KORUS FTA V: December in Big Sky

This is a post on the next U.S. Korea FTA negotiating session in Montana in early December.  I'll update this until shortly after that session.  This post is meant to supplement the my overall post on the Korea-U.S. FTA negotiations: KORUSFTA .

Time and place

The fifth round of the negotiation will take place in the U.S. at the Big Sky Montana ski resort from December 4 to 8.   The previous, fourth round, took place on Jeju Island in Korea: October in Jeju: KORUS FTA - the 4th Session .

Why Big Sky?   U.S. beef exports have been at the center of one of the more difficult agricultural negotiations.  Kim Yon-se reports (Montana to Host Next FTA Talks, The Korea Times, Oct 31):

Montana, located in northwestern part of the U.S., is known as one of the country¡¯s main states which produce a large amount of beef. It belongs to the U.S. beef belt that includes Texas.

The next FTA host is drawing interest as Korea and the U.S. have been in a tug of war over the issue of latter¡¯s beef exports to the former since Korea banned its U.S. beef imports in December 2003.

Korea¡¯s trade experts say the U.S. is seeking to ease Koreans from anxiety about mad cow disease by advertising Montana State¡¯s cattle raising process.

An FTA-related researcher cited the state¡¯s promotion which reads like this: ``Big Sky cattle are raised in the traditional way, on rich, nutritious grasses, amidst some of the most gorgeous landscapes of Montana.¡¯¡¯

Hoon Joo reports (Fifth Round of KORUS FTA to Take Place in Montana on December 4, Nov 1):

According to the report, Senator Max Baucus (D, MT) proposed his constituent state to host KORUS FTA to USTR Susan Schwab, after which the city of Big Sky was selected to host the talks.

Here's Baucus' press release: Baucus Will Welcome U.S. and Korean Negotiators To Montana In December .  With the Democratic victories on November 7 (see below), Baucus will probably be the new Senate Finance Committee Chair.  This is the key trade committee.

"A free trade agreement with Korea has enormous potential,"

Montana Sen. Max Baucus, 64, is expected to take over the Finance Committee, which has broad-ranging oversight responsibilities including Social Security and related health programs, trade issues such as customs and import quotas and national debt issues. It is currently chaired by Iowa Sen. Charles Grassley. Mr. Baucus, who has been in Congress since 1978, has played increasingly visible roles, and has sometimes bucked the Democratic Party line. He supported the president's $1.35 trillion tax cut in 2001, when he briefly held the Finance Committee chairmanship after Sen. Jim Jeffords's defection from the GOP gave Democrats control of the Senate. He works well with the current Republican chairman. But in early 2005, Mr. Baucus loudly criticized President Bush's plan to add private accounts to Social Security. Mr. Baucus has also showed considerable interest in fixing the tax gap, or the difference between the estimated amount owed by all taxpayers and what they actually have paid.  (Mary Lu Carnevale and Matt Phillips, Wall Street Journal, Nov 10)

Events since the fourth round in Jeju Island, Korea

In mid-term elections, held on November 7, the Democrats took control of both houses of Congress.  This was widely viewed as a setback for U.S. trade liberalization efforts.  Congressional Demcrats have tended to be more protectionist than the Republicans in recent years.   Moreover, although trade was not the defining issue of the campaign - the war in Iraq was - many of the winning candidates had apparently found a protectionist stance to helpful.  All senators and representatives would have noted this.  The full implications for the U.S.-Korean FTA were not immediately clear. 

