COMMITTEE ON WAYS AND MEANS CHARLES B.  RANGEL, New York, Chairman
FORTNEY PETE STARK, California SANDER M. LEVIN, Michigan JIM MCDERMOTT, Washington JOHN LEWIS, Georgia RICHARD E. NEAL, Massachusetts MICHAEL R. MCNULTY, New York JOHN S. TANNER, Tennessee XAVIER BECERRA, California LLOYD DOGGETT, Texas EARL POMEROY, North Dakota STEPHANIE TUBBS JONES, Ohio MIKE THOMPSON, California JOHN B. LARSON, Connecticut RAHM EMANUEL, Illinois EARL BLUMENAUER, Oregon RON KIND, Wisconsin BILL PASCRELL JR., New Jersey SHELLEY BERKLEY, Nevada JOSEPH CROWLEY, New York CHRIS VAN HOLLEN, Maryland KENDRICK MEEK, Florida ALLYSON Y. SCHWARTZ, Pennsylvania ARTUR DAVIS, Alabama	JIM MCCRERY, Louisiana WALLY HERGER, California DAVE CAMP, Michigan JIM RAMSTAD, Minnesota SAM JOHNSON, Texas PHIL ENGLISH, Pennsylvania JERRY WELLER, Illinois KENNY HULSHOF, Missouri RON LEWIS, Kentucky KEVIN BRADY, Texas THOMAS M. REYNOLDS, New York PAUL RYAN, Wisconsin ERIC CANTOR, Virginia JOHN LINDER, Georgia DEVIN NUNES, California PAT TIBERI, Ohio JON PORTER, Nevada
Janice Mays, Chief Counsel and Staff Director Brett Loper, Minority Staff Director SUBCOMMITTEE ON TRADE SANDER M. LEVIN, Michigan, Chairman
JOHN S.  TANNER, Tennessee JOHN B.  LARSON, Connecticut EARL BLUMENAUER, Oregon BILL PASCRELL JR., New Jersey SHELLEY BERKLEY, Nevada JOSEPH CROWLEY, New York CHRIS VAN HOLLEN, Maryland KENDRICK MEEK, Florida	WALLY HERGER, California JERRY WELLER, Illinois RON LEWIS, Kentucky KEVIN BRADY, Texas THOMAS M.  REYNOLDS, New York KENNY HULSHOF, Missouri
Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public hearing records of the Committee on Ways and Means are also, published in electronic form. The printed hearing record remains the official version. Because electronic submissions are used to prepare both printed and electronic versions of the hearing record, the process of converting between various electronic formats may introduce unintentional errors or omissions. Such occurrences are inherent in the current publication process and should diminish as the process is further refined.

Advisory of March 13, 2007, announcing the hearing

WITNESSES

The Honorable Karan K. Bhatia, Deputy U.S. Trade Representative, Office of the U.S. Trade Representative

Stephen E. Biegun, Vice President of International Governmental Affairs, Ford Motor Company

Stephen J. Collins, President, Automotive Trade Policy Council

Alan Reuther, Legislative Director, International Union, United Automobile, Aerospace and Agricultural Implement Workers of America

Tami Overby, President and Chief Executive Officer, American Chamber of Commerce in Korea, on behalf of the U.S. Chamber of Commerce, the U.S.-Korea Business Council, the American Chamber of Commerce in Korea, and the U.S.-Korea FTA Business Coalition

Bob Stallman, President, American Farm Bureau Federation

Robert Vastine, President, Coalition of Service Industries

J. Patrick Boyle, President and Chief Executive Officer, American Meat Institute

Geralyn S. Ritter, Vice President of International Affairs, Pharmaceutical Researchers and Manufacturers of America

Berton Steir, Executive Vice President, Paramount Farms, Los Angeles, California

Calman Cohen, President, Emergency Committee for American Trade

SUBMISSIONS FOR THE RECORD

American Council of Life Insurers, statement

American Iron and Steel Institute, statement

Automotive Trade Policy Council, statement

California Farm Bureau Federation, statement

Center For Policy Analysis on Trade and Health, statement

Korea International Trade Association, statement

Korea Policy Institute, statement

Korean Alliance against Korea-U.S. FTA, Seoul, Korea, statement

Korean Confederation of Trade Unions, Seoul, Korea, statement

National Corn Growers Association, statement

National Pork Producers Council, statement

The Honorable William J. Jefferson, statement

Walter B. McCormick, Jr., statement

HEARING ON THE U.S.-KOREA FREE TRADE AGREEMENT NEGOTIATIONS

Tuesday, March 20, 2007

U.S. House of Representatives,
Committee on Ways and Means,
Subcommittee on Trade,
Washington, D.C.

The Subcommittee met, pursuant to notice, at 2:48 p.m., in room 1100, Longworth House Office Building, Hon. Sander M. Levin (Chairman of the Subcommittee) presiding.

[The advisory announcing the hearing follows:]

Chairman LEVIN.  We'll begin.  Let me briefly describe the structure of this hearing.  We've tried to structure it--I felt strongly about this and I talked to the Ranking Member--to see if we could have a somewhat lively discussion that took on the outstanding issues--and there are a good number of them relating to the U.S.-Korea Free Trade Agreement.

Sometimes hearings tend to be kind of segmented, and I think as a result we don't have enough of a real discussion.  So, here's what we're going to do this time.  Ambassador Bhatia will go first and give us his opening remarks.  We're going to ask everyone to try to keep to 5 minutes except maybe the Ambassador.

Then we'll have the second panel, which is going to focus in on one of the issues that's outstanding.  Perhaps the most visible, but there are many--there are several other outstanding issues as well as automotive.  This panel will be on automotive issues.

Then the Ambassador has agreed that he'll come back here, having heard that testimony, and be open to questions on what he heard from that panel but everything else, the other issues, the agricultural issues, the service issues, the industrial, the intellectual property issues, et cetera.  Then we'll call the panel back, the three who testified on automotive to answer Q&A from the Members here.

Then we'll have the third panel, and if you've seen the list, it covers other outstanding issues.  I mentioned them, and there are several others, and then we'll have the Q&A.

We have about three hours, I think, before the next vote; it's not sure.  The Ambassador has to leave after perhaps an hour-and-a-half, so we'll try to adhere to the five-minute rule.

So, I'll give an opening statement.  Mr. Herger will.  Then, Ambassador, if you will, take over.

The negotiation of the U.S.-Korea Free Trade Agreement (FTA) is indeed significant, and I want to underline that.  Korea is the United States' seventh largest trading partner and the world's eleventh largest economy.  The U.S.-Korea Free Trade Agreement would be the largest and most commercially significant bilateral FTA negotiated by this Administration.

As the Administration completes its eighth round of negotiations, several outstanding issues remain, including services, telecommunications, intellectual property and agriculture; including beef and rice.

That's a lot to chew on.  Most challenging is Korea's massive Non-Tariff Barriers (NTBs), to America's industrial products in general and automotive products in particular.  Since the outset, Korea has had an economic iron curtain against these products, using a combination of tariffs, taxes and regulations.

The U.S.-Korea Free Trade Agreement is a key test of the approach we take to trade policy.  It's a test whether we need to shape the terms of expanded trade or assume, no matter how imbalanced, that leaving it alone to work it out on its own is the best approach.  It is a test specifically of whether we will be active or passive in the face of longstanding harmful practices of the Korean government to discriminate against our products in their domestic market.  It is also a test of our willingness to stand up for our domestic industry.

Today we will hear compelling testimony on the history of our trade relationship with Korea as I mentioned in the automotive sector.  The facts tell a real life story.  Korea is the fifth largest producer and the ninth largest consumer automotive market in the world.  We now have in our country an $11 billion deficit in auto trade, which is 82 percent of the total deficit between our two countries.

Last year, Korea sold 700,000 vehicles in the United States  The United States sold only 4,000 in Korea.  The significance of Korea's non-tariff barriers--and I want to emphasize this--even goes beyond this important FTA.  If United States Trade Representatives (USTR) fails to deal with it decisively it will reinforce the lack of active consideration of NTBs in the World Trade Organizations (WTO) Doha Round negotiations, which have to date made no real progress on outstanding NTB issues in the entire global trading system.

We know through experience, two previous Korean commitments in Memorandum of Understanding (MOUs), that they were not worth the paper they were written on, what will not work to end these non-tarrif barriers to U.S. exports.  We need a very new approach.

At the beginning of March a broad, bipartisan group of legislators, House and Senate, transmitted to the President the specific negotiating position that moves beyond previous negotiating strategies and embarks on such a new approach, the conditions Korea is obtaining addition access to the U.S. market on reciprocal opening of the Korean automotive market.

There are two key components to the bipartisan congressional proposal.  The first part addresses the phase out of the 2.5 percent U.S. passenger vehicle tariff and creates a positive incentive for Korea to open its market to U.S. autos.  The second part addresses Korea's current non-tariff barriers and creates a mechanism available to all industries for the United States to take action against future non-tariff barriers.

So, far there has been no meaningful movement by the Korean government.  It clings to its persistent denial that there has been a government policy to shelter its market, a denial that flies in the face of facts on the ground over the decades.  The response by USTR has included so far another form of denial, a denial that Korea cares very much about the 2.5 percent tariff, thereby undercutting U.S. leverage, and a denial that the one-way street will continue to be harmful because it's believed Korea will be shifting far more production to the United States

Since the Korean government has made it clear that the early elimination of the United States. 2.5 percent passenger vehicle tariff is a top priority, I have no idea why we would be conceding any leverage.  As I have communicated, and the Ambassador knows, to USTR, a focus of future Korean increases in U.S.-based production is speculative and in any event misses the point.

Increased domestic production will not necessarily result in fewer exported autos from Korea.  Just look at the Japanese experience.  Over the last ten years, as Japanese production in the United States has increased, their exports to the United States have doubled from 1.2 to 2.4 million.  From 2005 to 2006, Japan exported an additional half a million cars to the United States.  Eighty percent were Toyotas.  Nearly half of all Toyotas sold in the United States last year were exported to the United States.

It also misses the point that a large portion of the content of Korean cars assembled in the United States comes from Korea, and it also misses the point that the FTA must be structured to assure that the Korean market becomes fully open to U.S. automotive and, I emphasize this, other industrial goods.

Congress cannot do the negotiating to end one-way streets in trade with Korea, but we can make it clear the type of agreement that we can support.  My hope is that the message is becoming clear to USTR.  We need a shift in negotiating strategy to an active, results-oriented approach that demands and measures commitments by the Korean government.  To do less would be to do more of the same, and that should not and cannot result in an FTA acceptable to this Congress in my judgment and to the American people.

Mr. Herger, for your opening statement.

Mr. HERGER.  Thank you, Chairman Levin.  There's no doubt that the U.S.-Korea FTA negotiations that we are here this afternoon to discuss is a huge opportunity for both of our countries.  Korea is the world's tenth largest economy and our seventh largest goods trading partner, with an annual Gross Domestic Product (GDP) rapidly approaching $1 trillion and a per capita income over $20,000.

Bilateral trade between our countries already tops $70 billion.  An agreement will reduce trade barriers for export of U.S. services, agriculture and manufactured goods as well as increase IPR protection.  Expanded commercial ties will strengthen our political partnership with this critical ally in Northeast Asia.  Indeed, USTR has described this FTA as the most significant trade negotiation in the past 15 years.

As we approach the concluding days of these negotiations, Ambassador Bhatia, I know you will not rest unless this huge opportunity translates into a great deal for the United States.  To that end, I will make four brief points.

First, Korea needs to put rice on the negotiating table so that our farmers can put their rice on Korean dinner tables.  U.S. exports of rice are subject to a harsh quota system and industrial use restrictions in Korea.  Of the small amount that even makes it into Korea, the overwhelming majority sits in the food processing warehouses not in retail stores.

This FTA must have comprehensive product coverage including meaningful access for rice.  Anything less would be a terrible disappointment.

Second, the U.S. beef industry has worked tirelessly to implement Bovine Spongiform Encephalopathy (BSE) safeguards to ensure the safety of U.S. beef.  We know that U.S. beef and beef products are safe regardless of age so long as specified risk materials have been removed, and we expect the international standard will be formally established shortly.

Reports that Korea does not plan to reopen its markets to bone and beef products, notwithstanding scientific evidence, are deeply troubling.  Korean officials should commit to implementing the Operational Independent Evaluator (OIE) recommendation instead of using U.S. beef as a negotiating ploy.

Furthermore, I strongly urge USTR to reject out of hand any offer from Korea to allow beef access only in exchange for U.S. abandonment of its rice demands.  The exclusion of either rice or beef from this important agreement will risk Congressional passage.

Third, the U.S.-Korea FTA should include a robust investor state dispute settlement mechanism, and I urge the Administration to resist any efforts to limit this vital tool.  The model investment provisions that we have developed in prior agreements are essential to preserving the rights of U.S. investors abroad.  At the same time, they are well balanced, so that they do not threaten the ability of our Federal or State governments from regulating.

Finally, I remain very concerned about the lack of market access for U.S. autos in Korea.  Our market is open with no non-tariff barriers and minimal duty, however Korean duties, taxes and stealthy and pervasive non-tariff barriers created by an opaque and discriminatory regulatory process combine to effectively foreclose market access for our companies.  I reject the claim that Koreans just don't like American cars.  The very existence of the barriers proves that the Korean industry knows Korean consumers will buy our cars.

That said, we have to carefully consider the right approach to breaking down these barriers on autos.  Managing trade through the establishment of market access quotas is not the answer and will create a dangerous precedent that we can't sustain.  We must be able to show U.S. automakers and their workers that Korea won't establish disguised trade barriers and will instead utilize transparent regulations and standards.  Korea's overtures on this issue thus far have been completely unsatisfactory.

Finally, I would like to welcome Mr. Berton Steir, representing Paramount Farms of California, which is seeking duty-free treatment on pistachios in Korea.  Paramount's situation is a prime example of the benefits U.S. interests stand to gain with a robust and comprehensive agreement.

Mr. Bhatia, thank you for appearing before us today.  I look forward to your testimony.

Chairman LEVIN.  Ambassador, welcome.  Take over.

We discussed your time limit is 4:30.  I think we can accomplish your testimony, the testimony of the first panel and a chance for all of us to talk with you.  Welcome.

STATEMENT OF KARAN K. BHATIA, DEPUTY U.S. REPRESENTATIVE, OFFICE OF THE U.S. TRADE REPRESENTATIVE

Mr. BHATIA.  Thank you.  Thank you very much Chairman Levin, Ranking Member Herger, distinguished Members of the Committee.  I'm really delighted to be able to join you here today to discuss our FTA negotiations with South Korea.

Mr. Chairman, I appreciate your recognition of the time constraints that we're under.  This week we have both the Koreans in town to continue the negotiations and obviously a short period of time, so I appreciate that.

However, I wouldn't want to suggest--leave anyone with the  impression that, by virtue of the way this hearing has been structured of my being able to be here for the questions after the auto panel, that somehow we place less importance on the other outstanding issues that will be addressed in the third panel.

I want you to know that we will certainly have people here to witness that third panel, and I want you to know that I personally have met with many members of the third panel as well, and I just leave that out there.

It has been a little more than a year since our FTA negotiations were launched here on Capitol Hill with strong bipartisan support.  Today, 13 months later, we are nearing the end of the negotiating process.  While a number of critical issues remained outstanding, it's our hope that those issues can be resolved and that by the end of this month we will be in a position to notify Congress of our intent to sign the Korea-U.S. Free Trade Agreement.

Let me start with a brief word of background about South Korea for the panel.  As many of you may know, 40 years ago Korea was among the poorest countries in Asia.  It possessed a largely agricultural economy and a per capita GDP barely over $100.  Politically, from the period following the Korean War until the late 1980s, it was ruled by a string of authoritarian governments.

Today, after a period of extraordinary economic growth, Korea is the world's 11th largest national economy with approximately a trillion dollars in GDP.  Its economy is diversified and dynamic.  It is the world's 11th largest import market.  It is our seventh largest trading partner and seventh largest export market, and it's also one of our faster growing major trading partners with U.S. goods exports to Korea growing by approximately 17 percent last year.

