is decreasing compared to third countries. For example, Korea’s share in the U.S. import market has continuously decreased over the past decade. In 1998, it was as high as 4.6%, but, the share was 

only 2.5% in 2006. Likewise, the U.S. share of Korea’s import market also has declined during the same time period. In 1998, U.S. goods enjoyed 24.6% of Korean 

market, but the share dropped to 10.9% last year. 


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A similar trend can be observed with respect to foreign direct investment—our respective share of FDI in each other’s country is also declining. While the United 

States remains the largest investor in Korea, its share of FDI has dropped from 37% 

of total FDI in Korea in 2004 to just over 15% in 2006. In the meantime, investment 

from the European Union in Korea is on the rise. If Korea concludes an FTA with 

the EU, this investment trend is sure to deepen. Likewise, Korean investors are 

turning away from the United States and putting their money into other destinations like China, Europe, Central America and Southeast Asia. 

The KORUS FTA will reverse these trends. In past FTA agreements the effect 

on trade has been clear: trade between the FTA countries increases dramatically. Indeed, Free trade agreements (FTAs) have proven to be one of the best ways to open 

up foreign markets to U.S. exporters. Today, the United States has FTAs with 13 

countries. According to the latest edition of the U.S. Commerce Department’s International Trade Update, last year U.S. trade with these FTA countries was significantly greater than their relative share of the global economy. Although comprising 

only 7.3 percent of global GDP (not including the United States), those FTA countries accounted for 42 percent of U.S. exports. 

U.S. trade with Chile provides a great example of the benefits of an FTA. Before 

the agreement with Chile in 2003, U.S. exports were $2.7 billion. Liberalizing trade 

in the intervening years has had a dramatic effect on trade volumes. By 2006, Chile 

became one of the top 30 U.S. export destinations, with nearly $6.8 billion in exports, a 30 percent increase over 2005 and a 150.1 percent increase since the FTA 

went into force. 

Not only has the volume of exports to Chile increased, but so has the U.S. share 

of Chile overall import market, which has risen from 14.5 percent in 2003 to 16.0 

percent in 2006. Several U.S. industries have benefited from the trade growth with 

Chile, including high-tech, commodity, and finished goods, such as surgical equipment, airplanes, petroleum derivatives, and earthmoving equipment. 

Implementing the concluded KORUS FTA will provide even greater benefits for 

U.S. exporters. 

IV. A KORUS FTA Gives the United States Strategic Advantages 

To conclude, I would like to point out several strategic advantages the United 

States would capture by implementing the KORUS FTA. First, the United States 

will be able to tap into Korea’s world-class information technology (IT) infrastructure, creating unparalleled business opportunities for U.S. service providers and related industries. Korea is an ideal place for the United States to test new technologies, and will provide a competitive edge for companies that do business in 

Korea. 

A second strategic advantage is Korea’s geographical location. The KORUS FTA 

will allow the United States to establish a bridgehead in Northeast Asia. Closer economic ties to Korea will translate into more efficient access for the United States 

to Japan, China and the ASEAN region. These markets, combined with Korea, represent one-third of the world’s population, and include some of the fastest growing 

economies in the world. 

Finally, the political and diplomatic advantages of the KORUS FTA cannot be 

downplayed. In addition to strengthening our economic relationship, the KORUS 

FTA will help to solidify the two countries’ longstanding diplomatic ties, and will 

serve to support our bilateral relationship in the years ahead. 

Promoting understanding about the benefits of the KORUS FTA is essential. 

KITA has been fully engaged in this objective both in Korea and with its counterparts in the United States. Most recently, KITA held a conference with business 

leaders from 7 Southeastern states in Alabama, during which an agreement on the 

benefits of a KORUS FTA was reached. On March 14, I was pleased to represent 

KITA and join representatives of the National Association of Manufacturers and the 

U.S. Business Coalition for the KORUS FTA in a roundtable hosted by the U.S. 

Chamber of Commerce to reaffirm the common goal of concluding this important 

agreement. 

KITA remains committed to supporting the vital trade relationship between Korea 

and the United States. Implementing the recently concluded KORUS FTA will ensure the continued strength of our vibrant bilateral economic relationship, create 

new opportunities for economic growth and job creation in both countries, and increase U.S. and Korean competitiveness in the world. 

f 


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1See, for example, Thea Lea,policy director of the AFL–CIO, ‘‘Testimony on the Proposed U.S.- 

South Korea Free Trade Agreement. March 24, 2006. 2See discussion in Bruce Cumings, Korea’s Place in the Sun, W.W. Norton & Co., 2005, p. 

313. 

Statement of Korea Policy Institute 

I would like to thank Congressman Sander Levin for this opportunity to speak 

on the current U.S. trade agenda. The focus of this statement is the proposed U.S.- 

Republic of Korea (South Korea) Free Trade Agreement currently being negotiated 

by representatives of the two governments. After a brief background on the proposed 

FTA, my statement will discuss the historical relationship between U.S. labor and 

South Korean economic development and its lessons for the proposed FTA, the linkage of South Korean agriculture with national culture and its relationship to antiAmericanism, and concerns about the lack of appropriate democratic process in 

South Korea. 

Background 

On February 2, 2006, the United States and the Republic of Korea (South Korea) 

announced that they would open talks on a bilateral free trade agreement between 

the two governments that would remove protective trade measures such as tariffs 

and import quotas. The U.S. is South Korea’s third-largest trading partner, after 

China and Japan, and its largest foreign direct investor, and the U.S. market is 

South Korea’s second largest export destination. South Korea is the seventh-largest 

trading partner for the U.S. and its seventh-largest export market. South Korea 

ranks as the tenth-largest economy in the world. Major imports from the U.S. include semiconductor chips, manufacturing equipment, aircraft, agricultural products, and beef. Major imports from South Korea include cellular phones, semiconductor circuits, television and flat panel screens, cards, computer parts, and construction vehicles. Other major issues under discussion include pharmaceuticals, 

automobiles, investor-state claim rules, steel, intellectual property rights, U.S. visa 

policies toward South Korean nationals, and whether to include products made in 

the North-South joint industrial park at Kaeseong. 

The first round of formal negotiations occurred during June of 2006 in Washington, DC, and a total of seven rounds alternating between countries have thus far 

taken place. Informal talks have been interspersed between the rounds. The FTA 

is being negotiated under ‘‘fast-track’’ authority granted to the Bush Administration 

shortly after 9/11. This authority allows the executive branch to present a completed 

agreement for a mandatory Congressional vote without possibility of amendments. 