• Trade implications of the mid-terms (Ben Muse, Nov 8) has excerpts, and links, with examples of campaign trade rhetoric. 
• Consultant Christopher Colford pointed to the difficulties at a seminar at the Korean Embassy in Washington on November 14: Next U.S. Congress will dramatically shift trade policy: former aide (Yonhap News, Nov 15)
• "The Samsung Economic Research Institute (SERI) said in a report that uncertainties over the ongoing effort to establish a free trade agreement (FTA) have grown as the result of Democrats' victory in U.S. congressional elections.  The institute predicted that if reelected lawmakers do not change positions, 188 representatives are expected to vote for a Korea-U.S. FTA, while 186 are likely to vote against it."  (Democrats' Control Puts FTA in Limbo, Kim Yon-se, The Korea Times, Nov 9)
• "There are also fears that a Democrat-controlled Congress could derail negotiations for a Korea-U.S. free trade agreement. Lee said the U.S. will be less willing to concede in the FTA talks. Some analysts say Washington could take a hardline stance on anti-dumping and trade control measures, hot potatoes in Korea-U.S. trade talks, since the Democrats share basic philosophies with the trade unions." (Democrat U.S. Congress 'Could Hurt Korean Exports' , Digital Chosun Ilbo, No. 10)
• "However, few analysts expect seismic changes in overall U.S. trade policy. They say the Democrats can hardly pursue all-out protectionism in a global era when U.S, companies seek to conquer international markets. The U.S.¡¯ dependence on foreign trade rose from 15.7 percent in 1990 to 20.7 percent in 2005. Bark Tae-ho, a professor at Seoul National University¡¯s Graduate School of International Studies, expects the Democrats will not tinker with trade policies since the U.S. is after all seeking to clinch the FTA for its national interest." (Democrat U.S. Congress 'Could Hurt Korean Exports' , Digital Chosun Ilbo, No. 10)

• "But when it comes to the impact on specific trade areas under negotiations, analysts in Korea express varying perspectives. Some say Washington will likely ratchet up demands in auto talks should Sander Levin become chairman of the House Subcommittee on FTA. Levin's home state, Michigan, is the heart of the U.S. auto industry." (Democrat Victory in U.S. Could Hamper FTA with Korea , Digital Chosun Ilbo, Nov 9)"But others say there will be no big changes to the negotiation climate. They stress that the Democrats' fields of interest do not overlap with contentious areas in the FTA talks." (Democrat Victory in U.S. Could Hamper FTA with Korea , Digital Chosun Ilbo, Nov 9)

• "An official with the Korea International Trade Association (KITA) said, ¡°The Democrats will have an advantage in pressing concerns over issues like labor and the environment, because the Democratic party have been advocating welfare and human rights. But since Korea and the U.S. have an agreement on labor and environmental issues as a whole, the Bush administration will have to acknowledge those concerns in negotiations of future trade agreements." (Democrat Victory in U.S. Could Hamper FTA with Korea , Digital Chosun Ilbo, Nov 9)

Pharmaceutical negotiations remained difficult.  Phara negotiators sheduled an additional meeting in Seoul on November 12 and 13.   

• During the sideline meeting held between the fourth and fifth round of general talks, Washington officials continued to push for the establishment of an independent agency to which companies can file their objections, according to the officials... They also called for South Korea, the seventh-largest trading partner of the U.S., to acknowledge the value of the breakthrough products of multinationals, the officials said... Seoul officials stressed that they will not give into U.S. demands to the extent of having to twist domestic policies for their sake, they added.(S. Korea, U.S. conclude sideline FTA drug talks in Seoul, S. Korea, U.S. conclude sideline FTA drug talks in Seoul, Yonhap News, November 13).
• This report from Park Chung-a of The Korea Times, suggests that the November session didn't resolve the outstanding issues: "Korea and the United States remain far apart in their negotiations over the possible opening of the domestic market for pharmaceuticals and other healthcare industries, government officials said..." Park gives a brief list of the issues.  (Korea, US Poles Apart on Medicine Talks, Nov 17)

In October, the U.S. tried to take advantage of a Korean offer to increase imports of beef.  The Koreans apparently subjected the beef to an unusually detailed inspection, and then rejected the imports on October 30.  The Dong-A Ilbo carries the story: Beef Sparks Possible U.S. Trade Row (November 30):

On October 30, Korean inspectors discovered a bone fragment the size of a fingernail in a nine-ton shipment of U.S. beef at Incheon International Airport. The beef failed to make it through the customs.

Some have raised concerns that a bilateral trade conflict could arise, threatening the fifth round of the Korea-U.S. FTA negotiations.

“We are very disappointed. It was just a small piece of cartilage in nine tons of beef. I’m not sure whether the inspection should be that stringent,” said Chuck Lambert, USDA deputy undersecretary...

“The Korean government invented a standard that the US hasn’t agreed to. A small bone was found and they knew that it posed no harm for anyone. The government refused to let in the entire shipment even though the beef’s safety was acknowledged. Besides, the inspection took as long as three weeks. We cannot continue to trade with Korea in this situation,” Johanns said to reporters.

