Thread: U.S. and South Korea in Landmark Trade Deal

April 3, 2007
U.S. and South Korea in Landmark Trade Deal
By CHOE SANG-HUN
United States and South Korean negotiators struck the world’s largest bilateral free-trade agreement today, giving the United States a badly needed lift to its foreign trade policy at home and South Korea a chance to reinvigorate its export economy.

Negotiators announced the agreement, reached after 10 months of negotiations, just in time to comply with a legislative deadline in the United States, after which President Bush’s “fast-track” authority to negotiate foreign trade deals without amendments from Congress would expire.

“This is a strong deal for America’s farmers and ranchers who will gain substantial new access to Korea’s large and prosperous market of 48 million people,” Karan Bhatia , the deputy United States trade representative, said in Seoul today.

“Neither side obtained everything it sought,” she added.

If ratified, the trade deal will eliminate tariffs on more than 90 percent of the product categories traded between the two countries. South Korea agreed to lift trade barriers to iconic American products like cars and beef, while the United States abandoned a longstanding demand that Seoul eliminate subsidies on South Korean rice.

The agreement marks a significant victory for the Bush administration, which needed a prominent deal with clear benefits for American producers to shore up support for bilateral trade pacts with Panama, Peru and Colombia, which have thus far received a cool reception from a skeptical Congress.

Free trade between the United States and South Korea — the world’s largest and eleventh-largest economies, respectively — could give United States companies an important new stronghold in Asia, where they have steadily ceded market share to European, Japanese and Chinese competitors.

The deal may also prompt a wave of bilateral trade pacts as an alternative to stalled multilateral negotiations under the World Trade Organization, economists said today.

As South Korean workers and farmers protested in the streets — one man even set himself on fire on Sunday — negotiators haggled to a bitter end early today.

The breakthrough came when both sides compromised on the most sensitive, deal-breaking issues. Washington dropped its demand that the South Korean government stop protecting its politically powerful rice farmers, and Seoul agreed to resume imports of American beef, halted three years ago over fears of mad cow disease, if, as expected, the World Organization on Animal Health declares United States meat safe in a ruling scheduled in May.

South Korea also agreed to phase out the 40 percent tariff on American beef over 15 years. It will remove an 8 percent duty on cars and revise a domestic vehicle tax system that United States officials say discriminates against American cars with bigger engines.

The United States will eliminate the 2.5 percent tariff on South Korean cars with engines smaller than 3,000 cubic centimeters, phase out the 25 percent duty on trucks over 10 years, and remove tariffs, which average 8.9 percent, on 61 percent of South Korean textiles.

The deal “will generate export opportunities for U.S. farmers, ranchers, manufacturers, and service suppliers, promote economic growth and the creation of better paying jobs in the United States,” President Bush said in a letter notifying Congress of his intention to sign the accord.

President Bush said the trade pact would strengthen ties between the two countries — an assessment shared by analysts who had repeatedly warned that the alliance, forged during the Korean War, has frayed during the terms of President Bush and President Roh Moo Hyun of South Korea, largely over policy toward North Korea.

The deal is the biggest of its kind for the United States since the North American Free Trade Agreement in 1994 with Canada and Mexico. It is Washington’s first bilateral trade pact with a major Asian economy.

Studies have estimated that the accord will add $20 billion to bilateral trade, estimated last year at $78 billion. Potential gains to the United States economy range from $17 billion to $43 billion, according to Usha Haley, director of the Global Business Center at the University of New Haven. South Korea’s exports to the United States are expected to rise in the first year by 12 percent, or 5.4 billion.

Analysts doubt that the deal will provide an immediate lift to American car manufacturers. Only 5,000 American cars were sold here last year, while South Korean automakers sold 800,000 vehicles in the United States. The gap accounted for 80 percent of the $13 billion United States trade deficit with South Korea last year.

American officials hope that the deal will placate American angry cattle farmers, who are struggling to recapture global market share after an outbreak of mad cow disease in late 2003. Before the import ban, South Korea was the world’s third-largest consumer of American beef, importing $800 million a year.

Consumers in both countries are the deal’s biggest winners. Hyundai cars and Samsung flat-panel TV sets, as well as Korean-made clothing, will become significantly cheaper in the United States.

American beef and oranges, as well as Ford cars and Toyota vehicles built in the United States, will be more affordable in South Korea. South Korean TV networks will be able to broadcast more American movies and TV series like “CSI,” which already command a huge following here, after Seoul eases a cap on foreign content to 80 percent of total airtime from 75 percent.

The deal entails heavily political costs for South Korea, which can expect the loss of tens of thousands of farming jobs. Up to 2 trillion won, or $2.1 billion, in agricultural revenue will be lost as cheap American corn, soybeans and processed foods flood the country, according to studies by South Korean economists.

Once hailed for seeking a greater distance from Washington, President Roh now stands accused by his leftist supporters of turning his country into a “51st state of the United States of America.”

But the South Korean government is desperate to reverse a decline in its competitiveness, as a resurgent Japan outspends it in research and development and China offers an ever increasing variety of goods produced with cheap labor.

“President Roh believes the free-trade agreement with the United States will serve as a spring board for South Korea to become an advanced economy,” said President Roh’s spokesman, Yoon Seung Yong.

Originally, United States officials said a deal needed to be wrapped by March 31 but later said the deadline was April 1. Soon after midnight Sunday, the White House released President Bush’s letter to congressional leaders, dated April 1.

Congress must ratify or reject a trade deal submitted under the special authority, but cannot amend it.



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I hope this free trade deal turns out better than NAFTA. The american people seam to end up on the loosing end of most trade deals.

The price of steak is about to go up.

Dixie

"Trade Deals" have only benefited the rich and powerful. Everyone else experiences layoffs, along with the loss of careers, businesses, property, investments, and bank accounts. IMO, there are no "GOOD" trade deals.

Anyone know of a Trade deal that has not hurt America in the Last 50 years? Anyone?

I'm hoping we can stop the President's fast track authority this year. It's not good business when the American workers have no voice or representative to negotiate the deals!