June 4, 2006

US, Korea face tough issues in free-trade talks

By Doug Palmer

WASHINGTON (Reuters) - The United States and South Korea
begin free-trade talks this week that could put relations to
the test as negotiators grapple with tough issues ranging from
autos and agriculture to relations with North Korea.

The pact has been billed as the biggest U.S. free-trade
deal since the North American Free Tree Agreement and the most
important development in U.S.-South Korean relations since the
two countries signed their military alliance in 1953.

The talks have also spawned fears of job losses in
vulnerable industries on both sides of the Pacific. About 50
South Korean farmers, students and labor unionists are expected
to join hundreds of U.S. activists in Washington on Sunday to
march against the agreement.

Negotiators want to reach a deal by the end of this year so
Congress can vote on it before the White House authority to
negotiate trade agreements that cannot be amended expires in

South Korea is the world's 10th-largest economy and the
United States' seventh-largest trading partner, with two-way
goods trade totaling about $72 billion last year. But South
Korea has a much more protected market than the United States.

South Korean tariffs for industrial and consumer goods
average 11.2 percent, compared with 3.7 percent in the United
States. The difference is even greater in the farm sector,
where South Korean tariffs average 52 percent, more than 4
times the U.S. level of 12 percent. The pact would reduce
duties on both sides to zero percent for bilateral trade.

While both governments believe tearing down barriers to
trade and investment would be good for economic growth and
prosperity, the United States will be dealing with some of the
toughest trade negotiators in the world, said Ed Gresser, trade
director for the Progressive Policy Institute.

"The most important issues to both sides are not likely to
be easy to resolve," Gresser said.

Rice talks are expected to be particularly difficult, with
South Korea signaling it will resist efforts to pry open its
heavily protected market to more imports.

"For us, food security is real," Korean Trade Minister
Hyun-chong Kim said earlier this year. "Back in the 1950s, when
there was a Korean war ... people starved to death because
there was no food. ... It affects our national psyche."


Many U.S. lawmakers complain South Korea remains closed to
U.S. autos despite previous promises to open up.

That has prompted House of Representatives Minority Leader
Nancy Pelosi and other Democrats to demand South Korea show
"measurable and meaningful market access" for U.S. automakers
before the United States drops remaining tariffs.

"What we're saying is there's got to be an end to the
one-way street," said Rep. Sander Levin, a Michigan Democrat.
"We're telling (U.S. trade negotiators) if you don't address
these high walls you're going to hit a stonewall in Congress."

Another tough issue concerns products made in a South
Korean-run industrial park in North Korea.

Seoul sees the Kaesong Industrial Park as a model for the
eventual unification of the Koreas and wants goods made there
to qualify for duty-free treatment in the U.S. market. That is
likely a tough sell in Congress, where many lawmakers oppose
any loosening of sanctions on Pyongyang.

South Korean President Roh Moo-Hyun, whose party suffered a
crushing defeat in recent local elections, needs Kaesong in the
deal, said Grace Parke Fremlin, an attorney and partner in
Steptoe and Johnson's international group.

"Getting U.S. support on this issue is important to the
Korean government's ability to garner broad support for the
free-trade agreement from the Korean public," Fremlin said.