US-South Korea trade deal comes under congressional fire

Dow Jones | September 24, 2008

US-South Korea Trade Deal Comes Under Congressional Fire

By Josh Mitchell, Dow Jones Newswires

WASHINGTON (Dow Jones) — A pending free trade agreement between the U.S. and South Korea came under fire Wednesday, with a U.S. senator and auto industry officials saying the deal would exacerbate the imbalance in auto trade between the countries and that the Korean government can’t be trusted to honor the deal.

At a Senate Commerce Committee hearing, Sen. Byron L. Dorgan, D-N.D., cast doubt on the agreement’s chances of congressional passage without further concessions from Korea on auto trade.

"The Korean government has done everything it can to prevent U.S. cars from being sold in the Korean market," Dorgan said, adding the agreement would leave in place a number of what he called non-tariff barriers imposed by the Korean government. "This trade agreement, in my view, is not going anywhere as long as that remains the case."

The agreement, reached last year, has gained support outside of the U.S. auto industry, with supporters saying it would eliminate tariffs on goods and open up the Korean market to a number of American goods. President Bush has yet to send the agreement to Congress for approval.

But Ford Motor Co. (F), Chrysler LLC and the United Auto Workers Union oppose the pact. General Motors Corp. (GM), which has a majority stake in South Korean auto maker GM Daewoo, has taken a neutral stance.

Dorgan and representatives of Chrysler and the UAW accused the South Korean government of not honoring two previous memoranda of understanding. Dorgan noted that the imbalance in auto trade between the countries has increased since the last agreement was reached in the late 1990s.

Dorgan presented a chart showing that Korea shipped more than 772,000 automobiles to the U.S. last year, while U.S. auto makers shipped 6,200 cars to Korea.

Most of the U.S. cars sold in Korea, he said, are purchased by expatriate businessmen. "Ordinary Koreans have largely got the message" from the government, he said, which he characterized as, "Don’t dare buy foreign cars."

He said that imbalance would increase under the Korea trade agreement by eliminating U.S. barriers to Korean vehicles but leaving in place Korean non- tariff barriers to U.S. made vehicles.

Under the trade deal, South Korean-made cars would no longer be subject to a 2.5% U.S. tariff. A 25% U.S. tariff on light trucks would be phased out over 10 years. South Korea would also eliminate its tariffs and other barriers such as an engine tax that falls more heavily on cars with bigger engines.

John Bozzella, vice president for external affairs and public policy for Chrysler LLC, said that 80% of the $13 billion U.S. trade deficit with Korea is attributable to auto trade.

He said the deficit is due largely to nontariff barriers, such as South Korean safety and emissions standards and insurance rates that he said are biased against U.S. made vehicles.

"This deal would allow Korea to maintain a series of non-tariff barriers that have effectively kept its market closed to imports of U.S. built vehicles and parts," said Ron Gettelfinger, UAW president. He pointed to an International Trade Commission study in September 2007 that he said showed the U.S. auto trade deficit with Korea would increase by more than $1 billion under the new deal.

Charles W. McMillion, president and chief economist of MBG Information Services, who has consulted the auto industry, said that in light of the Wall Street crisis now may not be the time to further deregulate world markets.

"Further deregulation of global commerce should not be a serious consideration for anyone concerned" with the U.S. economy, he said. "As with the endangered financial system, now is the time for an urgent, careful reversal in the deregulatory global commercial policies that have so clearly failed."

Myron Brilliant, president of the Chamber of Commerce’s U.S.-Korea Business Council, praised the agreement, calling it the "most commercially significant" U.S. trade agreement in a decade.

He said the agreement would eliminate Korea’s tariffs on passenger vehicles, trucks and auto parts.

Brilliant noted that Korea is close to reaching a free-trade pact with the European Union. "If that were the case, the U.S. auto producers would be at a substantial disadvantage to European competitors.’

Sen. Claire C. McCaskill, D-Mo., noted 3,800 Chrysler employees in Missouri lost their jobs this year. Critics of the free trade deal said an increased imbalance in auto trade would cost more U.S. jobs. In pointed questioning, she saked brilliant whether the agreement would address the imbalance. He responded that the affect might be "negligible," but that markets would open up nonetheless.

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source: Dow Jones