South Korea Pushes Trade Deals with US, EU on Summit Sidelines

8 April 2009

South Korean officials engaged in high-level dialogue on two major potential free trade agreements, one with the United States and the other with the European Union, on the sidelines of the G20 summit in London last week.US officials signalled that a conclusion may be within reach on the so-called KORUS deal, but the agreement with the EU, which many had expected to be concluded at the summit, seemed to hit an impasse, forcing further negotiation.
 
South Korean President Lee Myung-bak, in a meeting with his US counterpart Barack Obama, agreed that a bilateral trade pact with the US could bring benefits to both countries. Each of the leaders pledged his commitment to charting a way forward on the agreement, which was concluded in 2007 but has since languished in the US Congress.
 
The principle stumbling block to congressional approval of the deal is its potential effects on the ailing US automotive industry (see BRIDGES Weekly, 4 April 2007, https://www.ictsd.org/bridges-news/bridges/review/us-and-south-korea-conclude-free-trade-agreement).  But despite the concerns of US lawmakers, Seoul has been reluctant to return to the negotiating table since the South Korean parliament has already approved the deal in its current form.
 
One of the largest economies in its region, South Korea is a major automotive exporter to the United States, having sold roughly 600,000 cars in the US in 2008. In contrast, only 7,000 US automobiles reached Korean shores last year. US automakers fear that an elimination of tariffs on Korean auto imports would flood the US market with even more foreign cars.  
 
The summit also provided an opportunity for Korean Trade Minister Kim Jong-Hoon and EU Trade Commissioner Catherine Ashton to take a stab at wrapping up negotiations on a bilateral trade pact. Although the EU reported progress in the talks, disagreement persisted on the issue of duty drawback, a policy that would return import tariff duties to companies if they used the imported materials in the production of products for export. EU negotiators say duty drawback would provide unfair support for Korean manufacturers.
 
In a statement released Thursday, the EU noted that despite substantive discussions aimed at finding compromise, gaps could not be narrowed.
 
The impasse came as a surprise to many observers, as just weeks ago it was reported that the two nations were “very close” to concluding an agreement (see BRIDGES Weekly, 18 March 2009, https://www.ictsd.org/bridges-news/bridges/news/eu-south-korea-appear-se...), and it was expected by many that nearly two years of negotiation would be concluded in London with the announcement of the FTA.
 
The 27-member bloc represents a massive market for South Korea. The EU is the largest source of direct investment in Korea; trade between the two partners totalled roughly US$ 80 billion in 2008.
 
Like the United States, Brussels has also hesitated to open its market to Korean auto producers. But one observer stressed that any similarities to Washington’s deal end there. “The problems seen with KORUS haven't been repeated for the Korea-EU accord,” said Hans Bernhard Merforth, vice president of the European Union Chamber of Commerce in Korea.
 
Merforth told the Korea Times that the EU deal has received greater public support and features stronger internal dispute resolution mechanisms than its US counterpart.
 
But Seoul intends to remain firm on the drawbacks, as a failure to do so would “severely undermine the effect of tariff reductions” according to Lee Hey-min, South Korea’s deputy minister for trade. 
 
“We expect both sides to meet again next month to iron out differences on duty drawbacks and other remaining issues,” said Hey-min.
 
ICTSD Reporting; “Skorea-US Trade Deal Could Come Sooner: Advocate,” AFP, 6 April 2009; “EU, South Korea, hold off on trade deal,” UPI, 6 April 2009; “SKorea, EU fail to reach free-trade deal,” AFP, 3 April 2009; “Korea- EU FTA Close but Fine Print Remains,” The Korea Times, 2 April 2009.

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