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Ambassador’s Speech

Democratic Leadership Council


Congressional Staff Briefing
September 30, 2010
Washington, DC

Introduction

Thank you, Congressman Cuellar, and good morning. I’m grateful


to Ed Gresser and the Democratic Leadership Council for
organizing this event and giving me the opportunity to talk to an
important audience about an important topic: the Korea-US Free
Trade Agreement.

First, though, I know that some of you were involved in the


drafting of the resolutions that the House and Senate passed in
May, regarding the sinking of the South Korean naval vessel
Cheonan. I would like to reiterate that the government and the
citizens of Korea are very grateful for your expressions of support
and sympathy for the families of the 46 crewmembers who were
killed in that attack.

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This is a particularly opportune time for a conversation about US-
Korean relations, because it was 60 years ago that the Korean War
started and brought our two countries together.

Almost 2 million Americans fought in that war. They fought to


preserve the freedom of a far-away country that most of them
knew little about. More than 36,000 of them died for that cause.

Their victory led to the formation of the US-Korea Alliance, based


on security and shared values. After 60 years, Korea has taken its
place among newly developed nations. It has a trillion dollar
economy, which is the world’s 15th largest and the fourth largest in
Asia.

So the alliance has grown from having a single, distinct purpose –


protecting South Korea from North Korean aggression – to having
many purposes, such as trade.

For decades, the United States was Korea’s biggest trading partner.
But it lost that distinction to China in 2003. Since then, the U.S.
has also been surpassed by Japan and the European Union.

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KORUS FTA

Several years ago, after consultations with Congress, our two


governments decided that the best way to reverse this trend was to
negotiate and ratify a bilateral free trade agreement that would
knock down barriers on both sides of the Pacific.

We negotiated such an agreement and signed it in 2007. It has been


languishing ever since because of other, more urgent, policy
priorities in Washington, and because of concerns about some of
its provisions.

Then, last June, President Lee and President Obama met in


Toronto and agreed that the time had come to move ahead with the
KORUS FTA.

As President Obama said, “it is the right thing to do for the United
States. It is also the right thing to do for Korea.”

If you’ve listened to the discussions of this FTA among


stakeholders and in the press, you might think it only applies to
two commodities: autos and beef. In reality, it applies to virtually

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every product manufactured in the United States, as well as to
agriculture and to service industries.

The KORUS FTA is about three things.

First, it’s about jobs. It will create good, high-paying jobs


throughout the U.S.– about 70,000 in manufacturing, and more
than 26,000 just in the livestock sector of U.S. agriculture.

Second, it’s about economic growth. The U.S. International Trade


Commission, an independent, non-partisan agency, estimated that
ratification of the KORUS FTA will add $12 billion to U.S. GDP
and $11 billion to U.S. exports. And it will reduce the U.S. trade
deficit by $4 billion once it is fully implemented.

And third, it’s about security. Passage of the KORUS FTA will
help the U.S. maintain its leadership role in East Asia. It will help
ensure the US-Korea alliance remains as a force for stability at a
time of seismic change in Northeast Asia.

The KORUS FTA is America’s most commercially significant


trade agreement in more than a decade.

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It will eliminate about 80 percent of Korea’s tariffs on U.S.
imports right away. It will eliminate about 95 percent of them
within three years and virtually all of them within 15 years.

It will eliminate many of Korea’s non-tariff barriers to imports,


such as unequal taxation and complicated or burdensome technical,
environmental and safety standards.

And it will give American banks, insurance companies and other


service firms operating in Korea the same rights and privileges
under Korean law that Korean companies enjoy.

During the past six months, I’ve traveled extensively throughout


the United States to talk about the KORUS FTA and to listen to
what people in various regions and walks of life had to say about
it.

From Connecticut to California and from Michigan to Texas,


business people, farmers and local officials have told me that
opening foreign markets, as the KORUS FTA will do, is crucial to
their long-term growth.

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Many of them knew that Korea was also working on free trade
agreements with other countries, including the European Union,
Canada, and Australia, and they worried that the United States
would be left behind.

