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April 09, 2007

KORUSFTA

I'm going to pull together a set of annotated links to web based materials on the U.S. - So. Korea FTA negotiations over the next few months. 

This post is subject to ongoing correction, revision, reorganization, and elaboration.  Last updated April 9.

This post pulls together a large number of different types of web material.  Several surveys or reports have been particularly useful.  These include:

Background to the negotiations

The Korean Embassy web site summarizes the events leading up to the FTA negotiations briefly (Background):

In November 2004, when trade ministries from Korea and the U.S. held a meeting in Chile, both parties agreed to pursue the possibility of US-Korea FTA negotiations.

Between February and April of 2004, both governments met three times to examine the feasibility of the US-Korea FTA, while the trade ministers of both countries held 6 meetings to further examine the initiation of bilateral FTA negotiations.

At a meeting held on the sidelines of another APEC (Asia-Pacific Economic Cooperation) summit in Chile in November of 2005, President Roh and President Bush confirmed their willingness to push forward with US-Korea FTA talk. Finally, on February 3, 2006, both countries formally announced the launching of official US-Korea FTA negotiation.

The introduction to Inbom Choi and Jeffrey Schott's Free Trade between Korea and the United States (2001) takes the pre-history of the negotiations back further: Introduction .  Choi and Schott note the Korean committment to the multilateral process through the late 1990s, interest in a bilateral agreement between the U.S. and Korea dating to the late 1980s, and the development of Korean interest in bilateral agreements in the late 1990s.

The Congressional Research Service Report, The Proposed South-Korea-U.S. Free Trade Agreement (KORUSFTA) (Mark Manyin and William Cooper, May 24, 2006), adds:

Additionally, the United States and South Korea appear to have become more adept at managing their trade disputes. This may be partly due to the quarterly, working-level “trade action agenda” trade meetings that were initiated in early 2001.  Both sides credit the meetings, which appear to be unique to the U.S.-South Korean trade relationship, with creating a more constructive dialogue that helped pave the way for the two sides to feel sufficiently confident to launch FTA negotiations.

The actual decision to push forward now appears to have been made by the Koreans in September 2005. ([Exclusive] S.K. nixed trade deal with China under U.S. pressure, data reveals, The Hankoryeh, August 11, 2006).

The Hankoryeh article tells this story:  In the early 2000s, the Koreans saw China as a very good candidate for FTA negotiations.  Potential benefits were higher than those for other parties, however there were considerable concerns over the potential impact of Chinese agricultural products.  In August 2005, the Chinese offered interesting concessions on agricultural issues.  Subsequenlty, the Koreans consulted with the U.S., which objected to the proposed negotiations.  On September 12, the Korean "International Economic Committee" met and discussed the FTA issue.  This is a high level committee, chaired by the President or Deputy Prime Minister, that addresses international economic policy issues.  This committee apparently decided to move forward with a Korean-U.S. FTA first, and a Korean-Chinese FTA later.  Presidents Roh and Bush agreed to move forward with FTA negotiations at a summit on November 17, just before last year's November APEC summit.   This is an interesting story based on access to documents from the September 12 meeting.

The Chosun Ilbo has a little more detail on the September 12 decision (Gov’t to Seek FTA With China After Pact With U.S., August 10):

The government decided to promote FTAs with the U.S., China and finally Japan at a meeting of an international economic committee under the National Economic Advisory Council, a presidential committee on economic policies, last September. An official on the committee said the sequence was decided in consideration of economic and political relations with the three countries and the potential effects of free trade pacts with them.

The same story noted that the Chinese had been pursuing an FTA with Korea at that time, and that Korea planned to turn to the Chinese early in 2007, when the negotiations with the U.S. are completed.  The Hankyoreh has reported that China expressed an interest in an FTA with South Korea in 2005, but Korea backed off after the U.S. expressed objections: U.S. blocked S.K.-China trade deal: politician. (August 10) 

Mark Manyin describes the run-up to the negotiations (South Korea-U.S. Economic Relations:Cooperation, Friction, and Prospects for a Free Trade Agreement (FTA) , CRS, February 2006):

Beginning in 2004, the South Korean Foreign Ministry began proposing the idea of a U.S.-ROK FTA. At first, the Bush Administration reportedly was cool to the idea. In late 2004, presentations by South Korean Trade Minister Hyun-chong Kim apparently made an impression on key U.S. policymakers, particularly then-USTR Robert Zoellick, such that in January 2005 the two sides began a six-month bilateral process of the logistics, benefits, and risks of an FTA. At the end of this review, in June 2005, U.S. Trade Representative Robert Portman reportedly told Trade Minister Hyun-chong Kim that it was premature to launch actual negotiations until key outstanding issues were resolved. These included South Korea’s alleged barriers to imports of automobiles and pharmaceuticals, its ban on imports of U.S. beef, and its “screen quotas” that served to restrict the showing of foreign films.” Many U.S. officials said that Korea’s action on these issues was a litmus test for whether Seoul is politically capable of making the compromises the United States will expect in an FTA agreement. By the end of January 2006, South Korea had offered concessions in all four sectors, paving the way for the two sides to announce their intention to launch FTA talks the following month.

