Getting a hold of the USTR report to Congress on Korea-U.S. free-trade negotiations, the Seoul Business Newspaper reports that the U.S. will likely bring it on during talks with Seoul. In particular, U.S. negotiators will demand that U.S. laws apply to American investors and businesses entering Korea, limits to foreign investment be dropped, and that Korean public corporations like railroads and telecommunications be privatized and opened up. Anyway, the article has been translated for your reading enjoyment below:
******
It has been confirmed that during free trade agreement (FTA) negotiations with Korea, the United States is planning to strongly demand that U.S. laws apply to U.S. investors and corporations that enter Korea. Moreover, the United States plans to demand that Korea’s public enterprise system be designated a barrier to free competition, and that public enterprises have their monopoly rights removed, including the abolition of foreign investment limits in railroads and telecommunications.
The United States has also decided to adopt a prior agreement with Korea on the amending of laws related to economic policy such as trade, investment and competition.
According to a report to Congress by the USTR on Korea-U.S. FTA negotiations, exclusively obtained Sunday in the United States by the Seoul Business Newspaper, the U.S. plans to adopt the above as its negotiating strategy during FTA talks with Korea.
The U.S. Congress, which has authority in trade negotiations, while granting the White House authority for a set time period, demands that the negotiating strategy be reported to the legislature prior to negotiations with foreign countries. The report sent by the administration to the Congress is different from the trade report made annually to the Congress and is semi-enforceable.
The USTR revealed its plan to demand that the Korean side protect the rights of U.S. corporations and investors on a level comparable to how they are defined under U.S. law. This means the FTA is being tied so that U.S. laws apply to U.S. investors.
In the report, the U.S. administration said the Korean side lacked transparency in a number of economic policies, such as corruption prevention, regulation reform and competition. Accordingly, it decided to adopt a separate agreement forbidding government regulations discriminating against U.S. exporters and investors and, if problems arise, would allow the United States to demand the two sides harmonize.
In particular, it designated public corporations like Korea Development Bank a factor limiting fair competition. Against this background, the U.S. plans to demand the privatization and opening up of railroads, postal services, petroleum and communications, and that the government be banned from supporting private corporations through public corporations in mergers and acquisitions.
About this, an official with the Ministry of Foreign Affairs and Trade said, “We don’t necessarily have to accept the U.S. demands.” He said, however, “The U.S. has many demands, and it’s true that we’ll have to accept many of them… Because [the above] was reported by the White House to Congress, it’s binding to some extent, so it appears the U.S. ‘FTA offensive’ will be quite substantial.”
24 Comments
If the U.S. demands that Korean public corporations like railroads and telecommunications be privatized, will they
privatize Amtrak in return? I’ll bet Koreans could operate it better than the U.S. anyway….
Seriously though, Korea is trying to get the U.S. to recognize products made in the Kaesong gulag, um, industrial complex as “South Korean,” which should absolutely not be allowed to happen.
Let them eat cheap rice.
The secretive Committee on Foreign Investment in the United States (CFIUS) of the Treasury Dept is a barrier to free competition.
the fta would be the best thing to happen for the US/korean relationship right now. however, there are going to be so many extreme factions on the korean side demanding the undemandable. what is needed is a strong leader (read president) to push it through. unfortunately president noh tends to cave.
at the very least, korea will have to start dealing with real global issues and acting like grownups if they’re gonna play ball with foreigners. the latest numbnut move on the government’s part is applying domestic tax laws to international tax treaties. this is all well and good if you give the international community time to plan their investment strategies in korea in light of the governmental moves. however, they are now applying their domestic tax laws retroactively (for the past five years) to foreign investors who invested based on their international tax treaties. that’s akin to creating a tax free “hub of asia”, letting foreign companies get set up and rolling here, then slapping them with 25% domestic tax rates effective retroactively five or ten years down the road as the foreign investors start making profits.
it reminds me of the governmental policy to pay couples some monthly stipend to have more than one child and a bit more for each extra child. the reason it failed was because no one trusted the stability of governmental policy. if you have three children, you’ll receive the subsidy until someone changes their mind. then you’re stuck trying to raise three children and have no help that was promised by the government.
Korea wants and needs the FTA much more than the US does and has much more to gain. Given the 6 month window on the fast track authority, Korea is therefore in a position to make significant concessions to get it.