Korea today enjoys a vigorous, multi-party democracy, strong public participation in its political system, strong labor unions and an independent judiciary.

I would also note that we and Korea, the U.S. and Korea, enjoy a close military relationship.  We have been strong partners in the war on terrorism and have been working closely together to promote a safe and secure Korean Peninsula.

Against that backdrop, let me briefly outline the benefits that I believe the U.S. potentially stands to reap from a high quality, comprehensive, free trade agreement with South Korea.  From an economic perspective, the U.S.-Korea FTA offers us an opportunity to grow our already significant bilateral trade and investment relationship.

Just to place that relationship in perspective, the $78 billion in bilateral goods trade that we currently have with Korea is more than 70 percent of the total bilateral trade that we enjoy with all 10 trading partners with whom we have implemented FTAs since 2000 combined.  That's the case even though Korea's current average tariff for industrial goods is approximately seven percent and for agricultural products is approximately 52 percent.

So, when you think about the greater market access that would accrue under an FTA, under which U.S. exports would be expected to grow significantly, one can see the benefits that could potentially accrue from the U.S.-Korea FTA.  Studies have estimated that the potential income gains to the U.S. economy from the FTA range from $17 billion to $43 billion.

However, the benefits for the United States would go beyond market access.  The FTA would also eliminate trade distorting barriers to investment and increase the protections enjoyed by American investors in Korea, strengthen intellectual property rights of American innovators, address anti-competitive business conduct, reduce non-tariff barriers and enhance the transparency of the Korean regulatory system.

By establishing a stronger economic relationship, a KORUS FTA would also broaden and modernize our strategic alliance with Korea.  It will help ensure that the U.S. partnership with Korea, which has been centered on defense ties for more than half a century, remains a vital force for stability at a time of change and challenge on the Korean Peninsula and in the broader Northeast Asia region.

Now it bears noting that the KORUS FTA would offer a unique preferential advantage to American companies doing business in the Korean market at a time when many of our global competitors are actively seeking to lock up East Asia's fast growing economies into economic relationships that exclude the United States and U.S. firms.

It's worth reflecting for a moment on that trend.  Today there are 176 free trade agreements in existence in the Asia-Pacific region alone and many more either under consideration or negotiation.  China, Japan, India and the European Union (EU), among others, have concluded or are actively pursuing FTAs with East Asian trading partners.  A number of these FTAs unfortunately do not constitute high standard, comprehensive FTAs of the variety that the United States negotiates.

They do however afford preferential trading positions to the companies of those countries and do have the effect of placing U.S. businesses, workers and farmers at a relative disadvantage in accessing fast-growing East Asian markets.  One potential effect of this web of arrangements is to encourage U.S. companies seeking to compete in these markets to relocate production to those countries.

Now against that backdrop, I would submit, the KORUS FTA takes on added significance.  To date we have concluded two East Asian FTAs with Singapore and Australia, important but smaller economies in this important region.  A successful FTA with Korea could provide an important boost to U.S. efforts to remain an active economic presence in a strategically vital region that accounted last year for over 37 percent of total world GDP, 26 percent of global trade flows and 29 percent of U.S. exports.  It would establish a model that we believe could be replicated with other East Asian economies and could help us expand trade liberalization throughout the region.

Let me finally turn briefly to the status of the KORUS negotiations.  As the Chairman mentioned, we have concluded eight rounds of negotiations.  I am pleased to report that the most recent round in Seoul did result in good progress with the successful closing of competition, government procurement and customs chapters and important progress in areas including investment, market access, telecommunications, services generally and financial services in particular.

A group of Korean negotiators, as I mention, is in Washington this week to continue work towards resolution on the outstanding issues.  Let me be clear.  A final agreement has not yet been reached.  Significant issues remain in a number of chapters, but I do believe that there is a strong commitment on both sides to work hard in the time remaining to conclude a high quality, comprehensive, balanced and ultimately successful FTA.

While I'd be happy to discuss the elements of a successful FTA in greater detail during the Q&A period, let me just identify a few elements up front, including the following.  First, a unique and unprecedented array of strong, enforceable commitments designed to level the playing field for American auto manufacturers seeking to access the Korean market, a strong agricultural market access package that affords America's farmers and ranchers greater access to Korea's agricultural markets, a strong industrial good market access package that affords America's manufacturers, consumers and industrial goods greater access to Korea's market, a strong investment chapter that contains key protections for American companies seeking to invest in Korea, a strong pharmaceutical chapter that ensures Korea's pricing and reimbursement system for drugs and devices is transparent, non-discriminatory and promotes access to innovation, a strong services chapter that ensures American services suppliers can compete in the Korean market on a level playing field in a wide range of sectors, and strong chapters on labor and the environment.

In sum, Mr. Chairman, I believe this FTA offers us the opportunity to establish a unique relationship, a partnership with one of the world's fastest growing and most dynamic economies while solidifying our competitive presence in Asia.  We are working hard in the time remaining to achieve this outcome by concluding a fair, comprehensive and strong agreement that will significantly benefit American workers, farmers, manufacturers and service providers.

Thank you.

[The prepared statement of Mr. Bhatia follows:]

Mr. LEVIN.  Thank you, Ambassador.  All right.  We'll now, according to the procedure outlined ask Steve Biegun, the vice president of international government affairs, Ford Motor Company; Steve Collins, president of the Automotive Policy Trade Council and Allen Reuther, the legislative director for the United Automobile Workers if you'll come forth.  As is always true your full statement will be placed in the record, and if you could try to sum up your testimony within 5 minutes.

Welcome.  Welcome.  I guess we're going alphabetically.  That's an advantage of Biegun starting with a B.  Welcome, and please proceed.

STATEMENT OF STEPHEN E. BIEGUN, VICE PRESIDENT OF INTERNATIONAL GOVERNMENTAL AFFAIRS, FORD MOTOR COMPANY

Mr. BIEGUN.  Thank you, Mr. Chairman.  My name is Steve Biegun and I'm a vice president with Ford Motor Company.  I'd like to thank you, Ranking Member Herger and the other Members of the Subcommittee for the opportunity to testify today on this crucially important issue.  On behalf of the entire Ford Motor Company, I would also like to thank all of you for the close scrutiny you give to these trade issues, which are hugely consequential for the American automotive industry.

Ford Motor company is a world leader in the manufacturing and sale of automotive products with 280,000 direct employees worldwide and over 100,000 employees here in the United States.  We have a long and proud history.  Founded in 1903, we actively compete in over 200 markets worldwide and our brand is among the most recognized and respected around the globe.

Ford has been operating in South Korea since 1995.  Today we have one dealership.  We have 14 showrooms and 24 service centers countrywide selling both the Ford and Lincoln models of our cars.  The majority of the vehicles that we sell in South Korea are manufactured in the United State s of America.

Unfortunately today, after 12 continuous years of effort and investment, Ford Motor Company sells less than 1,700 vehicles per year in South Korea.  That's fewer vehicles than we sold a decade ago and the equivalent number of vehicles that we sell in a single year at an average dealership in northern Virginia.

Why is this the case?  Is it the quality of the imported cars?  We have done a comparison of quality among the imports and the Korean-made vehicles and found that case by case the quality of imports equals or exceed the Korean vehicles in the Korean market.

Is it the cost?  Certainly the Korean tax and tariff structures are specifically designed to make imports more costly.  Still this cost is not enough to explain the relative absence of imported vehicles.

Are Korean consumers so particular that they prefer a different mix or type of vehicle than U.S., European and Japanese customers?  Again, we have done side by side comparison of the major volume vehicles sold in the South Korean market today, and we found that in every case there is a comparable and better non-Korean choice available on the global marketplace.

Or is there something more insidious occurring, something that keeps imports out of the market?  Now let me be clear from the start.  Ford Motor Company supports trade liberalization.  We have supported every single free trade agreement negotiated by the United States Government since this process began in the 1960s.  In fact, our industry provided the original impetus for United States free trade policy.  When joined by General Motors and Chrysler, we successfully pushed for the U.S.-Canada Auto Pact in 1965.  This free trade agreement with our close ally and neighbor Canada became the foundation for the U.S.-Canada Free Trade Agreement, which itself soon expanded to become the North American Free Trade Agreement.

Mr. Chairman, as much as the United States automobile industry has supported open, global trade in our products, there are some competitors who are noteworthy exceptions to this rule.  The government of Japan has, for decades, kept tight restrictions on those who sought to invest in the Japanese automotive industry and they virtually blocked the entry of imports for quite a long time.

While today with the Japanese industry so well developed that it is a market that is difficult to penetrate for other reasons, the Japanese government still provides large scale assistance to its automotive exporters by keeping the value of the yen deeply discounted to provide a price advantage over U.S.-built vehicles in our own market.

However, as bad as Japan's history has been on automotive trade issues, it does not hold a candle to the record of the Korean government.  While I spoke earlier about Ford's lack of access into the Korean market, it's important to note that we are not alone.  Let me emphasize this point.  No manufacturer from any country can make significant sales into the Korean market, not Ford, not General Motors, not Toyota, not Volkswagen, nobody can get significant vehicles into this market.

While total import penetration into the Korean market remains low, Korean manufacturers today freely export 70 percent of their own production around the globe including into this market.  In 2006 alone Korean auto producers exported 700,000 vehicles into the United States while we in turn exported 4,000 into Korea.  As a result, and to no one's surprise, 80 percent of the $13 billion U.S. trade deficit with South Korea is automotive products.

Real market access for imported vehicles into Korea is prevented not by price, quality or consumer preference but by an elaborate layering and ever changing presence of non-tariff barriers that work effectively to block our products.  The witness to my left, Mr. Collins, will get into a little bit more detail on that, so I won't repeat what he's going to say in a moment.

Mr. Chairman, I stated at the outset that Ford Motor Company supports free trade.  I suppose we may be old fashioned though in one respect.  When our government negotiates a free trade agreement we want the other party in the negotiation to support free trade too.  Nothing in Korea's approach to this negotiation suggests to the automobile industry that the Korean government has the slightest intention to open the market to our products.

U.S. manufacturers proposed early on in these FTA negotiations a non-traditional approach to gain real, sustained and meaningful access to the Korean market.  We are convinced a traditional approach simply will not work.  The method we propose would place the burden on Korea to first open its market and identify the techniques it has used to block imports and then come up with the solutions.

In the past, it's felt a bit like the old arcade game Wac-A-Mole.  New regulations pop up each time we whack one down.  I would hope the United States Trade  Representative has had enough of that game and will insist that the Korean government come up with solutions, remove the obstacles and allow consumers in Korea the same full range of choices that the American consumer has.

In short, the Koreans broke their market and it's their responsibility to fix it.  Earlier this month, a letter from several Members of Congress was sent to the President, a bipartisan group of 15 Members proposed an innovative and thoughtful approach on dealing with the longstanding issue of lack of market access.  We fully support this proposal.

While press accounts suggest that automotive trade issues have been put off virtually to the end of this negotiation, the possibility of finding an agreement on this vitally important issue does not appear to be promising.  Korean government representatives deny that any steps are currently being taken to impede imports into their market, a statement that is on its very face ludicrous.

Mr. Chairman, the United States automobile industry is in the midst of a difficult restructuring.  We have made painful decisions to shed jobs and idle plants in order to become more competitive and restore profitability to our business in the face of tough competition.

Yet you have not heard us ask for protectionist policies to close off opportunity for anyone in our market.  To the contrary, all we ask is the same level of access to their market.  The United States passenger car market is today the most free and open in the world.  Anyone can do business here.  As a company that operates and competes in 200 markets globally, Ford sees the real and tangible benefits of such policies.

Free trade lowers transaction costs.  It improves efficiency and enables us to more effectively meet the demands of our customers here in the United States and abroad.  However, free trade must truly be free, not encumbered by the layers of restrictions that are set up only to protect domestic industries.  That is why we are hopeful that this negotiation, our last best chance, will result in real and meaningful market access for American automotive products in Korea.  If it does not, then it is our view that it should not be approved.

Thank you, Mr. Chairman.

[The prepared statement of Mr. Biegun follows:]

Chairman LEVIN.  Thank you very much.

Mr. Collins.

STATEMENT OF STEPHEN J. COLLINS, PRESIDENT, AUTOMOTIVE TRADE POLICY COUNCIL

Mr. COLLINS.  Thank you, Mr. Chairman.  Mr. Chairman; Mr. Herger, Ranking Member; Members of the Committee, I am Stephen Collins, the president of the Automotive Trade Policy Council, and I appreciate the time to talk this afternoon about the importance also of automotive trade issues during the U.S.-Korea FTA.

I am testifying today on behalf of our member companies, General Motors Corporation, Ford Motor Company, and DaimlerChrysler, whose views I am representing here today.  I want to make a few general comments in opening.

Number one, U.S. auto companies have supported U.S. trade liberalization initiatives by Republican and Democratic Administrations for decades.  This includes all the bilateral FTAs that have been presented to this Congress and previous congresses since 2000. Association of Tin Producing Countries (ATPC) and our companies hope to see the U.S. reach a strong, solid and credible agreement with Korea that will eliminate all tariff and non-tariff barriers and allow U.S. auto companies to fully participate in that market.

Number two, as has been noted, and if you would look at the chart there, it's very clear.  Auto trade is the huge factor in our trade relationships.  It's 82 percent of the deficit with Korea.  That's up from 35 percent five years ago.  It's $11 billion.  It's 30 percent of Korea's exports to the U.S.  It is the biggest traded product.  Therefore, by itself, that defines a major degree of attention.  It's also now become a huge problem that is unresolved, one with a week and a half to go in this negotiation.

The Korean government however has created this problem, and it is the Korean government that has the responsibility and is the party that has to resolve this.  The U.S. auto industry has earned a seat at this table for this discussion.  In simple numbers, U.S.-Korean auto trade is so lopsided that it cannot be seriously justified by any credible, objective economic or market-based rationales.

I'd like to you look in your material there on chart number two.  Chart number two shows that this is not just a U.S. issue, that--if you look at it, it will show--these are the sales--it's in your packet as well--of all foreign cars from Japan and Europe in Korea and the U.S. in Korea last year.  It shows that nobody is doing well in Korea.  There is no automaker that is selling in serious numbers in Korea.

Korea unacceptably and unjustifiably restricts sales of foreign automobiles across the board.  Next, I want to say that U.S. auto companies have worked together with USTR for a decade.  We have been at this for over 10 years to deal with this huge blot on our country's trade relationship, and we have not together been able to succeed in opening the Korean market.

All past efforts including two bilateral U.S.-Korea auto agreements in 1995 and 1998 have failed to open that market although negotiated in good faith.  So, we have to try something different.  I'd like to explain our position briefly.

The position of ATPC is--well, first I'd like to say we understand there have been some mischaracterizations both in Seoul and here in Washington about what we are asking for and seeking in this negotiation as a remedy to Korea's closed market.  Let me be very clear.  We are not seeking managed trade.  We are not seeking guaranteed sales in Korea as some have suggested.

These are incorrect but quite quick and simple labels that have been used to gloss over the serious efforts by many trade practitioners to an innovative approach to deal with a unique and intractable problem that we have faced.  We believe that the standard trade negotiating approach, which was reminiscent and which we pursued together with USTR in the '90s through two bilateral agreements, which is apparently being used now by U.S. negotiators, will result in a one-way, one-sided agreement that benefits only Korea.

ATPC has consistently recommended that opening the Korean auto market will require the willingness to take new approaches.  Given Korea's dismal past record, we have recommended that preferential access to the U.S. auto market be provided when the Administration and the Congress can reasonably be satisfied that all trade barriers to auto imports have been removed and the Korean market is seen to be fully open to the sale of the U.S. and other imported cars.

Mr. Chairman, I have put in my statement a discussion of the multiplicity of non-tariff trade barriers that have been used by Korea for many years.  You'll have a chart in your materials and one here.  They range from some years back outright bans on imports of automobiles to the use of high tariffs, discriminatory taxation, the use of tax audits on people who purchased imported cars, a shifting maze of overlapping regulatory and endless regulatory barriers that have effected imports more than any other factor.