As part of President Roh’s goal of transforming South Korea into an economic hub, and in an effort to keep pace with Japan and China — which have initiated several bilateral and regional trading arrangements — Seoul has pursued a number of FTAs and similar arrangements, signing FTAs with Chile (signed in 2003), Singapore (2005), the European Free Trade Association (2005), and a framework economic agreement with ASEAN, the Association of Southeast Asian Nations (2005). Thailand has opted out of ROK-ASEAN agreement, due to South Korea’s continuation of its restrictions on imports of rice. Additionally, South Korea has launched FTA talks with Japan (though these have been stalled since late 2004) and Canada. Joint FTA studies are underway with Mexico, India, and the Mercosur countries (the Mercado Común del Sur consists of Brazil, Argentina, Paraguay, and Uruguay).

Korea announced the modification of the screen-quota on Thursday, January 26.  Implemented in the 1960s to protect the Korean film industry, the rule required movie-theatres to show Korean-made films on 146 days a year, or more.  As actually enforced, the actual requirement was 106 days.  The Koreans announced that starting July 1, 2006, the new requirement would be half the existing official requirement, or 73 days a year.  (Korea to Halve Screen Quota , Kim Sung-jin, The Korea Times, Jan 26).  See more details below.

Korea prohibited U.S. beef imports after Mad Cow disease was reported in the U.S. in 2003.  In January, in another concession to obtain U.S. agreement to FTA negotiations, Korea agreed to relax the ban: "Korea has agreed only to import lean, boneless meat from cattle under 30 months old, which has been declared safe by an international watchdog, but that excludes rib cuts that once sold especially well here."  (U.S. Wants More Concessions on Beef Imports: Offical, Chosun Ilbo, Feb 8).  In the fall of 2006, between the fourth and fifth negotiating sessions, Korean inspectors would reject the first two shipments from the U.S. after finding small amounts of bone chips - see the notes below on the fifth negotiating session in Big Sky, Montana).  In January, a lot was left ambiguous about the Korean concession - the U.S. thought the Koreans were were talking about big bones - rib cuts, but in November, it became apparent that meat with small bone fragments was also excluded: Trade Discord over Beef Import Continues (Dong-A Ilbo, Dec 5)

Wonhyuk Lim wonders why the Roh government chose to begin negotiations now, and why it began negotiations with important concessions.  He's skeptical about the economic and political benefits of an FTA.  I posted on his article here: Why did Roh do it? (July 17)

Getting the negotiations started

Laying the groundwork: U.S.

The proposed negotiations were announced on February 2.  The USTR web site has a copy of the U.S. press release, the remarks of then USTR Rob Portman and the Korean Trade Minister Hyun-chong Kim, and their response to press questions at the announcement of the negotiations, and letters from the USTR to the Speaker of the House, and the President Pro Tem of the Senate .

On February 9, the USTR's office published a notice in the Federal Register announcing its intent to negotiate an FTA with the Koreans, and requesting public comment

...to assist the United States Trade Representative (USTR) in amplifying and clarifying negotiating objectives for the proposed agreement and to provide advice on how specific goods and services and other matters should be treated under the proposed agreement. (71 FR 6820)

The interagency Trade Policy Staff Committee (TPSC) held a public hearing to collect public comment on March 14.  The Korea Economic Institute has posted Final Submitted Written Testimony From Trade Policy Staff Committee Hearings to the web.  Lukas Fendel - Public Hearing on U.S.-Korea FTA (Techi-No-Logics (blog), March 14, 2006) - and Mike Polmedo - Notes from today’s hearing on the proposed US-Korea Free Trade Agreement (Access Issues (blog), March 14, 2006) - report on the oral testimony at the March 14 hearing.  Fendel's summary of the testimony is very detailed.

The Clinton era Executive order 13141 (November 1999) requires an environmental review of trade agreements.   Guidelines for the conduct of environmental reviews were published in the Federal Register in December 2000 (65 FR 79442).   

On March 3, the USTR's office published a notice that, purusant to the Trade Act of 2002, and E.O. 13141, it was beginning the environmental review, and requsting comments (71 FR 10999).

The TPSC also began a review of the job impacts of an FTA.  They requested public comment on the same day.  They requested public comment on March 3 (71 FR 10998).

The negotiations would be carried out under the authority of the President's Trade Promotion Authority (TPA). This created important time constraints.  Manyin and Cooper (The Proposed South Korea-U.S. Free Trade Agreement (KORUSFTA), May 2006) explain:

The timing of the negotiations also presents a challenge. They are set to begin the week of June 5, 2006, just 13 months before the President’s TPA is scheduled to expire on July 1, 2007; that is, an agreement must be signed before July 1, 2007, if it is to receive expedited congressional consideration under that authority. In addition, the TPA requires a 90-day presidential notification to Congress of to sign the agreement; therefore, the KORUSFTA would have to be completed before April 2, 2007, giving the negotiators a 10-month window in which to complete the negotiations. Some U.S. FTA agreements have been completed within a year, others have taken more than a year. While reauthorization of TPA in 2007 is a possibility, it is widely considered remote at this time given the highly charged partisan environment in Congress on trade.