The South Korean National Assembly must also pass the FTA for it to go into effect. 

Labor rights, wages, and lessons from the past 

Understanding how South Korean products began to be shipped to the U.S. in the 

1960s suggests much of what might be the consequences of the proposed FTA, and 

why concerns are being expressed by labor unions that fear a repeat of their past 

experiences with South Korean trade relations.1 The loss of jobs and the concomitant weakening of organized labor in the U.S. is inextricably linked to the historical 

and continuing labor exploitation in South Korea. The economic development of 

South Korea that began in earnest in the 1960s was accompanied by a decline of 

manufacturing jobs in the U.S. as corporate interests took their factories to Asia and 

other parts of the globe. Then military dictator Park Chung Hee maintained an iron 

fist over South Korea’s economy, ensuring intense state and corporate-sponsored repression of workers who suffered in some of the worst working conditions in the 

world. The hyperexploitation of South Korean workers meant that American manufacturers in the early 1960s could calculate that the labor cost saving for firms willing to move to Korea was a factor of 25, since South Korean workers were paid one 

tenth of American wages but were 2.5 times more productive given, for example, the 

extraordinary number hours they put in per day, the lack of overtime, and the six 

day work week.2 Good jobs in the U.S. turned into bad jobs in South Korea. Supported by South Korean policies and U.S. willingness to open up key markets, light 

industries including textiles, footwear, radios, televisions, toys, and small appliances 

rapidly set up factories in South Korea, and beginning in the 1970s were joined by 

heavy industries including steel, cars, chemicals, defense, machine-tools, and semiconductors. 

Similar to the reversal of earlier gains made by U.S. organized labor, rights and 

benefits accrued by South Korean organized labor through struggles over three decades have been lost. In particular, South Korean unions were weakened by South 

Korea’s economic freefall during the 1997 Asian financial crisis. This crisis afforded 

the South Korean state and the chaebol an opportunity to reverse the gains of the 


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3See, e.g., Hagen Koo, Korean Workers: The Culture and Politics of Class Formation, Cornell 

University Press, 2001. 4Lim Hyun-Chin and Jang Jin-Ho, ‘‘Neo-liberalism in Post-Crisis South Korea: Social Conditions and Outcomes,’’ Journal of Contemporary Asia, October 2006. 5The FKTU has since evolved into a more mainstream and legitimately recognized organization. 

labor movement, and since then workers have been fighting off declining working 

conditions, wages, and benefits.3 South Korea has been moving with rapidity toward 

the ‘‘casualization’’ of its labor force. ‘‘Irregular workers,’’ who possess fewer labor 

rights and benefits currently constitute over half of all South Korean workers.4

Widespread state efforts to prevent the rise of independent unions have been a 

staple feature of South Korea since right-wing groups created the Federation of Korean Trade Unions (FKTU) in 1946. Lacking a grassroots base, the FKTU’s raison 

d’etre was to compete with and destroy independent labor organizations.5 Today, the 

South Korean government continues to demonstrate a willingness to intervene in 

the internal affairs of independent unions that emerged despite state and corporatesponsored violence against workers. Labor demonstrations and protests were regularly broken up in the 1960s by violent (public and private) police actions, and this 

continues to be true. Key deficiencies for worker’s rights include the prohibition of 

multiple unions at the enterprise level, continuing restrictions on government employee rights to organize, an overly broad definition of ‘‘essential public services’’

where the right to strike is repressed or prohibited, the prohibition for unemployed 

or dismissed workers to become or remain trade union workers, and the requirement for notification of third parties to industrial disputes. In short, South Korean 

labor laws and enforcement have not reached internationally recognized standards 

of freedom of association and the right to organize and bargain collectively. 

In order to avoid repeating the failures of the past, the FTA should be accompanied by significant changes to South Korean labor laws that enhance worker’s 

rights and benefits, and reverse the casualization of work that has gone virtually 

unimpeded over the last decade. The proposed FTA could be an opportunity to promote sustainable and equitable development between historical allies, but this is not 

possible given the current conditions for labor in South Korea. An enacted FTA that 

fails to ensure the maintenance and enforcement of labor rights and conditions in 

South Korea should be unacceptable to anyone concerned about the plight of workers and organized labor in the U.S. 

Agriculture as Korean culture and its relevance to the proposed FTA 

The rapid rise of industrial development in South Korea whereby good jobs in the 

U.S. turned into bad jobs in South Korea also saw a migration of agricultural workers from South Korea’s countryside into the urban core. In order to generate the 

labor force necessary to generate such rapid industrial development in urban areas 

during the 1960s and 1970s, then military dictator Park kept grain prices below 

market rates and thus artificially expanded the labor pool in industrial centers as 

farmers were driven off their land even when they had bumper harvests. South 

Korea experienced an extraordinarily rapid—and generally unwilling—population 

shift from rural areas to urban centers, with farmer-turned-worker’s wages kept 

down as management rationalized that labor could be paid less since the market 

cost of food fell during this time due to the state’s pricing policies. 

This migration is relevant to current talks because the negotiation of free trade 

policies influencing family farms are socially and politically complicated by the fact 

that so many South Koreans living in cities, only one generation ago, were living 

on farms. Many South Koreans continue to have strong connections to their rural 

roots given how recently their personal lives diverged from decades if not centuries 

of family farming. The Korean peninsula has maintained a domestic agrarian economy for millennia, and the significance of farming goes beyond the economic into 

every aspect of South Korean society and culture, and especially in ordinary South 

Koreans connection to the land. Because Korean society was—and continues to be—

so intimately tied to agricultural society, much of Korean culture as a whole is intimately based upon customs that have emerged through the cultivation of land. 

