Bridges Weekly Trade News Digest • Volume 11 • Number 2 • 24th January 2007
US FTA Negotiations With Korea, Malaysia Struggling
US negotiators failed to make substantial progress in recent bilateral free trade agreement (FTA) talks with their counterparts from South Korea and Malaysia. This has called into question whether Washington can reach an accord with either country in time for a key deadline at the beginning of April.
"There are still many differences on important issues," said South Korean lead negotiator Kim Jong-hoon on 19 January, at the end of a week-long round of discussions in Seoul. He added that there had been "no progress" on the three most divisive issues - anti-dumping rules, automobiles, and pharmaceuticals.
A round of talks between the US and Malaysia in San Francisco the week before had proved similarly inconclusive. Malaysian Trade Minister Rafidah Aziz said on 17 January that outstanding differences, notably on the liberalisation of services trade and government procurement contracts, were unlikely to be bridged in a few months.
Disagreements over agricultural commodities have been another obstacle. Both Asian nations are seeking to exclude rice from trade liberalisation under eventual agreements, in the face of demands to the contrary from Washington Meanwhile, US officials have insisted that an FTA with Korea would be impossible unless Seoul fully reopens its market to US beef exports.
Washington’s urgency arises from the end-June expiry of the Bush administration’s ‘trade promotion authority’ (TPA). The president must notify Congress of his intent to sign a trade agreement by 2 April, ninety days before this mandate runs out, in order to require lawmakers to vote yes-or-no on the deal without the possibility of amendment.
Without TPA, governments are reluctant to sign trade deals with the US, since Congress would be free to subsequently pick them apart and vote down politically uncomfortable concessions.
Korea: US chief negotiator still confident
While many of the US’ recent FTAs have been with relatively small economies such as Morocco or very open ones like Chile and Singapore, Korea is the world’s tenth largest economy and has several protected sectors, notably agriculture.
Launched in February 2006, the talks have struggled since the outset, and analysts believe that political will to conclude a deal has faded in both Washington and Seoul. A deal with Korea would be Washington’s largest since the North American Free Trade Agreement (NAFTA) over a decade ago.
During the recent round of talks, the negotiating groups on anti-dumping, automobiles, and pharmaceuticals were not even scheduled to meet, due to past disagreements. However, the chief negotiators for each side did discuss these contentious issues.
Seoul wants the US to agree to restrict its use of anti-dumping measures against Korean exports, which have been used to place extra duties on some high-tech manufactured goods from the Asian country. US officials have rejected these demands. Korea, in turn, has rejected Washington’s calls for it to open its market to US exports of automobiles and pharmaceutical products. It also wants the US to relax rules of origin which currently give textiles duty-free market access only if they are made with US-produced yarn. Korean textiles tend to be made from cheaper Chinese yarn.
The week saw an embarrassing turn of events for Seoul, when a leaked government document revealed that it was willing to drop demands on anti-dumping. Instead, the paper said, Korean negotiators should try to parlay this perceived concession into gains in other areas of the talks. According to the Yonhap news agency, Korean government officials expressed regret that the classified report had been leaked to the press, and promised to keep pushing for reform to US trade remedies.
Agriculture continues to bog down the talks. Washington argues that Korea is using unfair pretexts to keep out US beef imports, even after dropping a three-year import ban it imposed after mad cow disease was found in the US (see BRIDGES Weekly, 13 December 2006). Although the trade spat is not formally part of the negotiations, US officials maintain that resolving it is a prerequisite for an eventual accord. The Korean government reiterated during the recent round of talks that it wanted to exclude rice from the scope of a future FTA.
The two sides did manage to agree to eliminate duties within ten years on some industrial goods that had not yet been slated for tariff cuts.
In spite of the lack of breakthroughs - and the downbeat assessment of the talks from by her Korean counterpart — lead US negotiator Wendy Cutler sounded a more optimistic note, insisting that "this deal can be done."
Malaysia believes TPA deadline impossible
The US’ negotiations with Malaysia have also been languishing. Principal stumbling blocks remain services sector liberalisation and the Malaysian government’s affirmative action policy for public procurement.
The latter policy gives special privileges for contracts, jobs, and housing to majority ‘bumiputra’ ethnic Malays, as a way to help them compete with the wealthier Chinese minority. Though often credited with promoting social peace in the country, the strategy has complicated FTA negotiations. This is because in addition to shutting out domestic non-bumiputra companies from competing for government contracts, it also excludes US and other foreign businesses.
Trade minister Aziz said last week that differences remained substantial, suggesting that hurrying simply in order to meet the Bush administration’s TPA expiry date might not be in Malaysia’s interests. "If they want to finish by July, I do no see it happening because there are so many issues to cover," she said, according to the Associated Press. "I am not optimistic. Malaysia has no deadline constraints. We can take another year if need be. Let’s do it very carefully." She insisted that the government had "stood firm" on the government procurement restrictions during recent discussions.
Washington insists that Malaysia can provide some commercial opportunities in the sector to US companies without completely gutting its decades-old preferential policies. "I think there are ways to find resolution to these issues that don’t undermine the policies that have been in place for a long time and allow the Malaysian government to open the market," US lead negotiator Barbara Weisel told Reuters. Weisel, the Assistant US Trade Representative for the Asia-Pacific, offered a more upbeat view on the talks: she said that the two sides were "within striking distance of concluding within the next few months."
Services and investment liberalisation are also proving contentious, due to a fundamental difference in approach: while Malaysia wants a ‘positive list’ that would identify the specific sectors to be fully opened to foreign competition, the US wants a ‘negative list’ of sectors where limitations can be maintained, with the rest liberalised.
Trade minister Aziz continued to insist that rice and tobacco would not be part of an agreement, according to Bernama, the state news agency.
Negotiations to cut tariffs on industrial goods are proceeding more smoothly, with the exception of Malaysia’s heavily protected auto sector.
Korea and the US seventh round of negotiations will be held in Washington from 11-14 February, with officials likely to focus on the most contentious issues. The next round of talks between Washington and Kuala Lumpur will also be next month, in Malaysia.
ICTSD reporting; "Free-Trade Pact Stuck on Beef," ASSOCIATED PRESS, 22 January 2007; "S. Korea retracts key demand on anti-dumping rules: leaked gov’t report," YONHAP, 18 JANUARY 2007; "US-South Korea Trade Talks Head for Seventh Round," BLOOMBERG, 19 January 2007; "S. Korea won’t include rice in FTA with US: minister, YONHAP, 12 January 2007; "US negotiator upbeat on FTA," KOREA HERALD, 20 January 2007; "Prospects for Seoul-Washington FTA look shaky," HANKYOREH, 12 January 2007; "Key Issues Remain in U.S.-S.Korea Talks," ASSOCIATED PRESS, 19 January 2007; "Don’t raise non-existent issues on US-Malaysia FTA," BERNAMA, 17 January 2007; "Malaysia says FTA deal with US cannot be completed before July deadline," ASSOCIATED PRESS, 17 January 2007; "US-Malaysia trade deal possible by March," REUTERS, 12 January 2007.