In Baltimore, we toured Elliot Dredges, a 200-employee company


that has built and sold dredging equipment since 1885. It build the
dredges used to build the Panama Canal.

Elliot has been active in Korea for decades, but faces competition
from European companies. The KORUS FTA’s elimination of the
5 to 15 percent tariffs that Elliot pays on its exports to Korea will
help it hold on to its share of a growing market.

In California, I met with the Napa Valley Vintners, who are


struggling to extend their reach in Korea in the face of intense
competition from Chile and the EU. American wines face a 15
percent tariff in Korea.

Korea and Chile already have an FTA. It took effect in 2004 and
Chilean wine exports to Korea overtook U.S. exports within a year.

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The Korea-EU FTA will be signed on October 6 and take effect in
July 2011. If there is no KORUS-FTA by that time, the United
States will be the only major wine exporter that pays a tariff in
Korea. It will face difficulties the Korean market, where the
popularity of red wine has exploded in recent years.

In San Antonio, Texas, we met executives of Stoic International,


which ships everything from chocolate chip cookies to baseball
bats all around the world. The company has been trying to meet a
growing demand for avocadoes in Korea, but the country’s 30
percent tariff on avocadoes makes it difficult. The Korus FTA will
reduce that tariff to zero in one year.

And in Los Angeles, we met with the leaders of the Motion Picture
Association of America. They were excited about passage of the
KORUS FTA for several reasons. One is that Korean theater
owners were required to show Korean movies 143 days per year.
Our government reduced the quota to 73 days per year and the
KORUS FTA guarantees that it will not increase. It also cracks
down on illegal recording and piracy and strengthens Korea’s
copyright and intellectual property protections.

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There are stories like these in every city and state in the U.S. And
in some, there is another kind of story – the story of Korean
investment in the United States. It may surprise you to learn that
Korean companies invest more here than U.S. companies invest in
Korea – $6.3 billion compared to $1.3 billion in 2008.

Foreign Direct Investment

Samsung, LG, Hyundai, Kia and many other Korean firms have
operations here and they employ tens of thousands of Americans.

Hyundai has a major production facility in Montgomery and Kia


has one in West Point, Georgia. They employ more than 5,000
people directly and another 78,000 indirectly.

Both facilities depend heavily on American suppliers that employ


thousands of people. They buy about $900 million worth of parts
and accessories from Michigan automotive parts companies every
year.

In Holland, Michigan, the Korean firm LG Chem announced that it


would build a factory to manufacture lithium-ion batteries for the

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Chevy Volt. About 300 people will work there. President Obama
attended the launch ceremony in July.

And in Detroit, Hyundai Mobis employs 110 people to make the


chassis for Jeep Cherokees.

Korean investment in the United States is not just in the


automotive sector. There are hundreds of Korean companies here,
in the steel industry, in electronics, in building materials, in
shipping and other businesses. They employ thousands of
Americans and support local and state economies across the
country.

Let’s also note that Korean tourists spend about $2.6 billion every
year in the U.S. and Korean students at U.S. colleges and
universities spend about $3 billion.

The KORUS FTA will make it easier for Korean firms to open
plants and stores in the United States, so we can expect more of
this kind of investment after its passage.

Still, as you know, there are objections to the FTA’s treatment of


auto and beef exports to Korea. Most of them are based on a lack

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of clear understanding, so let me explain exactly what is going on
with these two commodities.

I’ll explain on the basis of the Korean government’s sincere


intention to conduct discussions about the concerns surrounding
these two products as suggested by President Obama and President
Lee.

I’ll start with autos.

Autos

Korea imposes an 8 percent tariff on U.S. car imports, and that


tariff will drop to zero when the KORUS FTA takes effect. On this
side of the Pacific, the U.S. tariff, now 2.5 percent, will be
eliminated immediately for small Korean cars and over three years
for larger ones.

The agreement also addresses Korea’s non-tariff barriers to


American car imports. For example, Korea’s consumption tax on
auto purchases is higher for large-engine cars that for small-engine
cars. The KORUS FTA erases that disparity.