This is--we try to capture this in one chart here, but just to give you a sense of--there is a maze here of things that no one has been able to cut through, and it is not accidental.

My time is up.  I want to summarize with just 30 seconds of comments on where we see the current status.

Where are we now two weeks before the deadline? ATPC, number one, has offered on behalf of the industry a comprehensive proposal for addressing the totality of the problem.  The USTR appears not to have accepted our recommendations.  Number two, the Korean government, to our knowledge has not, in a year, come forward with a proposal that addresses the closed automotive market.

Number three, as has been mentioned, a bipartisan group of Congress this month has offered a comprehensive auto proposal which we believe has been very helpful and constructive, and we commend those, including Chairman Levin, who have been instrumental in that.  We appreciate the effort.

I want to just leave you with one thought, and then I'll stop.  Last week it came to our attention--and I can't corroborate this personally, but others can--that the Korean government has indicated that its number one objective now from the United States in this negotiation is the immediate removal of U.S. automobile tariffs, its number one negotiating objective.

I find that rather fascinating and amazing as a negotiating strategy, but that's where we are.  After all of this where we feel all of the impetuses on the Korean side, the Koreans are saying, our number one objective is that you, the United States, give us immediate access, preferential access to your market.  We haven't seen anything offered back.

Thank you, Mr. Chairman.

[The prepared statement of Mr. Collins follows:]

Chairman LEVIN.  Thank you very much.

Mr. Reuther.

STATEMENT OF ALAN REUTHER, LEGISLATIVE DIRECTOR, INTERNATIONAL UNION, UNITED AUTOMOBILE, AEROSPACE AND AGRICULTURE IMPLEMENT WORKERS OF AMERICA

Mr. REUTHER.  Mr. Chairman, my name is Alan Reuther.  I am the legislative director of the UAW.  We appreciate this opportunity to testify on the negotiations between the United States and Korea on a free trade agreement.

Korea is the fifth largest producer and third largest exporter of vehicles in the world.  In 2006, the U.S. had an $11.6 billion automotive trade deficit with Korea.  U.S. exports of automotive products to Korea represented just six percent of Korean imports into the U.S. of similar products.  Historically, Korea has kept its market almost completely closed to U.S.-built automotive products.  This has been accomplished through a combination of tariff and non-tariff barriers.  Despite previous agreements and memoranda of understanding with Korea to eliminate its barriers to imports of automotive products, the Korean market remains essentially closed to any significant import competition.  Meanwhile, the U.S. automotive trade deficit with Korea soared from $1.3 billion in 1994 to $11.6 billion last year.

At the outset of the U.S.-Korea negotiations, U.S. producers urged the Bush Administration to insist that Korea first meet concrete benchmarks for opening its auto market to imports before the U.S. allows any further access to our market.  Regrettably, USTR flatly rejected this position.

Recently a broad bipartisan group of Members of Congress sent a comprehensive proposal to President Bush on how any Korea free trade deal should treat automotive trade between the two countries.  This proposal contained incentives for Korea to open its market to U.S. autos, a mechanism to dismantle Korea's non-tariff barriers and safeguards against a surge in automotive imports from Korea.  Most importantly, it stipulated that the U.S. tariff on imported pickup trucks should be left for resolution to multilateral WTO negotiations.

Unfortunately we understand USTR also has rejected this bipartisan auto proposal.  Instead, USTR appears to be pursuing an agreement that would eliminate U.S. automotive tariffs, thereby giving imports from Korea even greater access to our auto market.

At the same time, USTR seems to be content with an agreement that would allow the Korean government once again to make meaningless promises about eliminating its non-tariff barriers with no guaranteed outcome.  As a result, the agreement being negotiated by USTR is likely to exacerbate our auto trade deficit with Korea and jeopardize tens of thousands of additional automotive jobs in the U.S.

Since Korea is already a major global producer and exporter of automotive products, the elimination of our automotive tariffs could quickly lead to a ramping up of production capacity by traditional Korean companies for exports to our market.  In addition, foreign auto companies would be encouraged to locate production in Korea to take advantage of the elimination of U.S. automotive tariffs.

Our fear of a surge in automotive imports from Korea is not alleviated by the fact that Korean companies will be sourcing some vehicles from facilities located in the U.S.  Korean auto companies sold about 750,000 vehicles in the U.S. last year.  550,000 of these vehicles were imported.  The U.S. market share of the Korean companies is expected to grow in the coming years.  Thus notwithstanding any expected investments by Korean automakers in the U.S., most Korean vehicles will still be imported from Korea.

It is also important to recognize that vehicles assembled in the U.S. by Korean auto companies still have very high levels of parts imported from Korea.  Production and employment at traditional, U.S. auto parts suppliers is threatened by these Korean parts imports.

The damage that would be done by a surge in Korean automotive imports cannot be offset by toothless promises by the Korean government to address non-tariff barriers that keep U.S.-built automotive products out of their market.  There is every reason to expect that Korea will continue to use a variety of measures to keep its market closed to automotive imports notwithstanding any promises about the elimination of non-tariff barriers.

UAW believes the only way to ensure that this situation changes is to insist on results oriented auto provisions in any trade deal with Korea.  Simply stated, we must insist that Korea make tangible progress in opening its automotive market before the U.S. allows additional access to our market.

For USTR to give away the economic benefit of access to our market without requiring the Korean government to first implement concrete changes necessary to alter our automotive trade imbalance is nothing more than continuing to conduct business as usual and irrationally expecting different results.

In conclusion, the UAW continues to be deeply concerned that the U.S.-Korea Free Trade Agreement being negotiated by USTR could have an extremely negative impact on U.S. automotive production and employment.  We urge you and your colleagues in the House to reject any trade deal that fails to include at least the requirements in the bipartisan Congressional auto proposal.  Thank you.

[The prepared statement of Mr. Reuther follows:]

Chairman LEVIN.  Thank you very much.  All right.  If you would recess and the Ambassador will come forth, we have 55 minutes of his time.  That means that if each of us, including myself and the Ambassador, if we take 5 minutes, we'll all have a chance.  So, let's do that.

Ambassador, welcome back.  Thank you.  As you said, and I said the same, there are lots of issues that are going to be presented to you.  We wanted the automotive panel to have a crack at this because of its importance and their other important issues, but also to try to have some meaningful back-and-forth and not kind of the sometimes very segmented and not always productive discussion.

Let me just say preliminarily, if I might, because we're going to be talking not only about automobiles but these other issues, as I heard you and listened to this panel and have gone over the materials, with only a week-and-a-half, we have 11 days before, if that's the decision, you would present to us a notification and an agreement itself under the present Trading Partners Agreement (TPA).  It strikes me--I just want to say this more generally--that if there's any chance of success there's going to have to be a different approach than is usually employed, that there's going to have to be enough back and forth with this Congress as it's now constituted that there's basic agreement before rather than after notification, because otherwise, if there isn't and the determination of the Administration is to present something that it thinks that it knows has some very considerable difference of opinion, hoping to play one against another or to squeeze out a majority, I don't think, under present circumstances, as important as the U.S-Korea FTA is, that it will work.

So, I want to say to you, if I might, that I hope that there will be a different approach than is usually employed.  It means a much more intense back and forth because we can now probe with you each of these areas and try to get you publicly to commit to where you're going.  I don't think that will work, but the question is whether between the Congress and the U.S. Government there can be enough back and forth so that the content is not only well known but essentially basically agreed to before notification because--look, you laid out on page four what a successful FTA would be, what the elements are, and you talk about a strong Ag Marx-Ex agreement, a strong industrial goods market agreement, an enforceable commitment regarding automobiles, a strong investment chapter, a strong services chapter.

I don't think your testimony would ever say we're going to come forth with a weak industrial market access or a weak investment package or weak services, et cetera on Ag.  So, essentially what you've done is to leave out the gist of the agreement in each of these critical areas, and here we are 10 days away.

So, let me just ask you, and I'll conclude--they didn't run the clock on me, but they should on the Chairman in this case anyway.  Was there anything said before by the auto panel or by Mr. Herger or myself that you disagreed with?

Mr. BHATIA.  Well, Mr. Chairman, there's been a lot said in the course of the various testimonies.  Let me--maybe I could start out just by touching on the point that you just made and then talk a little bit about some of the auto panel testimony, which I listened to very carefully.

As you know, Mr. Chairman, we have been coordinating with the Congress on the Korea FTA since its outset.  The FTA was launched here in a very bipartisan way with Members, both Republicans and Democrats, lending their support to the launch--and have been intimately involved in briefings with staffers, and that has continued.

Indeed just last week, or I guess it was the week before, I had the pleasure of coming and visiting with you.  I've had the pleasure of visiting with other members of this Committee on automotive and other issues, and I will commit to you to continue to do that.

I think that is important.  I think it is important that we bring home an FTA that is a strong FTA that all the Members of this Committee feel confident that we have negotiated as strong an agreement as possible.  Let me, if I may--

Chairman LEVIN.  Let me just ask you, will that mean--because I think we have to do differently than has been true under this Administration and sometimes previous.  Are you going to show to us, discuss with us what you're tabling?

We have--there is a standard process, as you know, Mr. Chairman, whereby we show the Committee text before we table it and we give the Committee Members an opportunity to respond back.  We have been doing that from the very beginning.  I don't see the reason why that will change.  Now there is a point here obviously where at the end of the negotiation we're going to have to figure out a method of coordinating, but I have, as a matter of fact, with the anticipation of negotiations potentially next week in Seoul, I have already asked our staff to make sure that we have telephone numbers for all of the key staff members on the Committee.

So, I don't anticipate an end to that coordination.  Indeed, I look forward to it continuing.  Perhaps, if I may spend a few moments just on the automobile subject because this is one that has from the very beginning, Mr. Chairman, been a singular focus of mine and of ours at USTR.  We have paid a great deal of attention to many subjects in this FTA, but we've been aware from the very beginning that the automobile area is going to be an important one.

I can tell you that I have spent a substantial amount of time studying and researching both the Korean automotive market as well as the U.S. automotive market and penetration into that market.  Let me, if I can, briefly describe what we're seeing and then why I believe the strategy that we are approaching makes sense.

On the Korean automotive market there is no question that you have seen, going back from the '70s and '80s up until certainly the beginning of the 2000 period, an array of problems for American companies and for foreign manufacturers, foreign Open Ended Markets (OEMs) generally accessing the Korean market.

You have seen that in terms of a number of factors.  When we have spoken--I've spoken with independent analysts; I've spoken with investment bankers.  I've spoken with management consultants to try and get the clearest picture possible, as well as our industry, I should point out, to try and get the clearest picture possible of what are the key impediments.

I come up with four, generally four areas of impediments you come up with.  Indeed, these are reflected, I would note, in Steve Collins's testimony and previous things that have been submitted to us by the auto companies.  You see tariffs.  You see taxes.  There is a tax structure that applies to automobiles in Korea that through its application has effectively penalized large engines, large cars, which tend to be what we produce more.  You have seen non-tariff technical regulations serve to impede market access, and lastly you've got sort of a catch-all that's described as everything from consumer preferences to anti-import preferences or biases.

So, that is the realm of things that we have seen, and we have seen, notwithstanding recent growth, fairly substantial recent percentage growth in the import penetration into Korea, you have seen it over a very low base.  So, the total numbers remain low.

On the other side of the equation, in here into the United States, you've seen substantial Korean car penetration going in the neighborhood of 700,000 to 800,000 cars last year.  An interesting feature of this is that you have seen the manufacturing--is the change that you are seeing take place in Korean sales in the United States.

So, right now, today, about 22 percent of Korean cars sold in the United States are made in the United States, principally in a factory in Alabama.  Three years from now you are going to see probably 60 to 70 percent of Korean cars sold in the United States manufactured in the United States.  So, we are seeing a strong shift in Korean production into the United States, and this is consistent with what we're seeing Hyundai and Kia doing globally.

Chairman LEVIN.  Mr. Ambassador, I promised everybody--

Mr. BHATIA.  I apologize.

Chairman LEVIN.  No, no. I just want to say then to you because you mentioned that to me a week or so ago--

Mr. BHATIA.  Yes.

Chairman LEVIN.  Number one, when you say that, essentially you say that the problem is likely in part to solve itself.

Mr. BHATIA.  No.

Chairman LEVIN.  Also, I just want to tell you, those projections are pure speculation.  Number two, they assume a stagnant amount of overall Korean production.  As has been true of Japan, as it has increased production here there has continued to be a major flow of exports from there.

So, when you assume 60, 70 percent of the cars that Kia sells will be made here, I challenge that.

Mr. BHATIA.  Mr. Chairman, I'm just going by the numbers that I'm seeing based on every independent survey that I've seen.

Chairman LEVIN.  Well, talk to the U.S. auto industry.

Mr. BHATIA.  Also,, if I may, Mr. Chairman, if I could just sort of summarize here.  So, our strategy with respect to the Korean automotive market has been to say,  all those barriers and things that have been keeping our cars out, the tariffs, the eight percent tariffs, the tax differential, the non-tariff barriers and all of the other anti-import and other things, those need to be addressed in this FTA and those will be addressed in this FTA.  We will have those addressed.

What we have not adopted, and I will be clear about this, what we have not adopted is an approach--and I use the term that Mr. Reuther from the UAW used is an approach that seeks "a guaranteed outcome'' because--

Chairman LEVIN.  Okay.  Let me just interrupt so others--our proposal that was done on a nonpartisan basis doesn't include that.  So, don't label a proposal for what it is not.  It isn't, so you--and in these next ten days we need to sit down--if you're going to have a chance of passing it, I think, as to any of these products, to have a much more active involvement of this Congress, otherwise I think you're headed for failure.

Mr. Herger.

Mr. HERGER.  Thank you, Mr. Chairman.  Mr. Bhatia, I would like to focus your attention on rice for a moment.

Mr. BHATIA.  Yes.

Mr. HERGER.  The U.S.-Korea FTA must be comprehensive and its product coverage such that provisions on rice are included in the agreement's final terms.  I believe this is critical not only as a substantive issue but also from a procedural standpoint product exclusion and FTAs make bad policy.

To this end, I'm troubled by reports that the Koreans continue to be unwilling to engage with U.S. negotiators on rice issues.  Do I have your commitment not to exclude rice from this FTA?

Mr. BHATIA.  Mr. Chairman, we have been dealing with the rice issue from the very outset, and at the very launch of the negotiations, we made clear to the Korean government that this deal must be a comprehensive one and it must be comprehensive in the agricultural area.

We have maintained that position up to this point, and I can assure you that we are maintaining that position all the way to the very end, that we are pushing them for this to be a comprehensive agricultural deal.

Mr. HERGER.  Thank you.  I am also a strong supporter of the investment provisions in our prior agreements, including the investor-state dispute settlement mechanisms because they give U.S. investors access to substantive and procedural rights they might not otherwise have in the course of our trading partners.

Given the lack of transparency that pervades the Korean system, I believe it is especially important in this FTA to maintain the model provisions that we've used in prior agreements.  I understand that Korea wants to protect it's ability to protect low income housing and real estate values, and I believe we can do so without loopholes and without undermining the core protections.

Mr. Bhatia, do I have your commitment to protect our investors abroad by utilizing these comprehensive model provisions and not straying from them?

Mr. BHATIA.  Mr. Herger, this is another area where, from the very outset, we have been clear with the Koreans that we believe a principal benefit not only to the United States but also to Korea is greater investment flows that will flow from the FTA.  However, those will only happen with very strong investment provisions, including investor-state dispute rights.

We have been pushing that steadfastly with the Koreans, and I can assure you that we are continuing to do so.

Mr. HERGER.  Thank you.  I also understand that you're using this potential agreement as leverage to push Korea on a parallel track on sanitary and phytosanitary issues such as beef.

As you know, Peru and Colombia, through a similar parallel track recently lifted their restrictions to allow imports of U.S. bone-in and boneless beef regardless of age and to recognize U.S. inspections as equivalent.

I would expect to see implementation of this international standard by Korea.  Could you comment on whether there has been progress in these negotiations?

