Sanchez on US-South Korea FTA: Part 2
The administration made sure to negotiate an agreement that levels the playing field for the US automotive industry.
Opportunities and risks are the focus of this second installment in Bill Armbruster’s interview of Francisco J. Sanchez, Commerce Department under secretary for international trade.
Bill Armbruster: Which sectors have the best growth opportunities for US exporters of goods?
Francisco Sanchez: With the US-Korea agreement, US companies will see new opportunities for all major export industries and reduced costs for raw materials imported by US manufacturers. This means more sales of computers and electronics, chemical products, machinery, transportation equipment, food products, agricultural goods, services, and much more. It also means greater revenue and more jobs for the United States. Best prospects include aerospace products, defense equipment, new and renewable energy products, cosmetics, and medical devices.
Because the administration made sure to address concerns with auto issues and negotiate an agreement that levels the playing field for our automotive companies and workers, one major key beneficiary here is the US automotive industry. Under the agreement, the 2.5% US tariff stays in place until the fifth year. At the same time, Korea has already cut its tariff on US auto imports in half (from 8% to 4%), and will fully eliminate that tariff in the fifth year of the agreement. In addition, the agreement allows the United States to maintain its 25% truck tariff until the eighth year and then phase it out by year 10. Korea immediately eliminated its 10% tariff on US trucks upon enforcement of the agreement.
Historically, Korea’s system of automotive safety standards has effectively operated as a non-tariff barrier to US auto exports. However, the agreement allows manufacturers that sell 25,000 or fewer US-made autos and trucks in Korea to import these vehicles into the market by meeting US federal safety standards rather than certifying to Korean standards.
Armbruster: What are some of the biggest challenges for US exporters?
Sanchez: US companies certainly have to do their homework. Koreans often are tenacious negotiators. US companies should have a clear idea of what they cannot accept in a business deal before starting negotiations.
It is important to remember that Korean business views contracts differently from the norm in the United States. In Korea, contracts are the starting point of a relationship that must be developed across many fronts. Koreans are reluctant to use the court system and will usually prefer to work out differences by discussion and compromise. When situations change, Korean companies will generally expect to re-negotiate contract terms. Because contracts are not readily enforceable, it is wise to limit dependence on Korean revenues until you have built a very close relationship with your customers.
US exporters of any size who are doing business in Korea for the first time frequently misunderstand Korean corporate culture.
Armbruster: What about other, non-tariff barriers facing US exporters in Korea?
Sanchez: In the past, US companies have cited a lack of transparency and weak intellectual property enforcement as barriers to doing trade in Korea. In recent years, the Korean government has taken positive steps to address these issues, amending and passing laws that strengthen protection for intellectual property and committing to transparency obligations under the US-Korea agreement.
Armbruster: To what extent has the FTA reduced those barriers?
Sanchez: The US-Korea agreement contains strong provisions on how Korea will develop regulations impacting US exports, and allows US manufacturers to provide input into Korea’s development of standards, technical regulations, and conformity assessment procedures. Overall, the agreement increases transparency in how policies, regulations, and rules are proposed and enforced. In terms of intellectual property rights, Korea provides strong protection and enforcement for patents, copyrights, and trademarks.
Armbruster: How difficult is it to find local distributors and agents?
Sanchez: Local representation is often essential to the success of American firms in the Korean market, and the most common means for establishing a presence. The degree of difficulty depends on the specific product-market. Because Korea is a highly competitive society, local distributors and agents are sometimes perceived by US exporters as unusually aggressive. The US Commercial Service can assist in locating partners through its Gold Key Service (business matchmaking), International Partner Search, participation in local trade shows and events, and other services.
Armbruster: To what extent is language a difficulty?
Sanchez: While many Koreans speak English, the ability to communicate in Korean is key for most companies that are successful in this market. A bilingual agent or Korean-speaking employee can be indispensable.
Read Part 3: US Commercial Service resources for US exporters
Francisco J. Sanchez is Under Secretary for International Trade at the US Department of Commerce and leads the International Trade Administration.
Bill Armbruster, the anchor for the Datamyne Blog has covered shipping and trade for 30 years as a reporter and editor with The Journal of Commerce and Shipping Digest.
The opinions expressed in this article are those of its author and do not purport to reflect the opinions or views or Descartes Datamyne. In addition, this article is for general information purposes only and it’s not intended to provide legal advice or opinions of any kind and my not be used for professional or commercial purposes. No one should act, or refrain from acting, based solely on this article without first seeking appropriate legal or other professional advice.
Date posted: April 25, 2013