Korea And The United States Conclude Supplemental Agreement That Clears The Way For Congressional Approval Of The U.S.-Korea Free Trade Agreement
In 2007, Korea and the United States signed a bilateral free trade agreement (“KORUS”). However, congressional consideration of KORUS stalled due to congressional dissatisfaction with certain provisions of the agreement, particularly those relating to automotive trade. On December 3, 2010, the United States and Korea reached a supplemental agreement addressing those concerns. The key elements of KORUS affecting manufacturers, including those in the recent supplemental agreement, are as follows.
Market Access for Manufactured Goods
Currently, 38 percent of United States tariff lines in the Harmonized Tariff Code (“HTC”) and 13 percent of Korean tariff lines in the HTC for manufactured goods have zero rates of duty. Upon entry into force of the agreement, over 80 percent of each country’s tariff lines will immediately have zero rates of duty. Duties for the remaining 20 percent of tariff lines will be phased out over time, with duties for the most sensitive products being phased out over periods of up to 20 years.
Trade Remedy Provisions
KORUS provides for bilateral safeguard measures by one country in the form of temporary duty increases or delays in planned tariff reductions if imports from the other country “constitute a substantial cause of serious injury, or threat thereof” to a domestic industry. The safeguard measures have a maximum duration of two years and may not be applied more than once on the same product.
For antidumping and countervailing duty measures, each country retains its rights and obligations under existing WTO Agreements. Nonetheless, certain procedural changes could prove to be problematic for United States petitioners. Specifically, the agreement contains additional government-to-government consultation provisions concerning trade remedy investigations and commitments that may make it more likely that investigations are suspended in return for agreements to stop unfair trade.
Modification of the original automotive trade provisions was key to concluding the supplemental agreement. Under the modified provisions, periods to phase out most automotive tariffs have been lengthened. For cars, the current United States import tariff of 2.5 percent will remain unchanged until elimination in the fifth year, while Korea’s current import tariff of eight percent will be cut immediately to four percent and eliminated in the fifth year. For light trucks, the current United States import tariff of 25 percent will remain unchanged until its phase-out begins in the eighth year of the agreement and concludes in the tenth year, while Korea’s current 10 percent import tariff will be eliminated immediately.
The revised auto provisions also include a special safeguard provision as well as Korean regulatory changes that are expected to help alleviate Korean nontariff barriers to United States auto exports.
Prospects for Congressional Approval
Prospects for congressional approval of KORUS in 2011 are good, especially since several key unions, including the United Auto Workers, have now endorsed the agreement. However, legislation to approve and implement KORUS will probably not be submitted to Congress until the spring of 2011 because the Administration must still finalize the legal text and accompanying documentation. During consideration of KORUS, Congress is expected to vigorously debate broader United States trade policy and whether the United States should continue to pursue bilateral free trade agreements. The Administration has not initiated any new free trade agreement negotiations, although it has joined ongoing negotiations toward a Trans-Pacific Partnership agreement. Free trade agreements negotiated by the Bush Administration with Colombia and Panama are still awaiting transmittal to Congress as the Obama Administration tries to resolve certain tax issues with Panama and certain labor issues with Colombia.