Hatch Questions Korea, Colombia on Implementation of Trade Agreements in Advance of Finance Committee Hearing

WASHINGTON – Senate Finance Committee Chairman Orrin Hatch (R-Utah) today sent letters to the ambassadors of Korea and Colombia raising concerns regarding those countries’ implementation of and compliance with the U.S.-Korea Free Trade Agreement (KORUS) and the U.S.-Colombia Trade Promotion Agreement (U.S.-Colombia TPA), respectively. The letters were sent a day before the Senate Finance Committee will convene a hearing on free trade agreement implementation.

In letters to both ambassadors regarding their countries’ respective agreements, Hatch wrote, “implementation of and compliance with the agreement has fallen short in several areas, resulting in limited benefits to U.S. firms seeking to benefit from the agreement and to expand their economic partnerships” with each nation.

Hatch noted transparency concerns with the Korean Ministry of Health and Welfare’s practice of developing pricing and reimbursement policies for pharmaceuticals and medical devices. Hatch went on to outline concerns with implementation of regulations pertaining to data transfers by financial firms, software privacy issues, pending legislation to comply with legal services liberalization obligations, and the lack of transparency in the Korea Fair Trade Commission’s (KFTC) handling of antitrust investigations.

On Colombia, Hatch outlined concerns with the country’s changes in freight truck policy that distort U.S. markets, discriminatory consumption taxes on imported distilled spirits, the regulatory treatment of pharmaceutical products, and the implementation of intellectual property rights (IPR) provisions regarding digital and copyright piracy.

Writing to both ambassadors, Hatch noted that the implementation practices of each nation will be considered for purposes of participation in future trade agreements, saying, “I understand that your government has expressed interest in joining the Trans-Pacific Partnership agreement, should it be approved by the U.S. Congress. The Bipartisan Congressional Trade Priorities and Accountability Act of 2015 makes clear that adherence to existing international trade and investment agreements is a key criterion to be considered by the U.S. government in determining whether to enter into additional trade negotiations with a particular country.”

The text of each letter is below. A signed copy of the letter to the ambassador of Korea can be found here. A signed copy of the letter to the ambassador of Colombia can be found here.

March 2, 2016

The Honorable Ahn Ho-Young
Ambassador
Embassy of the Republic of Korea
2450 Massachusetts Ave., NW
Washington, DC 20008

Dear Ambassador Ahn:

I am writing to express my continuing concerns regarding full and faithful implementation of and compliance with the U.S.-Korea Free Trade Agreement (KORUS). As you know, I am a strong supporter of the economic relationship between the United States and Korea and worked hard to ensure that the U.S. Congress approved KORUS. I believe that the agreement overall has been a success. However, implementation of and compliance with the agreement has fallen short in several areas, resulting in limited benefits to U.S. firms seeking to benefit from the agreement and to expand their economic partnerships with Korean firms.

For example, Korea’s Ministry of Health and Welfare continues to make pricing and reimbursement policies regarding pharmaceuticals and medical devices with little transparency and opportunity for stakeholder input. Its decisions on pricing and reimbursement for pharmaceuticals and medical devices often do not appropriately value innovative medicines and are not made in a fair, nondiscriminatory, and transparent manner. Critically, Korea still is not living up to its KORUS obligation to make available an independent review mechanism for stakeholders directly affected by pricing and reimbursement decisions.

Additionally, U.S. firms continue to be concerned about Korea’s implementation of regulations pertaining to the transfer of data by financial firms for processing and other functions by affiliates outside of Korea. And while Korea has made progress with respect to software piracy, there is still work to do for Korea to live up to its obligation to ensure Korea’s government agencies use only licensed software.

I also am concerned about legislation that your government recently submitted to implement Annex II of the KORUS, which establishes a process for liberalizing legal services in Korea. I am concerned that several amendments to the Foreign Legal Consultants Act would restrict significantly the types of Korean law firms that would be eligible to partner with U.S. law firms in joint ventures, prohibit joint ventures from practicing before certain courts and areas of law, and maintain an equity cap on joint ventures.

Another significant area of concern is a lack of transparency and procedural fairness in Korea Fair Trade Commission (KFTC) antitrust investigations. KORUS includes provisions addressing competition related matters. Chapter 16 sets forth significant antitrust-related obligations for the parties, including specific due process provisions and procedural safeguards, guaranteeing parties the right to cross-examine witnesses and review all documents on which charges may be based. I am concerned that in the short time KORUS has been in effect, the KFTC has on repeated occasions failed to provide these basic procedural protections to American businesses. There also have been troubling accounts of witness intimidation, withholding of evidence, failure to provide access to key witnesses, and an absence of transparency and predictability in the investigative process.