Laying the groundwork: Republic of Korea

Song Chang-seok focuses on the relative unpreparedness of the Korean negotiators, in this story: Seoul reveals a lack of experience in FTA negotiations (The Hankyoreh, August 1, translated by Lee Seong Hyon).

Korean Presidential Decree #121 required a public hearing before the commencement of negotiations.  This was held the day before the official announcement:

The Korean government was also utterly lacking in terms of engaging in productive public debate on whether the nation should move to forge an FTA accord with the U.S., as well as researching exactly what economic effect can be expected from such bilateral trade pact. The public hearing necessary for the launching of the Korea-U.S. FTA negotiations, as stipulated by the Presidential Decree No. 121, was held only one day before the government's official announcement of the negotiations. Civic groups criticized it, claiming that the hearing was perfunctory and was not held to genuinely hear people's opinions on the matter, but rather to have "evidence" that the government indeed held a public hearing as required by law. (Song, Chang-seok, Seoul reveals a lack of experience in FTA negotiations, The Hankyoreh, August 1, translated by Lee Seong Hyon)

The Korean Ministry of Foreign Affairs and Trade (MOFAT) provided some background on Korean preparations :

The government has been preparing our basic position and concrete countermeasures for the first official round of negotiations by analysing draft agreements which have been exchanged with the U.S. side between May 20 to 27, and finalized the direction and guideline for the first official round of negotiations through the meeting of all relevant ministries on May 29, the FTA organizing committee meeting on May 30, and the economic ministers' meeting on June 1, the outcomes of which were reported to the National Assembly on June 2.

In addition, we collected some 192 opinions from the private sector between March 9 to May 5, and held the total of 14 rounds of the advisory meeting with a group of private experts for the Korea-U.S. FTA, which was launched on April 27, to collect expert opinions in each field. (The First Official Round of Korea-U.S. FTA Negotiations to be Held , June 6)

What's the potential gain? 

Computable General Equilibrium (CGE) modeling

Cooper and Manyin report the results of several studies in their overview paper on the negotiations: The Proposed South Korea-U.S. Free Trade Agreement (KORUSFTA)  (Congressional Research Service, May 2006, pages C-22 to C-24).  Here's a list of CGE studies from Cooper and Manyin, and elsewhere:

For perspective, I'd also suggest reading the July 13, 2006, Economist article on the use of general equilibrium modeling to evaluate the benefits of trade agreements: Economic models. Big Questions and Big Numbers (this article addesses models used to evaluate multilateral agreements).  Jonathan Dingel at Trade Diversion points to another article, that raises caution flags about the use of general equilibrium models to address preferential agreements : CGE (July 14).  Paul, over at Truck and Barter, points to a new Oxfam study (July 2006) critiquing the use of CGE models for modeling trade liberalization: Trade and CGE Models (August 7, 2006).  Paul's post has other useful links as well.

The Koreans hope that new competitive pressures associated with an FTA will contribute to productivity gains.   Hongshik Lee, Kwanho Shin, Jong-Wha Lee, Hyungju Kim of the Korean Institute of Economic Policy think that could happen.  In December 2006, they estimated that some versions of a U.S.-Korea FTA could increase annual Korean productivity growth by 0.06% to 0.12% (althugh they point to uncertainties associated with their estimates): Regional Trade Agreements and Productivity Improvement  (December 2006).   Guilio Guarini, Vasco Molini, and Roberta Rabellotti looked at the determinants of Korean productivity in: Is Korea catching up? An analysis of the labour productivity growth in South Korea (2003).  They note that Korea labor productivity accelerated in the 1980s and 1990s, averaging 10% a year!!?! in the 1990s.  The increase in the growth rate by 0.06% to 0.12% translates into about a 1% increase in the rate of productivity growth.

Trade diversion

Third parties could lose out if the U.S. and Korea reach an agreement.  Countries offering similar products in the South Korean market could lose Korean market share to less efficient U.S. firms, it these get a competitive advantage from lower trade barriers.  Similarly, Korean firms may gain a competitive advantage against firms from other countries in the U.S. market. 

Steve Suranovic explains how trade diversion could hurt third party producers, and reduce the benefits of an FTA, evaluated from a world accounting stance: Trade Diversion and Trade Creation

Choi and Schott looked at the potential for trade diversion losses and losers from a U.S.-Korea FTA: External Implications of a Korea-U.S. FTA (Chapter 5 in Free Trade between Korea and the United States?  Institute for International Economics, April 2001).

They found that Japan and Germany had the "export structure" in Korea that most closely paralleled that of the U.S., and that these two countries stood to lose from trade diversion to the U.S. in the Korean market.  Taiwan, Japan, and Mexico had the most to lose from trade diversion to Korea in the U.S. market.  Choi and Schott also look at the sectors where these third parties would be at greatest risk. 

In a CGE analysis that accompanied the Choi and Schott study, John Gilbert of Washington State University found substantial adverse trade diversion impacts.  For example, in one long-run liberalization scenario, the benefits accruing to Korea and the U.S. totaled $19.8 billion/year in 1995 dollars, but costs to other countries came to $10.8 billion/year.  Japan took the biggest hit.

Choi and Schott point out that these trade diversion impacts create an incentive for Japan and Taiwan to protect themselves by negotiating FTAs with the U.S. and Korea.  More generally, they think potential trade diversion impacts could prompt quite a bit of FTA activity in the East and Southeast Asia.

