U.S.-Korea Free Trade Agreement: Potential Economy-wide ... - USITC

these vehicles to Korea. The committee said that its recommendation that the agreement
“precondition the phase-out of U.S. automotive tariffs on the demonstration of Korean
automotive market openness in terms of improved import penetration that is on par with that
of other OECD countries” did not result in a “performance metric approach.” The committee
report said that written confirmation from the U.S. government is needed to confirm that 1)
changes to the K-ULEV regulation make it identical to the California nonmethane organic
gas (NMOG) requirement, and 2) the outcome with respect to self-certification ensures that,
up to 6,500 vehicles per manufacturer, that U.S.-certified vehicles will be accepted as
meeting Korean safety regulations.
In its separate statement attached to the ITAC 2 report, GM states that it is neutral on the
FTA; GM noted that it believes that the agreement addresses the U.S. auto industry’s
concerns, and that the dispute settlement mechanism provides a deterrent to future Korean
NTMs. However, GM added that, given the current imbalance in bilateral trade, “the benefits
will skew, for the near term, to Korea.” GM stated that the elimination of Korea’s 8 percent
tariff will provide savings in and of itself, but also provide savings in the calculation of
cascading vehicles taxes. With respect to taxes, GM remarked that Korea is “reducing its
dependence on engine displacement as the basis for taxation and has reduced the overall tax
burden on the auto sector.” GM adds that the tax provisions of the FTA “eliminate
discrimination against imports.” Regarding TBTs, GM states that the K-ULEV requirements
are sufficiently harmonized with California Low Emission Vehicle (LEV) II program, thus
eliminating GM’s concern with OBD II. GM also notes that it is satisfied with the selfcertification
outcome. GM states that the snapback provisions are innovative and have the
potential to discourage imposition of new NTMs or the reinstatement of old ones. GM is
satisfied with the rules of origin, and requests written confirmation that the 1995 and 1998
MOUs remain in effect.
In its advisory report, the Labor Advisory Committee (LAC) 500 stated that FTA’s automotive
provisions were disappointing. It notes that the United States had a $13.4 billion trade deficit
with Korea in 2006, $11.7 billion of which was in autos and auto parts. LAC states that a
five-point proposal submitted to the USTR and crafted jointly by labor, industry, and
members of Congress, including a 15-year phaseout of U.S. tariffs, exclusion of the
25 percent truck tariff, tariff reduction incentives for opening the Korean market, enhanced
safeguards, elimination of NTMs and suggestions for how to address future NTMs, was not
accepted by negotiators. LAC asserts that the FTA’s automotive-related provisions “are
unlikely to open the door for more than a handful of vehicles from U.S. auto companies.”
With respect to tariffs, LAC opposes any immediate reduction in U.S. tariffs, but rather
supports making tariff reduction contingent on “verifiable and significant opening of the
Korean auto market.” The truck tariff, LAC noted, should only be addressed in multilateral
forums. LAC added that the FTA’s tariff provisions will lead to significant new imports of
vehicles from Korea, as Korean automakers can easily ramp up production.
Regarding discriminatory taxes, LAC noted that the FTA does not eliminate the engine
displacement-based tax system, and this would allow for discrimination between vehicles
with engines below and above 1,000 cc. Regarding TBTs, LAC stated that the Automotive
Working Group set up by the FTA does not appear to function differently from what
500 LAC for Trade Negotiations and Trade Policy, Report, April 27, 2007.
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