Korea used to be the second largest market ($1.2 billion per annum) for U.S. beef after Japan ($1.4 billion per annum) before Bovine Spongiform Encephalopathy cases were found in the U.S.

Some say that the strong criticism from the U.S. reflects complaints from U.S. beef exporters and lawmakers representing them. However, underneath is a strong dissatisfaction over the rigorous inspections of U.S. beef despite the international practice of sample testing.

“From the U.S. point of view, Korea promised to import beef and then changed the rules,” said USTR Deputy Assistant Amy Jackson at a discussion meeting on November 28.

Some U.S. media reports that some Asian countries including South Korea allows only de-boned beef imports, and that is more stringent than the international safety standard... 

This January, Seoul agreed to import “less than 30 month-old de-boned beef.” Washington is saying that it was far-fetched to conduct X-ray inspections on every single pieces of the tons of meat and then refused to accept all of them because of a nail-size bone.

The Korean government acknowledges that only the skull and spinal cord of cow cause mad cow disease. But all beef bones were excluded from the import, as several scholars said spinal cord could be included in some bones.

This condition could reduce the sheer amount of imports. Before 2003 when a ban was imposed on U.S. beef, 66 percent of beef shipped from the U.S. were beef ribs. Allowing only de-boned beef naturally means less imports...

Here is another report by Ryu Jin: [Issue Today] Food Imports Source of International Spats (The Korea Times, Nov 27).   This piece is interesting because it places the beef issue in the context of other food safety issues, and because it has a wonderful photo of the Korean quarantine service staffers examining the American beef.   American cattle interests were upset by Korea's treatment of the beef: U.S. Cattlemen Angry at Korea’s Protectionist Actions (cattlenetwork.com, Nov 30).  On December 1, the Koreans rejected a second beef shipment. "'Beef is a key issue for prominent supporters of the FTA (in the U.S.) such as Senator Max Baucus,' said Troy Stangarone, director of congressional affairs and trade analysis at the Washington-based Korea Economic Institute."   Trade spat looms as South Korea rejects second U.S. beef shipment (Yonhap News via The Hankyoreh, Dec 1).   

There were numerous, and often violent, protests against the FTA negotiations in Korea in the second half of November. 

• Four hour warning strike by 138,000 workers on November 15 in response to call by Korean Federation of Trade Unions ("the most radical and militant trade union federation in the country")  - preparation for a general strike planned for Nov 22 - the FTA negotiations were not the only issue: "The demands of the KCTU in the warning strike and coming general strike are to stop trade union repression, stop the Irregular Workers Bill, rescind the current Industrial Relations Roadmap Agreement, fundamentally reform the OHS insurance bill and stop Korea-U.S. Free Trade Agreement negotiations." (South Korea: 138,000 workers conduct warning strike, Sarah Sloan, Party for Socialism and Liberation, Nov 17).
• The Chosun Ilbo said that on Nov 22 Korea Sees Worst Labor Protests in Years (Nov 23).  "Wednesday saw the biggest labor protests since the Roh Moo-hyun administration took office when some 72,000 demonstrators took to the streets in 13 cities around the nation. They included farmers against a planned free trade agreement with the U.S. and members of the Korean Confederation of Trade Unions (KCTU) who went on general strike on the day. Violence and arson attempts were the order of the day as demonstrators armed with wooden and bamboo sticks launched well-coordinated attempts to break into city and provincial government offices. Police, unable to mobilize more than 25,000 officers, were overwhelmed, saying it was the first protest on such a scale under this government and complaining of restrictions in dealing with it."   A U.S. delegation, led by antiwar activist Cindy Sheehan came to Seoul to participate in the anti-FTA demonstrations: Americans Protest U.S.-Korea Free Trade Agreement in Seoul (International Action Center, Nov 22)
• Peaceful protests in Seoul on Saturday, November 25: Umbrella union holds peaceful rally, calls for passage of labor roadmap (Yonhap News, Nov 25).  This demonstration sought to encourage Korean lawmakers to adopt labor legislation, and was also meant to express opposition to the FTA.
• More protests took place on Wednesday, November 29:  "Tens of thousands of anti-globalization demonstrators confronted police in Seoul and other cities, protesting a proposed free trade agreement (FTA) between Korea and the United States. It caused severe disruption in downtown traffic, angering citizens... However, clashes were sporadic and none of them escalated to the violence of the anti-FTA rallies last week, which resulted in dozens of injuries and severe property damage." (Anti-FTA Protestors, Police Clash, Kim Tong-hyung, The Korea Times, Nov29)
• Additional protests are planned for December 6, during the Montana FTA negotiations (Korea Sees Worst Labor Protests in Years , Chosun Ilbo, Nov 23).

