The Hankyoreh | 19 Feb 2008
FTA approval could be held up by unconstitutional clauses
National Assembly’s right to dictate taxable items and tax rates would be altered by trade pact
A South Korean parliamentary report says that some of the clauses of a free trade agreement with the United States may be unconstitutional. The National Assembly is currently reviewing the deal in this month’s extraordinary session.
The report, released by the National Assembly’s committee for unification, foreign affairs and trade on February 18, found that, under the proposed free trade agreement between the two nations, the number of requirements listed as being applicable only to South Korea is eight times higher than that of the number solely applicable to the United States. The pact is the most unbalanced agreement signed by the United States thus far, the report pointed out.
In the report, titled “Review for Bill on Ratification of Free Trade Agreement between the Republic of Korea and the United States of America,” the committee said the agreement’s automobile-related taxation clauses are not in line with the nation’s constitution, which requires that laws be enacted to set tax rates or determine which items are to be taxed.
Under the trade deal, South Korea would be required to scrap its cumulative taxation system in favor of a special excise tax on new cars. South Korea would also have to simplify its automobile emissions-based tax rates to three levels, from five, and would be banned from re-configuring the emissions-based tax system if the deal were to go into effect. “Under the constitution, both taxable items and tax rates are set by laws enacted by the National Assembly. As the free trade agreement signed by the two governments sets a cap for tax rates and bans taxes on certain new goods, the agreement has the potential of being unconstitutional,” the report said.
“Also, the possibility of bigger damage can’t be ruled out because the possible revision of the auto tax would be applied to Japanese and German cars, as well as to U.S. cars,” the report said. “In terms of legal or economic aspects, there are concerns about potential side effects.”
The inclusion in the trade pact of what has been called a “liberalization reversal prevention mechanism,” could also introduce another unconstitutional element, according to the report. Under the mechanism, South Korea would not be allowed to tighten regulations if they were eased when the pact went into effect. Therefore, the mechanism limits the National Assembly’s right to make laws and restricts the liberty of national policies, the report said.
The report also found that the number of requirements applied only to South Korea was 55, compared with seven of those requirements for the United States. Out of the 14 free trade deals signed by the United States so far, South Korea topped the list in terms of the number of such one-sided requirements. What’s more, the number of South Korean laws subject to revision because of the free trade deal was 24, while the number of U.S. laws stood at four, the report said.
The report also criticized the South Korean government for “not trying to reach a social consensus before starting free trade talks, or during the negotiations.”