For many South Koreans, the relationship of low prices to the demise of farms 

is not the theoretical abstraction that it is for advocates of neoliberal policies who 

have not experienced personal consequences of these policies, including rapid social 

and geographical dislocation. South Koreans often experience the demise of South 

Korean agriculture as a loss of both national and family history and culture. Consequently, much of the South Korean population finds it not just appropriate but 

necessary to protect indigenous agriculture and support measures that they view as 

preserving South Korea’s national heritage as well as their own family’s agricultural 


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6Song Meeyoung and Kim Kyoungwha, ‘‘Lotte, Hyundai Spurn U.S. Rice as South Korea Ends 

Retail Ban,’’ Bloomberg News, April 4, 2006. 7 Center for International Development, Harvard University, http://www.cid.harvard.edu/ 

cidtrade/gov/southkoreagov.html. 8 Economic Research Service, U.S. Department of Agriculture, http://www.ers.usda.gov/Briefing/SouthKorea/policy.htm 9 USDA Economic Research Service, http://www.ers.usda.gov/Briefing/SouthKorea/ 

basicinformation.htm 10For a discussion of recent anti-Americanism and a broader discussion of South Korean popular opinion, see Seung-Hwan Kim’s ‘‘Anti-Americanism in Korea,’’ The Washington Quarterly 

26.1 (2002–03) 109–122. 

history. This belief in the importance of protecting agriculture not simply as an industry but as Korea’s history, culture, and land, has been reinforced by the rise of 

a middle-class environmental movement, the farmer and peasants movement, and 

urban-based allies. In a particularly powerful example of the importance of agriculture to the average South Koreans, the three largest department store chains in 

South Korea—Lotte, Hyundai, and Shinsegae—each independently decided against 

purchasing cheaper imported rice and offering it to consumers for fear of a public 

backlash against their chains that will influence their ability to sell other products 

offered at their stores.6

The average American farm is 58 times larger than the average Korean farm. 

Like small family farmers in the United States, South Korea’s farmers cannot compete with large U.S. agribusiness capable of producing low-priced goods with the aid 

of significant U.S. government subsidies. In order to protect agricultural industries, 

except for rice which works under a quota system, the average South Korean tariff 

on agricultural products approaches 50 percent (compared with 7.5 percent tariffs 

on industrial products).7 South Korea already imports about 60–70 percent of its agricultural products, and South Korean consumers are among the U.S.’s largest markets for agricultural products and beef, representing over a fifth of imports.8 This 

percentage is certain to rise under an FTA with the U.S., which is seeking to liberalize the trade of 235 items that are currently protected in varying degrees. 

The South Korean agricultural sector is not export-oriented but instead strives to 

be self-sufficient in rice, horticultural products, and livestock production.9 South 

Korea currently has roughly 3.5 million farmers, or about 7.5 percent of the population. All farming in South Korea is done by individual farmers with small to medium-size holdings. Half of the South Korean farmers are now over 60 years old, 

which significantly circumscribes their possible professional options should their 

farms disappear. Many of these farmers have no other choice but to farm. Inclusion 

of agriculture in the proposed FTA is likely to obliterate this indigenous base of 

family farmers, with at least half of Korea’s farmers expected to lose their farms 

and enter urban areas in search of work. Farmers and their advocates are adamant 

that more is at stake for them than a loss in profits, and that beyond cost-benefit 

calculations, the proposed FTA threatens the fabric of Korea’s rural communities, 

and will have severe social, cultural, and environmental costs. 

Should the proposed FTA pass, the sense of cultural loss is likely to be exacerbated by the recognition that the demise of South Korean family farms will come 

not at the hands of other family farmers, but rather by the entry of subsidized U.S. 

agribusiness. Because we are not talking about simply about dollars and cents and 

Korean won, but rather, about Korea’s concern over the preservation of its cultural 

and familial heritage (and for some South Koreans, their sovereignty as a food secure nation), the rise of American agribusiness and the concomitant decline of South 

Korean family farmers are likely to result in intensified anti-Americanism not only 

in the agricultural sector, but through much of a sympathetic civil society. Rather 

than improve U.S.-South Korean relations, inclusion of agriculture in the proposed 

FTA is poised to create greater tension in the historical alliance between the two 

countries. 

Concerns over democratic process in South Korea 

This alliance, of course, has been heavily strained during the Bush Administration. The FTA talks between the U.S. and South Korea come at the height of 

strained relations between the two countries, with anti-Americanism on the rise in 

South Korea.10 The relationship between Washington and Seoul has declined considerably during the Bush Administration, with clear policy differences in their approaches to Korean reunification and the North Korean nuclear crisis. The deployment of South Korean troops to Iraq—the third-largest military contingent behind 

the U.S. and Great Britain—was and continues to be divisive and unpopular in 

South Korea, and South Korea’s attempt to link their support of the war in order 

to induce a more flexible Bush Administration posture toward North Korea clearly 


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11Samuel Len, ‘‘Seoul ties question of troops for Iraq to nuclear progress,’’ International Herald Tribune, October 2, 2003. 12For example, in January of 2004, Seoul-based Research & Research and Gallup Korea carried out a survey to find out which country is the key enemy of Korea. South Koreans under 

50 years of age picked the U.S. as Korea’s key enemy, while those over 50 said North Korea 

was the key enemy. ‘‘For Young Koreans, U.S. ?Main Enemy,’’’ Chosun Ilbo, June 30, 2004. 13 ‘‘FTA to Ease NK Nuclear Concern,’’ Yonhap, February 7, 2006. 14 ‘‘Government Faces Revolt Over Free-Trade Deal With U.S.,’’ Chosun Ilbo, April 10, 2006. 15 Article 12 of the Stipulations on the Procedures for Concluding a Free Trade Agreement 

(Presidential Directive 121). 16 ‘‘Security guards scuffle with protesters during a public hearing on FTA talks in Seoul,’’

Reuters, February 2, 2006. 17 Cho Chung-un, ‘‘Korea unprepared for FTA talks,’’ Korea Herald, August 11, 2006. 18The website (in Korean) for the Korean Alliance Against the Kor-U.S. FTA is http:// 

nofta.co.kr. 

failed.11 U.S. President George W. Bush is widely unpopular in South Korea, as is 

the U.S.-led war on Iraq, and more South Koreans see the U.S. as a threat to their 

safety than they do North Korea.12

Given the rising anti-Americanism in South Korea, some South Korean politicians 

are mistakenly promoting the FTA talks as an opportunity to mend bridges between 

the U.S. and South Korea. Vice Finance Minister Kwon Tae-Shin, for instance, has 

argued that a successful FTA will help to ease tensions with the U.S. on differences 

in North Korea policy.13 However, developments in South Korea suggest that the 

undemocratic process by which the FTA has been negotiated will ensure that an enacted FTA will not improve relations with the U.S., but instead, lead to the further 

rise of anti-Americanism. 

The South Korean government’s effort to engage in trade talks with the U.S. is 

driven in part by the weakness of the South Korean government and specifically of 

the highly unpopular President Roh Moo-hyun. South Korean presidents are elected 

for a single 5-year term.14 As a lame duck president who cannot run for re-election 

in the fall of 2007, and whose approval rating has recently polled in the single digits, Roh appears to view the strategy of pursuing FTAs as a means to quickly 

achieve a political legacy through the insular strength of South Korean bureaucracy 

that would be impossible were popular democratic debate allowed. 

