USTR Office Compares Korea-US And Korea-EU FTAs

by Mary Swire, Tax-News.com, Hong Kong

22 October 2009

The Office of the United States Trade Representative (USTR) today released a preliminary comparison of the Korea-EU Free Trade Agreement, initialed recently in Brussels, with the Korea-US Free Trade Agreement (KORUS FTA), which was signed in 2007 but is not yet ratified.

"The recently initialed EU-Korea FTA has similarities to, and differences from, the KORUS FTA. We look forward to engaging with Korea and the EU to fully understand the agreement and its implications for the United States. USTR will carefully consider this agreement as it continues its review of the KORUS FTA," said USTR spokeswoman Carol Guthrie.

The USTR’s preliminary analysis concludes that, with respect to tariff commitments, the overall tariff package for industrial goods under the Korea-EU FTA appears to be comparable in ambition and comprehensiveness to the KORUS tariff schedule, with 92% of Korean tariffs eliminated in three years (the KORUS FTA eliminates 94.5%). However, there are key differences as well, and the USTR says that it will closely examine these and other issues as it continues its review of the KORUS FTA and consults with Congress and interested stakeholders.

For motor vehicles, both the EU and Korea will eliminate tariffs on cars in three or five years, depending on engine size. Under KORUS, Korea's 8% auto tariff will be eliminated immediately. The United States would eliminate its 2.5% tariff on small cars immediately and on large cars (3000cc and greater) over three years.

The KORUS FTA also contains some key features lacking in the Korea-EU FTA with respect to autos. In particular, the USTR says, the KORUS FTA has a specific enforcement mechanism that includes the ability to "snap back" US tariffs on Korean cars if Korea takes measures that impair the agreement's expected benefits. Korea also committed to eliminate many aspects of the discriminatory effect of its current automotive tax system. The Korea-EU FTA does not allow for a "snap back" remedy, and with respect to taxes simply affirms that any modifications to Korean autos taxes will be made on a "most favored nation" basis.

With respect to trucks, under the KORUS FTA, Korea will eliminate its 10% tariff immediately, and the United States will phase out its 25% tariff over 10 years. In the Korea-EU FTA, Korea will eliminate tariffs on most trucks immediately. The EU will eliminate its 22% truck tariffs over three or five years, depending on specific type.

The two agreements also take a different approach to addressing the issue of unique Korean automotive safety standards, and the USTR will look into this issue further and consult with stakeholders to fully understand the commercial implications of this difference.

On areas of interest to manufacturers, the USTR says that the KORUS FTA appears to contain more detailed and extensive provisions on regulatory transparency and stakeholder input into the process of developing standards and other regulatory measures, to address concerns that non-transparent procedures result in measures that act as non-tariff barriers to goods. The KORUS FTA contains specific provisions to ensure that remanufactured goods – a key component of the US manufacturing industry – qualify as originating goods.

Unlike the Korea-EU FTA, the USTR also states that the KORUS FTA labor and environment provisions are subject to the same binding dispute settlement mechanism as the KORUS FTA's trade provisions. Labor and environment provisions in the Korea-EU FTA are not similarly subject to binding dispute settlement.

In conclusion, the USTR adds that it is engaging in a thorough review of the KORUS FTA to ensure meaningful market access for US goods and services. In response to a recent call for public comments, the USTR received more than 300 submissions on the range of issues under review, some of which expressed support for the agreement and others that raised specific concerns. It says that key US automakers continue to express concern over Korea's historic, longstanding use of trade barriers in this sector.

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