Korea, US Fail to Agree on FTA, Raising Concerns about Obama’s Trade Policy

17 November 2010

Korea and the United States last Thursday failed to wrap up talks on a free trade agreement, denying US President Barack Obama a heavily anticipated foreign policy achievement, and raising questions for the future of his administration's trade policy.

Despite all-night talks between negotiators, and face-to-face discussions between Obama and his Korean counterpart, Lee Myung-bak, the two sides failed to reach understandings on beef and auto trade that would enable the long-awaited trade deal to go towards ratification. The FTA, negotiated and signed by the George W. Bush administration in 2007, has languished in the Democrat-controlled Congress. Obama announced at the Group of 20's Toronto summit in June that he would push to secure modifications that would facilitate the FTA's ratification by Congress in time for the 11-12 November Seoul gathering of leaders from the world's biggest economies. That deadline has now been missed.

Lee and Obama tried to put a positive spin on the setback, telling a joint press conference that negotiators would keep trying to iron out remaining differences in the weeks to come.

Prior to the negotiations in Korea, it was clear that major US manufacturers Ford and Chrysler, as well as the United Auto Workers union were against the deal, arguing that it would not redress what they see as the lopsided balance of bilateral auto trade. Trade in beef has been a bilateral trade irritant since a US outbreak of mad cow disease in 2003 prompted Seoul to ban imports of US beef; Korea's market has only been reopened to meat from younger animals thought to be at lower risk for the disease, but even the partial resumption of beef imports prompted angry protests about food safety. However, a Reuters report last week suggested that the US beef industry now favoured an immediate agreement, fearing that if Washington held out for greater concessions on beef trade, it would allow producers from Australia and Canada - which have started FTA negotiations of their own with Korea - to get in the door first.

Accounts vary as to why the talks in Seoul failed. The New York Times quoted US officials as saying that auto trade was the main sticking point. With the FTA set to remove tariffs on auto trade between the two countries, Washington has been pushing South Korea to relax environmental standards to make it cheaper for US carmakers to comply. The US auto industry blames Korean emission, mileage, and other standards, rather than consumer tastes, for the imbalance in car sales. Other sources say that it was a last-minute demand by the US for Korea to open up its market to beef from cattle older than 30 months that made negotiators realise that a deal would prove impossible by Thursday.

Analysts suggest that if the US and Korea cannot strike a deal in the upcoming weeks, it may be a sign that little will be achieved in terms of US trade policy over the next two years.

"U.S. Beef Exporters Urge Speed, Not Changes, in South Korean Trade Accord," REUTERS, 10 November 2010; "Stalled South Korea Trade Deal Is Setback for Obama," NEW YORK TIMES, 11 November 2010.

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