Mr. BHATIA.  The beef issue and ensuring that the Korean market is open to beef consistent with international standards, OIE standards has been a consistent message that we have delivered to Korea.

We have made it very clear that we don't believe this Congress will approve any FTA that does not--in the event Korea were not employing those practices, was not open to American beef consistent with international standards.  Thus far, I cannot tell you that there has been a resolution to this issue, but I can tell you our team, our Ag team is in Korea right now, as we speak, addressing this issue.  It's my hope that there will be a satisfactory resolution.

Mr. HERGER.  Thank you very much.  Thank you, Mr. Chairman.

Chairman LEVIN.  Thank you.  Mr. Tanner.

Mr. TANNER.  Thank you very much, Mr. Chairman.  Ambassador, thank you for your time.

I guess I'm as big a believer in engagement and trade as anybody on the panel, but it's becoming harder to follow USTR's regimen with respect to some of the enforcement mechanisms as well as just the negotiation itself.

The regulatory excesses that we hear about in the Korean government with respect to automobiles is very troubling, and it makes it harder and harder for those of us who believe in trade to sell these agreements.  Also there's, I'm told, an issue about telecommunications and ownership--49 percent versus virtually unfettered access here.

How close are you to resolving some of these so that we can truly represent to the American people that we have, one, a fair deal to America and secondly that it's enforceable?  Thank you.

Mr. BHATIA.  Thank you, Congressman.  We're not done with the FTA yet, and one of the outstanding issues that remains to be resolved is this issue of foreign direct investment in telecommunications.  We have been addressing with the Koreans this week, and we've got negotiations ongoing right now, but I can't--as of the beginning of this hearing I can't tell you that issue has been resolved, but we have made very clear to Korea that all of our FTAs here to date have contained liberalization, opening of the telecommunications sector.  That's our expectation in this agreement as well.

So, this is in the process of negotiation, but we are pushing very hard.  If I may make a point, just the point about regulator fairness and openness, because believe me, this is a key area for us across the board.  It's not just automobiles; it's other areas as well.  We recognize that there is concern about the transparency, about the fairness of the Korean regulatory process.  We have been at the forefront of that.

We have been negotiating with the Koreans for many years.  Also, the reason we believe in this FTA, Congressman, is we believe this offers us an opportunity through overriding commitments, commitments to make sure that, for instance the Korean government doesn't treat Korean firms through regulatory or other processes more favorably than foreign firms by making sure that there's transparency by setting up processes whereby there can't be private deals cut between the government and industry but rather there has to be regulations published and opportunity for people to comment, Committees for government and industry to work in a transparent way.

Those possibilities coming from this FTA, I believe, could radically benefit, dramatically benefit both our industry but also Korea as it's trying to move on a path of reform.  So, the question at the end of the day is how do we move Korea and the bilateral U.S.-Korea relationship to a more successful place to address these kinds of regulatory issues?

I would submit to you that a strong FTA, a fair FTA, which is what you were talking about--and that is the only kind of FTA we will bring back--would be an FTA that did that and that ensured that we had not only strong commitments but also strong dispute settlements in the event that there was ever a problem.

Chairman LEVIN.  Thank you very much.  Mr. Lewis.

Mr. LEWIS.  Thank you, Mr. Chairman.  Mr. Ambassador, I've got a small but it's a very important issue for my state and my district specifically.

As you know, Korea is a leading importer of bourbon, and we have worked with USTR in the past to ensure that other FTAs include a provision recognizing bourbon as a distinctive product of the United States.  This has been an important anti-counterfeiting tool.  Do you anticipate in this FTA to include this provision?

Mr. BHATIA.  Yes, Congressman, I do.  We're very familiar with the issue.  I think we've made clear to Korea that all of our FTAs to date have addressed that issue satisfactorily.  Although I don't believe we're quite there yet, I'm optimistic that we will be.

Mr. LEWIS.  Listen, I appreciate it.  I yield back my time.

Mr. BHATIA.  Thank you.

Chairman LEVIN.  Thank you very much, Mr. Lewis.

Mr. Larson.

Mr. LARSON.  Thank you, Mr. Chairman and thank you, Mr. Chairman for setting up this panel in the manner that you have to provide us with an opportunity to have our USTR respond to the panelists.  Let me cut right to the chase.

As part of the FTA that you'll bring back, will that include as the--I believe the panelists were seeking and asking for--minimally the bipartisan congressional auto proposal?

Mr. BHATIA.  Mr. Congressman, we have reflected carefully upon the bipartisan proposal that has been submitted and there are some elements of the bipartisan proposal that--

Mr. LARSON.  Is that a "yes'' or a "no''?

Mr. BHATIA.  Well, I think it depends what you mean.   I think there are some elements that we are pushing very hard for. For instance there is clearly a strong focus on a strong dispute settlement system.  There is a strong focus on NTBs, but there are a couple of features that I think both--that we do not believe is the most effective way to address the problem of U.S. market access into Korea nor would they frankly be--they would be deal-killers with Korea, I believe, nor at the end of the day do we believe they're necessary to be able to address the problems that we've talked about.

Mr. LARSON.  Also, how about a deal-maker or -breaker with the United States Congress?

Mr. BHATIA.  Congressman, I believe, and I would ask you to believe, to hope, that we will bring home a deal, including a deal on autos--

Mr. LARSON.--what you had to say to Mr. Tanner with respect to the FTA agreement, but then there seems to be a lot of ambiguity.  Let me ask a second question, then.  With regard to labor standards, where are we with respect to that, what kind of FTA agreement are we going to get with this?

Mr. BHATIA.  I think you will have a very strong FTA with respect to labor standards with Korea, Congressman.  Korea is perhaps a little different from some of the other trading partners we've negotiated FTAs with in that it is a developed or very close to being developed economy.  It has vigorous labor unions, vigorous labor activity, strong industrial relations regime, strong labor laws.

Korean strikes and so forth are probably more commonplace in Korea than they are in the United States.  I don't believe we have the same set of concerns there, and I'm confident that we'll bring back a very strong chapter on labor.

Mr. LARSON.  Well, as Chairman Rangel often points out, sometimes we're taken aback in Congress because we think that the USTR should really be out there progressively advocating on our behalf.  I don't doubt your sincerity, but there seems to be a lot of ambiguity in the negotiation process with respect to--especially as it relates to automobiles.

Mr. BHATIA.  Congressman, a couple of things. First of all we're right in the midst of this negotiation.  We have a lot still to go on.  We have a public audience here, so there are certain things that I would probably not prefer get transferred to our negotiating partners who are doubtless watching this.  So, but I will say that there is no ambiguity and there should be no ambiguity in terms of our commitment to make sure that the deal that we bring back on autos addresses what we believe are the key impediments that have prohibited and barred thus far--let's put it this way, that are the reason that you see far lower foreign OEM penetration into Korea than you do into other Organization for Economic Co-operation and Development economies.

Mr. LARSON.  I just wanted you to know, as our representative, that there's no ambiguity up here either.

Mr. BHATIA.  Thank you.

Chairman LEVIN.  Thank you.  Mr. Brady.

Mr. BRADY.  Thank you, Mr. Chairman, Ambassador.--If you care about finding new customers for American products and services, and especially customers who can afford to buy our products and services, it's easy to get excited about the possibility of this agreement.  The potential for a U.S.-Korean free trade agreement, it has potential to a blockbuster agreement, both from an economic standpoint because of the major market and from a strategic standpoint in our entry in competition in the Asian region.

I say potential, because clearly, two weeks from now I think if Korea doesn't come forward with strong positions in autos and rice and beef, and just as importantly, in other services areas where we are running a strong surplus today in Korea but we need regulations, investments and lifting of restrictions to allow us to be in there in telecommunications, for example.  Clearly, this could be a missed opportunity, which would be a shame.

In the area beyond auto and rice and beef, as we look at telecommunications, which you addressed, in the area of biopharmaceuticals, where there's been real concerns about the regulatory process, not being able to really see the reimbursement and pricing mechanisms that are so important to that, we can compete.  We've got the innovative health care or health products for Korea.

What is your approach, what is your plan to make sure we've got not only more market access in biopharmaceuticals but real commitment to transparency within the pricing and reimbursement structure?

Mr. BHATIA.  Thank you, Congressman.  The pharmaceutical area is one that, like automobiles, like some of the others, have been flagged from the very beginning as being an area of, that's going to be a major focus in this FTA.  We have had a number of rounds of discussions with the Koreans now in the pharmaceuticals area.  The agreement is not concluded in the pharmaceuticals area.

We have been basically approaching this on a--there are several core issues in the pharmaceuticals area.  One is obviously the set of intellectual property rights and protections that our pharmaceutical companies value highly and that we believe are important not only for the U.S. to be able to compete effectively in those markets, but also for Korea to be able to step up with its own IPR regimes.  That's an area that we have been pushing very hard on.

The second is an array of commitments that have to do with making sure that Korea's system for pricing and reimbursement is transparent, is fair, that it appropriately values innovation, that there is effectively a system that our companies feel confident in doing business, so they feel confident in doing business there.  So, we have been pushing very hard on that leg as well.

At this point, I can't tell you we've got it resolved, but I can tell you that we have been pushing it very hard, and it's my hope that we'll have a satisfactory resolution in that area.

Mr. BRADY.  I wish you well in the negotiations these next ten days, because,  some of the criticisms we've heard in this Committee has been that we need to pursue trade agreements in meaningful markets.

Mr. BHATIA.  Absolutely.

Mr. BRADY.  We need to pursue them with countries that have strong labor standards and enforcement.  This agreement meets both those criterias if--if, again, Korea comes to the table in a substantial way.  So, I wish you the best of luck.

Mr. BHATIA.  Absolutely.  Thank you very much.

Chairman LEVIN.  Thank you.  Thank you.  Mr. Blumenauer.

Mr. BLUMENAUER.  Thank you, Mr. Chairman.  I do appreciate the special focus that has been made on the disparity in terms of treatment with the automobile industry.  I look forward to some positive result that comes from that.  I also--I've got another hearing I'm going to be slipping off to, so I'm not going to be able to be forward with the agricultural testimony that's coming, but I, too, am interested in that.

Two observations.  One, I don't need an answer now, but just, the U.S.-Australia agreement only included government-to-government investor dispute resolution, not investor-state relations.

Mr. BHATIA.  Yes.

Mr. BLUMENAUER.  It seems, given that Korea is a functioning democracy now with a more mature legal system, it's much more comparable to what the Australian model was versus one in Latin America.  I would hope that we are going to focus on the state-to-state investor protections that are much less likely to undercut environmental protections.  At some point if you have some feedback there, I would be interested.

In addition, since my time is limited, I wanted to focus on one area, somewhat narrow perhaps, but we've watched the United States, your predecessors in the '80s in USTR be very aggressive in dealing with opening up the cigarette market to American tobacco products.  There was a zeal in the Reagan Administration to do that, and they were quite successful.  Also, in that time, we've seen an explosion in cancer-related deaths in South Korea.  We've seen I think it was in 1988, just one year, we watched smoking rates of male teen Koreans increase more than ten percent, and they quadrupled for young female smokers.  Now we're looking at two-thirds of the males in Korea who are smoking.

I'm curious if you can talk about what specifically is the tobacco measures that are included here.  Is this being pursued aggressively to undermine the ability of the Korean government to provide some protection to try and push back on what is their number one health problem?

Mr. BHATIA.  Congressman, I apologize.  I may have to get back to you with more specifics.  My general understanding is that we are not treating, we certainly have not treated tobacco differently from other commodities in the agricultural negotiations.  Also, if I may, because I'm just not up to speed with where we are.

Mr. BLUMENAUER.  Well, we were pretty aggressive, and it was 301 provisions that were pursued.  Also, this is one area where I think the world would suggest relax.  Let's not undermine their ability to try and deal with something that is lethal, that with the explosion of American product, imported tobacco into Korea over the last 20 years, it has made a huge impact on the health of average Koreans and undermined their ability to perhaps be a little protectionist, but protectionist in a way that saves Korean lives.  This is something that I would be keenly interested in.  I think hopefully this Congress we've even taken away the ashtrays in the House of Representatives finally, so that the pages aren't subjected to second-hand smoke.  Maybe we can cut the Koreans a little slack.

Mr. BHATIA.  Again, if I may, perhaps I can get back to you--

Mr. BLUMENAUER.  Great.

Mr. BHATIA.--on the subject of where we--what the posture is on tobacco.

Mr. BLUMENAUER.  Great.  I would really appreciate it.

Mr. BHATIA.  Good.  Thank you.

Mr. BLUMENAUER.  Thank you very much, sir.

Mr. BHATIA.  Thank you.

Mr. BLUMENAUER.  Thank you, Mr. Chairman.

Chairman LEVIN.  Thank you.  Mr. Pascrell.

Mr. PASCRELL.  Thank you, Mr. Chairman.  I don't know really where to start, Mr. Bhatia.  I was waiting for an answer, still waiting for an answer from the Chairman's question to you.  You know what?  I think it needs to be very clear, because we've gone through this ritual many times since 1996 or '97, and we need to commit, I think, ourselves to not finalizing one more job-killing trade agreement.

You know what we're doing?  We're telling UAW workers--I want to talk about telecommunications and pharmaceuticals, but I've got to--I have to respond to this, if you don't mind.  We're telling them that you're going to be laid off because of specific imports, but you will be rehired at a later time when we begin to manufacture those same cars here in the United States which will lay off Korean workers.  You know, I feel like I'm in a dental chair, the dentist chair.  There's Muzak in the background, beautiful music about globalization, as the dentist prepares to work on me.  We need to come to the reality of what is happening.

No one is against trade, but no trade is free.  It comes with a price.  We want it therefore to be fair.  I hope you'll eventually answer the Chairman's question sometime this century.  Also, I want to talk about two things.  I want to talk about telecommunications, and I want to talk about pharmaceuticals.  Some real issues that are outstanding before I can come even remotely close to lending my support to the so-called Korea Free Trade Agreement.

From the Iron Curtain Korea has imposed on our automotive market, to the gaps in certain basic international labor organization standards that exist, there's some real problems here.  There are many industries that feel that the USTR--Korea's not the problem.  You're the problem.  USTR is the problem.  They haven't really taken our interests in mind, kept them in mind while we're negotiating.

Let's take a look at the telecommunications sector.  An important objective of the Korea FTA should be to improve the market access to the telecommunications sector.  Korea currently restricts foreign equity in that sector to 49 percent, open to--in contrast, the U.S. telecommunications market is totally open to Korean carriers.  Totally open to Korean--that's got to matter for something.  Korea's largest wire line carrier, Korea Telecom, already has an Federal Communications Commission (FCC) license as a facilities-based telecommunications carrier, as well as a capacity on the China-U.S. undersea cable that it can use end-to-end.

Korea's largest wireless carrier, SK, provides services in the United States in conjunction with Earthlink.  U.S. carriers should have the same opportunities to provide their customers in Korea with the full range of products and services as Korea companies enjoy here in the United States.  If this 49 percent equity restriction has not yet been removed, how will USTR make clear to the Korean government representatives that addressing this concern is critically important?  Would you give me two sentences, three sentences in response to that very specific question?

Mr. BHATIA.  We have done it.  We have done it.  I have met last week with the U.S. industry on this question.  I have raised this issue directly at senior levels with the Korean government.  We are pushing them on it on an almost-constant basis.

Mr. PASCRELL.  Mr. Bhatia, would you put that in writing to my office this week?

Mr. BHATIA.  Happy to do so.

Mr. PASCRELL.  I would like to see it in writing.  I want to get to the pharmaceuticals now if I may, Mr. Chairman.

Chairman LEVIN.  Okay.  There isn't much time because--

Mr. PASCRELL.  I still have a few seconds left.

Chairman LEVIN.  You do.

Mr. PASCRELL.  According to the latest statistics from the Health Institute in New Jersey, a lot of pharmaceuticals in New Jersey.  Sixty-five thousand people are employed.  It's important to me.  I should not have to ask whose ox is going to be gored next, from textiles to whatever to widgets.  I'm concerned about everybody.  I want to be concerned.  You should be concerned.  I would like your assistance that you're giving the pharmaceutical industry the same priority that is given to automobiles, cattle ranchers.  Can you assure me that USTR is going to do that also?

