US-Korea FTA Modifications Examined

On September 3, the U.S. Trade Representative (USTR) and Korea’s Ministry of Trade, Industry and Energy published the agreed outcomes of the negotiations to amend and modify the U.S.-Korea Free Trade Agreement (KORUS FTA). The final package includes amendments and modifications to the FTA as well as “additional agreements and understandings to improve implementation of the trade pact”. The two sides had reached agreement in principle at the end of March. This post examines the outcomes, as well as the recently announced relief of certain Korea products from steel quotas.

The documents include a Protocol amending the KORUS FTA, specifically the General Notes of the U.S. tariff schedule to extend U.S. tariffs on trucks until 2041 and two chapters (Trade Remedies and Investment). The amendments to the Trade Remedies chapter recognize “the importance of promoting transparency in antidumping and countervailing duty proceedings and of ensuring the opportunity of all interested parties to participate meaningfully in such proceedings”. They also add detailed obligations relating to transparency and due process in such cases, in particular with regard to in-person verification of information and disclosure of calculations used to determine the rate of dumping or countervailable subsidization.

The amendments to the Investment chapter include elaborations on what is meant by “like circumstances” in national treatment or most-favored nation (MFN) treatment, as well as statements that MFN “does not encompass international dispute resolution procedures or mechanisms”, and that “the mere fact that a Party takes or fails to take an action that may be inconsistent with an investor’s expectations does not constitute a breach” of the Agreement, even if results in “loss or damage” to an investment.

The FTA revisions also seek to limit frivolous claims by directing the Joint Committee, which oversees the Agreement, to consider “meaningful procedures for resolving investment disputes and effective mechanisms to eliminate frivolous claims and to deter the filing of frivolous claims”. The parties also elaborate on what is meant by an investor’s “attempts to make” an investment. The amendments also limit the filing of parallel claims.

Several elements of the September 3 documents implement Korea’s commitments relating to motor vehicle standards and testing. They include a revision of a February 2011 exchange of letters to substitute a new section on “Safety Standards” relating to compliance with Korean Motor Vehicle Safety Standards. Another is an Interpretation by the Joint Committee of a requirement in a June 2007 exchange of letters. It requires Korea to amend its testing procedures for gasoline-powered motor vehicle to provide that tests for “compliance with U.S. Federal emissions regulations are sufficient to meet Korea’s requirements without additional or duplicative testing”.  In Agreed Minutes, Korea affirms its intention to revise its regulations relating to the Korea Certification (KC) mark and its motor vehicle fuel economy and greenhouse gas emissions regulations.

In another exchange of letters, the two countries agreed that the Joint Committee will establish a Rules of Origin Verification Working Group under the Committee on Trade in Goods and specified its functions, which include “seeking to resolve concerns” related to verification of claims of origin. They also agreed to a set of “Customs Principles”.

In another element of the agreement, Korea confirms that the Health Insurance Review and Assessment Service will amend its Premium Pricing Policy for Global Innovative New Drugs (Policy) to make it consistent with the KORUS FTA. It will publish the draft amendment by October 31, with the aim of implementing it by December 31, 2018.

In yet another exchange of letters, the U.S. committed to “expedite the commercial availability review process,” of three textile products requested by Korea. If it determines that a product is not commercially available, it will “expeditiously implement the necessary rule [of origin] change”.

The FTA partners agreed to endeavor to complete their respective domestic procedures and to bring the amendments of the FTA into force no later than January 1, 2019.

According to USTR, “the publication of the text of the agreed outcomes follows the completion in mid-August of U.S. domestic consultation procedures”, which included a 60-day period for congressional review and input from advisory committees and the International Trade Commission (ITC). In June, the ITC submitted a report “on the probable economic effect of proposed modifications to the staging of duty treatment on imports of certain motor vehicles”. USTR had sought input from the ITC to fulfill a requirement in the legislation implementing the KORUS FTA that the president obtain advice from the Commission before proclaiming such tariff modifications.

For Korea, the next step in its domestic procedures is to open the provisional Korean translations of the outcomes for public comment.  When that process is completed, and both governments have certified the translations, the two countries can then sign the documents and take the necessary measures to implement the outcomes.

Contributing to the finalizing and publication of the agreement was the president’s determination on August 29 to provide Korea with certain relief from quotas on its steel exports to the U.S. In March, Korea had agreed to accept a quota on its steel exports to the U.S. rather than the 25% tariff imposed by the president under Section 232 of the Trade Expansion Act of 1962. But, they were unable to obtain any product exclusions. The latest presidential action means that companies may apply for product exemptions for Korean steel products based on insufficient quantity or quality available from U.S. steel producers. If an exclusion from the quota is granted, they would not have to pay the tariff.

Jean Heilman Grier

September 5, 2018

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