In a subsequent CGE study, Schott, Bradford and Moll also found large trade diversion losses from a U.S.-Korea FTA, although smaller relative to the gains to the U.S. and Korea.  See Table 10 in Negotiating the Korea–United States Free Trade Agreement (IIE, 2006). 

In this 2006 modeling exercise, the authors report positive net impacts on Japan.   In the text, however, they point to potential trade diversion impacts on Japan, and cite this as a potential incentive for Japan to pursue an FTA with the U.S.  So something seems inconsistent here.   

U.S. defensive and strategic interests

This post discusses U.S. interest in the FTA as a response to the growing influence of China, and a trend toward increasing economic integration within East Asia: More Trade Diversion (April 9, 2007)

Issues

Manufacturing

Pharmaceuticals. 

  • Schott et al. survey pharmaceutical issues: Negotiating the Korea–United States Free Trade Agreement on page 10.
  • The Korean health care system is facing the same cost and financing issues found in other developed countries with aging populations, and its looking for ways to control costs.  The U.S. is concerned that cost-control measures not disadvantage its products.  As noted below, disputes over this issue disrupted the second negotiating session in Seoul in July and led to supplementary meetings in Singapore in August.
  • The effective length of patent protection for pharmaceuticals is an issue.  Patent attorney Kim Seok-hyun explains: Drug patent lifespan an issue in FTA talks (The Korea Herald, August 15). Similar issues came up when the U.S. and Australia negotiated an FTA several years ago. 
  • John Quiggin, a moderately left-of-center economics blogger had a number of posts on this at the time.  Quiggin was not a fan of the FTA, or of its potential impact on Australia's Pharmaceutical Benefits Scheme (PBS): (1) FTA vs PBS as the election issue (August 21, 2004); (2) FTA and PBS - the US view (July 13, 2004); (3) FTA v PBS (February 17, 2004); (4) FTA vs PBS (November 28, 2003); (5) FTA Redux (August 13, 2003)
  • The Consumer Project on Technology (CPTech) website has an ongoing web page dealing with the Korea-U.S. FTA negotiations, and the way the pharmaceutical issue is being handled: US-Korea FTA Negotiations .  CPTech has concerns about the implications of an agreement for drug availability in Korea.

Textiles.

  • "US textile manufacturers have expressed considerable concern about a United States/South Korea FTA in view of Korea’s highly developed textile industry. They would not like to see an agreement at all, but if one is negotiated, they will press for a tight rule of origin. Textile and apparel importers, on the other hand, see a Korea FTA as an opportunity to develop a network between Korea and other countries that have FTAs with the United States, and those linkages could result in greatly expanded trade." (Negotiations On United States/North Korea Trade Pact Break Down, James A. Morrissey, Textile World, Oct. 31 - the headline on this story refers to the 4th round of negotiations and it doesn't sound accurate, but the paragraph rings true.)

Autos.  The U.S. imports about 800,000 Korean cars, the Koreans only import about 4,000 U.S. cars.  The U.S. hopes to use the negotiations to reduce obstacles to her exports. 

  • This article from The Korean Times, the first in a series, discusses one issue: a Korean tax based on engine sizes, which increases the costs of the larger vehicles in which the U.S. specializes: 800,000 to 4,000 _ Where Korea, US Stand (Park Hyong-ki, July 18 - thanks to Richard Baldwin for the pointer to this story).

Agriculture

The U.S. Department of Agriculture's Economic Research Service (ERS) has a nice introduction to So. Korean agriculture, with Basic Information, background on agricultural trade with the U.S., and a history of So. Korean agricultural policy .

John Beghin and Jean-Christophe Bureau discuss The Cost of Food Self-Sufficiency and Agricultural Protection in South Korea (Iowa Ag Review, Winter, 2002).  Beghin and Bureau  in a related paper: Food Security and Agricultural Protection in South Korea (Iowa State University, 2001).

Hanho Kim and Yong-Kee Lee discuss Agricultural Policy Reform and Structural Adjustment: Historical Evidence from Korean Experience  (Policy Reform and Adjustment Workshop, October 2003).

On August 4, the Korean Rural Economic Institute (KREI) released a report estimating the impacts an FTA could have on agricultural prices and revenues: U.S. FTA to cause big drop in agriculture output: report (Yonhap News via Hankyoreh, Aug 4).  Current Korean agricultural production is about 35-36 trillion won.  The value of agricultural output would drop by 1 to 2 trillion won if rice were excluded, and by about 7 trillion won if rice were included.  The Korean administration is insisting it won't accept a deal that includes rice.  The story doesn't discuss overall welfare impacts from a deal, and its not clear whether or not the study does.  The story does discuss Korean perspectives on some of the possible dimensions of an agreement (phase in periods, sensitive product designation, and so on).

John Feffer can't see much wrong with Korean agriculture that isn't due to globalization (and especially to U.S. pressure to open markets): The Legacy of Lee Kyung Hae (Yale Global, August 2005).  Here's another paper by Feffer: Korean Food, Korean Identity: The Impact of Globalization on Korean Agriculture  (Shorenstein Asia-Pacific Research Center report, 2005). The latter is not really related to the FTA issue - but it is an interesting paper - on North-South cultural differences and relations, as reflected in food preferences.

