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An inter-Korean economic project and auto trade imbalances overshadowed a hearing Wednesday on a proposed South Korea-U.S. free trade agreement (FTA) that has to be signed by the presidents within this month.

Members of the House subcommittee on terrorism, nonproliferation and trade lodged harsh complaints at the draft FTA they argued opens the U.S. market to North Korean-made products but fails to widen access to the South Korean market.

"My focus here today in these hearings is not only that this agreement will have a devastating effect on America's working families," subcommittee chairman Brad Sherman said in his opening statement, "but that it will transfer to the executive branch the power to decide whether goods manufactured in North Korea... enter the United States" under FTA provisions.

Ranking member Ed Royce bluntly said this was out of the question.

"I don't think anyone seriously thinks the United States would accepts goods coming in from North Korea," he said.

Seoul and Washington negotiated a tentative FTA to remove various trade barriers, including tariffs and regulatory restrictions. It is the first U.S. FTA with an Asian nation and the largest since the North American Free Trade Agreement of 1994.

The presidents of the two countries must sign the deal by the end of this month, after which the final text is subject to ratification by the respective legislatures.

Going in, Seoul sought to include goods made at Kaesong industrial complex in the FTA. Kaesong houses South-North joint production plants operated with capital from the South and cheap labor from the North. Seoul launched the project to help induce reform and openness in a country known for secrecy and oppression.

But Washington balked at the idea of importing goods made in North Korea, a regime suspected of building weapons of mass destruction.

The proposed FTA works around the issue by establishing a panel to consider "outward processing zones" (OPZs) on the Korean Peninsula sometime in the future.

Sherman went into details, arguing that South Korea could technically claim Kaesong as under its sovereignty by citing its Constitution that considers the entire Korean Peninsula its territory.

He also argued that the FTA draft gives a "convenient red herring," allowing the administration to simply name Kaesong an OPZ without seeking congressional approval.

Karan Bhatia, deputy U.S. Trade Representative, strongly denied Sherman's claims.

"The issue is very simple. There is no coverage of North Korean goods in this agreement," he told the subcommittee.

"Believe me, Mr. Chairman, we are as sensitive to this issue as anybody."

Christopher Hill, assistant secretary of state, tried to allay the criticism, calling the Kaesong project "essentially a pilot program."

But he did agree that it needs overall monitoring on how the involved money is being accrued in the North.

"Certainly, we have to monitor how the expansion of it (Kaesong complex) could contribute to North Korea's military strength," Hill said.

Rep. Donald Manzullo, a Republican from Illinois, called the FTA, as it is now, a "fatal problem," naming the auto sector as an example.

Chrysler, which has a manufacturing facility in Illinois, exported 222 of its vehicles to New Zealand last year, Manzullo said. In South Korea, the American automaker sold 102, he said.

"This is astounding, when taking into account that Korea's auto market is 10 times the size of New Zealand's," said Manzullo.

Rep. David Scott, a Georgia Democrat, said the proposed FTA "is a long way from being acceptable." His state hosts a factory for Kia, one of South Korea's major automakers.

Georgia "bent over backwards" and offered millions of dollars in tax breaks for Kia to locate there to replace American competitors that were closing shop, he said.

"If the U.S.-Korea free trade agreement is ratified as written, this scenario will be repeated over and over again in communities all across this country," he said.

Bhatia disputed the claim, projecting an eventual decline in South Korea auto exports to the U.S.

"In reality, over the course of the next year or two, you will see a substantial, probably, diminution in the balance of their sales here that come from imports," he said.

Bhatia argued for congressional support, saying a failure to conclude an FTA with emerging Asian economies could have "unfortunate consequences" for the U.S.

"It would likely result in a shift of the region's attention away from strengthening their relationships with the United States to doing deals with other major trading partners," he said.

"A successful FTA with South Korea could provide an important boost to U.S. efforts to remain an active economic presence in a strategically vital region" that last year accounted for over 37 percent of global production, he said.

Hill emphasized the geopolitical implications.

"While the agreement achieves many of our economic goals, it is important to note that the impact of this FTA will go far beyond bilateral commercial benefits," he told the House subcommittee.WASHINGTON, June 13 (Yonhap News)