Canada-U.S. Blog Trade Lawyers Cyndee Todgham Cherniak and Susan K. Ross

KORUS – Who Gets the Benefits?

Posted in Aerospace & Defence, Border Security, Corporate Counsel, Cross-border trade, Customs Law, Legal Developments, tariffs, Trade Agreeements, Trade Remedies

Published by the Journal of Commerce in September 2018.

While we are all understandably caught up in the trade war with China and wait to see whether additional tariffs will be imposed on more Chinese-made goods, the Korea – U.S. Free Trade Agreement revisions have been made public by the U.S. Trade Representative. Those changes include: extending the duty reduction on truck which now go to zero duty in 2041; Korea doubles to 50,000 the U.S.-made vehicles permitted per manufacturer per year; vehicle testing requirements are to be harmonized – U.S. testing accepted in Korea;  eco-credits or the CAFÉ standards are to be expanded by Korea; pharmaceutical reimbursements will become compliant regarding Korea’s Premium Pricing Policy for Global Innovative Drugs; and “long-standing” concerns about how Korea conducts origin verification audits will be addressed.

As a result, Korea became subject to product-specific quota levels regarding the 232/steel and aluminum tariffs.

Certainly, the auto industry is happy the market access door was opened a bit wider, but what more is there?  U.S. domestic industry which relies on antidumping and countervailing duty will be pleased by some attempts at greater transparency consisting of advance notice of in-person verifications; prior to initiation, the respondent is to be provided with a list of the topics to be addressed, including the types of supporting documentation required; any written report must describe the methods and procedures relied up and the results, and be made public; and the investigating authority must disclose to each party receiving an individual rate, an easily understood explanation about the calculations so the party may “easily” validate those calculations, including source references, and allow time for a response.

Undoubtedly the broadest benefit comes from attempts at greater transparency and certainty regarding verification audits.  KORUS Article 22.2.3 calls for the creation of a Joint Committee to oversee implementation of the agreement. That Joint Committee is now to establish a Rules of Origin Verification Working Group under the Committee on Trade in Goods to:

  1. Seek to resolve concerns arising from verification of origin claims;
  2. Develop further guidelines to address systemic concerns with verification practices and prevent such concerns from arising in the future;
  3. Monitor verifications taking “excessive” lengths of time or that do not seem to be reaching conclusion; and
  4. Present findings, reports and recommendations to the Committee on Trade in Goods as appropriate.

The attachment lists the relevant principles to follow:

  • Knowledge-based self-certification which allows the certificate of origin to be completed by the exporter or producer regardless of location or address; and permits minor errors or discrepancies (undefined) in the certification, questionnaire or other documents to be corrected without penalty and upon at least 5 working days’ notice;
  • Verifications are to be conducted through information requests to the importer, exporter or producer (not others);
  • Reaffirm that verifications will only be conducted where there is doubt as to the goods originating status and based on risk management principles that facilitate the movement of low risk goods;
  • Provide written advance rulings, in lieu of verbal advice;
  • Increase efforts to ensure that verification information requests clearly identify the specific goods being verified, are limited in scope to that necessary to determine the origin of the goods under review, and includes providing clear guidance to importers, exporters and producers regarding specific information required to prove origin; and
  • Endeavor to conclude verifications expeditiously, typically no later than 90 days after receiving the necessary information, and no later than 12 months from initiation, allowing for extensions in exceptional cases.

Article 15 of KORUS deals with electronic commerce. There were no changes to those provisions, even in the face of the festering di minimis issue perplexing U.S. authorities, and surely since the KORUS is more than 10 years old, those provisions could have used an update.  Given the rules of origin in KORUS are similar to those in other agreements, do international traders really think changes aren’t needed there, either? The closest we get to a change in those rules is an agreement by the U.S. to expeditiously process a request from Korea to treat certain products on the basis of a lack of commercial availability. In particular, that request is directed at yarn classified under 5108, 5403.39, 5504.10 and 5507.00, HTSUS. Perhaps most striking is the glaring omission of anything to do with trade in services, one of the fastest growing sectors of the U.S. economy.

When taken as a whole, there is not much there to talk about. The only other noteworthy provision is one whereby Korea agrees in 2018 to revise its Premium Pricing Policy for Global Innovative Drugs, meaning it will quit giving such obvious benefits to local drug companies when it comes to pricing their products versus those from foreign pharmaceutical companies.

While not meaning to undercut the advances the agreement does contain, was the outcome really worth the hoopla?