Bridges Weekly Trade News Digest • Volume 11 • Number 9 • 14th March 2007

Agreement Eludes US And Korea In FTA Talks, Despite Progress


South Korea and the US failed to conclude a free trade agreement during their final scheduled round of negotiations from 8-12 March in Seoul, although officials report substantial progress.

It is still not clear whether the two sides will manage to reach a deal in time for Washington’s 31 March deadline. US agriculture negotiators are staying on in Korea this week in a push to bridge differences on the highly contentious issue.

During this, the eighth round of talks, officials managed to wrap up an accord on competition policy, government procurement, and customs affairs. They also agreed to simplify and expedite customs clearance for each others’ goods. Eight other issues are very close to completion, including electronic commerce, telecommunications, investment, technical barriers to trade, labor and the environment. Both sides also agreed to exclude Korea’s state-run banks from the FTA’s provisions on financial services. However, the principal sticking points remain unresolved: agriculture, automotive trade, and Seoul’s pharmaceutical policies among them.

US negotiators want to complete the deal by the end of March so that the Bush administration can submit it to Congress for a mandatory 90 day review followed by a yes-or-no vote without revisions before its trade promotion authority mandate expires on 1 July. Chief US negotiator Wendy Cutler said that the "…unprecedented progress we have made this week in the eighth and final round gives me increasing confidence that we can do this."

Despite her optimism, she acknowledged that "we still have our work cut out for us," according to a report in the Wall Street Journal.

Seoul still insists that rice, and other selected agricultural products, must be excluded from the deal despite Washington’s insistence that there be no exceptions. South Korea has offered to break the standstill by lowering tariffs on other farm commodities in which the US has an interest. The two sides also need to resolve their spat over beef - Washington accuses Seoul of using spurious pretexts to deny US beef exports entry into its market (see BRIDGES Weekly, 13 December 2006). Cutler called on South Korea to make progress on the beef issue, warning that it could affect Congress’ willingness to accept an accord. Some Korean lawmakers have also threatened to withhold their approval if beef trade is not resolved to their satisfaction.

Washington wants the early elimination of Seoul’s 8 percent tariff on automobiles, yet is seeking to remove its own tariffs on South Korean vehicles only gradually. Korea’s vast surplus in automotive trade with the US - over USD 10 billion in exports, compared to USD 750 million in imports - has been one of the major irritants in the negotiations for Washington, which blames the imbalance on a raft of Korean tariffs and taxes. South Korea did agree to abolish the engine capacity-based tax levied on US cars.

Seoul ceded to US demands to structure the rules of origin for textiles to ensure that garments made in South Korea with cheap yarn from China would not be considered for tariff-free access. On 10 March, two US legislators urged US Trade Representative Susan Schwab to pursue the longest tariff phase-out possible for textile products, raising fears of a flood of Korean imports.

Small, informal, high-level meetings will be held in the next few weeks to try to find compromises on the sensitive issues that remain. These include pharmaceuticals and anti-dumping remedies (see BRIDGES Weekly, 28 February 2007). In addition to the discussions this week in Seoul, high-level agriculture talks are scheduled for 19-21 March in Korea to attempt to reach a compromise on sensitive products.

Cutler and Chief South Korean negotiator Kim Jong-hoon will meet in Washington next week. But Cutler cautioned that "no matter how hard we work… there will be, even after our work in Washington next week, a handful of issues that will probably need to be elevated above the chief negotiators level," implying that ministerial intervention may be necessary.

Korea’s famously militant farmers, along with labour and other civil society groups, continued their protests against the negotiations in Seoul.

South Korea is anxious to expand its export markets, particularly to the US where its most expensive products, like cars and computer chips, are sold. If concluded, this FTA would be the US’ biggest since the 1993 North American Free Trade Agreement (NAFTA).

"S. Korea, US head for high-level FTA talks to overcome remaining obstacles," YONHAP NEWS, 12 March 2007; "Riot police break up protest in Seoul," THE ASSOCIATED PRESS, 10 March 2007; "S. Korean Catholics ask God to stop FTA," THE ASSOCIATED PRESS, 9 March 2007; "US, South Korea near trade deal as deadline looms," REUTERS, 12 March 2007; "US and South Korea make headway on free-trade pact," INTERNATIONAL HERALD TRIBUNE, 12 March 2007; "Top-level talks in card for breakthrough in S. Korea- US FTA talks," YONHAP NEWS, 11 March 2007; "US lukewarm on main demands," THE KOREA TIMES, 11 March 2007; "US, South Korea trade deal in doubt," ALL HEADLINE NEWS, 13 March 2007; "Legislators speak out against US-SK trade deal," THE HANKYOREH, 14 March 2007, "Korea, US trade FTA concessions," THE KOREA TIMES, 13 March 2007; "S.Korea will not give up key farm goods at FTA talks with US: official," YONHAP NEWS, 14 March 2007; "U.S.-South Korea Talks Stumble," WALL STREET JOURNAL, 13 March 2007.