Mr. BHATIA.  Congressman, we have been in contact with the pharmaceutical industry from the outset of these negotiations.  I have conducted--I can't count how many conference calls with senior executives from the pharmaceutical industry on this subject.  I have been involved in negotiations directly with the trade minister on the subject of the pharmaceutical industry.  I can assure you that it remains a high priority for us and will remain a high priority for us--

Mr. PASCRELL.  Would you also put that in writing--

Mr. BHATIA.  Absolutely.

Mr. PASCRELL.--with an explanation to my office?

Mr. BHATIA.  Absolutely.

Mr. PASCRELL.  Mr. Chairman, before I bow out here, can I have also from the representative today, sometime during this week, and to the entire Committee, I want him to

explain to us the core labor rights that are being forwarded in this negotiation so that we have a good handle before they make this quote/unquote "deal.''  I want him to explain to us and address the issue of where it's taking place within the negotiations.

Chairman LEVIN.  You should prepare a question and we'll send it to him.  So, now Mr. Meek and Mr. Weller, you each have 5 minutes.  I guess under the rules, Mr. Meek, you're next, because you were here.

Mr. MEEK.  You can go to Mr. Weller.

Chairman LEVIN.  Pardon?

Mr. MEEK.  You can go to Mr. Weller if he wants.

Chairman LEVIN.  Okay.  Mr. Weller?

Mr. WELLER.  Thank you, Mr. Chairman, and thank you, Mr. Meek.  Appreciate the opportunity, Ambassador.  Thank you for coming before the Committee today.

Mr. BHATIA.  Thank you.

Mr. WELLER.  I represent a very trade-dependent district.  Exports are the reason we're seeing growth in the economy, the Joliet area that I'm representing.  I would note that just this past year, there was about $35 million worth of manufactured goods that left my district were exported to Korea.  We've seen in Illinois overall exports to Korea go up about 16 percent.

So, Korea is a very important market for Illinois, and particular for my district, in manufactured goods as well as agricultural goods.  The International Trade Commission projects that if you're successful in negotiating a good, fair and balanced agreement, we could see about a 37 percent increase in exports coming from Illinois--

Mr. BHATIA.  Yes.

Mr. WELLER.--to Korea.  So, I encourage you to continue moving forward.  I share the concerns that several colleagues have raised about telecommunications.  Appreciate your working to address that.  You know, when I talk with my manufacturers that serve the Korean market, they tell me that their chief competition in Korea is China.  We always had a lot of debate in this Committee and in this Congress about whether or not there's any merit in having a free trade agreement with anyone.

We've seen with the, frankly, the failure of the Doha round of the WTO to make progress and increased effort by our competition, global competition, for various markets for bilateral agreements.  Can you tell us where the Chinese and also where the Europeans are with--in the type of trade agreement, this framework that they currently have and where they are with any future bilaterals?

Mr. BHATIA.  Yes, Congressman.  This actually is the subject of some not insubstantial concern for us.  I touched on this briefly in my opening remarks.  We are seeing a very aggressive effort by China, increasing effort by the EU, increasing effort by Japan to conclude preferential trade agreements with trading partners in the region.  Korea, for instance, has--

Mr. WELLER.  Of course, we're seeing that here in Latin America--

Mr. BHATIA.  Absolutely.  Absolutely.  The danger, needless to say, of this is that we will be late to the game or not in the game at all, that the template will have been set by another trading partner, or that we'll never be able to get into that market because the deal will have been struck between China and a trading partner or Japan and a trading partner.

In today's globalized world, needless to say, the competitive dynamic is so--it's so strong that not having the ability to compete in Korea on a level tariff basis or a level regulatory basis with a trading partner from another major--from another country, is a real, real disadvantage to our trading partners.

So, that's the reason why I believe, and I believe, we, the U.S. Trade Representative's Office, believes we need to be active out there.  We need to have a major trading agreement with major--we need to have major trading agreements with major trading partners in Asia, because it is such a dynamic region.  There are many people who have told me similar stories about the importance of Korea as an export market for their districts.  It's important that we be able to secure that position in the future.

Mr. WELLER.  Korea represents for us the first major Asian FTA for the United States in an Asian country.  Is that correct?

Mr. BHATIA.  Yes.  We've concluded agreements with Singapore and Australia, but this would be the first major industrial--

Mr. WELLER.  Economically, Korea is larger than Canada or Mexico combined?

Mr. BHATIA.  Yes.  It's larger than either Canada or Mexico in terms of GDP.  That's right.

Mr. WELLER.  Economically, it has huge potential.  Just review for me again.  China, does it currently have a bilateral agreement with Korea?

Mr. BHATIA.  It's in the process of negotiating.

Mr. WELLER.  They're negotiating one.  Japan, do they have a bilateral agreement?

Mr. BHATIA.  Again, in the process of negotiating one.  The EU has indicated that they are about to.

Mr. WELLER.  Have the Europeans begun, or they're--

Mr. BHATIA.  They're about to this spring.  I think a lot of--in Korea, there's a sense that if this doesn't come together, they would probably turn their attention to some of those other FTAs.

Mr. WELLER.  Well, thank you, Mr. Chairman.  Ambassador, I encourage you to continue pursuing this negotiation.  It is very, very important in my district and the manufacturers and the farmers that--

Mr. BHATIA.  Thank you very much, Congressman.

Mr. WELLER.  Thank you.

Chairman LEVIN.  Mr. Meek, thank you for your courtesy.  You have the last 5 minutes.

Mr. MEEK.  Thank you, Mr. Chairman.  We're very friendly from Florida, so we're used to being nice to folks.  Mr. Ambassador, it's a pleasure having you before the Committee, and as you know, many of us here have a lot of unanswered questions.  We don't know exactly what we're going to get by the end of the month, but we hope it is a product that we can hopefully endorse.

I have two questions.  One is automotive, one is telecommunications.  I'm just hoping that you could give the Committee some sort of estimate on the potential of job creation and also economic impact if we were to open Korea's automotive market,  what Korea's automotive market will have on the U.S.  Can you give me a little insight of how many jobs and how will it impact our economy?

Mr. BHATIA.  Congressman, it's difficult to do any predictions, because there are a number of different variables.  Also, let me--maybe I could just point you to some examples from prior FTAs, what we've seen happen in the automotive industry in previous FTAs.

First of all, let me take the example of Chile, which was a partner that had a tariff roughly comparable, I think it was 6 percent rather than 8 percent.  It also had taxes, a domestic tax structure that our industry felt was a barrier to effective entry into the Chilean market.

The FTA that we concluded in Chile came into effect in 2004.  From 2004 to '06, exports have increased by more than 200 percent, from 46 million to 139 million dollars.  Jordan is another example.  Jordan-U.S. passenger car and truck exports have gone from really a de minimis amount, $4 million, to more than $100 million, $102 million since the FTA came into effect in '01.  Australia has also been a positive example.  Car and trucks exports went up 47 percent.

So, I think there is a history of FTAs being successful in opening markets.  Now in this case, with Korea, we obviously have a more complex situation and have come up with a much more or are pursuing a much more complex, detailed answer to that.

Mr. MEEK.  Well, Mr. Ambassador, that's the reason why I asked the question, because here we have a number of new Members that are Members of Congress, and they have to go back home, including myself, and explain to their constituents how this agreement will increase jobs.  So, I guess a number of potential jobs that can be created will be helpful for us.

I know that you're in the middle of negotiating, but I think that using the numbers or potential of what could happen in other examples, we need some hard numbers.  Apparently, you're not there yet.

Mr. BHATIA.  Well, it just, in terms of increased exports,  we can--how those exports translate into jobs is a complex equation, but we can work on that.

Mr. MEEK.  Let me ask the second question.  An important objective in the Korea FTA is improving market access for the telecommunications sector.  Korea currently restricts foreign equity in that sector to 49 percent in contrast to the U.S. telecommunications market that is totally open to Korean carriers.

In a free trade agreement, the U.S. carriers could have the same opportunities that are provided to customers in Korea with a full range of products and services as Korean companies enjoy in the U.S.  Again, dealing with the 49 percent issue I think is very, very important.  I've been talking with my staff a lot about this.  It's, again, we have these free trade agreements.  Who are we representing?  Are we representing Koreans, or are we representing the great U.S. of A?  Can you talk to me a little bit about that and shed some light on it?

Mr. BHATIA.  I can assure we are representing the great U.S. of A and not only those sectors but others, including others that have not gotten as much discussion today, but we are pursuing U.S. interests--

Mr. MEEK.  Where are we on the 49 percent?

Mr. BHATIA.  Well, this I had mentioned--the issue had come up with a few other questioners.  We have been as clear as we can be with the Koreans that the model of our FTA is that there is an opening to allow for foreign, in this case U.S., ownership and control of telecommunication services, and we have made that point very clear to the Koreans, and we are pushing on it very hard.

Mr. MEEK.  Are we going to get what they will get from us?

Mr. BHATIA.  That's--the goal would be for--the same way the U.S. market is open to Koreans today, and the hope is through the FTA and the idea is through this FTA to be able to gain that same access into Korea.

Mr. MEEK.  So, we would look for parity versus?

Mr. BHATIA.  Yeah.  We would look for our companies to be able to compete effectively in those markets through addressing the FTA restriction among other practices.  There are other issues in the telecommunications area.

Mr. MEEK.  Thank you, Mr. Ambassador.

Mr. BHATIA.  Thank you.

Mr. MEEK.  Thank you, Mr. Chairman.

Chairman LEVIN.  Well, Mr. Reynolds, I think you said you were going to pass?  All right.  The ambassador--do you want to ask a quick question?  Please, go ahead.

Mr. REYNOLDS.  Mr. Chairman, I'm just aware of the ambassador's time, and I just want to urge him that he just take into consideration many of the challenges we've heard today on agriculture, auto and some of the things that our Ranking Member has outlined in the original opening remarks.

Chairman LEVIN.  Thank you.  Thank you so much for being here.  I think this has been important.  As you leave, could I just reinforce what I referred to earlier, Ambassador?  When you talk about bringing home an agreement, in part because of its importance, in part because of the time squeeze, though it's conceivable it could go beyond, and also because of the dynamic within this Congress, let me suggest the notion of bringing home won't work.  Since that kind of assumes a distance and you're bringing it home when we need a much more collaborative effort.

You said it's to be--you warned the Koreans if there's no real breakthrough, which I think means no more restrictions--unless there's a clear health need, Congress won't approve.  I hope you'll convey and feel the same thing is true in other areas.  So, it isn't bringing home, and it's not briefing staff, as important as that is.  It's revising the relationship, because what was true perhaps in previous years isn't true anymore.  I hope that's clear.

We would like to see a successful negotiation.  Congress needs to be a much more active, meaningful partner.  When it comes to the crunch, if Congress isn't part of the crunch, I think crunch will lead to failure.  So, let me leave it at that.  I hope we convey that message from people who believe in expanded trade but who believe it has to have a shape and conditions that would allow this Congress to approve it, and we're far, far away.

Thank you very much.

Mr. BHATIA.  Thank you very much, Mr. Chairman.

Chairman LEVIN.  Now the other panel will join us.  We'll see how many questions there are.  Thanks again, Mr. Ambassador.  Then is the next panel kind of revving up?  It may not be very long.

Thank you for your patience, Mr. Biegun and Mr. Collins, Mr. Reuther.  I think it was useful to do it this way.  All right.  Who would like to start?  Mr. Larson?  Mr. Tanner, do you want to start?  Okay.  Mr. Larson, go ahead.  Then Mr. Herger and then myself and Mr. Meek and maybe I'll come last.

Mr. LARSON.  Thank you very much, again, Mr. Chairman, and let me concur that I like the format, because more often than not when we have and conduct these hearings, there isn't a chance to have the panelists actually to respond themselves to what they just heard.

I had a couple of specific questions as it related to the ambassador.  They had to deal with the bipartisan agreements, minimally embracing those bipartisan agreements, and then also living up to and presenting us with an FTA that has labor standards.  Did you feel that the ambassador adequately answered those, and what's your sense of how the USTR is pursuing down those lines?

Chairman LEVIN.  Mr. Biegun, do you want to?

Mr. BIEGUN.  I'd be happy to speak to the bipartisan proposal for resolving this.  Though we've been in close communication with USTR on what the industry wants, we've been passing each other like ships in the night.

We don't want guaranteed access to the Korean market.  We want to see the Korean market look like a normal market, and that, in our view, will guarantee that we'll be able to have access to it.  This is a subtle but important difference.  We don't seek to sell X number of Fords or X number of U.S. cars, but it's our view that if the Korean market is even half the level that's the average import penetration for all the rest of the automotive markets in the world, then they won't have the temptation or the ability to use the tricks they've used to keep it closed.

You can't use nontariff barriers when there's a substantial import presence in the market.  We could make the changes.  We can afford to.  We can shift with the domestic industry just as they do here when National Traffic Safety Administration (NTSA) or the Environmental Protection Agency (EPA) require new things in the U.S. market.  Once you get a critical mass, you're impervious to these kind of maneuvers.  So, we're not seeking guarantees.  We're looking for a test to show that the market is the same.

Mr. LARSON.  The ambassador kept on referring to the fact that they had--it's transparent, their negotiations are more transparent than ever, the regulations are more transparent.  Has that been your experience?

Mr. BIEGUN.  In 1995, the United States had a comprehensive agreement to eliminate all such measures.  It failed.  In 1998, the United States had another comprehensive negotiation to eliminate all such measures.  It failed.  We sell less cars today as an industry in Korea than we did in 1998 when the last agreement was negotiated.

Mr. REUTHER.  Just to reinforce that, I think it was quite clear from the ambassador's response that they have no intention of meeting the minimum requirements that were set forth in the bipartisan Congressional proposal, and we deeply regret that.  It looks like they're following the same path that they did in 1995 and 1998, and we think they're going to get exactly the same result.

On the issue of worker rights, other than saying it's going to be a strong proposal, they indicated absolutely nothing.  So, far on Peru and Colombia, as well as Korea, it's been our impression that they're absolutely opposed to including the internationally recognized worker rights in the core text of the agreement, enforceable just like commercial provisions.  So, we again expect the agreement to be totally inadequate in that area.

Mr. LARSON.  Thank you.

Chairman LEVIN.  All right.  Thank you.  Mr. Herger.

Mr. HERGER.  Thank you, Mr. Chairman.  It seems to me that the real problem that's faced by the auto industry is one that is encountered by many other U.S. interests seeking access to the Korean market, namely the complete lack of transparency in Korea for setting rules, regulations and standards.

The solution we employ must solve this problem not only for autos but for these other sectors as well.  Maybe starting with you, Mr. Collins, what Office of Women's Health do we find a solution that addresses the unfair rulemaking process and the lack of transparency that systematically slams the Korean market shut for U.S. beef, rice, pharmaceuticals as well as autos, just to name a few?

Mr. COLLINS.  A very good question, Mr. Herger, for many industries.  We--and I'll speak with experience of the auto industry.  I think when you're dealing with a country that has decided to use its regulatory system as a method of control, controlling trade, or a method of protection and has gotten used to that as an active governmental structure using multiple ministries, you start with transparency.  I think that is a start.  However, that is just the start.  I think it gets you to the table.  It gets you to at least a minimum of information.  However, I think you have to go from there.

Based on our experience, because we've been going round and round for 15 years with this problem, what we found was that, for example, with Korea, we'd have a new, nontariff barrier that would stop us cold.  We have one now sitting on the table that would shut out 40 percent of our cars in a year that happened to pop up this year.

However, there's one of these every year.  Usually, without transparency, it comes up suddenly, but then even when it becomes transparent, it becomes raised--we have to go to USTR--it then becomes, one issue becomes a bilateral issue that gets raised higher and higher and higher till finally it's up to the cabinet level on, in our case, the placement of where you put a license plate.  It has to go to the cabinet to be resolved.  It uses huge amount of political capital and energy, and actually it's good Korean strategy, because it takes up a lot of our time and your time and the USTR's time.  You finally get a resolution of it.  You put that away, and six-- three months later, there's another one, and you start the process all over again.  I'm sure other industries can report the same thing.