According to South Korean law, interested stakeholders and the public at large 

must have the opportunity to register their concerns about the possibility of an FTA 

before negotiations are launched.15 The purpose is to facilitate democratic debate on 

the possible merits and defects of holding the talks as well as of the possible FTA 

itself. The Roh Administration scheduled this hearing for February 2, 2006, but had 

earlier announced that the decision to hold the talks had already been made, and 

that an official announcement would be made shortly. Representatives of various 

sectors of South Korean civil society, and especially farmers, expressed tremendous 

unhappiness that the decision to pursue talks had occurred before a hearing was 

held, and South Korean government officials abruptly suspended the hearing shortly 

after it began.16 South Korean promises that greater effort would be made to seek 

public opinion have not come to fruition, suggesting that South Korean officials are 

both aware that the public’s voice has not been heard and that the public’s voice 

is not a priority for negotiators. South Korean negotiators also appear confident that 

is unnecessary to consult meaningfully with National Assembly members. For example, legislators have had limited time to pore over complex English-language documents that require translation into Korean. An August 2006 survey of National Assembly Members revealed that a majority of them believed that the South Korean 

government should at least inform the National Assembly when the talks were concluded and that the outcome of negotiations should be made public. A majority of 

Assembly Members also acknowledged that they had failed to seek out public opinion, and admitted having neglected their duties as political representatives.17

Given the general unwillingness of the Roh Administration to allow and facilitate 

an open discussion of the proposed FTA, and the failure of the National Assembly 

to take the lead in a public conversation about the merits and weaknesses of a proposed FTA, it should come as no surprise that important sectors of South Korean 

civil society have organized and emerged in opposition to both the negotiations and 

the FTA itself. On March 28 of 2006, some 270 civic organizations representing millions of workers, farmers, intellectuals, artists, and citizens announced the formation of the Korean Alliance Against the Kor-U.S. FTA, and shortly thereafter on 

April 16, thousands of trade unionists, farmers, students, and major celebrities 

marched in Seoul to demand that the government both abandon talks and allow the 

public to view the earlier negotiation process.18 Popular opposition to the FTA has 


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19Park Song-wu, ‘‘Half of Koreans Oppose U.S.–SK FTA,’’ Hankook Ilbo, July, 31, 2006. See 

also polls reported in Financial News, July 23, 2006 and Hankyoreh, July 12, 2006, where over 

half of the respondents (N=1000) believed the costs of the proposed FTA would be larger than 

the benefits. 20 Bae Ji-sook, ‘‘Dispute Arise(s) on Anti-FTA Advertisement, Korea Times, January 11, 2007. 21 ‘‘Anti-FTA Groups Denied State Subsidies,’’ Korea Times, November 12, 2006. 22 ‘‘Rights Commission Urges End to FTA Protest Ban,’’ Chosun Ilbo, Dec. 6, 2006. 23 ‘‘Police counter anti-FTA protests,’’ Korea Herald, December 7, 2006. 24Shin Hae-In, ‘‘Anti-FTA protesters defy police ban,’’ Korea Herald, November 30, 2006. 25 ‘‘Rights Commission Urges End to FTA Protest Ban,’’ Chosun Ilbo, Dec. 6, 2006. 26 Hoon Jaung, ‘‘2002 vs. 2006, The Rise and Fall of Anti-Americanism in South Korea,’’

Chung-Ang University. 

developed quickly, and a general concern over the potential negative consequences 

of a free trade agreement is now openly expressed in Korean civil society. The disapproval rate of the FTA increased from 29.2 percent on June 7, 2006 to 42.6 percent on July 6 and broke the 50 percent barrier on July 22.19

The Roh Administration’s desire to achieve an FTA with the U.S. combined with 

its dearth of popular approval appears to have led it to embrace certain authoritarian trends that have been prominent in South Korea’s history. State-sponsored 

efforts to prevent the political expression of democratic thought has been a staple 

feature of South Korea since its inception in 1948, and the Roh Administration has 

taken up this legacy in both formal-legal and more openly confrontational ways. For 

instance, the state-run Korean Advertising Review Board rejected an ad submitted 

for approval by representatives of South Korean farmers and filmmakers because 

the ad included images of farmers expressing their opposition to the FTA. KARB 

reasoned that the farmers’ beliefs were unfairly one-sided against the South Korean government, and thus could not be aired. On the other hand, a $3.8 million (US$) 

ad by President Roh’s Committee to Support the Conclusion of the Korea-U.S. FTA 

has aired daily in South Korea. The pro-FTA commercial was not reviewed by 

KARB on the basis that government beliefs need not be regulated.20 More explicitly, 

the Roh Administration has declared that it will cut off access to government subsidies for any organization that opposes the proposed FTA.21

Consistent with South Korean history, there have also been a number of physical 

confrontations between sectors of civil society and the coercive authority of the state 

as embodied by police. Historically, these confrontations centered on the importance 

of political, economic, and social rights, and the recent clashes have been more of 

the same. Tensions have run especially high since a November 22, 2006 confrontation between farmers and police during a protest against the FTA. The Roh government took the opportunity afforded by events of the day to outlaw all FTA-related 

public demonstrations.22 The resulting tactics of implementing this ban on public 

protest have been police deployment in the thousands and checkpoints set up on 

major roads leading to Seoul to prevent ordinary workers and farmers from exercising their freedom of assembly and travel.23 To stop the organizing of protests, the 

police issued summons and warrants for over 170 social movement leaders, raided 

local offices of civic organizations, detained 19 leaders of farmers’ and workers’ organizations, and according to social movement leaders, even made threatening phone 

calls to potential participants of public rallies.24 South Korea’s National Human 

Rights Commission has suggested that the Roh Administration tactics are inconsistent with the South Korean constitution, and urged that the anti-FTA rallies be 

allowed to take place.25 It is worthwhile to note that if the South Korean public believes that such an important negotiation with the U.S. was held largely without 

meaningful input from civil society, this failure to adhere to reasonable democratic 

standards has the potential to become a serious political liability for pro-FTA legislators in the upcoming 2007 elections.26 Thus, even legislators who intend to vote 

yes on any negotiated agreement are concerned about the increasing sense in South 

Korea that the Roh Administration has failed in a fundamental civic duty. 

