Hope for US-Korea Free Trade Pact

The proposed Korean-US free trade agreement has been languishing in political limbo since it was signed in June of 2006, after a series of hard and detailed negotiations secured an agreement just in time for an important legal deadline in the United States. However, it appears about to be given new impetus when US President Barack Obama meets with Korean President Lee Myung-bak at the G-20 parley in Seoul on Nov. 11 and 12.

The agreement, hammered out between the George W. Bush and Roh Moo-hyun administrations, called for both sides to more fully open the manufacturing, agriculture and service sectors of their economies to the other. Certainly it is a pact with far-reaching implications. Korea is the US's seventh-largest trading partner, with 2010 bilateral trade in goods and services for the first eight months in goods amounting to US$57.1 billion, and with the US running a US$5.3 billion deficit. If approved, the Korea-US Free Trade Agreement would render 95 percent of US-Republic of Korea trade in consumer and industrial products duty-free within three years.

The agreement quickly ran into opposition on both sides of the Pacific after Bush and Roh concluded it. Koreans opposed opening their agricultural and service sectors while American manufacturers, such as big three American automakers, resisted exposing themselves to greater competition. Both sides wanted the other to ratify the agreement first in order to get some political coverage, but that proved impossible with the American midterm elections approaching.

Once the Democrats took control of Congress, the prospects of the agreement being ratified by Washington dropped even further and it was shelved.

Meanwhile, the two countries began to implement s-called side agreements related to the free trade agreement itself. The most publicly contentious one was the loosening of a ban on American beef, implemented in the wake of fears over the possible presence of mad cow disease in the US herd, in 2008. That led to massive protests against Lee's government.

Things did not look up much when Obama secured the presidency. He vacillated publicly between open trade and protectionist stances during his election campaign and the Korea free trade pact was not anywhere among his top priorities when he took office. However, he has come around on that issue over the past year and now supports it.

But even if he did want to push the FTA through Congress, pressure from labor unions made it nearly impossible for the Democrats controlling Congress to consider it, especially as support for Democrats both in the White House and the Congress fell sharply, making labor support for this week's national midterm polls crucial. While the pro-trade Grand National Party controls Korea's National Assembly, they still do not want to face the political heat of passing the FTA unless they can be sure that their American counterparts will follow suit.

With the more trade-friendly Republican Party set to make gains in the American legislature, it may well be that the time is right to move for approval of the trade pact when the Congress reconvenes in early 2011, which explains why Obama and Lee are determined to hammer out any outstanding issues before the G20 summit in Seoul.

In their telephone talks, the leaders agreed that the FTA "should be forged to promote free trade in the world and upgrade the South Korea-US alliance by a notch," spokeswoman Kim Hee-jung told reporters.

Moving forward on the trade pact would be a major victory for Lee, as it would finally give him the deal that he took so much heat over in 2008. It would also give Obama a foreign policy success, something that has proved elusive given his focus on domestic issues. So it may well be that with both sides so ready to get the deal done, the time could arrive sometime next year for a signature.

That reckons without plenty of other problems, however. The United States and the EU have both repeatedly complained that South Korea has employed a wide range of non-tariff barriers that kept out US goods. In the middle of the last decade, for instance, Korea directed all purchasers of imported cars to submit their taxes for audit. After the US complained, the policy was dropped. After that, tax authorities ordered all imported car dealers to report the names, addresses and relevant personal information to tax authorities on the buyers of foreign cars. The country has nine different layers of tariffs and taxes on autos.

The Koreans have also objected to the degree of tint on imported car windows, frequencies for keyless entry systems, bumper configuration, power window requirements and the size of license plates.

Reuters reported in April 2009 that the European Union complained that South Korea has five different government agencies overseeing beverage labeling, with foreign liquor companies required to provide 18 different pieces of information for labels, driving up costs and causing delays.

Other problems face the construction industry, banking, chemicals, cosmetics, insurance, legal services, medical devices, pharmaceuticals and real estate, Reuters reported. Until April 2009, Reuters reported, South Korea required all mobile phones sold to contain Korean-market specific technology, which led many firms to avoid the country due to re-engineering difficulties. Those who try to enter face stiff competition due to market saturation by LG and Samsung handsets.

At that, Korea is following in the footsteps of Japan and China, both of which have put considerable non-tariff roadblocks in the way of foreign importers. So even if the free trade pact is ratified, breaking into Korea's market isn't going to be easy. ,

Andy Jackson blogs for the Asian Correspondent, which with Asia Sentinel has a content-sharing agreement, under the title Flying Yangban.