Moreover, 16.1(2) of KORUS, provides that “[t]he enforcement policy of each Party’s [competition] authorities responsible for the enforcement of such laws is to treat persons who are not persons of the Party no less favorably than persons of the Party in like circumstances, and each Party’s authorities intend to maintain this policy.” KFTC’s caseload, which includes at least 40 antitrust investigations against U.S. companies in the last four years, appears to show a concerted effort to prioritize antitrust investigations against U.S. companies.

I understand that your government has expressed interest in joining the Trans-Pacific Partnership agreement, should it be approved by the U.S. Congress. The Bipartisan Congressional Trade Priorities and Accountability Act of 2015 makes clear that adherence to existing international trade and investment agreements is a key criterion to be considered by the U.S. government in determining whether to enter into additional trade negotiations with a particular country. As a strong supporter of the U.S.-Korea economic relationship, I hope that existing implementation and compliance issues will be resolved so that our countries can strengthen and expand our economic relationships without any impediments.

March 2, 2016

The Honorable Juan Carlos Pinzón
Ambassador
Embassy of Colombia
1724 Massachusetts Ave., NW
Washington, DC 20036

Dear Ambassador Pinzón:

I am writing to express my continuing concerns regarding full and faithful implementation of and compliance with the U.S.-Colombia Trade Promotion Agreement (U.S.-Colombia TPA). As you know, I am a strong supporter of the economic relationship between the United States and Colombia and worked hard to ensure that the U.S. Congress approved the U.S.-Colombia TPA. I believe that the agreement overall has been a success. However, implementation of and compliance with the agreement has fallen short in several areas, resulting in limited benefits to U.S. firms seeking to benefit from the agreement and to expand their economic partnerships with Colombian firms.

For example, I am concerned by Colombia’s policy toward the registration of new freight trucks over 10.5 metric tons. Prior to March 2013, the registration of a new freight truck in Colombia required either the scrappage of an older freight truck of equivalent capacity or the payment of a “scrappage fee.” Colombia has since eliminated the scrappage fee option, and, as a result, a would-be purchaser of a new freight truck first must own and scrap an older freight truck. This requirement distorts the U.S.-Colombian market for freight trucks and related products and services, constitutes a nontariff barrier to trade, and is of major concern to U.S. freight truck manufacturers. Furthermore, Colombia has pursued its truck scrappage policy without transparent public consultation, adequate opportunity for stakeholder input, or transition periods for the imposition of new measures.

Colombia’s assessment of consumption taxes on distilled spirits also concerns me. Colombia deliberately imposes lower tax rates on domestically produced spirits, thereby discriminating against imported spirits, through a system of arbitrary taxation breakpoints based on alcohol content. Article 2.2 and Annex 2.2 Section A of the U.S.-Colombia TPA require Colombia to eliminate these breakpoints within four years of entry into force of the agreement (i.e., by May 15, 2016). I hope that Colombia will adhere to this commitment. A related concern is the imposition, by at least one Colombian department, of higher taxes on private producers of distilled producers than on department-owned producers. I understand that consultations are occurring on these issues, and I hope that these discriminatory policies will be eliminated as soon as possible.

I also am concerned with the regulatory treatment of pharmaceutical products in Colombia. First, several stakeholders have expressed concerns that the Colombian regulatory system does not provide an adequate opportunity to participate in the rulemaking process or to provide meaningful input regarding the Colombian government’s adoption of scientific standards. For example, rulemaking comment periods often close very shortly after opening. Such a process is neither fair nor transparent. Second, Colombia has denied marketing authorizations for innovative U.S. products that have been approved by several countries that maintain stringent regulatory standards. Third, serious questions exist regarding the compliance of Colombia’s 2015 National Development Plan, as it relates to pharmaceutical issues, with the U.S.-Colombia TPA, the Agreement on Trade-Related Aspects of Intellectual Property Rights, and the Technical Barriers to Trade Agreement. At a minimum, these regulatory concerns are not within the spirit of the cooperative commitments that our countries agreed to in the U.S.-Colombia TPA.

A final example of major concern is Colombia’s protection of intellectual property rights (IPR). Following significant interruptions in 2013, Colombia made progress in 2014 and 2015 toward implementation of several IPR provisions contained in the U.S.-Colombia TPA. However, certain IPR commitments have not been implemented fully, especially commitments regarding digital and online copyright piracy.

I understand that your government has expressed interest in joining the Trans-Pacific Partnership agreement, should it be approved by the U.S. Congress. The Bipartisan Congressional Trade Priorities and Accountability Act of 2015 makes clear that adherence to existing international trade and investment agreements is a key criterion to be considered by the U.S. government in determining whether to enter into additional trade negotiations with a particular country. As a strong supporter of the U.S.-Colombia economic relationship, I hope that existing implementation and compliance issues will be resolved so that our countries can strengthen and expand our economic relationships without any impediments.

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