Since the duplicity of demanding equality in relations with the US while also demanding special terms and considerations can’t be sustained any longer in an environment of free trade, this could be a major wake-up call for Korea in many ways. It’s a chance to become a world class global player and more global minded. Will it work though? I seriously doubt it.
that’s right mizar. in my opinion, if it can be fast-tracked and ratified (something that the FTA with chile took four years to do) it would show korea’s commitment to globalization and strengthen the relationship with its number one foreign direct investor (with nearly $5 billion in 2004).
where thirty large business groups account for forty percent of the country’s economic activity, the increased competition due to this FTA would also affect lower prices, more variety and higher quality goods and services for the good people of korea.
with a bit of restructuring and tax incentives, the domestic market could diversify and small business entrepreneurs could be fostered by the government. oh my god, it sounds like a mature market!
Amen, Judge judy. Financial opportunity for ordinary people here is scant. Graduate from a top university or forgo any opportunity to work for one of the top few business groups. Live on credit until the next credit crisis because consumer prices are double or more those of mature economies like the US. The quality of life is poor, competitiveness nill, imagination and vision negligable. All that could change with a truly open economy.
It’s foolish to say “The United States will demand its laws apply to U.S. investors in Korea.” The newspaper either misunderstood or is intentionally distorting the issue (or both!). What the U.S. side will insist upon, however, is for Korea to offer American investors a business environment, including the legal environment, equally favorable to U.S. investors in Korea as is available to Korean investors in the United States. True reciprocity, in other words.
What will this mean in practice? Well, no screen quota, so Hollywood can try to dump its crappy movies here (not desirable, but a byproduct of free trade). The U.S. will want Korea to amend its engine-displacement tax regime in favor of something based on efficiency (MPG) of the engine instead, so that U.S. cars are not discriminated against. Agricultural markets will need to open up more — including rice. Services must be liberalized (hooray!). Oh yeah, and it won’t be enough simply to have laws against intellectual-property theft; those laws will need to be enforced as well.
Brendon wrote:
The U.S. will want Korea to amend its engine-displacement tax regime in favor of something based on efficiency (MPG) of the engine instead, so that U.S. cars are not discriminated against.
I have a few questions about that. My experience with the engine displacement stuff comes from when I first bought a car in Korea a long time ago, and ended up getting a used Excel rather than a larger vehicle because of that. At any rate, I don’t remember what the policies were…
Do American mid-sized and small cars have larger engine displacement sizes than their Japanese, German, and Korean counterparts?
Japanese and German cars seem to do better than their American counterparts in Korea. Is this because of the engine displacement issue? How sould MPG make a difference in this regard?
Assuming Japanese, German, and American automakers are playing on the same field (are they?), why are the Japanese and the Germans doing better than the Americans in Korea (are they?)?
[I remember when a Mercury Sable was considered a luxury car here, and those who could afford one would get one. But now the people with money seem to eschew American cars, and I don't think anti-Americanism is the reason.]
What other barriers to foreign car makers still exist in Korea? Are any barriers specific to American automakers? Are any specific to Japanese automakers (they certainly once were)?
I’m not sure kushibo but my Matiz is so luxury after I put a Chevy badge on it.
Kushibo asked: Do American mid-sized and small cars have larger engine displacement sizes than their Japanese, German, and Korean counterparts?
I’m no expert, but I’d say that cars with German nameplates (Mercedes-Benz and BMW, in particular, with Audi and VW to a lesser extent) do well despite their engine displacement because of a perceived cachet from those nameplates. I think that these vehicles are viewed as being more exotic than high-quality vehicles manufactured in the US.
Here’s what the KT had to say recently about the local market:
‘…[W]hen choosing luxury cars, the badge matters more than the product quality. The prestige associated with these traditional luxury brands, however, was a much bigger and surprisingly formidable variable.
In Korea, the brand image of each foreign badge is not yet firmly established in the mind of Korean consumers due to limited access to import cars in the protectionist local car market.’
http://times.hankooki.com/lpag.....811910.htm
Anybody have a good link to a list of foreign (and Korean) vehicle sales for the past several years.
I wonder if Honda, not exactly a “luxury” vehicle like Lexus and BMW, the #1 and #2 makes, outperforms American vehicles. If that is the case, I think that trade barriers (which are what now?) would not be the American automakers’ only problem, then.
Kushibo, engine displacement aside, do you really need stats to see how everybody is outperforming U.S. cars now?
