KORUS FTA: Different on the Inside

Everyone will agree that South Korea’s negotiations with the U.S. are going more smoothly than negotiations with the E.U. We are comparing the KORUS (S. Korea-U.S.) Fair Trade Agreement (FTA) that was signed three years ago with the E.U.-S. Korea FTA, which will see its final signing next month. The difference is especially clear in the clause concerning automobiles.

Both the E.U. and South Korea plan to remove tariffs on imported automobiles from the other country according to their engine capacity within three to five years.

Under the KORUS FTA, South Korea’s 8 percent tariff on U.S. imported cars will be removed immediately. The U.S. will eliminate its 2.5 percent tariff on small cars immediately and on large cars (3000cc and greater) within three years.

The U.S. managed to obtain an “important feature” in its agreement with South Korea that the E.U. has been unable to obtain. That is, the U.S. can “snap back” tariffs on Korean imported cars if Korea does not act in accordance with the agreement. Korea also agreed to remove discriminative aspects of the tariff system on U.S.-imported vehicles. There is no similar agreement with the E.U.

With respect to trucks, the U.S. also adopted a protective stance in order to expand its own domestic market. In the KORUS agreement, Korea will immediately remove the 10 percent tariff on U.S.-imported trucks. On the other hand, the U.S will phase out its 25 percent tariff on Korean-imported trucks gradually over a period of 10 years. Under the E.U.-Korea FTA, Korea will remove truck tariffs immediately, while the E.U. will eliminate its 22 percent tariffs on Korean-imported trucks over a period of three to five years, depending on the truck category.

The U.S. also obtained an exemption that allows it to sell up to 6,500 vehicles built according to U.S. safety standards each year. The E.U.-Korea FTA does not contain such a clause. The KORUS FTA includes provisions on investor dispute settlements, but there are no such provisions in the E.U.-Korea FTA, leaving negotiations to individual member countries. Labor and environment provisions are subject to the same binding provisions in investor dispute settlements, but this is not the case for the E.U.-Korea FTA.

The U.S. points out that it has done much better than the E.U. when it comes to negotiations with Korea. The U.S. trade representative in charge of the KORUS FTA negotiations has been publicizing this view since October 19 last year, as they are worried about the E.U.’s domination in the Korean market. Tami Overby, vice president for Asia at the U.S. Chamber of Commerce, commented that the KORUS FTA is exemplary.

On the Office of the U.S. Trade Representative website, there is not a single word on the imbalance and injustice of the automobile trade terms that President Barack Obama and his ruling Democratic Party negotiated in the KORUS FTA. In contrast, the president and his party delayed the ratification of the FTA due to the disparity of 700,000 cars imported from Korea, versus the 7,000 cars that the U.S. exports to Korea each year. The analysis seems forced, as the substance of the KORUS FTA is overstated.

The upcoming June 30 will mark the third anniversary since the signing of the KORUS FTA. The 151 members of the National Assembly have recently sent a letter to the Upper and Lower House to press for the ratification of the KORUS FTA. This is a signal by the Korea National Assembly that there will not be any issues during the ratification. However, the only defect is that the main opposition parliament members who brought about the KORUS FTA will not be attending the ratification. We hope that Obama and the Democratic Party will not know their two-faced side.