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It also makes it much easier for U.S. automakers to comply with
Korea’s environmental and safety standards, allows the U.S. to
reinstate its tariff on Korean imports if Korea is found to have
violated the agreement, and sets up an automotive working group
that will meet regularly to resolve any compliance issues or
complaints from the U.S. auto industry that may arise.

There can be no doubt that these provisions will increase U.S. auto
exports to Korea.

Still, there are people who say that Korea’s auto import policies are
a major contributor to U.S. trade deficits. But in reality, the trade
of goods and services between our two countries is almost
balanced. In the first half of 2010, the U.S. trade deficit with Korea
was a relatively low $400 million, a fraction of our total two-way
trade volume of $67.8 billion.

If you consider the U.S. trade deficits with other developed


countries, such as $219 billion with China, $50 billion with Japan,
and $34 billion with Germany, you get a better view of how
balanced the Korea-US trade relationship is.

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Since 2000, auto imports to Korea have increased on average 40
percent each year, reaching 7.2 percent of market share in 2008.
Since imported cars are more expensive than domestic ones, their
market share by value was even higher, 19 percent.

But U.S. imports increased only slightly during that period.


Imports from Japan and the EU accounted for most of the growth.

Part of the reason for this is that U.S. automakers are heavily
invested in production of large-engine cars, while Korean
consumers have a clear preference for smaller ones.

Last year, 94 percent of American cars exported to Korea had


engines larger than 2000cc. Seventy-seven percent of the cars that
Koreans bought last year had engines smaller than 2000cc.

It does not have to be that way. Frankly, as the Korean


Ambassador to the United States, I would like to see more Ford,
Chrysler and GM cars on the streets of Korea than other foreign
models. And we know from experience that if we work together
we can make that happen.

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In fact, the outlook for U.S. auto sales in Korea is already
improving, Ford’s April 2010 sales in Korea were more than
double what they were in April 2009, thanks to the popularity of
the 2010 Taurus, the fifth-best-selling import car in Korea so far
this year and the best-selling in its class.

That’s encouraging, but American car sales in Korea can and


should be increased a lot more. Governments can facilitate that by
tearing down trade barriers. And that is precisely what the KORUS
FTA will do.

Beef

Now, the beef issue is based more on health considerations than on


trade barriers.

In 2003, Korea was the third largest market for U.S. beef exports.
Then, in December of that year, mad cow disease was discovered
here in the United States. Korea was forced to close its market to
U.S. beef imports until 2006, when U.S. beef was certified as safe
to eat. Korea re-opened the market, but only to beef from cattle
less than 30 months old.

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U.S. beef exports immediately started to bounce back and have
increased every year since. Between January and June 2010, U.S
beef exports to Korea increased by about 130 percent over the
same period in 2009. At the end of last year, they reached $645
million. But that left them well short of their pre-mad cow level,
which was $815 million in 2003. Without the KORUS-FTA, they
may never get there.

By phasing out Korea’s high 40 percent tariff on U.S. beef imports,


the KORUS FTA will bring $15 million in tariff reductions to
American beef producers in the first year alone, according to the
National Cattlemen’s Beef Association. Tariff savings will be as
high as $325 million per year after the beef tariff is phased out
completely.

The International Trade Commission estimates that passage of the


FTA could increase U.S. beef exports to Korea by as much as 165
percent.

It’s interesting to note that 95 percent of U.S. beef shipped to


Korea was under 30 months old before the mad-cow ban in 2003.

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On both the auto and beef issues, we are ready and willing to sit
down with our American counterparts, listen to their concerns and
try to find mutually-acceptable solutions. And we will do so
sincerely and in good faith.

Conclusion

In closing, I want to emphasize that there is no time to lose. The


agreement was signed three years ago, and at last we have an
opportunity to finalize it. The goal of both sides is to have
everything lined up by the time President Obama goes to Seoul for
the G20 Summit in November. That is a goal that I am confident
we can reach.

Thank you for your attention. I would be happy to answer any


questions.

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