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Sherman Responds to U.S.T.R. Document on Kaesong Industrial Zone


Location: Washington, DC

Congressman Brad Sherman (D-CA) today released the following response to the document issued by the United States Trade Representative (USTR) regarding the Kaesong Industrial Zone and how the South Korea-U.S. Free Trade Agreement (Agreement) would treat goods produced at this facility:

"The USTR's document says that this administration believes that it would require a statute to alter the status of the Kaesong Industrial Zone under the Agreement. This is a positive development in the sense that USTR had not previously made such a statement in writing (at least that I am aware of), but it hardly puts the matter to rest.

"First, the USTR document has absolutely no legislative significance. This commitment to seek a statute before goods produced at Kaesong or other similar areas north of the demilitarized zone (DMZ) are treated as though they are in effect South Korean needs to be in the implementing legislation. The language needs to be iron-clad -- any goods produced at Kaesong or anywhere else north of the DMZ are banned from entering the U.S. unless and until a joint resolution is passed by both houses of Congress changing their status. A mere letter or statement does not prohibit this administration, nor the next one, from interpreting the vague language of Annex 22-B to require something less than a statute.

"However, there is a more significant problem. There are actually two disparate issues concerning Kaesong and North Korea with respect to the agreement and this USTR document addresses only one of them. While the USTR attempts to resolve concerns about goods fully produced or assembled in Kaesong, separately, the FTA could provide benefits to goods containing significant Kaesong (or other North Korean) content for which final assembly occurs in South Korea.

"The document does not address this issue of content or "inputs' that are incorporated into goods that, for the purposes of the Agreement, are considered South Korean. Goods with up to 65 percent non-South Korean, non-US content may be considered "South Korean' under the rules of origin in the Agreement (different categories of goods have different permissible levels of foreign content). Nothing in the Agreement says that the foreign content allowable may not be North Korean -- whether from Kaesong or some other place in North Korea.

"That remains a huge flaw in the Agreement. While I brought both problems to the attention of the USTR long ago, they chose for some reason to address only one in their paper. One can only assume at this point that they do not yet have a credible response to the other, perhaps larger, problem of North Korean inputs coming to the U.S. as part of South Korean goods.

"The language of the agreement is clear on its face. Many goods made with significant North Korean content that are assembled in South Korea may enter the United States. If we try to prevent them from entering the United States, we will be in violation of the agreement and will be forced either to relent and allow those goods in, or face retaliation."

"A similar scenario has played itself out with respect to Mexican trucks -- we attempted to enforce our domestic safety laws against language in a free trade agreement and lost. When we continued to enforce our domestic law, the Mexicans were allowed to retaliate, slapping hundreds of millions in tariffs on U.S. exports to Mexico.

"To fix this problem, there will need to be changes to the agreement to make it clear that we have the unambiguous right to bar goods with any North Korean content from entering the United States."

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