The U.S. should tread carefully in its pursuit of a modified U.S.-Korea Free Trade Agreement and in its push to reduce its trade deficit with South Korea, a group of senior advisers has told U.S. Trade Representative Robert Lighthizer – cautioning that bilateral trade disputes should be approached warily in light of shared concerns over North Korea.
Citing “current provocations” by North Korea, the Advisory Committee for Trade Policy and Negotiations (ACTPN) – a group of senior industry executives chartered to provide high-level advice to USTR about trade deals – urges the administration to “not allow bilateral trade disputes to signal any friction or weakness in our mutual support.”
The committee serves as the U.S. government's “senior trade advisory panel,” established to provide USTR with policy advice on “matters concerning objectives and bargaining positions for proposed trade agreements; the implementation of trade agreements once they are in force” and “other matters arising in connection with the trade policy of the United States,” according to its Aug. 15 letter to Lighthizer obtained by Inside U.S. Trade. ACTPN is a federal advisory committee composed of 16 representatives from a range of industry sectors.
The committee – and other advisory panels – was asked by the USTR office for input on how to improve the deal. All comments were due Aug. 15.
“The majority of ACTPN cautions against making the mistake of trying to use KORUS to achieve goals that are beyond its reach, such as reducing the overall U.S. trade deficit by reducing the bilateral trade deficit with South Korea,” the group wrote, adding that more attention might instead be paid to bilateral services trade.
“The U.S. has recorded a surplus with Korea of about $9.5-$10 billion in recent years but U.S. services has been flat since 2013,” the committee noted.
The U.S. trade deficit with Korea has been repeatedly criticized by Trump administration officials – including the president himself. In June, he said the U.S. and Korea were renegotiating the deal “right now,” while earlier he had threatened to terminate it.
In July, USTR sent a letter to Korea asking to convene a special session of the KORUS joint committee, but stopping short of demanding a renegotiation of the deal, suggesting instead that it be modified or amended. The location of the session has not been confirmed; a source recently told Inside U.S. Trade the sides had agreed to convene on Aug. 22, but where remained an open question. Korea has insisted on Seoul, while the U.S. has asked to meet in Washington, DC.
Touting increased bilateral trade since KORUS entered into force in 2012, the advisory group argues that “more must be done” to increase U.S. sales to South Korea – though it notes the panel members hold “disparate views” on how to proceed with the agreement.
One of the areas in which members disagreed: rules of origin, with labor union members pushing for stronger rules due to concerns over KORUS' provisions on regional value content for automobiles.
Those members argue “as little as 35 percent of a vehicle's content” confers origination in the FTA region, adding that such a provision allows for other non-FTA members, such as China, to utilize the remaining 65 percent and be eligible for the deal's benefits. They urge USTR to adopt rules of origin “commensurate” with those found in the North American Free Trade Agreement, which outlines a rate of 62.5 percent in order to qualify for NAFTA benefits.
The “majority of ACTPN members,” however, advocate no changes to the rules of origin, contending that doing so could disrupt beneficial supply chains, the letter states.
The group cited issues identified before the agreement was implemented, contending that years later “we are addressing many of those same concerns.”
The recommendations include the “elimination of the trade barrier caused by not fully providing national treatment for U.S. products and services, including for acceptance of credit cards and for testing and certification requirements for U.S. products,” and “strengthened enforcement of intellectual property rights.”
On services, ACTPN points out the current deal does not include provisions that protect the cross-border flow of electronic payment services. The group calls on USTR to boost market access and “national treatment protections” of EPS.
“We suggest a market access commitment to prohibit the imposition of numerical restrictions (e.g., quotas), foreign equity caps, and restrictions on juridical form of cross-border EPS and a national treatment commitment to prohibit measures that discriminate against U.S. EPS in favor of EPS supplied by domestic entities,” the group says, adding in South Korea “regulators require the adoption of national standards,” which, it argues, restricts local market access.
The advisory group also spotlights labor and regulatory processes as areas in need of increased enforcement and transparency. In addition, it suggests that USTR address “misalignment in customs valuation procedures.”
On regulatory transparency, the group is concerned about “uneven” enforcement against “importers by governmental agencies with jurisdiction over product ingredients.” It calls on the administration to define “non-scientific regulatory enforcement of chemical and product ingredients imported by non-Korean companies” as a technical barrier to trade under the deal.
The group also addresses a slew of other issues it sees as in need of more scrutiny, including currency, trade enforcement, agriculture, digital trade, data flows, cybersecurity, government procurement and transshipment practices. – Isabelle Hoagland (isabelle.hoagland@iwpnews.com)