APEC meetings

The two sides held a special meeting in Seoul on November 11 to see if they could make progress on pharmaceuticals outside the normal meeting sequence: Second sideline free trade meeting scheduled (The Hankyoreh, Nov 8).  An earlier pharmaceuticals meeting was held in Singapore in August, between the second and third negotiating sessions.

Sectoral negotiations

Manufacturing

• South Korea is willing to make concessions on its controversial car tax system Washington says is discriminatory against large-sized U.S. vehicles, the country's top free trade negotiator said Wednesday... Washington has long complained that U.S. car sales in South Korea have been low because of the country's "unfair" system that levies significantly higher taxes on cars with large engine size... Kim said South Korea is prepared to address such U.S. complaints in future talks... He said that if the U.S. phases out its average 2.5 per cent tariff on imported South Korean cars under a free trade agreement, it will significantly benefit domestic automakers... Under the deal, if signed, South Korea will have to eliminate or phase out its average 8 per cent tariffs on imported cars, he said... Kim hoped that his planned concessions on cars would spur the slow-moving talks with the U.S. Despite some progress made in the fourth round in South Korea last week, both sides acknowledged that there still remain wide differences in automobile, agriculture, textiles and other sensitive areas... Kim also clarified that South Korea would no longer link the automobile issue with progress in other contentious areas, including agriculture and textiles... "If they are linked, there is a high possibility that the talks would end up in failure," he said.  (S. Korea Ready to Make Concessions on Car Imports Under US Fta, Yonhap via Asia Pulse, Nov 1)
• Before the December negotiations, the Korean Institute for Industrial Economics and Trade released a report pointing to the gains to Korea if it could get U.S. restrictions on Korean cars lifted.  "If tariffs are eliminated immediately, South Korean exports to the U.S. are likely to expand by $860 million in the first year, up 10.7 percent from shipments without an FTA, according to the report by the Korea Institute for Industrial Economics and Trade (KIET). Imports from the United States could rise by $115 million, up 115 percent...  A South Korea-U.S. FTA would likely increase South Korean auto exports to the world's largest economy by an additional $1.5 billion in 2015, while imports could rise by about $160 million, Lee said." (U.S. FTA to boost S. Korean auto exports: report (Yonhap News, Nov 27)
• "In textiles, Seoul sought an immediate duty-free treatment, which Washington accepted in the Central American Free Trade Agreement. A U.S. source told the weekly that industry leaders are "very insistent" that such treatment not be given to South Korea...  South Korea is the third largest exporter of fabric to the United States...  In what is known as the yarn-forward rule, only yarn and fabric sourced from South Korea would be subject to FTA benefits. But South Korea wants to establish different rules of origin, which would include yarn from third countries, the weekly said...  Safeguards are an issue as well in textiles, with the U.S. wanting to apply them as in other FTAs. Previous agreements allow the U.S. to reactivate tariffs when there is a surge in imports." (S. Korea, US Expected To Negotiate On FTA Beyond January, Asia Pulse News, Nov 8)
• The U.S. auto manufacturers described their concerns over access to Korea's market (along with lots of other unrelated issues) in a November letter to President Bush: "There are numerous tax and non-tariff barriers that inhibit Korea's importation of automobiles. Yet these barriers are only the tip of the iceberg. Korean owners of foreign vehicles are subject to audits and tax investigations. Imported cars have unique recycling, emissions, and safety requirements not required of Korean cars. They also have unique bumper standards, tinted window regulations, license plates, and noise level standards that must be adhered to. These non-tariff barriers must be changed during the negotiation of an FTA, and we must have a measurable way to judge Korean implementation of any agreed to provisions if this agreement is to gain our support." (Detroit automakers' letter to President Bush, Detroit Free Press, Nov 22).