It's more than--transparency is critically important, absolutely. However, it's the building blocks from which you say we've got to get a system, got to get a handle on looking at what's going on here in our industry and other industries and how to deal with that if we're having--talking about a mature, equal relationship, how we deal with that as a trade, the biggest trade barriers that we face in the country structurally and systemically, not just with what's up now, but what's coming in the future.

Mr. HERGER.  Anyone else want to comment?  Yes?

Mr. BIEGUN.  Mr. Herger, I think you also need to get the incentive system right, and this is the part of the proposal which we as an industry early on engaged with USTR on.  We propose to go ahead and support the tariff reductions but put them 15 years out, and they can come forward if the Korean market begins to resemble a normal market.

We cannot find every trick that they use to keep our products out, nor can we in one agreement block every barrier that they might propose the day the ink dries on that agreement.  What we suggest is you get the incentives right; that they have an incentive to stop using these tricks, and then we have confidence to invest in the Korean market.  The global industry, we can tell you first hand, is competitive.  It's good.  It's tough.

They'll get into the Korean market, and it will become a normal market, not through managed trade, not through guaranteed opportunity, but by the routine access that global automotive makers have in our own market where about 50 percent of the market will be owned by nondomestic brands by the end of this year.

Mr. HERGER.  Would you like to distinguish between the controlled market and the other kind of market that you're?

Mr. BIEGUN.  In what respect, sir?

Mr. HERGER.  How you would do it.  You know, we can say we're going to say that you have to sell X thousand number of cars, but that could be looked at as controlled market.  How would you look at opening this market without having it actually setting--

Mr. BIEGUN.  You see, it's not USTR's job to open the Korean market to Japanese cars.  In addition, if the Koreans continue to block Japanese cars, then the same tools will block our cars.  If they continue to block European cars, BMWs and Volkswagens and all the rest, they'll continue to block our cars.

We actually think that there does have to be an agreement, a comprehensive agreement on the Korean side, to completely open its market.  Also, there has to be some sort of guarantee, some sort of incentive that they don't reinstitute those mechanisms the day after the agreement is signed.  That's what we experienced in '95 and '98.

It's a little bit like Charlie Brown coming at Lucy while she's holding the football.  We took a kick at it '95, and we fell flat our back.  We took a kick at it in '98 and fell flat on our back.  There's that football sitting out there on the field again, and Lucy's holding it, and we just don't want to be Charlie Brown again.

Mr. HERGER.  Very good.--Thank you.

Chairman LEVIN.  All right.  I was going to ask about the USTR's notion that the Korean production was going to shift dramatically to the United States

There are other panelists waiting.  I treated this in my opening statement.  I think it is an excuse.  It is an excuse for essentially ending up with nothing or a very weak agreement.

Mr. Biegun?

Mr. BIEGUN.  I really did want to comment on that, Mr. Chairman.  We do not want to stop them from manufacturing here.   Do not get me wrong.  It does not make our business easier when they manufacture here. We do not want to stop them.

We want access to their market.  What possible bearing does their investment here have on our access to their market?  I do not care if they make all their cars here.  We still want to get in their market.  That is all we ask in this negotiation.

We do not want to limit that.  We think that is just a distraction.

Mr. REUTHER.  Mr. Chairman, as you indicated in your opening statement, even with additional production facilities in this country, as the Korean share of the U.S. market rises, we are still likely to see increased imports from Korea.

On the top of that, if the pick-up truck tariff is eliminated, we will probably see foreign producers from other countries locating production capacity in Korea to take advantage of the duty free access to pick-up trucks.

We think the trade balance will get even worse between our two countries.

Chairman LEVIN.  Mr. Collins, very briefly.

Mr. COLLINS.  To follow on my two colleagues, yesterday in Automotive News, which is dated March 19, "Hyundai Plans Luxury Car for the United States in 2008.'' Hyundai Motor says it will launch a luxury car in the United States next year, built in Korea.

The point that you made in your statement and the others have made that this is not a static situation, that the Korean auto makers are going to grow and build on it, probably much like the Japanese model has verified by this.

Chairman LEVIN.  We have urged that the 25 percent tariff should not be determined bilaterally but through the  discussions.

Thanks very much.  We appreciate your comments.

Now, let's have the next panel.  Thank you all for your patience.  Thanks again.

Thank you so much.  Mr. Herger and I just had a brief chat.  We are going to make sure that your testimony reaches everybody.  The second panels always bump into this.  We are going to send a note to all of the Members, not only of the Subcommittee, but the Full Committee, with your testimony.

Furthermore, you are going to raise some very important issues, we do not mean for a second these are secondary issues.  We assure you of that.  We are going to have a very active back and forth with USTR as to these issues, as well as the others.

When I commented about "bringing home,'' I do not like that figure of speech.  I think it does not involve Congress or yourselves effectively enough.

I guess we will go with Ms. Overby with the American Chamber of Commerce in Korea, and Mr. Stallman, you are the President of the American Farm Bureau Federation.

Mr. Vastine, you are with the Coalition of Service Industries.  Mr. Boyle, you are President and CEO of the American Meat Institute.

Ms. Ritter, you are Vice President of International Affairs for the Pharmaceutical Research and Manufacturers of America.  Mr. Steir, Executive Vice President of Paramount Films.

Mr. STEIR.  Farms.

Chairman LEVIN.  What did I say?

Mr. STEIR.  Films.

Chairman LEVIN.  Paramount Farms.  You wish you were head of Paramount Films.  It is Paramount Farms.  That is pistachio's, is it not?

Mr. STEIR.  Yes, sir.

Chairman LEVIN.  We have a lot back in the room, by the way.  We like pistachio's on this Committee.

Cal Cohen, we welcome you.

If each of you would take 5 minutes, and go forth.  Thanks.

STATEMENT OF TAMI OVERBY, PRESIDENT AND CHIEF EXECUTIVE OFFICER, AMERICAN CHAMBER OF COMMERCE IN KOREA, ON BEHALF OF THE U.S. CHAMBER OF COMMERCE, THE U.S.-KOREA BUSINESS COUNCIL, AND THE U.S.-KOREA FTA BUSINESS COALITION

Ms. OVERBY.  Thank you.  Good afternoon.  My name is Tami Overby.  I am speaking on behalf of the U.S. Chamber of Commerce, the U.S.-Korea Business Council, the American Chamber of Commerce in Korea, and the U.S.-Korea Free Trade Association Business Coalition.

Due to of the shortness of time, we are submitting our more detailed FTA papers for the record.

Chairman LEVIN.  It will be so introduced and the same will be true for all of you.  Thank you.

Ms. OVERBY.  Thank you.  Our organization strongly support an FTA with Korea that is comprehensive in scope and fully consistent with the WTO's framework for liberalized trade.

We urge negotiators to ensure that the agreement eliminates tariff and non-tariff barriers in the Korean market as rapidly as possible.

We also call for an FTA that provides for transparent and predictable regulatory and rulemaking procedures across all sectors in the Korean economy.

We are now at a critical moment in the FTA negotiations with Korea.  We call on leaders of both countries to make completion of these negotiations a top priority.  A gold standard FTA with Korea would serve as a new model for future FTAs in the important Asia Pacific region, and would bring substantial and tangible benefits in a number of ways, create new access in a dynamic market.

Korea is already our seventh largest two way trading partner, our second largest market for U.S. services in Asia, our seventh largest market for U.S. agriculture goods, our ninth largest destination for U.S. Information and Communications Technology (ICT) exports.

Studies by several leading United States and Korean experts have indicated that a comprehensive FTA will stimulate U.S. exports to Korea to the benefit of U.S. businesses, farmers, and workers, and will create new opportunities for U.S. goods and services.

Enhancing regulatory transparency.  The FTA provides a landmark opportunity to enhance regulatory transparency in Korea, one of the most significant market access barriers affecting U.S. companies in Korea in virtually all sectors.

Leveling the playing field.  There are numerous non-tariff barriers affecting U.S. companies across all sectors.

This FTA is an opportunity to obtain strong commitments by Korea to address these barriers in a meaningful way.

Promoting liberalization and regional trade leadership.  A comprehensive FTA with Korea will be the United States' first FTA with the Northeast Asian economy.  This deal gives the United States a preferential position with the world's tenth largest economy, one in which the United States has been losing market share to China and the EU in recent years, and would also provide an opportunity for the United States to shape the future trade agenda in Asia.

Outstanding FTA negotiation priorities.  While progress has been made, a number of priority issues for our organizations remain to be fully addressed.

In the area of agriculture, an agreement must be comprehensive, and the Korean market must be fully re-opened to U.S. beef imports.

Automobiles.  Korea remains the most closed auto market in the industrialized world, and our organizations have called for an FTA that addresses in a comprehensive manner the long-standing tariff and non-tariff barriers that have been effective in keeping the Korean auto market closed, and that includes special measures to ensure real and meaningful import market access.

Pharmaceuticals.  Our organizations continue to view the FTA as an ideal means to address long-standing issues and to enhance the access of Korean patients to leading U.S. medical products, to further improve the transparency and accountability of Korea's national health insurance system, and to secure better and lasting recognition of the value of innovative U.S. biomedical discoveries.

Investment.  We believe that an FTA with Korea must include strong investment protections and investor state dispute settlement procedures.

Further, the agreement should guard against investment caps and limitations on majority ownership by U.S. companies.

If an FTA with Korea is not concluded, not only would these and other critical issues remain, but resolving them could become even more challenging.

Moreover, if we miss this opportunity to complete an FTA with Korea, American manufacturers and farmers would lose the chance to gain new access in the Korean market, and also could lose market share as Korea concludes other bilateral trade agreements with other countries.

Korea is already negotiating FTAs with Japan and Canada, among others, and has announced its intention to launch negotiations with the EU in May, and is studying possible FTA talks with China.

In conclusion, while issues remain, we are optimistic that a commercially meaningful agreement can be concluded in time for Congress to consider it under the current TPA.

An agreement would bring real benefits for the U.S. and Korean workers and businesses, and will reinforce our two countries' economic leadership in the region.

Our organizations are firmly committed to working with Congress and the Administration to secure a successful U.S.-Korea free trade agreement.

Thank you very much for the opportunity to testify today.

[The prepared statement of Ms. Overby follows:]

Chairman LEVIN.  I want to thank you very much.

Mr. Stallman.

STATEMENT OF BOB STALLMAN, PRESIDENT, AMERICAN FARM BUREAU FEDERATION

Mr. STALLMAN.  Mr. Chairman, Ranking Member Herger, Members of the Committee, I certainly appreciate the opportunity to address the U.S.-Korea negotiations today.

My name is Bob Stallman.  I am a rice and beef producer from Texas and President of the American Farm Bureau Federation.

Overall, trade is important to U.S. farmers and ranchers.  U.S. agriculture is dependant on trade for several reasons.

First, roughly 25 percent of total market cash receipts for agriculture comes from exports.  In addition, 96 percent of our current or potential customers live outside the borders of the United States, and last, agricultural productivity is increasing nearly twice as fast as domestic demand for agricultural products.

It is critical for U.S. agriculture that industry,  Congress and the Administration work together to further open and develop world markets.

USDA estimates that in 2007, the U.S. ag trade surplus will rise to $8 billion, but we will not be able to maintain this surplus unless action is taken to ensure our international competitiveness.

We believe South Korea is an important component of the current trade agenda this Congress will have to address.  Other important components this Committee and Congress should support and vote on as soon as possible are the Peru, Columbian and Panama trade agreements.

We have estimated that these three agreements represent more than an additional $1.5 billion per year in U.S. agricultural exports after full implementation.  We cannot let this opportunity slip away.

In addition, we urge you to support extension of trade promotion authority.  Without this, our Government will be locked out of any further trade negotiations allowing our competitors ample time and opportunity to increase their competitive advantage in markets that are important to us.

When USTR announced its intent to negotiate a bilateral free trade agreement with South Korea, we understood that the negotiations would not be easy, but we also recognized the potential for growth in this market.

Korea is a major global market for agricultural products and the United States is one of the key suppliers of that market.

South Korea was the fifth largest export market for agricultural products in 2004.  Of the $10.5 billion in agricultural goods that South Korea imported, $2.5 billion of that came from the United States.  In 2004, the United States had an agricultural trade surplus with South Korea of $2.3 billion.

Reflecting on the diversity of Korea's import demands, the United States supplied a wide range of agricultural products in 2004, including corn, soybeans, wheat, processed foods, cotton, fresh citrus, nuts, and fruit juices.  In prior years, Korea was a major market for U.S. beef.  U.S. exporters supplied nearly $790 million in beef and beef staples as recently as 2003.

While the United States is a significant supplier of the South Korean food and fiber market, our market share is decreasing.  The United States' market share of South Korea's agricultural imports has fallen from nearly 45 percent in 1996 to less than 30 percent in 2004, a 30 plus percent drop.

Other countries are moving in and increasing their share of the South Korean agricultural market.  Those are Australia, New Zealand, Canada, the EU, and China.

Korea maintains high import tariffs on many products ranging from just over one percent to nearly 500 percent, depending on the commodity.

An agreement will give U.S. exporters expanded access by removing restrictions due to Korea's tariffs, as well as providing a competitive advantage over other suppliers.

Eliminating or even significantly reducing these high tariff rates through this agreement could be extremely beneficial to the United States' agricultural sector.

Mr. Chairman, we understand there is not much time left in order to conclude these negotiations.  We remain committed and hopeful that USTR and Korean negotiators can successfully complete negotiations under the terms and existing time line of TPA.

We commend USTR for their dedication to this agreement, and appreciate their diligence in working with us and others in the ag community.

There are some very significant issues that have not yet been resolved.  Currently, Ambassador Crowder and the agriculture negotiating team are in Seoul to try to resolve these issues.

Farm Bureau representatives and others from the U.S. ag community are there also to convey the importance of these negotiations.

I am sure you are aware of some of the sensitive issues, including rice, citrus and beef.  We must secure additional market access for all commodities, including rice and citrus.

The issue for beef is a little larger.  While it does include market access, it also involves SPS issues.

We remain optimistic that with the recent preliminary OIE announcement that the United States is a controlled risk for BSE.  The Koreans should begin to fully open their beef market to the United States.

Let me be clear.  The Farm Bureau will not support passage of a Korea FTA without resolution of the beef issue.

In conclusion, assuming a successful end of the negotiations and resolution of the beef issue, the opportunity for U.S. agriculture under a U.S.-Korea trade agreement could prove as great as or greater than our previous bilateral or regional trade agreements.

Thank you.  I look forward to your questions.

[The prepared statement of Mr. Stallman follows:]

Chairman LEVIN.  Thank you very much.

Mr. Vastine.

STATEMENT OF ROBERT VASTINE, PRESIDENT, COALITION OF SERVICE INDUSTRIES

Mr. VASTINE.  Thank you very much, Mr. Chairman, and Members of the Subcommittee, for this opportunity to testify on the U.S.-Korea FTA on behalf of U.S. services companies.

Services represent 80 percent of U.S. employment or 92 million American jobs, and 77 percent of economic output, and the United States is the world's largest services trader with a surplus of $73 billion last year, its 35th consecutive year of surplus.

In spite of this record of success, our service sector is restricted by a host of barriers that block our growth in foreign markets.  That is why efforts to open up key markets such as Korea are so very important, and why CSI and its member companies very enthusiastically support this agreement.

Success for services in this FTA means that Korea will make it much easier for our firms to conduct cross border trade, and to establish their commercial presence there.  That is, to invest in Korea.

On cross border trade, the United States exported $10 billion of U.S. services to Korea in 2005, a surplus of $4 billion over imports.

Separately, sales of services of U.S. affiliates operating in Korea were $4.3 billion, more than any other FTA partner except the North American Free Trade Agreement (NAFTA).

We also seek national treatment and domestic regulation.  We seek the right for our firms to be treated the same as Korean firms in that market.  Very considerable progress seems to have been made in this difficult negotiation to date.