The passage of an FTA amidst widespread concerns about the failure of the democratic process in South Korea is also likely to enhance negative opinion toward the 

U.S. South Korea’s historical alliance with the U.S. extends through the civilian dictatorship of Syngman Rhee and the military dictatorships of Park Chung Hee, and 

Chun Doo Hwan. Much of the South Korean population is undecided as to whether 

to see the U.S. government as a principled advocate for democracy in South Korea 

or willing to tolerate a lack of democracy so long as U.S. interests are protected. 

Differences in opinion are especially acute between older, more conservative South 

Koreans who lived through the Korean War and younger, more progressive South 

Koreans who increasingly dominate South Korean electoral politics. Should the 

U.S.-South Korea FTA be enacted after what ordinary South Koreans perceive to 

be a hasty 10-month negotiation without appropriate and necessary democratic 


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measures, its passage will give credence to South Koreans who argue that the U.S. 

government is willing to tolerate the failures of South Korean democracy so long as 

U.S. interests are served. It is worthwhile to note that despite significantly lower 

trade volume, South Korea’s FTA with Chile took over three years to negotiate. 

Conclusion 

The passage of the North American Free Trade Agreement (NAFTA) saw the loss 

of good jobs in the U.S. while workers in Mexico found themselves driven toward 

jobs with low wages and difficult working conditions, many of them in border towns 

or across the border. If NAFTA is any indication, passage of the proposed U.S.- 

South Korea FTA is likely to result in similar dynamics. South Korea would be the 

largest FTA partner for the U.S. in 15 years and there is little doubt that the proposed FTA will translate into a widening economic and social rift between the rich 

and the poor in both countries. On the American side, poised to profit are major 

corporate interests including pharmaceutical giants and agribusiness. On the South 

Korean side, the corporate conglomerations known as the chaebol, dominated by a 

handful of South Korean families, stand to gain the most. Losses in different South 

Korean sectors are likely to be framed as the result of an anti-democratic process 

with an American partner more concerned about corporate interests than labor 

rights and benefits in both countries, willing to place corporate profit over the threat 

to South Korean democracy, and unconcerned about Korea’s loss of its national heritage. The historical alliance between the U.S. and South Korea is likely to undergo 

further stress as anti-Americanism becomes tied not just to the Bush Administration policies in Iraq and toward North Korea, but also to the negative consequences 

of an FTA that will significantly change the landscape—both literally and figuratively—of South Korea. The U.S. needs to seriously consider whether an FTA with 

South Korea at this time is really in America’s best interests, or if the FTA will 

end up spurring anti-Americanism in an important historical ally while making the 

lives of ordinary American and South Korean workers and families that much harder. 

f 

Statement of Korean Alliance against Korea-U.S. FTA, Seoul, Korea 

[by Permission of the Chairman] 

Greetings from the Korean Alliance against Korea-U.S. FTA (KOA), a coalition 

composed of over 300 trade unions, farmers’ organizations and NGOs. As a representative of Korean people and civil society, we feel it is our duty to inform you 

of several concerns related to the Korea-U.S. Free Trade Agreement, which are 

shared by a large section of the Korean population. This FTA will be the largest 

agreement of its kind since NAFTA and will have tremendous impact on the economy and society of both countries. We sincerely hope that you will consider these 

views seriously. 

First, we wish to take note of the undemocratic manner in which the FTA negotiations have been carried out, in particular the lack of effort on the part of the Roh 

Moo-hyun administration to solicit the opinions of stake-holders (interested parties) 

and the Korean public. One example of this is the fact that the administration 

planned only one public hearing related to the Korea-U.S. FTA, which was held just 

hours before the formal announcement of the opening of negotiations was made in 

Washington, D.C. on February 3 (in the middle of the night Korean time). The timing of the hearing attests to the fact that the decision to pursue an FTA had already 

been made without discussion with interested parties; the hearing itself was a pure 

formality and, as such an abuse of the presidential directive concerning the pursuit 

of free trade agreements, which require adequate hearings and discussion with the 

public beforehand. 

In addition, the Roh administration has moved forward with the negotiations 

process in a closed and secretive manner; information related to important points 

of contention and matters requiring the consent of the Korean people have not been 

made public. It is understandably not possible to make public all information related to the FTA. However, it can surely be said that information concerning issues 

that are of great public interest and which require understanding at all levels of 

society must be made transparent and that concerned persons must be sufficiently 

consulted. The Roh administration has not upheld either of these principles. 

Second, the Korea-U.S. FTA seriously endangers the Korean people’s access to 

healthcare and pharmaceuticals. We believe that trade between the two countries 

can and must proceed fairly. However we are very concerned about the way in 

which the public system and policies of one country have come under discussion at 


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the current negotiations. For example, the effectiveness of the positive list system, 

introduced last December as part of South Korea’s new drug-pricing policy as a 

means to ensure the sustained development of national health insurance, is being 

severely minimized in the negotiations process. Guaranteeing people’s access to necessary pharmaceuticals at an affordable price is a constitutional responsibility of the 

state and government. However, the Korea-U.S. FTA stands to undermine this ability and with it people’s right to access, through provisions such as those that guarantee the minimum price for innovative drugs, extend patents, and call for the installation of an independent review board for drug pricing. We would like to emphasize that these measures are not consistent with the principle of promoting the mutual benefit of the people of both countries through the FTA. 

Third, we are concerned that the Korea-U.S. FTA will make the lives of Korean 

farmers and the sustained development of South Korea’s farming communities much 

more difficult. When the South Korean market was first opened as a result of the 

WTO Uruguay Rounds, Korea’s farmers suffered greatly. The situation has now 

reached the point that the future of Korean agriculture as whole is in question. 

Given the current conditions, we face the prospects of the disappearance of South 

Korean agriculture if our market is further opened through the Korea-U.S. FTA. 

Statistics show that if the Korea-U.S. FTA is concluded roughly half of Korean farmers will loose their livelihoods. Domestic agriculture is necessary for sustainable development and food security. For this reason countries around the world, including 

the United States, have agricultural subsidy policies. We would like to point out 

that in South Korea farming communities play the part of preserving our history, 

culture and the rural environment and ecosystems. Further, if these communities 

are destroyed, the resultant influx from the countryside to the cities will seriously 

exacerbate already increasing urban poverty, un—and underemployment. We must 

emphasize that the Korea-U.S. FTA is inviting the destruction of agriculture and 

agricultural life and with it, these social problems. 

