Negotiations on the FTA between the U.S. and So. Korea have to be wrapped up this week if the current U.S. trade promotion authority is to be used. Kelly Olsen reports on the intense ongoing negotiations in Seoul: U.S.-S.Korea Trade Talks Down to Wire (AP via Houston Chronicle, March 29). Kim Deok-hyun reports on the closing hours of the negotiations: S. Korea-U.S. FTA talks head for conclusion amid optimistic notes (Yonhap News, March 30)
There was a hitch on Friday: U.S., S.Korea trade talks stumble at last minute (Jack Kim, Reuters, March 30) - no word in the story on what the problem was. The U.S. evidently decided that it could delay completion of the negotiations as late as noon on Sunday, April 1, and still meet the conditions necessary for consideration of an agreement under current trade promotion authority. Heejin Koo reports: U.S., South Korea Extend Their Free-Trade Talks (Bloomberg, March 30).
Evan Ramstad reports on what's at stake for Korea in the negotiations: South Korea Ready to Open Up (Wall Street Journal, March 28 - illustration accompanies the Journal article):
...South Korea's economy now faces a problem. While it grew by 8% to 9% a year for much of the 1990s, its growth has recently slowed to 5%. A key reason: Chinese competitors are taking away South Korea's lead in low-cost manufacturing and threatening South Korea's higher-value industries.
To boost the economy, President Roh Moo Hyun says South Korea needs to do away with the old growth model and open up. He initiated the trade talks two years ago, hoping to attract more foreign investment and stimulate service industries, which account for 48% of the South Korean economy, compared with about 70% in the U.S.
Mr. Roh has also started free-trade negotiations with Canada, Australia and New Zealand, and is exploring talks with the European Union and the six Arab states that form the Gulf Cooperation Council.
The free-trade talks come as South Korea strives to make other efforts to speed up its economic growth. Regulators are pushing to make the country's businesses more transparent in hopes of boosting global competitiveness, addressing criticism that South Korea had weak accounting and disclosure standards. The country has opened its banking sector to foreign owners and competitors, resulting in the fast growth of global players such as HSBC Holdings PLC and a variety of new financial services.
In another article, Ramstad reports that agriculture is a key to the negotiations: U.S.-South Korean Trade Talks May Turn on Beef, Rice Imports (Wall Street Journal, March 30). Ramstad's got an interesting story to tell:
The most likely compromise, say analysts, is that South Korea will reopen its beef market in return for the U.S. leaving rice alone....
Korea was the third-largest export market for U.S. beef producers in 2003. In total that year, the country bought $790 million of beef, or about 10% of its overall food imports from the U.S. Ever since the free-trade talks began in early February 2006, U.S. trade negotiators have said reopening the Korean market to U.S. beef was a top priority. In recent months, key members of Congress have made clear that their support for a free-trade deal with Korea hinged on resumption of beef sales....
South Korea last year agreed to accept boneless beef from the U.S. but then rejected the three shipments that were sent, totaling 22.3 tons of meat, after X-rays showed small bone fragments, some the size of a small coin. Korea wants assurance it is getting boneless meat because mad-cow disease is carried in bones....
The hard line on U.S. beef gives Korean trade negotiators a big bargaining chip to achieve their major goal in the talks: maintaining protections for the country's 940,000 rice farmers, the most vocal opponents of the trade talks. Rice is Korea's biggest crop, accounting for just over half of Korea's agricultural output by value and powerfully symbolizing the culture's agrarian past and supposed food independence. Much of it is grown on tiny farms of almost a hectare that generate average annual income of about $30,000, the government says.
Korea prohibited U.S. beef imports after Mad Cow disease was reported in the U.S. in 2003. In January, in a concession to obtain U.S. agreement to the 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: Official, 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 bones, 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). The prohibition and bone issue isn't even technically on the negotiating agenda for the FTA. But now the Koreans have negotiating leverage to use on rice.
Australian beef prices have been dropping on the prospect that U.S. and Korean negotiators may deal with the bone issue and reduce beef tariffs: Aust beef prices plummet in Korea before FTA (ABC News Online, March 30). "Australia has dominated the Korean market since a ban on US beef products in 2004, due to concerns over mad cow disease."