In January 2006, the Koreans agreed to reopen their markets to U.S. beef exports as a concession to get the FTA negotiations moving.  The first beef imports were delivered in late October 2006.  Despite U.S. protests, the Koreans insisted that the beef be free of bone fragments: 1st Batch of US Beef Arrives in Inchon (Kim Yon-se, The Korean Times, October 31)

Key issues:

  • Rice
  • Beef

Services

  • The U.S. Coalition of Service Industries (CSI - an umbrella group of service providers and their industry associations) provided its wish list to the Trade Policy Staff Committee at a hearing on March 14: Written Testimony on the Free Trade Agreement Between the United States and Korea .
  • Stefan James of Managing Director and Country Representative for Bank of America in Korea, "As for the ongoing Seoul-Washington negotiation for a free trade agreement (FTA), James said signing an FTA will be ``net positive¡¯¡¯ for Korea, as it will benefit more from trades with the largest economy in the world... He said the near-term impact of an FTA will be ``minimum¡¯¡¯ on the Korean financial market but its medium and long-term effect will be significant... ``(Signing an FTA) will increase trade, investment flows between the U.S. and Korea, technology transfers and reduce tariffs barriers for trade. Those things all drive economic growth of Korea as well as the United States,¡¯¡¯ James said. ``But just the act of signing isn¡¯t going to cause the financial market to react dramatically, but clearly over time, it will be significant and positive for Korea.¡¯¡¯" (Financial Market Getting Sophisticated, Na Jeong-ju, The Korea Times, Oct 31. - from a longer interview on Bank of America's Asian operations)
  • See the "Movie quotas" section just below.

Movie quotas

Since the 1960s, Korea required movie theaters to show Korean films 146 days a year.  This past January, the government announced that it was going to cut the quota in half, to 73 days a year.  The decision was made inorder to smooth the way to the FTA negotiations:  The king, the clown and the quota (The Economist, Feb 16)  The next day, the Korean government announced a fund to provide financial support for domestic movie makers.  Half the fund was to come from a 5% tax on movie tickets: Fund Set up for Development of Korean Film Industry (Suni Kim, Jan 27).  The quota cut became effective on July 1.

Activists protested at the Cannes Film Festival in May: Koreans, French Fight Hollywood Domination (Paolo Bertolin, The Korea Times, May 21).   The Executive Director of the International Network for Cultural Diversity, Gary Neil, visited Korea in early June to buck up supporters of the quota.  He was interviewed by OhmyNews: [Interview] Protect Korean Cinema (June 15).   The Chosun Ilbo ran a story comparing Korean and U.S. taste in movie heroes on July 13, during the second session of negotiations: Cinemas Showcase Heroes, American- and Korean-Style  .

Lina Yoon reports in the Wall Street Journal that Korea's domestic film industry has been doing well.  The number of films produced in Korea has risen every year since 1998, reaching a record 110 films in 2006.   The market share for domesticaly produced films has been rising as well, and was just under 60% in 2004 and 2005.  I assume that there is a significant lead time for planning a film, so the impact of a domestic quota reduction would not be seen in 2006.  However, the market share (I assume measured in box-office receipts) appears to have exceeded the 50% quota level (measured in days not dollars) in 2003-2005.  (Korea's Movie Magic, Dec 27)

Jonathan Dingel posts on the Korean film quotas here: Cultural Protectionism: Korea's Screen Quota (Trade Diversion, July 18).  He has nice links to papers on cultural protection, and the impact of globalization on local cultures, by Korean economist Kim Young-bong and George Mason economist Tyler Cowen.

Kaesong

The Kaesong industrial park is an important part of So. Korea's attempts to engage the North.  At this industrial park, located just over the border in No. Korea, southern firms will use northern labor to produce manufactures.  The South would like the U.S. to treat these goods as originating in So. Korea, the U.S. has innumerable concerns.  Cooper and Manyin have a short discussion of the issue in The Proposed South Korea-U.S. Free Trade Agreement (KORUSFTA) (Congressional Research Service, May 2006).    Schott et al. discuss this in Negotiating the Korea–United States Free Trade Agreement (IIE, June 2006).  I provided an annotated abstract of this discussion in the post Kaesong (July 4, 2006).

Negotiations 

Organization of the negotiations

The Korean Embassy FTA web pages have useful information on the organization of the negotiations, including the timing and location of the negotiating sessions, the major issues under negotiation, and lists of key members of the U.S. and Korean negotiating teams: Current status .

Wendy Cutler, Assistant USTR for Japan, Korea, and APEC Affairs, led the U.S. effort.  Kim Jong-hoon of the Ministry of Foreign Affaris and Trade, led the Koreans.