Fourth, the Korea-U.S. FTA is predicted to violate the government’s constitutional 

duty to protect public services and, therefore, public interest. The negotiators for 

both countries have stated that public services will not be included in the negotiations; however, at the 5th round of talks in Montana the U.S. side asked for the 

inclusion of energy design and maintenance, which could be included in a wide definition of public services. At the same time, in the area of education, the U.S. has 

also asked for the opening of the internet testing market, which has the potential 

to negatively impact Korea’s public education system by increasing the necessity for 

students to seek private tutoring and after-school programs. We are concerned that 

in this way the FTA will lead to the overall devaluation of the public education system, ultimately undermining the right to equal education which it represents. 

Fifth, the Korea-U.S. FTA closely follows the NAFTA model, which has already 

shown to bring many problems to U.S. society. In particular, the ‘‘investor-state 

claims clause,’’ while on the one hand greatly expanding the authority of big business, has shown to greatly infringe on the government’s power to protect public interest and labor and environmental standards. Therefore, this clause has met strong 

criticism from global civil society, including organizations in the United States. In 

fact, the U.S.-Australia FTA was concluded without the inclusion of this clause 

which we believe attests to its negative quality. However, the Korea-U.S. FTA includes the clause without any revisions. 

The investor-state claims clause goes against the government’s ability to protect 

public interest. This is very significant for common Korean people. For example, real 

estate policy is an acute issue in Korea, especially now as real estate prices are 

soaring. The investor-state claims clause lays the groundwork for a weakening of 

real estate policy because regulation policy, which designated areas for speculation, 

can become a target of claims; the result would be a great infringement on the people’s rights to housing. 

Lastly, while you will see a separate testimony regarding this subject from the 

Korean Confederation of Trade Unions, which is our partner, we also cannot help 

but take note of the problem of the Roh administration’s repression of labor. The 

Roh administration has not protected the right of public-sector workers, construction 

workers, and irregular workers to organize and collectively bargain. It forcibly 

closed the branch office of the Korean Government Employees’ Union. In addition, 

last December, the Labor-Business Relations Road Map extended the ban on union 

pluralism at the enterprise level for an additional three years and expanded the 

scope of essential services against the ILO recommendations. 

As of January 2007, 62 union members were imprisoned for reasons related to 

labor union activities. 

We would like to point out that at the ILO Committee on Freedom of Association, 

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filled this duty over a long period. This demonstrates how seriously the conditions 

of labor in South Korea fail to meet international standards. 

We hope the members of the Committee of Ways and Means Subcommittee on 

Trade will consider with all seriousness the concerns of the Korean people which 

are laid out above. We hope that this will cause you to reconsider whether the 

Korea-U.S. FTA does in fact present a desirable direction for the promotion of fair 

trade and economic relations between our two countries. 

f 

Statement of Korean Confederation of Trade Unions, Seoul, Korea 

[by Permission of the Chairman] 

On behalf of more than 15 million workers and their families in South Korea, we 

would here like to express our concerns about the Korea-U.S. FTA. Although there 

are a number of provisions within the agreement which are harmful to the workers 

in the United States, we focus here on the lack of legitimacy of the Roh Moo-hyun 

administration in representing the interest of South Korean workers in negotiating 

this agreement. The main impetus for this statement lies in the fact that the Roh 

administration has in the past and continues in the present to repress the rights 

of workers in South Korea. 

Although the current President Roh Moo Hyun was formerly a democratic labor 

lawyer, in the past four years of his administration, his policy has been to repress 

trade union rights. Despite rhetorical claims to advancing industrial relations and 

eliminating discrimination faced by South Korean workers, his administration has 

introduced several pieces of legislation that further erode the economic benefits that 

South Korean workers had briefly enjoyed after struggling for nearly two decades. 

Rather than reaping the benefits of their hard work, South Korean workers, like 

U.S. workers, are now faced with an uncertain economic future which is made more 

precarious by the introduction of several laws that restrict South Korean workers’

right to a voice in the workplace. 

In the past, several members of the U.S. Congress have been staunch supporters 

of the struggle for democracy, human rights, and labor rights in South Korea. In 

fact Congress members have courageously and eloquently spoken against the labor 

rights violations committed by previous administrations, calling for the release of 

several trade unionists such as Kwon Young Gil, and Dan Byung Ho, two former 

Presidents of the KCTU and current members of the South Korean National Assembly. We ask you to continue in this tradition by once again supporting the rights 

of trade unionists in South Korea. We also urge you to go further by calling for the 

end of the negotiations of the Korea-U.S. Free Trade Agreement, in light of the failure of the current administration to ensure the basic fundamental rights of workers 

and their families. We believe this long and standing history of Congress members 

supporting trade union rights in South Korea will be endangered unless the negotiation of the agreement is halted. 

The policy of the Roh administration has created a situation in South Korea 

where workers face insecure futures and no longer have the right to political voice. 

We strongly believe this is sufficient justification for calling to an end to the KoreaU.S. Free Trade negotiations. Please note that workers in the United States share 

many of our concerns with the Korea-U.S. FTA. As you grapple with the burden of 

taking a position on this agreement, we ask you also to listen to the voices of workers in the United States. 

f 

Statement of National Corn Growers Association 

The National Corn Growers Association (NCGA) is a national organization founded in 1957 and represents more than 32,000 members in 48 states, 47 affiliated 

state organizations and more than 300,000 corn farmers who contribute to state 

checkoff programs for the purpose of creating new opportunities and markets for 

corn growers. 

NCGA commends the Administration for its interest in pursuing a Free Trade 

Agreement (FTA) with the Republic of Korea. Korea is one of the United States’

larger corn markets, importing 5.58 million metric tons in marketing year 2005/ 

2006. Additionally, it is an extremely important market for corn’s value-added products, and NCGA is hopeful that negotiators from both countries can work together 

at this late date to provide an outcome that addresses the market access issues 

raised by our protein partners. 


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Korea provides low duty access for corn through an autonomous tariff rate quota 

(TRQ) system with volume levels well in excess of its World Trade Organization 

(WTO) commitments. For 2007, South Korea set an in-quota temporary volume for 

feed corn at 8 million metric tons and 2.15 million metric tons for industrial corn, 

compared to the 6.1 million metric ton TRQ for corn that it committed to in the 

Uruguay Round of the WTO. The applied tariff on in-quota feed corn is zero; the 

applied tariff on in-quota industrial corn runs from one to two percent. Korea’s WTO 

obligation for in-quota feed corn tariff rate is bound at 1.8 percent and the WTO 

bound rate for in-quota industrial corn is three percent. Over-quota corn is bound 

at 328 percent. As Korea maintains a TRQ in excess of its current commitments, 

we support an elimination of the tariff and quota. 

