Policy

Non-Tariff Barriers Hurting Free Trade

Despite the fact that the Republic of Korea is considered a trusted U.S. ally, an existing trade agreement has fallen short and U.S. exporters are suffering as a result, according to participants at a recent congressional hearing.

On Tues., July 30, the Senate Finance Subcommittee on International Trade, Customs, and Global Competitiveness held a hearing on the U.S.-Korea Free Trade Agreement (KORUS). The purpose of the hearing was to reflect upon the last two years, identify problems with KORUS, and determine how to utilize this information in future discussions on free trade.

The hearing was headed by Chairwoman Debbie Stabenow (D-MI) whose opening statement focused on how the U.S. needs to compete on a level playing field, but that issues beyond our exporters’ control are hampering their ability to thrive in offshore markets.

Ranking Member Johnny Isakson’s (R-GA) statement focused on how the state of Georgia’s economy has improved with Korean investment. Sen. Isakson, alongside Sen. Roy Blunt (R-MO) and Sen. Mark Begich (D-AK), have introduced the Partner with Korea Act. The bill will bolster Korean investment in the U.S. Sen. Isakson also voiced support for the renewal of trade promotion authority (TPA) through the Bipartisan Congressional Trade Priorities Act of 2014, in order to strengthen the administration’s position in current trade talks, e.g. the Trans-Pacific Partnership (TPP).

Witness testimony was given by Stephen Biegun, Vice President of International Government Affairs for Ford Motor Company; Shawna Morris, Vice President of Trade Policy for the National Milk Producers Federation & U.S. Dairy Export Council; Sean Murphy, Vice President and Counsel for Qualcomm; and Michael Rue, representative of the USA Rice Federation.

Mr. Biegun testified that while Ford does not regret its endorsement of KORUS, it has been disappointed by the results. The Republic of Korea remains one of the most closed auto markets despite the lack of tariffs, he explained, because non-tariff barriers (NTBs) still exist. Mr. Beigun stated that currency manipulation effectively creates a 25 percent tariff on exports while also decreasing the cost of Korean products in other markets.

To receive benefits from a free trade agreement, he argued, the U.S. needs to be able to enforce agreed upon policy and find a way to address NTBs, which he said is also vital for current trade negotiations such as TPP.

Ms. Morris voiced similar concerns, stating that while the U.S. dairy industry appreciates KORUS, certain NTBs have hurt exports. As a result of the EU-Korea FTA — which occurred after KORUS — U.S. companies are prohibited from selling certain cheeses (feta, asiago, gorgonzola, and fontina) in Korea. While these EU FTA pressures have spread to other markets – Central America, Peru, Colombia, and South Africa – and have hurt the U.S. dairy industry, Ms. Morris argued that it provides an important lesson going forward: action needs to be taken to lessen the impact of third parties on trade agreements. She recommended that the U.S. use its embassy staff to gather information about upcoming FTAs and preemptively fight against policies that hurt U.S. exports.

Mr. Murphy stated that Qualcomm, a leader in next-generation mobile technologies, remains a staunch supporter of KORUS and believes it to be a good model for future agreements. Qualcomm applauds Korean President Park’s three part economic agenda which focuses on strengthening Korea’s economic fundamentals, fostering an innovative economy, and creating an economy which balances domestic demand and exports. While continued deregulation and transparency is desired, they view KORUS as a success.

Mr. Rue stated that the key lesson to be learned from KORUS is no product exclusions. For example, he explained that rice was excluded because South Korean legislators labeled it a “sensitive crop.” Due to provisions like these, Mr. Rue contended that the U.S. rice market has been unable to expand since the Uruguay Round Agreements of 1994. He cautioned that KORUS has set a precedent that product exclusion is an option in future FTAs and that this concern must be addressed.

The consensus of the panel was that KORUS has been disappointing due to NTBs. As ongoing and future trade negotiations play out, these obstacles need to be addressed. While the largest NTB is currency manipulation, issues such as product exclusion and third party influence also demand attention. The hearing highlighted the need for the U.S. government to find a way to address these continuing concerns faced by U.S. exporters.