The chief negotiator, Kim Jong-hoon, hails from a long career in the Foreign Ministry. But his experience in trade is relatively small. His work in the field includes one year as director-general of the International Economic Affairs Bureau at the Ministry of Foreign Affairs and Trade and two years as a Regional Trade Representative. Other negotiators in the Korean team are more or less in a similar situation, mainly because the Foreign Ministry requires its workers to change their assignments every two or four years. During the first and the second round of the talks, for example, the lead negotiators for the three main sections had been shuffled there as part of their normal schedule of assignment change. On the contrary, the U.S. team has many experienced trade negotiators that have been working in the field for more than 10 years, including its chief negotiator, Wendy Cutler. (Song, Chang-seok, Seoul reveals a lack of experience in FTA negotiations, The Hankyoreh, August 1, translated by Lee Seong Hyon)

Cutler statement on July 14: Statement of Assistant USTR Wendy Culter on the Conclusion of the Second Round of Negotiations of the KORUS FTA (July 14):

"FTA negotiations are complex, particularly when you are talking about two large and sophisticated economies like the United States and Korea.  In any FTA, it is customary for the early negotiating rounds to focus on the less complex issues, That is an accurate characterization of our meetings this week.

First negotiating session - June 5-9 (Washington)

The Korean Ministry of Foreign Affairs and Trade (MOFAT) published a short briefing towards the start of this round: The First Official Round of Korea-U.S. FTA Negotiations to be Held (June 6).  The Korean delegation, headed by Ambassador Kim Jong-hoon, had 146 members, representing 23 ministries and 11 research institutions.   

Wendy Cutler, the chief U.S. negotiator, gave a press conference following the opening plenary session for the first negotiations.  Here is the transcript.

Second negotiating session - July 10-14 (Seoul) 

The negotiations took place at the Shilla Hotel in Seoul the week of July10.  I've put most of my notes on this session in a separate post: FTA negotiations in Seoul (Ben Muse, July 15). 

Here are some official reports: The Korean Ministry of Foreign Affairs and Trade (MOFAT) reported on the second session here: Launching of the Second Round of Korea-U.S. (KORUS) FTA Negotiations, and here: Outcomes of the Second Round of Korea-U.S. FTA Negotiations .  At the end of the meeting Wendy Cutler, the head of the U.S. delegation made some short remarks and accepted questions.  Here's a transcript: Transcript of Assistant USTR Wendy Cutler Press Roundtable on KORUS FTA .

Breakdown of Doha Round negotiations

The Doha Round of multilateral trade negotiations broke down on Monday, July 24, two weeks after the start of the second KORUS round: US blamed as trade talks end in acrimony (Alan Beattie and Frances Williams, Financial Times, July 24)

Other background events

In May, Korea lifted its cap on overseas investment in residential real estate.    Chang Se-moon of the University of South Alabama explained why: Things to Check Before Buying Homes in US (The Korea Times, August 8)

During this period, the Roh administration was renegotiating wartime command arrangements with the U.S.  The news leaked out in early August. Choe Sang-Hun reported in the International Herald Tribune (Seoul seeks wartime control over its army from U.S., August 10):

Seoul and Washington - at the request of South Korea - are working on a plan that will shift wartime operational control of Korean troops from the combined U.S.-South Korean forces command, headed by an American general, to the South Koreans.

The plan was leaked recently to South Korean media and was confirmed this week by U.S. and Korean officials.

Exchange of tariff offers in mid-August

Seoul and Washington exchanged starting tariff offers by email on August 15.  The Hankyoreh reports: Seoul, Washington exchange initial proposals on tariff cuts for FTA (August 15):

South Korea and the United States exchanged initial tariff cut proposals for manufactured goods, agricultural products and textiles ahead of their third round of free trade agreement (FTA) negotiations next month, the government said Tuesday.

The proposals give a detailed timetable for cutting tariffs on 11,261 types of goods and produce, the Ministry of Foreign Affairs and Trade said....

The official said the initial proposals put forward maximum wishes of the two sides. "Based on that, we work on the offers," the official said.

From the Chosun Ilbo: Korea Wants to Open Agri-Market to U.S. in 15 Years (Aug 15):

Korea has proposed gradually lifting tariffs on agricultural goods within 15 years under a planned free trade agreement with the U.S. Under a proposal handed to Washington on Tuesday, tariffs on manufactured goods would be lifted in up to 10 years and on textiles in up to five years, except for items on the reserved list, the government said. The initial timetable for cutting tariff covers a total of 11,261 items. Washington handed its own proposal over in return via the U.S. Embassy here.

Seoul put major agricultural products -- chiefly rice -- on the reserved list, but the U.S. reportedly wants Korea to open its agricultural market entirely, signaling a rocky road ahead in negotiations. ¡°We were able to keep 40 items out of the FTA with ASEAN, but this may not be the case with the U.S.,¡± a Foreign Affairs and Trade Ministry official said...

August pharmaceuticals working sesssion - Aug 21 (Singapore)

On Friday, August 11, the Koreans and the U.S. announced a breakthrough on the pharmaceutical issue that had disrupted the second negotiating sesson in July.  I summarized news reports on this here: FTA negotiations in Seoul (Ben Muse, July 15).  The U.S. had strongly objected to Korea's implementation of a new "positive-list" system for reimbursing drug expenditures in its health insurance program. 

