US-South Korea trade deal must be held to its lofty standards

The best free trade agreements (FTAs) contain comprehensive, world-class rules and a robust enforcement mechanism that is used judiciously when necessary. The United States has negotiated numerous FTAs to secure groundbreaking provisions promoting U.S. competitiveness globally. 

While no FTA is perfect and many can inevitably benefit from a refresh, I am a strong supporter of their economic benefits. The U.S.-Korea FTA (KORUS) is no exception.  

{mosads}KORUS set what at the time was the gold standard for 21st-century protections across a range of issues, including for intellectual property (IP) and competition.

In fact, based on long-standing concerns that U.S. companies were being treated unfairly by Korea’s competition regulators, KORUS was the first U.S. trade agreement to require that U.S. companies be afforded due process in competition proceedings.

More broadly, it ushered in even stronger economic and security ties between our two countries that serve us well as we face the common challenge presented by North Korea. 

But what happens when we negotiate a trade agreement like KORUS and our trading partner appears to be acting in ways that are inconsistent with the agreement or may be acting against U.S. companies in ways that the agreement did not contemplate?   

In its annual trade barriers report, the Office of the U.S. Trade Representative (USTR) regularly details Korea’s failure to provide due process to U.S. companies that are inconsistent with its KORUS obligations.

I have seen this challenge first-hand: Korea reportedly has imposed far-reaching remedies on Qualcomm, an American company my firm represents, that dictate how it will do business worldwide.

These remedies go well-beyond addressing harm to Korean consumers after what appeared to be a procedurally-deficient competition proceeding that may well have been inconsistent with KORUS. The case raises serious concerns that Korea is tilting the playing field to deprive U.S. businesses of the fair value of their intellectual property.

The United States has recently signaled its intent to place limits on the imposition of such far-reaching remedies by our trading partners.

As part of the current renegotiation of the North American Free Trade Agreement (NAFTA), the USTR already has announced the completion of a modern competition chapter that “goes beyond anything the United States has done in previous free trade agreements,” providing for increased fairness in competition enforcement. 

Such new obligations are also foreshadowed by USTR’s recently-revised NAFTA negotiating objectives, which indicate that for the first time in a trade agreement, the U.S. government will seek provisions aimed at limiting overbroad extraterritorial remedies that lack an appropriate nexus to the imposing party’s territory.

Given the various allegations that Korea is unfairly treating U.S. companies, devaluing their intellectual property and intruding upon U.S. sovereignty to regulate IP and competition within U.S. borders, how should the United States proceed?

KORUS and similar FTAs include needed dispute settlement provisions for consultation and enforcement to manage the inevitable disagreements that arise when billions of dollars of goods and services cross borders annually. 

Monitoring and enforcement via dispute settlement or other U.S. trade policy tools are necessary to ensure that these agreements deliver on promised benefits.  

KORUS does include a bilateral consultation mechanism to address compliance concerns specifically related to a number of the competition obligations. These obligations, however, are not subject to full dispute settlement. 

So, American companies are unable to use impartial panels of experts to determine whether or not Korea is in compliance with its obligations and potentially authorize compensation or retaliation. 

The ideal solution therefore would be for U.S. and Korean authorities immediately to enter into meaningful consultations so that each side understands the other’s position and can find an agreed solution addressing legitimate U.S. concerns. 

USTR stated its commitment to ensuring “full implementation” of Korea’s competition-related obligations in its trade barriers report earlier this year. But meaningful consultations to resolve these concerns have yet to take place.

Consultations could continue to be delayed or may not produce a mutually satisfactory outcome. In that instance, without adequate recourse to KORUS’ full dispute settlement machinery, the United States needs to delve deeper into its trade policy toolkit. 

One possibility is to explore using Section 301 of the Trade Act of 1974 to investigate whether or not Korea is abiding by its KORUS obligations as well as other issues related to the possibly unreasonable treatment of U.S. companies. 

Such action would be consistent with the recent recommendations of an antitrust and trade experts group convened by the U.S. Chamber of Commerce.  

The Section 301 remedy should be tailored to address the underlying competition concerns of American business.  Quite simply: U.S. companies should receive the protections and treatment they are entitled to under FTAs like KORUS. 

Ambassador Carla Hills is chair and CEO of Hills & Company, which advises companies on global trade and investment issues. Hills served as U.S. trade representative in the George H.W. Bush administration.