Senate Floor Statement on U.S.-Korea Free Trade Agreement
H.R. 3080
Wednesday, October 12, 2011
Mr. President, I will vote in favor of H.R. 3080, the United States – Korea Free Trade Agreement Implementation Act. I will do so because the Obama administration has succeeded in improving the automotive provisions in the Bush administration-negotiated original agreement. The result is that U.S. made vehicles now have a better opportunity to gain access to the historically closed South Korean market.
For too long, trade with South Korea has been a one-way street. The American market has been open and South Korea’s market persistently closed by using a combination of tariff and nontariff barriers constructed to keep U.S. products out. This was most pronounced in the automotive sector, which makes up the majority of our trade deficit with South Korea. For instance, in 2010 South Korea shipped 515,000 cars to the United States while U.S. automakers exported fewer than 14,000 cars to South Korea. In 2010, we ran a $10 billion trade deficit with South Korea. Our trade deficit with South Korea in the automotive sector accounted for all of that $10 billion. Correcting our deficit in the automotive sector would go a long way to fixing our overall trade deficit with South Korea.
The original 2007 U.S.-Korea FTA negotiated by the Bush Administration was fundamentally flawed. The agreement called for significant concessions from the United States but would have perpetuated a skewed playing field that unfairly disadvantages U.S. automotive exports. It would have left in place the ever-shifting regulatory regime South Korea has used to effectively bar U.S. autos from the South Korean market. For example, South Korea has imposed so-called auto safety regulations that are unique to Korea and don’t have anything to do with safety such as the location of towing devices or headlights or the color of turn-signal lamps. This means that no vehicle built outside of Korea can be sold in Korea without special and expensive modifications and testing to meet these Korean requirements.
The failure to address these and other arbitrary, ever-changing regulations was one of the main reasons the agreement was not brought before the Congress for approval for so long. I was opposed to that agreement and as co-chairman of the Senate Auto Caucus I spoke out against it.
I am pleased that President Obama recognized the importance of the U.S. automotive industry and reopened the agreement to negotiate significantly improved terms for U.S. auto exports to South Korea.
Importantly, the revised agreement will prevent South Korea from relying on discriminatory, rotating safety regulations as it has in the past to keep out U.S. auto imports. It does this by requiring South Korea to recognize 25,000 vehicles built to meet U.S. safety standards per automaker per year as meeting South Korean safety standards. This is an increase from 6,500 in the 2007 agreement. The revised agreement also includes an auto-specific safeguard designed to protect against potential surges of South Korean cars and trucks once the applicable tariffs are eliminated.
Under the original 2007 agreement, almost 90% of South Korea’s auto exports to the United States would have received duty-free access. But why should we have reduced our few remaining tariffs to South Korean auto exports unless we were assured greater access to the South Korean markets for our auto exports? For instance, the U.S. auto tariff is only 2.5 percent compared to the South Korean auto tariff of 8 percent. The revised agreement corrected this inequity by reducing Korea’s 8 percent duty to 4 percent immediately and to zero in year 5 while delaying elimination of the duty on South Korea’s auto exports until year five, giving U.S. automakers the time to build a brand and distribution presence that will reverse decades of South Korean protectionism.
The 2007 agreement was flawed also in how it dealt with the growing field of electric vehicles. The 2007 agreement would have allowed for a 10-year phase-out of the 8 percent South Korean tariff on hybrid electric passenger vehicles and the 2.5 percent U.S. tariff. That was not a fair deal for U.S. electric car exports. It’s bad enough that the current South Korean electric car tariff is more than 3 times the U.S. tariff. The 2007 agreement would have locked in place for 10 years South Korea’s electric car tariff advantage. Why in the world would we agree to that? Thankfully the Obama administration did not. Under the revised agreement, the South Korean tariff on electric cars immediately drops from 8 percent to 4 percent. Then the 4 percent South Korean tariff and the 2.5 percent U.S. tariff are phased out over 5 years. Though the tariffs are still not completely symmetrical, it’s a big improvement over the original deal. And importantly, this phase-out now tracks the EU-Korean FTA, so U.S. automakers will now not be disadvantaged compared to European auto makers in the South Korean market as they would have been under the 2007 agreement.
Stakeholders, including members of Congress, the United Auto Workers and U.S. auto companies, pushed hard for improved market access in the U.S.–Korea FTA. Thanks to the improvements the Obama administration has negotiated, the UAW, Ford, GM and Chrysler as well as the Motor & Equipment Manufacturers Association (MEMA), among others, support the agreement. They think it will result in their being able to sell more U.S.-made vehicles in South Korea. Specifically, Chrysler has stated that as a result of the FTA it expects to sell 20,000 units per year in South Korea by the end 2014 compared to the paltry 2,638 passenger vehicles it sold there in 2010, and that the company plans to expand its dealer network to 30 outlets from the current 16.
These additional U.S. auto exports translate into badly needed American jobs. The 2007 ITC report on the expected impact of the U.S.-Korean FTA estimated U.S. exports to South Korea would increase by $10-$11 billion annually. The administration estimates that an additional $11 billion in exports would mean around 70,000 more jobs annually. In an updated ITC report requested by Senator Wyden to assess the impact on American jobs of the FTA tariff and tariff rate quota reductions on goods based on current economic conditions, the ITC concluded that the agreement has the potential to create about 280,000 American jobs.
The agreement also has strong labor and environmental provisions that were agreed to in May 2007 at the insistence of Democratic members of Congress, led by my brother, Congressman Sandy Levin, the ranking member of the House Ways and Means Committee. They include the enforcement of a commitment to adopt and enforce internationally recognized labor and environmental standards and agreements.
It’s high time we insisted on a different trade model that fights for a level playing field for American exports and American workers. I believe the revised U.S.-Korea FTA moves significantly toward that model and I will vote in favor of the legislation to implement it.