(Reuters) - The United States and South Korea reached a deal this week on auto concerns that have blocked approval of a free-trade agreement for three years.
Here are key changes the countries agreed to make to the 2007 trade deal in the new “supplemental agreement”:
To address U.S. concerns that South Korean safety standards have effectively operated as a nontariff barrier to U.S. auto exports, the revised deal allows for 25,000 cars per U.S. automaker — or almost four times the number allowed in the 2007 agreement — to be imported into Korea provided they meet U.S. federal safety standards.
South Korea agreed that all U.S. autos will be considered compliant with new Korean environmental standards on fuel economy and greenhouse gas emissions, developed since the 2007 agreement, if they achieve 119 percent of the targets in these regulations. The White House said this provision would help American automakers sell their cars affordably in Korea without undermining Korea’s environmental objectives.
In the 2007 agreement, Korea committed to reduce tax rates for American cars and to streamline current taxes based on engine size, which have tended to raise the cost of the typically larger size of American vehicles sold in Korea.
Korea agreed in the revised deal to additional transparency in this area, including a 12-month period between the time a final regulation is issued and the time auto companies must comply with it. Seoul also said it would develop a new review system within 24 months of the pact’s entry into force to make sure that existing auto regulations accomplish their objectives in the least-burdensome manner possible.
The 2007 agreement would have immediately eliminated U.S. tariffs on an estimated 90 percent of Korea’s auto exports, with remaining tariffs phased out by the third year of implementation. The revised deal keeps the 2.5 percent U.S. tariff in place until the fifth year. At the same time, Korea will immediately cut its tariff on U.S. auto imports in half (from 8 percent to 4 percent), and fully eliminate that tariff in the fifth year.
The 2007 agreement would have required the United States to start reducing its tariff on Korean trucks immediately and phase it out by the agreement’s tenth year. The revised deal allows the United States to maintain its 25 percent truck tariff until the eighth year and then phase it out by the tenth year. It holds Korea to its original commitment to eliminate its 10 percent tariff on U.S. trucks immediately.
In the 2007 agreement, the United States and Korea would have eliminated tariffs on electric cars and plug-in hybrids by the tenth year of implementation. Under the revised deal, Korea will immediately reduce its electric car tariffs from 8 percent to 4 percent, and both countries will then phase out their tariffs by the fifth year.
The 2007 agreement contained no safeguard specific to the U.S. auto industry. Korea agreed in the revised deal to add a special safeguard for motor vehicles to ensure that the American auto industry does not suffer from any harmful surges in Korean auto imports due to this trade agreement. The special auto safeguard, which allows the United States to reimpose tariffs, is available for 10 years beyond the full elimination of tariffs for each Korean auto product.
The 2007 agreement created a tough remedy for the United States to re-impose as much as $200 million in U.S. tariffs (i.e., “snapping back” to pre-agreement levels) on Korean passenger cars if U.S. auto business in Korea is materially affected by Korean violations of the agreement. The revised deal substantially increases Korea’s obligations in a number of areas subject to this strong enforcement mechanism.
South Korea did not make any additional concessions in this politically sensitive sector because of lingering South Korean concerns stemming from the discovery of mad cow disease in the U.S. cattle herd in 2003.
Under a voluntary industry-to-industry agreement struck in 2008, South Korea imports U.S. beef only from cattle younger than 30 months, considered the safest.
U.S. officials said they would continue work with South Korea to allow imports of all cuts of U.S. boneless and bone-in beef and other beef products from all ages of cattle, as long as specified materials known to transmit mad cow disease were removed, and other conditions were met.
Even so, the 2007 deal requires South Korea to phase out a 40 percent tariff on U.S. beef over 15 years.
Many U.S. beef exporters are eager to get that increased access and are prepared to wait for a solution on remaining mad cow trade concerns.
The United States agreed in the revised deal to let South Korea delay by two years — until January 2016 — the elimination of tariffs on some pork products. U.S. pork producers said they agreed to the change because they still expect a substantial increase in sales under the agreement.
Reporting by Doug Palmer; editing by Philip Barbara