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Institute for Workplace Studies----------------- Professor Samuel B. Bacharach
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16 East 34th Street, 4th floor---------------------- Stuart Basefsky
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Congressional Research Service (CRS)

 

Pending U.S. and EU Free Trade Agreements with South Korea: Possible Implications for Automobile and Other Manufacturing Industries

Michaela D. Platzer

Specialist in Industrial Organization and Business

September 1, 2010

http://opencrs.com/document/R41389/2010-09-01/download/1013/

[full-text,35 pages]

 

Summary

South Korea has negotiated free trade agreements (FTAs) with the United States and the

European Union (EU), but neither agreement has yet been approved. The U.S. Congress must

approve the United States and South Korea free trade agreement (KORUS FTA) and the

European Parliament must vote on the European Union and South Korea free trade agreement

(KOREU FTA) before the FTAs can take effect. If the FTAs are ratified, it is possible there could

be a “first mover” advantage for either the United States or the European Union, depending on

which FTA is approved first. Some argue that both agreements have shortcomings and should not

be approved.

 

This report provides U.S. lawmakers with a comparison of the manufacturing components in the

KORUS and KOREU FTAs. Congressional interest in an FTA between the European Union and

South Korea mostly centers on those U.S. industries competing with European industrial sectors,

especially motor vehicles. The two pending FTAs raise questions about what it could mean for

U.S. manufacturers if the United States takes longer, or fails altogether, to implement the KORUS

FTA, while the European Union and South Korea possibly move ahead to approve and implement

their outstanding FTA. In such a case, the possibility exists that the removal of tariff and nontariff

barriers between the European Union and South Korean markets could result in U.S.

 

manufacturers losing South Korean market share to European competitors. On balance, most U.S.

and European manufacturing sectors, with some auto manufacturers in particular among notable

dissenters, argue that the pending FTAs will be beneficial and are largely supportive. On the other

side, labor unions in the United States and the European Union are considerably more skeptical,

claiming that South Korean companies could be the biggest beneficiaries, since they could gain

even greater access to the significantly larger U.S. and EU markets. Labor union leaders say the

FTA will result in further job losses as their respective manufacturing workforces compete for

market share with competitive South Korean manufacturers in their own domestic markets.

 

Various forces will affect how and when each side might move forward on its respective FTA.

Congress has a direct role in the approval of the KORUS FTA, but until recently legislative

consideration of the agreement had been at a standstill. In June 2010, President Obama directed

the United States Trade Representative to initiate new discussions with the South Korean

government to resolve outstanding issues in time for the G-20 Summit in Seoul in November

2010, such as autos and beef. Some lawmakers argue that the KORUS FTA provides a greater

advantage to South Korean manufacturers than to U.S. manufacturers. Others have expressed

their support for economic and national security reasons.

 

No specific date has been announced by the European Union on when it expects to approve its

FTA with South Korea, but the European Commission (the EU’s executive charged with

negotiating agreements with other countries, among its areas of responsibility) has indicated that

it would like to move forward in 2010 or 2011.

 

Automotive trade is the primary focus of this report because it is one of the most contentious and

high-profile manufacturing issues in the KORUS and KOREU FTA deliberations. Additionally,

brief overviews are included of other selected U.S. manufacturing sectors that could be affected

by these FTAs, such as home appliances, consumer electronics, and pharmaceuticals and medical

devices. Trade in agricultural products and services are not covered by this report.

 

Contents

Introduction ...............................................................................................................................1

Legislative Prospects...................................................................................................................2

Stakeholder Perspectives .............................................................................................................3

A Possible First Mover Advantage.........................................................................................5

Competing Automobile Manufacturers ........................................................................................7

A Comparison of U.S., EU, and South Korean Automotive Trade..........................................8

Overseas Production by U.S., EU, and South Korean Automakers .......................................10

South Korean Auto Production in the United States .......................................................10

South Korean Auto Production in the European Union .................................................. 11

U.S. and European Joint Ventures with South Korean Automakers ................................ 11

Automotive Tariff and Non-Tariff Barriers ..........................................................................12

U.S., EU, and South Korean Automotive Tariffs ..................................................................12

KORUS FTA Auto Tariffs .............................................................................................12

KOREU FTA Auto Tariffs .............................................................................................13

KORUS and KOREU FTA Truck Tariffs .......................................................................13

Tariff Refund Provisions—Duty Drawback and Snapback.............................................14

Non-Tariff Barriers .............................................................................................................15

Automotive Safety Standards ........................................................................................15

KORUS FTA..........................................................................................................16

KOREU FTA..........................................................................................................17

Environmental Protection Standards..............................................................................17

Other Automotive-Related Non-Tariff Barriers....................................................................18

Automotive-Specific Taxes ...........................................................................................18

Dispute Settlement ........................................................................................................18

Rules of Origin .............................................................................................................19

South Korean Anti-Import Sentiments ...........................................................................19

Remanufacturing...........................................................................................................19

Kaesong Industrial Complex .........................................................................................20

Overview of Other Selected Manufacturing Sectors...................................................................20

Home Appliances ................................................................................................................21

Consumer Electronics .........................................................................................................22

Textiles and Apparel............................................................................................................23

Pharmaceuticals and Medical Devices .................................................................................25

Tables

Table 1. U.S. and EU Goods Trade with Korea, 2009 ..................................................................6

Table 2. Passenger Car Imports from South Korea, 2008 and 2009 ..............................................9

Table 3. Imported Passenger Vehicle Sales in the South Korean Market.....................................10

Table 4. Selected South Korean Industrial Tariffs ......................................................................21

Table A-1. Best Selling Car Imports in the South Korean Market, 2009 .....................................28

Table B-1. Comparison of Automobile Tariff Reductions: Proposed Tariff Reductions and

Time Frame for Tariff Elimination under the Pending KORUS FTA and KOREU FTA...........29

Table C-1. Trade Agreements Between South Korea and Various Partner Countries, In

Force, Signed or Initialed, or Under Negotiation.....................................................................30

Appendixes

Appendix A. Best-Selling Car Imports in the South Korean Market...........................................28

Appendix B. Comparison of Automobile Tariff Reductions .......................................................29

Appendix C. Agreements between South Korea and Various Partner Countries..........................30

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