From a Time mag profile on Bill Ford:
The clock is ticking for the Americans, however, and here’s why: Detroit loses money on passenger cars. (Trucks have always been profitable.) The problem was a long time coming, as Japanese and later Korean automakers scored annual gains in quality, profitability and market share. But U.S. automakers were lulled into complacency in the 1990s by the supersize profits of their suvs (light trucks, technically), which just a decade ago earned profit margins as high as 25%. Ford was an innovator with its Explorer model and just kept making them bigger. Meanwhile, the Japanese started making good suvs too, and the competition made the profit margins shrink.
http://www.freerepublic.com/fo.....2756/posts
Korean car buyers are no different than ones in the U.S. for eschewing American cars, spiced with a little uri nara of course. (That’s an interesting profile BTW, I think, worth reading.)
Erm, notwithstanding the interesting article, I wonder why you chose Free Republic. The fulminations of some of its commenters on the “towelhead enemies of this country” make me wonder what you were thinking.
Michael, I don’t want to argue based on suppositions; I want facts: it seems American cars are being overtaken by German and Japanese makers, and even the Swedish, but I could be wrong.
Once I know the relevant data, it would be easier to support or refute the idea that trade barriers are the primary cause of Detroit’s woes (if the woes really exist) in Korea.
Anyway, I’m really curious if changing from engine displacement to gas mileage would make a difference in how well Detroit does here.
And come to think of it, since big Korean cars are also subject to the engine displacement regulations (right?), then why should Korea be expected to change that entire system just because the US wants it? Is that really a necessary part of an FTA?
Asking, not speaking rhetorically.
gbnhj said:
“I think that these vehicles are viewed as being more exotic than high-quality vehicles manufactured in the US”
high-quality vehicles like the GM suvs that knock?
GM brought its high quality processes here in Korea. You must have heard of the recall of Lacettis?
The US automakers may not do well in Korea, but American made Japanese cars will do. That is still beneficial to both US factory workers and Korean consumers (and Japanese automakers).
jyce–hell, I didn’t look at anything else on “freerepublic,” it was a literally “free” link because Time charges for archive stuff. I didn’t mean to offend any towelheads out there
It doesn’t make much sense to talk about cars as being “American”, “Japanese” or “Korean” anymore when, for example, GM owns (or owned) a 21% stake in Suzuki at the same time that Suzuki owns a 11% stake in GM Daewoo.
GM raising cash:
http://www.nytimes.com/2006/03.....uzuki.html
That’s nice to hear Mike. I was beginning to think that you were one of the nutburgers in here who only dislikes Bush because he prefers Pat Buchanan.
As Bushie once said: “I refuse to be sucked into your hypnotheoretical arguments.”
Ideologically speaking I’m roughly at the opposite end of the spectrum.
I hope you’ll note that I did not advance any argument that trade barriers were the primary cause of Detroit’s woes in Korea. My opinion is the cars tend to suck, and Korean consumers are less likely to pay a high price for a sucky American automobile with no brand cachet.
That was the entire point of the quote from the Time article–U.S. automakers have been putting out product that sucks. In Korea, people know this and avoid them. Even if there were no trade barriers at all, the situation would probably be the same.
Brendon wrote:
I hope you’ll note that I did not advance any argument that trade barriers were the primary cause of Detroit’s woes in Korea.
To set the record straight, that’s not exactly what I was thinking. When you wrote…
… I was wondering if you felt that Detroit and Washington thought the barriers were the primary cause of Detroit’s woes.
But I also wanted to know what is it about switching from engine displacement to MPG that will reduce the “barriers” in any way? I think MPG-related car fees might now be a more appropriate way to encourage economical car purchases than engine displacement size, but aren’t all cars (including Korean) subject to this? How is it a barrier to American cars (or foreign cars) specifically? Is this a red herring on Detroit/Washington’s part?
It just seems to me that Washington would be wasting a lot of political capital for very little gain by trying to get Korea to change its entire car user fee scheme just for an FTA. Should California be forced to drop some of its environment-related car regulations for that same FTA?
By the way, I know everyone is down on Detroit quality, but for certain classes of vehicle, especially large ones, isn’t Detroit pretty good at making quality vehicles? There are some types of vehicle where the American ones are the best (right?), especially workhorse vehicles. Reducing the barriers, though, won’t change much if Ford, Chrysler, and GM don’t feel there’s enough of a market for a Suburban to justify importing them and putting them up in expensive show rooms.
Anyway, I’d also like someone more knowledgeable about this issue to give a rundown on what the barriers are to foreign vehicles right now.