New free trade deal with US faces backlash

Cars manufactured by Hyundai Motor at its plant in the southeastern city of Ulsan stand ready to be exported. / Korea Times file

Korea gains concessions on agriculture in return for yielding in auto sector

By Kim Tae-gyu, Kim Da-ye

South Korea and the United States reached a compromise on their free trade agreement (FTA) Saturday but the long-awaited accord is expected to face a strong backlash here as critics say it has tipped the balance in favor of the United States.

At a press conference Sunday, Trade Minister Kim Jong-hoon said that Korea gained concessions from Washington in the agricultural and medical patent sectors while effectively setting aside the demand for unfettered access to the local beef market.

But many claim that the U.S. concessions are not big enough to rebalance the interests between the two nations as South Korea agreed to give more benefits to the U.S. in the auto sector.

The biggest loss for South Korea is the 2.5 percent tariff the U.S. will keep imposing on Korean auto exports until the fifth year after ratification of the agreement. Korea will cut its tariffs on U.S. vehicles from 8 percent to 4 percent and fully eliminate them in the fifth year.

The 2007 agreement would have immediately removed the tariffs on about 90 percent of Korea’s auto exports.

Stepping back on the auto issues, Korea gained in negotiations over imports of pork. Korea had to remove barriers on American pork by 2014, but the latest deal delayed the date to 2016.

The imposition of regulations against domestic generic drug manufacturers will also be delayed by a year and a half, relieving the pharmaceutical industry of the pressure to come up with original drugs.

Furthermore, Korean employees transferred to a U.S. office of an international firm will be allowed to stay longer in the U.S. than the current visa regulation allows.

In addition to pros and cons for each industry, Korea, in general, is expected to benefit from the largest FTA it has signed so far.
The FTA with the U.S. could boost the gross domestic product (GDP) growth rate by 0.6 percent every year for the next 10 years, according to a joint research conducted by state-run economic think tanks in 2007.

Auto deal

The biggest backlash seems to be coming from the automotive issues as Asia’s fourth-largest economy accepted the U.S.’ requests to delay the abolition of customs duties on Korean vehicles.

Under the 2007 version, the current 2.5 percent tariff levied on Korean passenger cars is supposed to instantly disappear in the U.S. markets in most of cases and the U.S. continued to ask to postpone the timeline.

By contrast, the 2010 edition lets Washington phase out its 2.5 percent tariffs over five years.

In return, Seoul will halve its tariffs on U.S. vehicles from today’s 8 percent to 4 percent over five years instead of immediately eliminating them as stipulated in the 2007 contract.

At first glance, this appears to be a good deal ― both sides seemingly have found a happy medium. But experts point out that closer examinations reveal a totally different picture.

``Under the revised deal, the tariffs will be removed in 2016 at earliest. By then, our top vehicle exporter of Hyundai-Kia Automotive Group will meet most of the U.S. demands with products churned out in its U.S. factories,’’ professor Lee Hae-young of Hanshin University said.

``The effect of zero tariffs would be very limited by then. In comparison, the imports of U.S. cars would not be great over the next five years. Hence, Korea would lose much while gaining little due to the renegotiations.’’

Hyundai Motor and Kia Motors, the two flagship subsidiaries of Hyundai-Kia Group, each have their own factories in the U.S., , and have kept jacking up their annual capacity.

In addition, Korea will be obliged to exempt up to 25,000 of any U.S. automaker’s products from the nation’s stricter safety standards down the road as long as they satisfy similar U.S. regulations.

The U.S. Trade Representative (USTR) also garnered concessions on pick-up tariffs and hybrid cars as well as special motor vehicle safeguard clauses, which it had strongly recommended.

``Under this motor vehicle safeguard, the U.S. government is not required to offer Korea tariff reductions or other compensation ― generally required when a safeguard is applied ― for up to two years after this particular safeguard is applied,’’ the USTR said in a statement.

The safeguards will allow the U.S. to impose customs duties on Korean cars even after they are phased out if the imports are show to be causing harm to the auto industry of the world’s top economy.

``In 2007, our negotiators eased so many regulations on safety and the environment in order to get the U.S. promise of immediately getting away with tariffs on Korean cars,’’ Lee said. ``Now, they gave it up. My question is for what did they do that?”

Pork & Medicine

In order to balance against the retreat in the auto sector, the Korean delegation managed to reach an agreement to move back the effective date on the zero tariff rate on American pork from 2014 to 2016.

Korea could choose from several types of pork products including frozen meat and processed meat like sausages and settled on other frozen pork including neck and ribs. Kim said in the press conference that this particular category counts for 67 percent of the pork imports from the U.S.

The agreement isn’t apparently too disadvantageous to the U.S. as the president of National Pork Producers Council (NPPC) said that it is a good deal for the U.S., according to Pork Magazine.

“This is still a good deal for us,” said Sam Carney, as quoted by Pork Magazine. “With the date for a zero tariff on pork moved back, we likely will lose some market share in the South Korean market to Chile. But as the lowest-cost producer of pork in the world, we’ll hold our own.”

Korea is one of the most lucrative markets for the U.S. pork industry and is expected to absorb 5 percent of the total U.S. pork production, Pork Magazine says.

Furthermore, although the pharmaceutical issues are small part of the deal for the U.S., the latest agreement is expected to greatly benefit domestic drugs manufacturers.

According to the Congressional Research Service’s report on the FTA between the U.S. and South Korea, U.S. drug manufacturers feel that the Korean government failed to protect proprietary data that manufacturers must submit for market approval from local generic drug manufacturers.

The report also says that the Korean government approved marketing of a drug before it was determined that the local manufacturer was the “rightful owner of the patent and trademark.”

Generic drugs are exactly the same as existing drugs in content, which can be manufactured and marketed after the original drug’s patent expires.

In 2007, two countries agreed that the Korean government would not allow a generic drug manufacturer to market a new drug with safety and efficacy data supplied by the original U.S. manufacturers for market approval.

The Korean government is also obliged to notify original patent holders when a local pharmaceutical firm submits safety information about a product and prevent marketing of the product if the original patent holder doesn’t agree to it. Both countries agreed that they will not invoke a “data exclusive provision” until the FTA has been in effect for 18 months.

The latest agreement delayed it to three years, relieving local pharmaceutical firms from the huge pressure to come up with original drugs. Nearly 90 percent of locally produced drugs are generic.

In addition, the terms for the U.S. L1 visa have become more generous. The non-immigrant visa allows international companies operating in the U.S. and abroad to transfer employees to their U.S. offices. The transferred employees who must have worked for the firm at least a year can now stay in the U.S. for five years without renewing their visa, up from the current three years.