On the 11th, officials in Washington and Seoul announced that they had worked out a deal, and would meet in Singapore on August 21 to flesh out the details.  (US Accepts South Korea's New Drug-Pricing Policy (Park Chung-a, The Korea Times, August 11; U.S. to accept S.K. drug pricing system, The Hankyoreh, August 12; U.S. welcomes agreement on drug pricing with Korea, denies it was concession, The Hankyoreh, August 12)

Apparently, in exchange for agreeing to end its objections to the pricing system, the U.S. hopes to get some advantages in the procedures under which the system will function ( U.S. to accept S.K. drug pricing system, The Hankyoreh, August 12):

As Washington showed its willingness to accept Seoul¡¯s drug pricing system, the Korean government is believed to have accepted the U.S. government¡¯s request regarding related matters of procedure. The Korean government had called its pharmaceutical pricing system local policy and not a subject for negotiation during the FTA talks.

South Korea¡¯s medical and public health industry had viewed the U.S.¡¯s strong opposition on the drug pricing matter as a negotiation tactic. Washington¡¯s real intention may be aimed at forcing Seoul to guarantee certain prices for new medicines produced by U.S. pharmaceutical companies.

From this point of view, the U.S. is expected to request South Korea to set up an independent body for foreign pharmaceutical companies to file complaints about drug pricing during the third round of FTA talks or the Singapore meeting. If South Korean negotiators accept the expected request, it will undermine or weaken South Korea¡¯s policy sovereignty within its health insurance system. Australia accepted a similar compromise with the U.S. when the two were negotiating their FTA, which entered into force January 1, 2005.

The Joong Ang Daily reports on the first day of these negotiations: Drug talks by Korea, U.S. strive for a compromise (August 22)

Third negotiating session - Sept 6 (Seattle)

A three day session, somewhat shorter than the first two.

The Koreans plan to request measures to allow free movement of doctors and nurses between the two countries in September: Korea to Propose Sharing Medical Workers With US (Park Chung-a, The Korea Times, August 6)

100 Korean farmers are planning to travel to Seattle to stage protests of the FTA negotiations: Farmers Plan FTA Protests in Seattle (Christopher Carpenter, The Korea Times, August 30)

The summit - Sept 14

Presidents Bush and Roh are expected to discuss the FTA negotiations when at a summit meeting on September 14: Roh-Bush Meeting in U.S. Scheduled  (Dong-a Ilbo, August 17)

October 2006

The fourth negotiating session began the week of Oct 23rd, and ended moderately successfully. To save space in this overall post, the details of the 4th Session have been posted separately.  You can find them here:  October in Jeju: KORUS FTA - the 4th Session .

Here is a good news analysis by Yoo Soh-jung of the Korea Herald on October 30: Next FTA talks with U.S. expected to be turning point :  U.S. concessions, the pressure is on Korea to reciprocate in at the December meetings, hard decisions postponed, negotiations will have to continue into 2007.

December 2006

The fourth negotiating session will take place in Big Sky, Montana, in early December.  Montana is cattle country, and Korean restrictions on U.S. beef imports have been an important issue in these negotiations.  (Montana to Host Next FTA Talks, Kim Yon-se, The Korea Times, Oct 31). 

I'll post most of the links to this session in a separate post that I started Nov 10, and will revise and expand through the December session: KORUS FTA V: December in Big Sky .

January-March 2007

I was too busy with what I'm actually paid for to keep up during this period.  I'm working now on filling this gap in.

The 6th round of negotiations took place in the Shilla Hotel in

Seoul

from

January 15 to 19, 2007

.  Here are two Korean MOFAT press releases on this negotiation:

The 7th round of negotiations took place in Washington from February 11 to 14.  Here are two Korean MOFAT press releases on this negotiation:

The 8th Round of negotiations took place at Seoul's Grand Hyatt Hotel from March 8 to 12.  Here are four Korean MOFAT press releases on this negotiation: 

March 26-April 1, 2007

After an intense week, U.S. and South Korean negotiators produced an agreement late on the last day that it was still eligible for the existing U.S. trade promotion authority: Down to the wire in Seoul (March 29); KORUS FTA agreement (April 2).

What was agreed to?

The full text isn't available yet.  Evan Ramstad provided a short summary for the Wall Street Journal.  Here's a post on his story: What did the U.S. and Korean negotiators agree to? (Ben Muse, April 2)

Korean opinion

The negotiations have been a much bigger story in Korea than in the U.S.

The Korea Times reported on Korean attitudes towards an FTA.  These showed a loss of support from the start of June to the end of July: Half of Koreans Oppose US FTA (Park Song-wu, July 31) 

In late July, 2006, the Korean administration created a special committee in the President's office, headed by a former Finance Minister, to promote the FTA inside Korea: Ex-finance minister Han to head FTA committee (Kim Ji-hyun, The Korea Herald, July 31).  On August 9, President Roh was interviewed by the Yonhap News Agency on FTA related issues (U.S. FTA will help S. Korea join group of advanced countries, Roh says, Yonhap, via The Hankyoreh, August 9).  His chief argument in favor of the negotiations was the potential for development of Korea's service sector:

"South Korea's economy has grown with the liberalization of its markets, and that means the country is now faced with severe competition in terms of the quantity and quality (of goods and services)," Roh said in an interview with Yonhap News Agency.

"We have come a long way, but we have a long way to go," he said, adding that the FTA with the U.S. "will be a challenging strategy for the country to join the group of advanced countries."

