July 19, 2006

The President of the United States

The White House

Washington, D.C. 20500

Dear Mr. President,

The President’s Export Council strongly supports the Administration’s decision to begin Free Trade Agreement (FTA) negotiations with the Republic of Korea. Outside the WTO Doha Development Agenda, the FTA with Korea is the most important negotiation currently underway in terms of potential market opening for U.S. exports. An FTA that results in meaningful and comprehensive improvements in market access for U.S. goods and services with Korea is also imperative for America’s continued economic leadership in the Asia-Pacific region. The PEC encourages the Administration to devote the necessary resources to achieve such an FTA with the Republic of Korea.

The economic rationale for a U.S.-Korea FTA has been well-established. Korea is the world’s tenth-largest economy, making it a major market for U.S. goods and services. The Korean economy has shown strong growth of 4.9 percent over the past decade, and it has enjoyed a per capita income of $20,300 in 2005. Korea is the United States’ seventh-largest trading partner, seventh-largest export market, and sixth-largest market for agricultural goods. Bilateral trade reached approximately $72 billion in 2005. In Asia, Korea is the United States’ third-largest trading partner in terms of goods and second-largest in services behind Japan. Thus, the proposed FTA would be the most commercially significant trade pact sought by the United States government since NAFTA.

Despite these already deep trade ties, Korea’s market access barriers remain substantial. Duties remain high on agricultural and fishery products, with WTO-bound tariffs on all agricultural products having a simple average of 52 percent. Industrial tariffs in areas such as information technology products also stifle trade, and their elimination would benefit both countries. Korea’s applied tariffs are three times greater than those of the United States. Non-tariff barriers to agriculture, industrial goods and services also restrict U.S. access to the Korean market, as do provisions in Korean patent law that provide preferential treatment to Korean inventors over non-Korean ones.

Removing these barriers would help increase U.S. exports. Further harmonization of the intellectual property rights regime, government procurement process, and openness to foreign direct investment would also serve to enhance the bilateral economic relationship. A U.S.-Korea FTA would be a significant and mutually beneficial step forward in trade liberalization.

Korea is the 12th largest pharmaceutical market in the world valued at $7.9 billion in 2004. Multinational pharmaceutical firms' share has grown about 10 percent to 32 percent since the lifting of the 1999 ban of reimbursing imported medicines by the national health insurance system. However, this increase - - coupled with the rising healthcare costs of an aging population - - has at times, made the research-based pharmaceutical industry a target for arbitrary price cuts. It is our hope that the FTA negotiations can be harnessed to beneficially allow the research-based pharmaceutical industry (foreign and domestic) to continue to grow in an environment that rewards the value of innovation while maximizing healthcare resources.

In addition, we believe it is critical that the U.S. and Korea reach a successful conclusion to negotiations on the resumption of beef trade. We note that 31 U.S. Senators have written the Korean ambassador elevating the significance of this issue in the context of the FTA.

One of the most challenging trade issues is in the automotive sector. Korea remains one of the most closed auto markets in the world. Sales of imported vehicles from all worldwide sources account for only 2.7 percent of the market. This lack of access continues despite Korea having signed two Memoranda of Understanding (MOU) with the U.S. on autos in 1995 and 1998, respectively. These MOUs were meant to open the Korean auto market, and yet many non-tariff barriers continue to prevent meaningful market penetration by U.S. automakers.

A bilateral FTA would also have strategic benefits for the United States. Asian and Pacific Rim countries have the potential to be the largest market for U.S. exports over the next quarter century, but as the region continues to integrate, the United States could become disadvantaged against Chinese and Indian exporters. Korea has already signed FTAs with Singapore, Chile, the European Free Trade Association (Switzerland, Norway, Iceland and Lichtenstein), and the Association of Southeast Asian Nations (ASEAN). Korea is negotiating trade agreements with Canada, Mexico and Japan and recently held the first round of negotiations for the establishment of the Korea-India Comprehensive Economic Partnership Agreement (CEPA). Korea is also considering negotiations with Mercosur and China. A U.S. FTA with Korea will ensure that U.S. exporters and investors will not be overshadowed or left behind by the competition.

The United States has vital interests in Asia, both economically and politically. A U.S.-Korea FTA will strengthen not only the economic ties with the Republic of Korea, but also the critical political relationship between our countries.  For these reasons, the PEC urges the Administration to focus efforts over the next several months on negotiating a U.S.-Korea FTA that results in meaningful and comprehensive improvements in market access for U.S. goods and services.

Sincerely,

J.W. Marriott, Jr.

Chairman