The Democrats in Congress are also turning up the heat. They want to make sure that an agreement includes Korean concessions on cars. Yonhap News reports: House speaker, senior Democrats demand U.S. push harder on Korea FTA (March 30):
U.S. House Speaker Nancy Pelosi and other senior Democrats demanded that trade negotiators push harder on a free trade agreement (FTA) with South Korea, saying Thursday the current proposal is "completely inadequate."
In a letter dated Wednesday to U.S. Trade Representative Susan Schwab, the Democrats pinpointed the auto market as lacking progress and urged a new approach to eliminate non-tariff barriers.
The letter, and an associated proposal on how to deal with autos in an agreement can be found at the House Ways and Means Committee web site: Administration Must Change Course In U.S.–South Korea FTA Negotiations (March 28).
The U.S. hopes that the current free trade negotiations with Korea will help reduce barriers to selling cars there. But even if tariffs come down, it'll still be an uphill fight - reports Evan Ramstad: Korea Trade Focus: Cars (Wall Street Journal, March 29).
There are things we can negotiate:
A combination of tariffs [8% on cars - Ben], tax on large engines and special regulation on parts means that prices for most import models are now 20% or more above the levels of their home countries.
But other obstacles to sales are likely to remain:
But even if the South Korean market opens up, U.S. car makers may still have a hard time wooing Korean consumers. Many are likely to keep buying South Korean cars in overwhelming numbers owing to strong national feelings nurtured for decades during the country's economic rise. In addition, import dealers say they have enormous difficulty overcoming what is known as the boss factor, a tradition in South Korea's hierarchical society in which employees buy the same or a less-expensive version of the car that their boss owns.
Another problem: U.S. and European cars tend to be too big. Many South Koreans live in high-rise homes and pay high prices for parking rights, encouraging them to stick to small cars....
Trying to sell small cars hasn't worked either. DaimlerChrysler AG's Chrysler had 20% of the South Korean import market in 1996 with its Neon compact. But the total volume was 2,006 cars, fewer than a large dealership in a typical U.S. suburb might sell.
Then there is the image problem. Affluent consumers who buy imported cars have long preferred models with a more prestigious image, such as DaimlerChrysler's Mercedes, BMW AG's BMW and Toyota Motor Corp.'s Lexus, the top-selling import brand last year. U.S. companies are trying to counter that. General Motors Corp.'s lone dealership in Seoul sells Cadillacs. When Ford Motor Co. introduced its new crossover utility vehicle to South Korea this month, it used its upscale Lincoln version.
Many large U.S. companies want strong investment protections built into the agreement. Eoin Callan reports (Chevron threat to reject Korean trade deal, Financial Times, March 28):
US companies, led by Chevron, are threatening to withdraw support for a trade deal with South Korea, because they claim it leaves that country free to expropriate foreign assets and arbitrarily restrict the flow of capital.
The companies are demanding that tougher investor protections be added....
Investor protection in South Korea has become an increasingly topical issue with the long-running investigation into the way Lone Star, the US private equity fund, acquired Korea Exchange Bank in 2003.
Against a backdrop of rising economic nationalism, the state audit board has called for the purchase to be nullified on the grounds that Lone Star bought the bank at an artificially cheap price in the wake of the 1997 Asian financial crisis....
Lobbyists for Chevron say diluted investment rules under negotiation could leave its joint-venture refinery with LG Group - one of Asia's biggest - legally vulnerable to expropriation.
The Chosun Ilbo discusses the prospects for ratification in the Korean Assembly: Korea-U.S. FTA Faces Big Hurdle in Parliament (March 29):
...The Korea-U.S. FTA is expected to go to the National Assembly in September or October, when the regular session opens. But most observers don’t expect the assembly to ratify the trade pact this year because it could become a hot political issue in the presidential election if some contenders use it to garner support. A government official said the government aims to have the trade pact ratified within Roh’s tenure. He predicted it will likely be ratified early next year, immediately after the presidential election. A Uri Party member even said ratification of the trade deal could be a job for the next National Assembly if opposition of lawmakers from rural regions and the DLP turns violent.
Human interest: Here's a Yonhap profile of the key Korean negotiators this week: Key South Korean figures in South Korea-U.S. FTA talks (March 30). Ambassador Kim Jong-hoon, has been the chief negotiator for the past 10 months: "On the sidelines of the fifth round of FTA talks in the U.S. western port city of Seattle, Kim told reporters, "Whenever people ask me why South Korea wants to reach a free trade deal with the U.S., I reply: to see more South Korean container ships in U.S. costal areas."
Revisions on Friday, March 30.
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