Preface
This report provides advice from the U.S. International Trade Commission (Commission or USITC) to the President on the probable economic effect of proposed modifications to the duty treatment of certain motor vehicles under the United States-Korea Free Trade Agreement (KORUS).1 The advice was requested by the U.S. Trade Representative (USTR) in a letter received by the Commission on April 6, 2018.2 The USTR noted in the request letter that U.S. negotiators have recently reached agreement in principle with representatives of the government of Korea on modifications to KORUS regarding the staging of duty treatment for certain motor vehicles. He also noted that section 201(b) of the United States– Korea Free Trade Agreement Implementation Act (the Act) authorizes the President, subject to consultation and layover requirements of section 104 of the Act, to proclaim such tariff modifications as the President determines to be necessary or appropriate to maintain the general level of reciprocal and mutually advantageous concessions with respect to Korea provided by KORUS. One of the requirements set out in section 104 is that the President obtain advice from the Commission.
Executive Summary
In a letter dated April 6, 2018, U.S. Trade Representative (USTR) Robert Lighthizer requested, pursuant to section 104 of the United States – Korea Free Trade Agreement Implementation Act (the Act), that the U.S. International Trade Commission (Commission or USITC) provide advice on the probable economic effect of modifications to the staging of duty treatment (“proposed modifications”) on imports of certain motor vehicles under the U.S.-Korea Free Trade Agreement (KORUS) and on domestic producers of the affected motor vehicles.3 The proposed modifications were part of a larger agreement in principle that included other amendments and modifications to the KORUS, reached on March 27, 2018, by Ambassador Lighthizer and Korea’s Minister for Trade, Hyun Chong Kim.
In his letter, the USTR notes that: (1) section 201(b) of the Act authorizes the President, subject to the consultation and layover requirements of section 104 of the Act, to proclaim such tariff modifications as the President determines to be necessary or appropriate to maintain the general level of reciprocal and mutually advantageous concessions with respect to Korea provided by KORUS, (2) one of the requirements set out in section 104 is that the President obtain advice regarding the proposed action from the Commission, and (3) U.S. negotiators have recently reached an agreement in principle with representatives of the government of Korea on modifications to KORUS regarding the staging of duty treatment for certain motor vehicles.
This report is in response to the above-mentioned request of the USTR. In the report, the Commission examines the U.S. light and medium/heavy truck markets as well as the affected producers in the United States and Korea. The Commission’s probable economic effect analysis estimates the changes to U.S. trade under KORUS and to U.S.-based producers of the affected articles that would result from the proposed modifications, under various scenarios. The report addresses the changes resulting from not phasing out the tariffs on certain motor vehicles in 2021 as originally provided for under KORUS.
Table ES.1 describes the affected motor vehicles and identifies the six subheadings of the Harmonized Tariff Schedule of the United States (HTS) under which they enter the United States. Vehicles for the transport of goods with a gross vehicle weight (GVW) less than or equal to 5 metric tons (mt) are characterized as light trucks—essentially pickup trucks and work vans. Vehicles for the transport of goods with a GVW greater than 5 mt are characterized as medium/heavy trucks. Under the proposed modifications, the elimination of duties on the affected motor vehicles, which is currently scheduled to begin in phases on January 1, 2019, and to be completed by January 1, 2021, would be deferred until 2041. Under the modified text, the duties would remain at base rates (25 percent ad valorem) during years 1 through 29 (2012 through 2040) and such goods would become free of duty in year 30, effective January 1, 2041 (table ES.2).
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