The president said that Asia's fourth-largest economy has grown following Japan's growth model, but the country is not in a position to just adopt the neighboring country's development model.

"South Korea needs to take an edge in the service sector, and the trade pact with the U.S. will help South Korea overtake Japan," Roh said. "The U.S. has the world's best service industry, and a free trade agreement (FTA) with it would help the local service industry."

On July 31, a special committee of the Korean legislature, the "Special committee for the Korea-U.S. FTA in the nationa assembly," began to meet.  The committee planned to meet weekly to review the range of issues connected with the FTA.  Lawmakers Mulling Free Trade Agreement (The Dong-A llbo, August 1, 2006).

Apparently Korean President Roh Moo-hyun considered going on TV in August to participate in a public debate over the FTA.  He withdrew, after he learned that a former key economics aide was going to be on the same platform, arguing the "anti" position.  Kim Yon-se reports: Roh Backed Off From TV Debate on FTA (The Korea Times, October 1).

Emily Baek-sun of Ewha Womans University notes the importance of foreign direct investment for Korea's economy, and argues for the FTA: Blind Nationalism Obstacle to FDI (The Korea Times, Oct. 31)

The FTA negotiations are going forward against a background of Korean middle class angst.  The proportion of the Korean population that defines itself as middle class has been getting smaller, reports Yoon Ja-young: Middle Class Shrinks Amid Economic Woes (Korea Times, Dec 4).  "Fewer Koreans think they belong to the middle class than three years ago, feeling pushed down to the lower rungs of the social ladder...  Koreans were generally not happy, with only three out of 10 people saying they were content with their lives...  According to the National Statistical Office (NSO), which surveyed members of about 33,000 households across the nation, 53.4 percent said they belong to the middle class in social and economic terms...  The ratio was 56.2 percent in the survey of 2003...  Those who thought they belonged to a lower class made up 45.2 percent, rising 2.8 percentage points from 2003."

Ratification

United States

Republic of Korea

  • "Korea should also report the details to the National Assembly for ratification. The negotiation results would be subject to a ``yes-or-no vote,¡¯¡¯ but not an amendment, among both countries¡¯ lawmakers... The deal cannot be signed if either the National Assembly or Congress rejects the results." (Seoul May Have More Time in FTA Talks (Kim Yon-se, The Korea Times, Nov 19).
  • Here's a post from April 4 2007 (based on Korean news stories from just after the agreement was reached, at a time when the text was unavailable and only rough details were known) on the prospects for ratifications in the National Assembly: The US-Korean FTA in the Korean National Assembly (Ben Muse, Apr 4).

Bruce Klingner and Anthony B. Kim point out (in a Heritage Foundation think piece - The U.S.–South Korea FTA: A Defining Moment, April 2) that the rural voters are disproportionately represented in the Korean Assembly:

The countryside is overly represented in South Korea's National Assembly, with one representative per 30,000 people in rural areas, as opposed to one representative per 300,000 people in urban areas. Farmers wield political power beyond their numbers and have been the most active in their opposition to the FTA. To reduce domestic opposition, Seoul will promise new governmental assistance programs to affected industries.

Revised April 9

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Comments

Did you see this?
http://times.hankooki.com/lpage/biz/200607/kt2006071818222711910.htm

Wow! Thank you for such comprehensive sources in one place! Keep up the good work!

Ben, Great round-up. I'm interested in the details agreed on agriculture and services but little of them have so-far been published (USTR has a bland statement congratulating themselves for their efforts..!). The information in the public domain suggests a lot of 'carve outs' in addition to rice. This would be a very poor template for future agreements if it's true.

Best,

Peter

I'm curious to know how KORUSFTA stacks up against other FTA's in the areas of contention:

1) Employment changes and job loss. The typical argument is that jobs lost to less developed countries as firms seek cheaper labor elsewhere is compensated by a growing demand for US goods. Most politicians and economics professors I have heard advance this argument fail to disclose figures. Is it a net loss of jobs? Are the resulting jobs in the US less lucrative? I noticed a little mention of US textile industry concerns in the above analysis but again, few employment figures.

2) Lowest common denominator issues: NAFTA and the proposed FTAA both contained provisions by which firms in Country A could sue the government of Country B, if a labor or environmental restrictions in Country B was percieved to damage the firms profits. Are such provisions included in KORUSFTA? Were such provisions even examined in the negotiations, or did both sides just assume they would be included?

3) IP provisions - does KORUSFTA require Korea to extend greater IP protections (length of pharma patents, patents on genetic material, copyrighted materials). I fear I am not familiar with how current FTA's justify extending asymetric access to information when classical free trade economic theory makes "everyone has the same information" a fundamental assumption. I would think that for a more competitive market, shorter patents and more open copyrights would be the goal. This would benefit consumers and tend to increase competition among suppliers. Who is hurt (other than patent holders and shareholders of patent holding companies) if a restrictive market is opened up?

I love the blog that you have. I was wondering if you would link my blog to yours and in return I would do the same for your blog. If you want to, my site name is American Legends and the URL is:

www.americanlegends.info

If you want to do this just go to my blog and in one of the comments just write your blog name and the URL and I will add it to my site.

Thanks,
David

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