Monday, September 11, 2006

US-South Korea free trade negotiations stalled, future of agreement uncertain

Since January of 2006, the U.S. and South Korea have been engaged in negotiations to finalize a free trade agreement. If the countries are able to agree the resulting FTA will be the largest such agreement for the U.S. since the North American Free Trade Agreement (NAFTA); South Korea is the United States’ seventh largest trading partner. The countries have expressed a desire to complete negotiations by the end of 2006 in order to ensure that the U.S. Congress is receives the agreement for consideration before “fast-track” authority — which permits Congress to approve trade agreements by a simple majority vote – expires in June of 2007. Whether this goal is attainable has been called into question by the fact that the latest round of negotiation between the two nations ended without resolving the most problematic issues, most notably agriculture and products produced in the Kaesong Industrial Complex, a South Korean venture just across the border in North Korea.

On the agricultural front, South Korea the world’s top rice producer, is insisting that this crop be excluded from the agreement. This is a highly charged issue in South Korea, where rice farmers have mounted significant protests to such a provision. Nonetheless, the United States is unlikely to accept such a demand. While some observers believe South Korea might agree to a long-term tariff phase-out, such a concession may be less likely should the agreement include provisions which permit appeals by investors for accelerating tariff phase-out schedules.

The beef trade has been another thorny issue, but appears to be close to resolution, barring unforeseen additional developments. South Korea was the third largest global consumer of U.S. beef until it halted imports in 2003 in response to the appearance of mad cow disease in U.S. beef. South Korea agreed to lift the ban earlier this year — in exchange for initiating free trade talks with the U.S. Until very recently, U.S. beef producers had consistently failed to meet South Korean standards, and the ban had stayed in place. Recent reports indicate that U.S. producers have begun to meet standards and that as a result, the lifting of the ban for some beef products is imminent.

Perhaps the most interesting issue under debate is the Kaesong Industrial Complex. The United States claims it does not have negotiating power to include products from that site because of its location in North Korea. While the real issue here may well be the United States’ rocky political relations with North Korea, observers suggest that an injection of capitalism into that economy, in addition to encouraging requested South Korean concessions, could make more of a difference with respect to undermining the totalitarian regime than the soldiers massed at the border. Additionally, South Korea’s other trading partners, including the Association of Southeast Asian Nations (ASEAN) and four European countries have not allowed Kaesong to present an obstacle to their negotiated trade agreements with South Korea.

“US official says rice, beef compromises key in trade talks with South Korea,” Yonhap News (September 7, 2006)

“Seattle talks a defining moment in U.S.-Korea trade,” Seattle Times (September 8, 2006)

“Tough US-Korea trade talks end in disappointment,” Washington Post (September 9, 2006)

“US beef given green light,” Vancouver Sun (September 10, 2006)

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