In 2006, Korea imported about 30,000 metric tons of distiller’s dried grains 

(DDGS) mostly from the United States and China. While relatively small in volume, 

imports are growing and there is significant potential for increased use in feed rations. In 2007, it is estimated that imports of DDGS might reach up to 100,000 metric tons. Korea’s WTO bound rate for DDGS is 6.6 percent, however, it applies a 

rate of 5 percent. NCGA estimates that U.S. DDGS production will reach over 30 

million tons by Marketing Year 2010/2011. We support an elimination of the tariff. 

NCGA is also concerned about the impact of several proposed Korean regulations 

related to products derived from biotechnology could seriously inhibit trade. It is important that these issues be resolved before the negotiation is finalized to help ensure that U.S. food and agriculture industries can truly benefit from an FTA with 

Korea. 

Specifically, U.S. trade officials and Korean industry representatives have indicated that the Korean government is currently considering regulations to require 

that shipments of commodities derived from biotechnology be accompanied by documentation that states the shipment ‘‘does contain’’ a specific list of products by 

biotech event. The Korean government has indicated this language is necessary for 

compliance with the Biosafety Protocol (BSP). Such onerous documentation goes beyond BSP requirements for trade between parties and non-parties and is more trade 

restrictive than necessary. No other Party to the BSP requires this type of trait specific documentation. 

The United States should seek assurances from Korea that it will not impose requirements that will unnecessarily disrupt the trade of U.S. biotechnology agricultural and food exports. The United States should also insist that clear, written, interpretive guidance be issued to alleviate any uncertainty among exporters regarding the regulation. 

In addition to the proposed regulations, Korea continues to maintain mandatory 

‘‘GM food’’ labeling requirements that are not based on health safety concerns. Mandatory, process-based labeling requirements that are not scientifically justified inhibit the ability of food producers and manufacturers to sell products produced from 

biotech crops. Existing requirements should be addressed and any effort to expand 

the scope of labeling regulations should be strongly opposed. 

Removing trade barriers between the U.S. and the Republic of Korea will create 

important new export opportunities for corn growers. We encourage the Administration to use the FTA negotiations as an opportunity to ensure that Korean regulations affecting food, feed and seed products derived from biotechnology are transparent, science-based and non-discriminatory. NCGA is hopeful that the U.S.-Korea 

FTA will provide an ambitious and comprehensive outcome for America’s farmers, 

ranchers and processors. 

f 

Statement of National Pork Producers Council 

The National Pork Producers Council is a national association representing 44 affiliated states that annually generate approximately $15 billion in farm gate sales. 

The U.S. pork industry supports an estimated 550,200 domestic jobs and generates 

more than $97.4 billion annually in total U.S. economic activity and contributes 

$34.5 billion to the U.S. gross national product. 

Pork is the world’s meat of choice. Pork represents 40 percent of total world meat 

consumption. (Beef and poultry each represent less than 30 percent of global meat 

protein intake.) As the world moves from grain based diets to meat based diets, U.S. 

exports of safe, high-quality and affordable pork will increase because economic and 

environmental factors dictate that pork be produced largely in grain surplus areas 

and, for the most part, imported in grain deficit areas. However, the extent of the 

increase in global pork trade—and the lower consumer prices in importing nations 


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and the higher quality products associated with such trade—will depend substantially on continued agricultural trade liberalization. 

PORK PRODUCERS ARE BENEFITING FROM PAST TRADE AGREEMENT 

In 2006, the United States exported 1,262,499 metric tons of pork valued at 

$2.864 billion. This is a 9 percent increase over 2005 exports in volume terms and 

8.7 percent in value terms. 2006 was the15th straight year of record pork exports. 

U.S. exports of pork and pork products have increased by more than 433 percent 

in volume terms and more than 401 percent in value terms since the implementation of the NAFTA in 1994 and the Uruguay Round Agreement in 1995. 

The following 7 export markets in 2005 are all markets in which pork exports 

have soared because of recent trade agreements. 

Mexico 

In 2006 U.S. pork exports to Mexico totaled 356,418 metric tons valued at 

$557,857 million. This is an increase of 8 percent in volume terms and 9 percent 

in value terms over pork exports to Mexico in 2005. Without the NAFTA, there is 

no way that U.S. exports of pork and pork products to Mexico could have reached 

such heights. In 2006, Mexico was the number one volume market and number two 

value market for U.S. pork exports. U.S. pork exports to Mexico have increased by 

274 percent in volume terms and 398 percent in value terms since the implementation of the NAFTA growing from 1993 (the last year before the NAFTA was implemented), when exports to Mexico totaled 95,345 metric tons valued at $112 million. 


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Japan 

Thanks to a bilateral agreement with Japan on pork that became part of the Uruguay Round, U.S. pork exports to Japan have soared. In 2006, U.S. pork exports 

to Japan reached 337,373 metric tons valued at just over $1 billion. Japan remains 

the top value foreign market for U.S. pork. U.S. pork exports to Japan have increased by 279 percent in volume terms and by 178 percent in value terms since 

the implementation of the Uruguay Round. 

Canada 

U.S. pork exports to Canada have increased by 1,933 percent in volume terms and 

by 2,689 percent in value terms since the implementation of the U.S.—Canada Free 


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Trade Agreement in 1989. In 2006 U.S. pork exports to Canada increased to 138,564 

metric tons valued at $437 million—a 6 percent increase by volume and an 11 percent increase by value over 2005 exports. 

China 

From 2005 to 2006, U.S. exports of pork and pork products to China increased 

13 percent in volume terms, totaling 88,439 metric tons valued at $126 million. U.S. 

pork exports have exploded because of the increased access resulting from China’s 

accession to the World Trade Organization. Since China implemented its WTO commitments on pork, U.S. pork exports have increased 53 percent in volume terms and 

90 percent in value terms. 


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Russia 

In 2006 U.S. exports of pork and pork products to Russia totaled 82,677 metric tons valued at $164 million—a 105 percent increase in volume terms and 127 percent increase in value terms over 2005 exports. U.S. pork exports to Russia have 

increased largely due to U.S.-only pork quotas established by Russia as part of its 

preparation to join the World Trade Organization. The spike in U.S. pork export to 

Russia in the late 1990s was due to pork shipped as food aid. 

Taiwan 

In 2006, U.S. exports of pork and pork products to Taiwan totaled 25,198 metric tons valued at $38 million. U.S. pork exports to Taiwan have grown sharply because 

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nization. Since Taiwan implemented its WTO commitments on pork, U.S. pork exports have increased 99 percent in volume terms and 103 percent in value terms. 