On financial services other than insurance, Korea is expected to bind its already substantially open market so that U.S. firms can establish in Korea a direct home office branches or in any other legal form suitable to their operations there.

We believe Korea will commit to greater regulatory transparency, including the right to notice and comment, a right which we accept as almost proforma here in the United States, but which of course is not available to us in Korea.

We expect Korea to allow U.S. securities and fund management companies to perform basic managerial functions at their home offices, rather than be required to perform them in Korea at much greater expense, and we expect that foreign portfolio managers will be allowed to do their jobs from home or regional offices, not be required to do them in Korea.

On insurance, the FTA is expected to permit foreign firms to operate much more freely, to increase substantially their foreign currency reserves, to allow banks to distribute insurance products, to adopt a new approach to regulation that will allow firms to offer products in Korea unless explicitly prevented from doing so.

U.S. firms hope this FTA will go beyond other FTAs by embracing reforms that Japan and the United States bilaterally agreed to in the 1990s.  Those reforms resulted in quadrupling U.S. insurance firms' share of business in Japan.

There is at least one remaining issue here, however, and that is rules ensuring a level playing field between Korea Post and private insurance companies have yet to be agreed.  Also, of interest to all financial services providers are indications that Korea will lift its very onerous restrictions on cross border data flows, making it much easier for foreign firms to do business from Seoul with the rest of the world.

On express delivery, we expect the FTA to clarify that the Korean Postal Service Act, which could severely impair  U.S. companies' operations, will ensure a level playing field for our companies, FedEx and UPS, and their 600,000 U.S. employees.

On telecommunications, of course, a major unresolved issue is Korea's 49 percent limit on ownership by foreign telecom providers.  Much has been said about that.  It would be extremely unfortunate if the Koreans do not see their way to lifting that limit, and we hope and expect that can be accomplished.

On E-commerce, we expect this FTA to apply the same high standards set in other FTAs, to enable our very efficient and competitive E-commerce practitioners' businesses to continue to do business.

On audio-visual services, Korea applies many restrictions on U.S. suppliers of A/V services, but as a signal of its intent at the outset, Korea cut in half, to 73 days, its requirement that its movie theaters devote 146 days a year to showing Korean films.  Much more needs to be accomplished here, and we hope that can be done as well.

To conclude, services negotiations seem to have made very considerable progress.  More remains to be done.  We hope and expect that the remaining issues will be resolved.  Also, like the Farm Bureau, we support the implementation of the Peru, Columbia and Panama agreements, as well as passage of TPA.

Thank you very much, Mr. Chairman.

[The prepared statement of Mr. Vastine follows:]

Chairman LEVIN.  Thank you.

Mr. Boyle.

STATEMENT OF J. PATRICK BOYLE, PRESIDENT AND CHIEF EXECUTIVE OFFICER, AMERICAN MEAT INSTITUTE

Mr. BOYLE.  Good afternoon, Mr. Chairman, Ranking Member Herger, Congressman Larson and Brady.  Thank you for the chance to appear before you today.

The American Meat Institute represents 250 of the Nation's most well known meat and poultry companies.  Collectively, they produce 90 percent of our beef, pork, lamb and veal, and 70 percent of our turkey products in the United States.  They employ 500,000 workers and contribute $100 billion to our Nation's economy.

From the U.S.-Israel free trade agreement, through NAFTA and Central American Free Trade Agreement (CAFTA), the U.S. meat and poultry industry has consistently supported FTAs, and has benefitted from the resulting market access to new international customers.

Nearly 20 percent of our U.S. chicken production is exported; 17 percent of our pork, and prior to December 2003, more than 12 percent of our beef.

As the Committee knows, December 2003 was the time that we diagnosed our first case, of BSE the first of three, in the U.S. cattle herd.  We found it in Washington State in an older cow imported from Canada.  We immediately lost about 85 percent of our beef exports valued at about $7 billion, as trading partners such as Korea, banned U.S. beef.

Prior to the ban on beef trade, Korea was the beef industry's third largest market, with 2003 sales in excess of $750 million.

Beginning as long ago as 1989, the U.S. had implemented multiple controls and testing programs to minimize the introduction of BSE and to prevent its spread amongst the U.S. cattle herd.  According to the World Organization for Animal Health data, the U.S. has the lowest rate of BSE per 100,000 head of cattle of any nation that has ever diagnosed BSE in its domestic herd.

Today we can say with great confidence that our cattle herd is healthy and our beef is safe.  In fact, since December 2003, while countries such as Korea continue to prohibit U.S. beef imports, Americans have happily consumed 60 billion pounds of American beef.

Earlier this month, the World Organization for Animal Health's expert panel recommended a preliminary designation for the United States as a controlled risk country for BSE.  This designation affirms the effectiveness of our BSE prevention and control programs.  Under such a designation, U.S. cattle and all beef products can be safely traded in accordance with international guidelines, guidelines endorsed by countries such as the United States and Korea, and guidelines which are enforceable under the WTO dispute settlement process.

For the past three years, the U.S. Government has been attempting to convince Korea to re-open its market to U.S. beef imports, and as a condition of commencing FTA negotiations a year ago, a preliminary agreement was reached with Korea in January of last year.

Specifically, the Koreans agreed to allow resumption of U.S. beef imports in a two phrased approach, first re-opening the market to boneless beef from animals less than 30 months of age, and second, permitting full restoration of trade for all beef and beef products from animals of all ages upon conclusion of these FTA negotiations.

This second condition is consistent with recently negotiated FTAs with Panama, Columbia and Peru, as well as with Russia, as part of its WTO accession talks.

U.S. beef has earned the trust of the international community, and we deserve the same response from Korea through these FTA negotiations.

Unfortunately, with Korea, 14 months later, the initial opening for boneless beef has yet to occur, because the Koreans refuse to accept commonly used commercial definitions for boneless product.  Instead, they subject our imported shipments to x-ray screening searching for cartilage the size of my little pinky's fingernail.

Late last year, three relatively small initial shipments of beef from three different U.S. suppliers were x-rayed and rejected by the Koreans.  The tenderloins that I buy at the local grocery store and thoroughly and confidently enjoy with my family, could not pass these extreme Korean inspection requirements.

Reports this week from our agricultural trade negotiations in Seoul are not particularly encouraging.

Mr. Chairman, the prolonged trade ban that Korea persists in maintaining on U.S. beef imports is both frustrating and unacceptable.  Despite the overwhelming scientific evidence supporting the safety of U.S. beef, more than 17 years of domestic BSE controls and animal surveillance, an international expert panel's designation of the health of our herd and the safety of our beef, and a year old agreement with the Koreans to restore trade at least partially, the ban on all U.S. beef exports to Korea persists.

Regrettably, American Meat Institute (AMI) will not be able to support an FTA with a trading partner unwilling to abide by its bilateral commitments and permit trade under science based international guidelines.

For these reasons, we appreciate the support of this Committee, and would encourage you to communicate and continue to communicate to the Korean government that the resumption of full beef access, pursuant to international standards, must occur prior to the conclusion of these important negotiations.

Should this ban be resolved and full market access restored, AMI stands ready to be a strong supporter of the U.S.-Korean FTA, as we always have been in the past.

Thank you very much.

[The prepared statement of Mr. Boyle follows:]

Chairman LEVIN.  Thank you.

Ms. Ritter.

STATEMENT OF GERALYN S. RITTER, SENIOR VICE PRESIDENT OF INTERNATIONAL AFFAIRS, PHARMACEUTICAL RESEARCH AND MANUFACTURERS OF AMERICA

Ms. RITTER.  On behalf of the Pharmaceutical Research and Manufacturers of America, I would like to thank you, Chairman Levin, Ranking Member Herger, and Subcommittee Members for holding today's hearing.

We appreciate the opportunity to address the most economically significant FTA in recent years.  PhRMA views the U.S.-Korea FTA as an important opportunity to do three things, enhance the access of Korean patients to innovative medicines, improve the transparency and predictability of Korea's national health insurance system, and secure better recognition of the value of innovative American biomedical discoveries.

To put my testimony in a bit of context, I would like to start by giving you some quick background on the Korean system.

Korea has a single payer system, so access to the government health care system is access to the Korean market.  There is no real private market outside the government system.  The government system is it.

Innovative pharmaceutical products are mainly imported into Korea from United States and other international companies.  Foreign producers only gained access to Korea's market at all in 1999, and then only after intense pressure from the U.S. Government.

Korea's policies have long favored its domestic industry, which still holds a disproportionately large share of the market.

Adding to these long-standing concerns, on May 3, 2006, one week before the first round of the U.S.-Korea FTA negotiations started, the Korean government announced an entirely new reimbursement system for pharmaceuticals.

This was a major setback.  The new system is very complicated.  There is huge scope for bureaucratic manipulation in it, and it is much more restrictive toward patients' access to medicines.  Worse, the infrastructure does not exist in Korea to implement the new system effectively.

I should also note that local generic producers are to be grandfathered into the new system, at least in the near term.

The end result is massive business uncertainty for U.S. companies, and reduced access to medicines for Korean patients.

Our industry is worse off today in Korea than before these FTA talks began.  I am sorry to say that.

You basically have a black box.  If you want to bring a new product to market in Korea, you have to reach into the black box and hope that you pull out a set of reasonable conditions for market access.  That is what the core of this FTA is about for us, opening that black box.

We need some sunshine, but more than just transparency, we need real disciplines on what happens in that black box.  We need rules that matter.  So, far, unfortunately, and despite some strong efforts from USTR, Korea is resisting a very reasonable set of proposals.

There are two chapters in the agreement that are critical to our industry, the chapter on pharmaceuticals trade, of course, and the intellectual property rights chapter.

Within the pharmaceuticals chapter, we are extremely concerned about provisions regarding government reimbursement regulations.  These regulations need to be developed and applied in a way that recognize the value of innovation.  They should provide innovative products with some measure of predictability and guard against bureaucratic arbitrariness.

We are also concerned, as I mentioned, about the lack of transparency and accountability in Korea's reimbursement and listing decisions.

This has been a difficult issue for years in Korea, but it is particularly bad now under this new system.  In order to ensure fairness and due process, the new system should include an independent appeals mechanism to serve as a check on what happens in that black box.  That kind of appellate body has to have some teeth.  It should have the authority to overturn reimbursement and listing decisions where appropriate.

The final issue I want to mention is intellectual property.  The IP chapter of the FTA needs to contain strong commitments to protect confidential pharmaceutical test data.

The agreement also needs to require that Korea adopt a patent linkage system.  A patent linkage system just ensures that the right hand of the Korean government knows what the left hand is doing.  You cannot have a patent authority on the one hand giving you a patent with the exclusive right to market a product and the regulatory authority on the other approving infringing products for marketing.  There has to be a coordination mechanism there.

In conclusion, I just want to reiterate the importance of this agreement to the American pharmaceutical industry.  We know resolution of these issues will not be easy, but the U.S. positions are reasonable and they are achievable.

We are committed to working with USTR in the final days of these negotiations.  We want to support the agreement, but it is going to be tough.  We are pretty far from the finish line right now, and time is short.

Thank you.

[The prepared statement of Ms. Ritter follows:]

Chairman LEVIN.  Thank you very much.

Mr. Steir.

STATEMENT OF BERTON STEIR, EXECUTIVE VICE PRESIDENT, PARAMOUNT FARMS, LOS ANGELES, CALIFORNIA

Mr. STEIR.  Chairman Levin, Ranking Member Herger, Congressman Brady, Congressman Larson, I am pleased to testify today on behalf of Paramount Farms, and many U.S. pistachios growers.

Paramount Farms is America's largest producer of pistachios.  The pistachio industry farming operations are located throughout the State of California.  Pistachios are also grown in New Mexico, Nevada, Arizona, and plantings are now taking place in Texas.

The United States is the second largest producer and exporter of pistachios in the world, the world's largest is Iran.  By  contrast, South Korea does not grow any pistachios and has no domestic pistachio industry to protect.

However, the South Korean market represents tens of millions of dollars annually for U.S. pistachio growers.  That is, of course, contingent on the elimination of South Korea's tariff on U.S. pistachios.

The latest information on the negotiations that are going on is that pistachios are bundled together with various other tree nuts, for which the U.S. Trade Representative is trying to negotiate an across the board reduction of tariffs.

Pistachios are not a controversial line item in these talks, and deserves to be separated out for immediate duty free treatment.  That is why the pistachio industry is closely monitoring the Korea trade agreements and negotiations, and that is why I am here today.

The U.S. industry produces an average of 250 million pounds of pistachios a year, and employs thousands of people.  The industry has grown more than three times in value in the past ten years to over $500 million in annual sales.  We expect the industry will grow to over $1 billion in the years to come.

Exports are fundamental to this growth, and we see South Korea as a huge market.  Unfortunately, South Korea applies a 30 percent tariff on raw pistachios and a 45 percent tariff on packaged pistachios.  This is in comparison to only 8 percent for almonds and hazelnuts.  This limits our exports seriously and severely.

The U.S. pistachio industry's experience in Europe provides a model, the type of model we envision for South Korea.  Actually, Europe does grow some pistachios.  However, nevertheless, it has created an entire industry in roasting, packaging and marketing imported U.S. pistachios.

The value added by this industry is considerable.  In 2005, Europe sold approximately $1 billion worth.  It imported pistachios at a cost of $500 million creating an additional $500 million in domestic value added business.

Several European brands proudly promote their products as being pistachios from California U.S.A. and America.  It is important to note that low tariffs made all this possible.

The current duties in the European Union are 1.6 percent for raw pistachios, compared to 30 percent in South Korea.  This is 20 times higher.

South Korea could, like the EU, have the potential to create a domestic pistachio industry using U.S. pistachios, by importing not only for its domestic market, but also for value added resale in neighboring countries.  This will not only benefit South Korean roasters and packages, but also South Korean retailers and exporters.

At current prices, South Korea could expect to sell as much as $100 million worth at retail.  However, the current tariffs severely limits U.S. pistachio imports and prohibits this market from being realized.

Pistachios are not a controversial line item in the Korean-U.S. free trade agreement talks, because South Korea does not grow any pistachios and has no pistachio industry.  As a result, U.S. pistachios do not compete with any domestic South Korean product, and do not pose a threat to the South Korean market.

I submit to you that in this case, pistachios are a definition of a line item that deserves immediate duty free treatment.  This is why the U.S. pistachio industry has been pressing for the immediate duty free treatment for pistachios in the Korea-U.S. free trade agreement.

This position is strongly endorsed by many of your colleagues in the California Congregation Congressional Delegation.

I have attached a testimony of a November 2006 letter signed by 17 members of the California Delegation, including both U.S. Senators.

In closing, California pistachio growers, as well as those in New Mexico, Nevada, Arizona and Texas, need your help.  There is absolutely no justification for any import duty to apply to U.S. pistachio imports to South Korea.

On behalf of the U.S. pistachio industry, I ask you to encourage our negotiators not to settle for anything less than immediate duty free treatment so U.S. pistachio growers can increase their exports and also provide South Korea with a new domestic and export industry.

This is a win-win situation for both sides.

I thank you, and thank you, Mr. Herger, for complimenting me, and hope you will be able to have some influence.

[The prepared statement of Mr. Steir follows:]

Chairman LEVIN.  I thank you very much.

Mr. Cohen.

STATEMENT OF CALMAN J. COHEN, PRESIDENT, EMERGENCY COMMITTEE FOR AMERICA TRADE

Ms. COHEN.  Thank you, Mr. Chairman, Ranking Member Herger, and Congressman Brady, for the opportunity to appear before the Subcommittee this afternoon.

I am testifying today on behalf of Emergency Committee For American Trade (ECAT) an association of chief executive officers of leading U.S. business enterprises with global operations that was founded some four decades ago to promote economic growth through expansionary trade and investment policies.

As a cross-sectoral group, ECAT strongly supports the conclusion of a comprehensive, high standard, and commercially meaningful FTA with Korea that creates concrete new trade and investment opportunities for U.S. companies, farmers, workers, and their families.