Agriculture

• South Korea may further reduce the number of agricultural products on its tariff cut waiver list during its future talks with the United States to seal a free trade agreement (FTA), a South Korean chief negotiator said Wednesday... Speaking on a radio talk show, Min Dong-seok, an assistant minister at the Agriculture Ministry, hinted Seoul could adjust the number of products that it wants to protect from market liberalization... The assistant minister cited Washington's stiff position at the FTA talks and South Korea's need to secure a deal... "The U.S. stance has been to allow no exceptions to liberalization, and not to allow tariff waivers for more than 10 years," he said... Washington has also rejected the so-called Chilean approach of delaying liberalization talks on sensitive issues until after the Doha Development Agenda (DDA) talks have been completed. South Korea's FTA with Chile, its first ever, went into effect in 2004, with both countries agreeing to discuss sensitive issues at a later date.  (S Korea May Cut Agricultural Tariff Waiver List for Fta With US, Yonhap via Asia Pulse, Nov 1)
• "...one of the sticking points in agriculture was a safeguard provision. Sources said the two countries agreed to institute the provision, but the U.S. wanted the safeguards to phase out with the tariffs for each agricultural product, while South Korea argued they should remain permanently." (S. Korea, US Expected To Negotiate On FTA Beyond January, Asia Pulse News, Nov 8)

Services

• In November, the "the South Korea Ministry of Justice published its draft Foreign Legal Consultant's Bill. If passed foreign law firms could, for the first time, be allowed to establish offices in the country by mid-2008... the draft bill does contain a clause stipulating that its provisions will only apply to law firms operating in countries with which South Korea has entered into free-trade agreements (FTAs). It is expected that this provision will kick in once the US-Korea FTA comes into force, expected to be at the end of 2007." (South Korea opens door to outside firms - but only ajar (The Lawyer.com, Nov 27)

Investment

Other issues

• The Chosun Ilbo reports that according to a government report submitted to the National Assembly's Special Korea-U.S. FTA Committee, the Koreans will be concentrating on U.S. trade remedies (anti-dumping and so on) in the December session.  (Korea to Focus on U.S. Trade Remedies in FTA Talks (Nov 30)

Protests

The Korean Confederation of Trade Unions is planning big protests in Seoul during the leadup to, and during, the Big Sky meetings.  Kim Yon-se reports (Police Alert Over FTA Demonstration, The Korea Times, Nov14):

``Anti-FTA activists comprised of farmers, laborers and unionized teachers will participate in three protests planned for Nov. 22, Nov. 29 and Dec. 6,¡¯¡¯ a source close to the Korean Confederation of Trade Unions (KCTU) said on Tuesday.

He said, ``Their plan is to have at least one thousand buses park in the middle of Seoul to bring traffic in the city to a standstill.¡¯¡¯

The plan is to supplement the Seoul demonstrations with regional actions as well.

Other topics

The next set of negotiations is tentatively scheduled for January, and according to this article, there may be sessions following that one: Trade watchers say Korea-U.S. FTA prospects turned less favorable (Yonhap News, Nov29).  This article also notes that the Korean Presidential election will begin early next year, and that may complicate negotiation and ratification of an agreement: "The presidential campaign begins from early next year in South Korea and may make the FTA a volatile issue if the negotiations are not concluded by early spring as scheduled, she ["Amy Jackson, former deputy assistant U.S. trade representative, who was in charge of Korea issues as KORUS FTA was under review..."] noted."

This article also notes the likelihood of further negotiating sessions after January: "Quoting private-sector sources, "Inside U.S. Trade" said at least one more round is expected after January. The January meeting is the fifth round of talks, already an addition to the negotiations that the two countries aimed to wrap up by year's end...  The negotiations would have to end by the end of March in order to give the U.S. Congress the required 90 days for review of the draft agreement under the Trade Promotion Authority. Under this temporary legislation, the Congress has to vote up or down on the FTA without seeking amendments."  (S. Korea, US Expected To Negotiate On FTA Beyond January, Asia Pulse News, Nov 8)

Last updated: December 1

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