Australia 

The U.S. pork industry did not gain access to Australia until recently, thanks to 

the U.S.—Australia FTA. U.S. pork exports to Australia exploded in 2005 making 

Australia one of the top export destinations for U.S. pork. Even with the disruption 

caused by a legal case over Australia’s risk assessment of pork imports, U.S. pork 

exports to Australia in 2006 totaled $62 million—a 480 percent increase over 2004 

exports. 

Australia graphic not available at the time of printing. 

Benefits of Expanding U.S. Pork Exports 

Prices—The Center for Agriculture and Rural Development (CARD) at Iowa 

State University has calculated that in 2004, U.S. pork prices were $33.60 per head 

higher than they would have been in the absence of exports. 

Jobs—The USDA has reported that U.S. meat exports have generated 200,000 

additional jobs and that this number has increased by 20,000 to 30,000 jobs per year 

as exports have grown. 

Income Multiplier—The USDA has reported that the income multiplier from 

meat exports is 54 percent greater than the income multiplier from bulk grain exports. 

Feed Grain and Soybean Industries—Each hog that is marketed in the United 

States consumes 12.82 bushels of corn and 183 pounds of soybean meal. With an 

annual commercial slaughter of 105.3 million animals in 2006, this corresponds to 

1.34 billion bushels of corn and 9.63 million tons of soybean meal. Approximately 

16 percent of this production is exported, and these exports account for approximately 216 million bushels of corn and 1.54 million tons of soybean meal. 

However, as the benefits from the Uruguay Round and NAFTA begin to diminish 

because the agreements are now fully phased-in, the creation of new export opportunities becomes increasingly important. 

Pork Producers Support the Proposed U.S.-Republic of Korea FTA 

The Republic of Korea is an important export market for U.S. pork producers. 

U.S. pork exports to Korea have increased as a result of concessions made by Korea 

in the Uruguay Round. In 2006 exports climbed to 109,198 metric tons valued at 

$232 million, an increase of 2,217 percent by volume and 2,606 percent by value 

since implementation of the Uruguay Round. Exports to the Republic of Korea in 

2006 grew aggressively over 2005 exports—52 percent increased in volume terms 


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and a 50 percent increase in value terms. South Korea currently is the 4th largest 

export market for U.S. pork. 

The United States-Republic of Korea free trade negotiations provides U.S. pork 

producers the opportunity to significantly increase market access in the very lucrative Korean market. U.S. pork and pork products currently face significant tariffs 

in South Korea. For example, the current South Korean duty on bellies, a high demand pork product, is 25 percent. 

On April 1, 2004 the Korea—Chile Free Trade Agreement went into effect. As a 

result, Chile—a major pork exporter and competitor to the United States—will have 

duty free access to the Korean pork market by 2014. In 2006, Chile exported 31,203 

metric tons of pork valued at $77 million to South Korea. This is an increase of 88 

percent in volume terms and 148 percent in value terms over exports in 2003, the 

year before the Chile—South Korea FTA went into effect. U.S. pork is becoming increasingly disadvantaged as the tariff on Chilean pork is being reduced and will be 

significantly prejudiced unless there is an ambitious outcome in the U.S.-Korea free 

trade negotiations. Upon the implementation of a United States-Republic of Korea 

Free Trade Agreement, all tariffs on U.S. pork and pork products should immediately be zero. 

The Republic of Korea should agree in writing to maintain a transparent system 

for issuing import permits, to recognize the U.S. pork inspection system, and to accept pork from all USDA-approved facilities. 

Additionally, the Republic of Korea needs to show flexibility in the country of origin labeling demands it is making of the United States meat industry. The new 

South Korean country of origin labeling rules require U.S. exporters to include in 

all packaging material a country of origin label that includes the use of the term 

‘‘USA’’ or ‘‘U.S.A.’’. It would apply to all individually packaged products being exported to South Korea. South Korea has to this point insisted, for no justifiable reason, that it will not accept the ‘‘bug’’ that currently appears on many U.S. packaged 

meat products which says ‘‘U.S. Inspected and Passed by Department of Agriculture’’, as an acceptable indication of country of origin. If the new Korean labeling 

requirements for pork and beef from the United States are implemented unabated, 

it will raise the cost of doing business and present a bad precedent that could be 

copied by other trading partners. 

f 


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Statement of The Honorable William J. Jefferson 

Jefferson statement not available at the time of printing. 

f 

Statement of Walter B. McCormick, Jr., United States Telecom Association 

I am Walter McCormick, president and CEO of the United States Telecom Association (USTelecom). USTelecom represents innovative companies ranging from the 

smallest rural telecoms in the nation to some of the largest corporations in the U.S. 

economy. Our member companies offer a wide variety of services across the communications landscape, including voice, video and data over local exchange, long distance, Internet and cable networks. 

Like many others around the world, members of USTelecom are watching very 

closely the results of the discussions between the United States and Korea toward 

a Free Trade Agreement (FTA). As negotiations proceed, our member companies remain particularly concerned over the continued reluctance of the Korean government to take an important step to a fully liberalized telecommunications services 

market by removing the 49% cap on foreign direct investment in facilities-based 

telecommunications service providers. 

Korea is one of the world’s most important markets for international telecommunications services. An FTA will increase investment and trade opportunities 

in electronic communications services including telecommunications. However, Korea’s insistence on maintaining its 49% foreign direct investment limitation creates 

a very high barrier for foreign providers seeking to enter into this market. This 

ownership and licensing barrier creates an acute market inefficiency for U.S. 

telecom companies that have ownership interests in the multiple submarine cable 

systems that land in Korea. 

Our member companies have urged the Bush Administration to ask the Korean 

government to remove foreign direct investment restrictions applicable to facilitiesbased telecommunication service providers. Elimination of the foreign direct investment limitation would stimulate overseas investment in Korea, drive domestic 

growth in the telecommunications and key related sectors, and further the development of Korea’s information society. It is also worth noting that other Asian economies, including Singapore, Hong Kong, and Japan, have removed all foreign investment restrictions in these services sectors, making Korea’s foreign direct investment 

restriction inconsistent with the global trend of enhancing foreign direct investment 

in the telecommunications sector. 

We recognize and appreciate the efforts of the USTR in attempting to address the 

important issue of foreign direct investment and continue to support a commercially 

meaningful U.S.-Korea FTA. However, we believe permitting U.S. entities to have 

100% investments as facilities-based telecommunications service providers is fundamental to the trade agreement with Korea. 

Æ 


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