Given the detailed testimony provided today by my colleagues in many sectors, I will focus my oral testimony today on the very important and cross cutting investment issues that are critical to the successful conclusion of these negotiations.

Foreign investment by U.S. companies, supported by core investment access and protections, is a key driver of U.S. economic growth, productivity, and exports.  Indeed, the largest market for U.S. exports is foreign based subsidiaries of U.S. companies.  More broadly, U.S. investment abroad is important for broader national U.S. interests, such as developing stable sources of energy supplies, continuing U.S. leadership in creating new and advanced technologies, and promoting stability, economic development, and the rule of law.

Three primary issues are being discussed by U.S. and Korean negotiators: access for investment, commitments to core investment protections, and investor-state- dispute settlement.

First, investment access.  ECAT members seek the reduction and binding elimination of foreign equity limitations in all major sectors, from telecommunications and broadcasting operations to distribution of agricultural and manufactured goods.  Such access, I emphasize, is critical to ensure that the market access commitments that we receive from Korea in other chapters are actually meaningful.

Second, investment protections.  The objective of the investment negotiations is to ensure that U.S. investors in Korea have the same levels of protection for their investments that Korean investors already have in the United States, including protections related to national treatment, most favored nation treatment, expropriation, fair and equitable treatment, full coverage of investment agreements, and the free transfer of capital.

It is critical, therefore, to U.S. competitiveness that the United States in the negotiations reject proposals to limit investment protections against discriminatory, arbitrary or expropriatory government activity; restrict the transfer of capital; or create exceptions from the key protections.  Such diminutions to the high standard model U.S. text would deny U.S. investors precisely the protections that are needed to address the barriers that have long pervaded the Korean economy.

In short, not to have these protections would provide a safe harbor to Korean regulators to block U.S. participation in the Korean economy.

It also would put U.S. investors at a competitive disadvantage, since Korea already has provided strong investment protections to competitors in the United Kingdom, Germany, the Netherlands, as well as others.

For financial institution investors, in particular, the expropriation protections are absolutely vital, since the United States has not sought to ensure rights of such investors to bring claims with respect to discrimination.

Third, investor-state dispute settlement.  Investor state provisions are in thousands of international instruments, including the investment treaties and free trade agreements that Korea has concluded with other governments.

Investor-state dispute settlement is vital for all U.S. industries to be able to address barriers and government actions that would deny effective access to the Korean economy.  The ability to bring such cases must apply fully to investors in each of these sectors and for all breaches of the FTA, as well as breaches of a special type of investment agreements that govern much of U.S. investment abroad in natural resources, infrastructure, and other major areas.

Several issues remain outstanding.  We understand the Korean negotiators are pushing back on core protections, are seeking major exceptions, and are continuing to resist opening their investment market in key areas.  ECAT urges U.S. negotiators to reject the weakening of investment protections and the denial of investment access.

In sum, ECAT urges U.S. negotiators to continue to work to conclude a comprehensive and commercially meaningful FTA that protects and promotes investment.

Such an outcome will receive ECAT's strong support.  Thank you for the opportunity to testify.

[The prepared statement of Mr. Cohen follows:]

Chairman LEVIN.  I want to thank you and to all of you.  This has really been an informative panel.

Let me just ask a few questions and turn it over to Mr. Herger and to Kevin.  Mr. Boyle, you at the end of your testimony, and you repeated it or said it here, "We urge you and your colleagues to communicate to the South Korean government that the resumption of full beef access must occur prior to the conclusion of the FTA negotiations.''

I think that is a good idea.

Mr. BOYLE.  I appreciate that, Mr. Chairman.

Chairman LEVIN.  It is interesting.  I would simply ask my colleagues that we think about that.  Also, ask all of us to ask ourselves do we not need something, if not identical, comparable in other fields.

The problem is that if we say kind of over time reduce your regulations, or in this case, abide by some decent standards, it may or may not happen.  That is one of the dilemmas we have with a regulatory system that is so opaque, and that has truly been used in many cases to shelter a local market.

I have to think that was true of beef.  Essentially, what you are saying is tear down that wall before, and to the extent we can do that, I think we should.

Let me just say a few words to you, Ms. Ritter, and then my colleagues will take over and maybe have questions of others.

What I said about beef is a bit of a puzzle as to pharmaceuticals, because with this new system, it is really hard to see how we set up a structure so there is any assurance, not only they grandfathered in certain entities, I do not quite know what is meant by an independent appeals system, so how do we approach this FTA with any assurance that there will be a major relaxation and in the end, not only diminution but end of a regulatory structure that essentially has a very un-level playing field for American pharmaceuticals?

As you know, it is no surprise.  We at times have leaned on the pharmaceutical industry in FTA negotiations thinking that some of the provisions were perhaps too stringent in terms of access to medicines where they are really needed.

Here, we are dealing with essentially an industrialized society with a substantial pharmaceutical industry; right?

How do we frame this so that we really have any assurance?  I do not quite see even with your recommendations how we are sure over a reasonable period of time we get there.

Ms. RITTER.  This is a very complex and complicated set of issues in Korea.  Our approach, and we have worked closely with USTR, and I think the approach the USTR has been advocating with Korea, is to tackle it on several levels.

Transparency is important.  Transparency does matter.  I think it can make a difference here, and an appeals mechanism is part of that, that regulatory decisions need to be subject to some kind of independent review, and you need to know the basis on which those decisions were made.

Transparency alone is not enough.  You really have to get to the core of how these reimbursement and listing decisions are made, and we need to have some assurances as to what the rules are going to be, and some level of predictability.

We have worked, I think USTR has worked, to engage Korea on the regulations that they have put in place around this new system, and to date, Korea has taken into account not a single one of the recommendations either that the industry has made or that the U.S. Government has made to make those rules clearer, more predictable, so that business knows what to expect when it reaches into the black box.

Chairman LEVIN.  Send us whatever you would like to.  How we handle this challenge has some relevance, I think, to how we handle others.

With beef, essentially you are saying change before.  That is, pardon the pun, clear cut; right?  A good cut of beef.

Ms. RITTER.  Right.

Chairman LEVIN.  I do not quite see--there seems to me there is a lot of work to do with there being assurance that the tangle of regulation does not end up more or less where we are today.

Ms. RITTER.  I think that is right.  We would be happy to follow up and provide more of the technical details.

Chairman LEVIN.  Do that.

Ms. RITTER.  That is one of the reasons it is also important that this FTA put in place ongoing mechanisms to review and continue the consultations to ensure that real market access opening happens.

Chairman LEVIN.  Mr. Herger?

Mr. HERGER.  Thank you, Mr. Chairman.  I want to thank each of our members on this panel.

Mr. Stallman, back to rice again.  I am not naive.  I am very much aware of the very sensitive and tough issue that rice is to the Koreans.  That said, U.S. rice farmers do not get anything close to a fair shake when it comes to selling into the Korean market.  I am aware of tariffs, quotas, and use restrictions that require U.S. rice to be processed instead of sold in the retail stores where Korean consumers shop.

Can you elaborate on the various mechanisms that Korea maintains to block U.S. rice from competing in the Korean market, and are there others that I have not mentioned?

Mr. STALLMAN.  I am not aware of all.  You have to look at what we have access to now.  They have a 5 percent in quota tariff.  They do not even have an over quota tariff because they do not import any rice over the quota, and the quota was established in the Uruguay Round agricultural agreement.  That was a demand, that they had to have some opening of their market, which at least indicates they are willing to do that, if they are pushed.

There are quota's of about 225,000 metric tons in the Uruguay Round agreement.  The United States has about 50,000 tons of that.

As you said, once the rice gets into Korea, then their consumers do not have the opportunity to see if they even like it or not because they use mechanisms, and frankly, Japan has been guilty of some of the same thing, used mechanisms to keep it out of the consumer market.

Once again, we knew rice was going to be a very sensitive issue in these negotiations.  We recognized that.  It is going to be one of those 11th hour issues that are resolved at the very end.

Our policy is very clear, that trade agreements need to be comprehensive and there should be no exclusions, and we expect the Koreans, if they want an agreement that U.S. agriculture can support, to do something in terms of granting more access into their rice market through this FTA.

Mr. HERGER.  Thank you.  Again, as a point of precedence, we certainly cannot allow this one area to be out and others in.

Mr. Cohen, we have heard today that Korea has in the past used domestic regulations, non-transparency, to favor domestic concerns and inhibit trade.

Given this history, is it not important that USTR continue to press its model investment chapter, which is written carefully, for the purpose of protecting countries' legitimate regulatory actions while at the same time allowing foreign investors the right to obtain arbitration in cases of illegitimate takings by the host country?

Ms. COHEN.  Absolutely.  I think that it is critical that the Administration continue to press in this area.  Indeed, the argument that American business is making with regard to investment is for the key investment protections to be available to U.S. investors, just as they are available to investors from other countries around the world.

As I mentioned, Korea has agreements with countries such as Germany and the United Kingdom which provide for just such protections.

Failure to provide our investors with similar protections would put them at a competitive disadvantage.  Right now, Korean investors in the United States have access to fair, non-discriminatory dispute settlement arise.  All we are asking for is similar treatment in Korea.

Mr. HERGER.  Thank you.  Ms. Overby, would you want to comment on that?

Ms. OVERBY.  Yes.  I would also like to make one additional point, that there are two very clearly different groups of officials operating in the Korean Government today--those who genuinely want and embrace the change in real competition that an open market will bring and those that are still clinging to the past protective practices.

We cannot miss this key opportunity to strengthen the hand of the reformers in Korea.  If we let the closed market team gain the upper hand, the United States is going to lose out on our best chance to resolve a very large number of market access problems that we have in Korea, and put in place binding disciplines and ongoing consultations that will help us address issues that we are unable to address in the context of this agreement.

Perhaps even more importantly, if this deal falls apart, we believe the United States will lose its ability to lead in shaping the trade agenda in Asia, possibly for decades.  Our competitors are not standing idly by while we debate how or where we want to assert our economic presence in Asia.

Rather, Korea and the EU are going to launch their FTA negotiations in May.  Japan has asked the Koreans to re-start their stalled FTA.  Korea has already launched a study group with China.

If we miss this chance, we run the risk that others are going to decide the rules for the future while we are left out on the side lines.

Mr. HERGER.  Thank you.

Chairman LEVIN.  Mr. Brady?

Mr. BRADY.  Thank you, Mr. Chairman.  This has been a great panel, although I find myself suddenly craving cheeseburgers with rice and pistachio ice cream.  I think as a show of bipartisanship, if you would order that in for everyone in the room, Mr. Chairman, that would be very helpful, I think.

Let me continue on a serious note.

Chairman LEVIN.  I agree with that, by the way.

Mr. BRADY.  I hope the Korean negotiators are listening carefully to this panel because the positions you have outlined on market access, regulatory reforms, are just critical to this agreement.  It has tremendous potential because of its size and strategic interest, but these issues have to be addressed.

They are real deal killers at this panel right now.  I hope the Korean negotiators are listening carefully, because it reflects the opinion of much of us in Congress today.

Let me ask you this.  Each of you represents members in export oriented industries that can both improve our trade deficit, create jobs.  We are not just buying America here at home.  We are selling America around the world.

As you look at Korea and you look at the growing Asia market for customers, if this is a good solid trade agreement we can all support, do you see this as a model or a foot hold for new customers in that growing region?

I will leave it to you to comment.

Ms. OVERBY.  Absolutely.  I represent 1,100 American companies living and working in Korea every day.  I will tell you that this deal is a wonderful chance for us to expand that market and grow that market into China.  Absolutely, without a doubt.

Mr. BRADY.  Thank you.

Mr. STALLMAN.  Absolutely, too.  We always said that we need to focus on those markets for agriculture that hold some real promise, given the economic status of South Korea, even though they designate themselves as a developing country, they have a high per capita income.  They have very little arable land relative to their population.  They are an outstanding market given those two facts for U.S. agricultural products.

We need to break down the barriers to get our products in there.  This is a real opportunity and probably the first one really under free trade agreements or bilateral agreements where we believe we have the opportunity to get into a real high value market.

Mr. BRADY.  Thank you.

Mr. VASTINE.  Congressman, we feel, of course, the same way.  The Korean market is an extremely important one.  We are doing well there.  We could do very much better.

The irony of this is that the people who will do best are the Koreans by embracing the most modern types of infrastructure services, like telecommunications and financial services, and the other services we mentioned.

The Koreans will put themselves in a position of being a much more dynamic successful economy.

It is a known disadvantage that they resist modernizing and opening up their telecommunications market.  They will benefit much more than we actually from that.

Mr. BRADY.  Thank you, sir.

Mr. BOYLE.  Congressman, to the extent there are lower tariffs that translate into greater market access for our poultry and pork processors within the American Meat Institute, that will be a potential growth opportunity for them.

The beef issue is somewhat distinct.  We are not asking for a precedent setting breakthrough in market access.  We want a restoration of the status quo ante.  We lost that almost $800 million a year market overnight.  We obviously have not got it back overnight.  We think the decision day is coming closely.

Just like my colleague here who says that the Koreans will be the beneficiary of the restoration of our beef export opportunities, it is evident when one goes grocery shopping in Korea.

I was in Seoul two or three weeks ago.  I am going back this coming week.  The price of beef in Korea, while already high before the U.S. product was banned, is double what it was back then.

In 2003, a pound of ground chuck beef cost $16 in Korea.  Could you imagine that?  Today, it is $35 for ground chuck.  That is an expensive cheeseburger to go with your pistachio ice cream, Congressman.

The Koreans will benefit.  It is not going to adversely affect to a significant extent the Korean beef industry.  We coexisted with them as we grew that market over the last 20 years.  They are enjoying what I may characterize as windfall profits near term, but the restoration of the status quo is what the beef industry seeks.

Mr. BRADY.  You bet.  Great point.

Ms. RITTER.  Absolutely.  Korea is an extremely important market for the American pharmaceutical industry.  I think a good strong agreement here very much could potentially do a lot to strengthen that market, not only for the U.S. industry but also for Koreans themselves.

Mr. BRADY.  You bet.

Mr. STEIR.  The EU, European Union, had a small domestic industry to protect, and when they dropped the tariff to 1.5 percent, which is practically no tariff at all, the market exploded.  The domestic industry thrived and benefitted from that.

Ms. COHEN.  Congressman Brady, for the members of ECAT, the Korean market is extremely important.  We recognize that Korea is the seventh-largest trading partner of the United States, with tremendous additional economic potential.

We want to see the investment provisions in the FTA done right, and we recognize, as has been corroborated many times in many studies, that U.S. exports follow U.S. investment overseas.

If the investment provisions are written in the right way in the U.S.: Korea FTA to be non-discriminatory and, there by, support U.S. investment, you will see much further U.S. investment, and as a result, significant additional exports of U.S. services and products to Korea.

We see a good, solid, trade agreement as my colleagues have just suggested, as a potential win-win, a win for the United States and a win for Korea, for opening markets in Korea.  Thank you.

Mr. BRADY.  Right.  Thank you, sir.  I thank the Chairman.

Chairman LEVIN.  Thank you, Mr. Brady.

This has been an excellent panel, an excellent hearing.  I have a letter from the Governors of the State of Michigan and the State of Ohio, and without objection, I would like to enter them into the record.  So, ordered.

[The information referred to follows:]

Chairman LEVIN.  Thank you very much.  Thank you for your patience.  I hope it has been worth your time.  It has been worth ours.  Thank you very much.

We are now adjourned.

[Whereupon, at 5:44 p.m., the hearing was adjourned.]
[Submissions for the Record follow:]

American Council of Life Insurers, statement

American Iron and Steel Institute, statement

Automotive Trade Policy Council, statement

California Farm Bureau Federation, statement

Center For Policy Analysis on Trade and Health, statement

Korea International Trade Association, statement

Korea Policy Institute, statement

Korean Alliance against Korea-U.S. FTA, Seoul, Korea, statement

Korean Confederation of Trade Unions, Seoul, Korea, statement

National Corn Growers Association, statement

National Pork Producers Council, statement

The Honorable William J. Jefferson, statement

Walter B. McCormick, Jr., statement