South Korea and US agree on auto deal to save trade pact

Reuters, Saturday 4 Dec 2010

The US and South Korea strike a deal on auto issues that blocked action towards a bilateral free-trade agreement for three years.

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US President Barack Obama has said the revised deal struck between the United States and South Korea on auto issues Friday would boost US exports by $11 billion and support 70,000 American jobs.

"I look forward to working with Congress and leaders in both parties to get this done and to ensure that America competes aggressively for the jobs and markets of the 21st century," Obama said in a statement.

But the agreement will likely divide Obama's fellow Democrats, meaning he will have to work closely with Republicans to win passage of the Korea-US Free Trade Agreement. Both the Senate and House of Representatives must approve the deal for it to become law. Supporters hope the changes agreed on this week could lead to action on a free trade agreement in early 2011.

Action on the prospective FTA has been delayed mainly by US auto and beef industry concerns. In a sign of how the new deal changed the political landscape, Ford Motor Company, previously one of the biggest critics of the deal, said it now supported it.

"These new provisions provide Ford greater confidence that we will be able to better serve our Korean customers. We deeply appreciate the tireless efforts of the Obama administration and Congress to improve this agreement and open the Korean auto market," said Ford Chief Executive Alan Mulally.

One of Ford's strongest allies, the outgoing Democratic chairman of the House of Representatives Ways and Means Committee, also voiced support for the deal. "It is important for American manufacturing and American jobs. It is also an important step towards a global rules-based trade system," said Michigan Representative Sander Levin.

But Senate Finance Committee Chairman Max Baucus, a Montana Democrat, said he was "deeply disappointed" his concerns about access to the South Korean beef market were not resolved and would reserve judgment on the deal until they were.

Republican lawmakers said approving the deal would provide a critical counterbalance to China in the fast-growing Asia region. It also would help US companies remain competitive with European firms when a European Union-Korea FTA goes into force next year.

"This is a big win for American employers and workers," said Representative Dave Camp, a Michigan Republican who will chair the House Ways and Means Committee next year. Camp echoed some of Baucus's concerns on beef.

Slower phase-out on US tariffs

The two countries signed their original trade deal, which is known as KORUS, 30 June 2007.

The prospective FTA would be the second largest US free trade pact after the North American Free Trade Agreement with Canada and Mexico in the mid-1990s.

The United States exported 7,663 cars and light trucks to South Korea in 2009, while it imported 476,857 from automakers there, according to US Department of Commerce figures.

Ford and its supporters in Congress complain that lopsided trade is due to South Korean tax and regulatory barriers that KORUS fails to address adequately.

They were also unhappy with the schedule for phasing out US car and truck tariffs under the pact.

As part of the revisions agreed over several days of talks this week in Columbia, Maryland, South Korea will let the United States keep a 2.5 per cent tariff on Korean-built cars for five more years, rather than cutting it immediately.

The new supplement agreement allows 25,000 cars per US automaker to qualify for entry into the South Korean market based on US safety standards. That is about four times the amount agreed on under the deal struck in 2007.

It also allows the US to keep a 25 per cent tariff on trucks until the eighth year, instead of beginning to reduce it in the first year. The US will still have to eliminate the duty in year 10 of the pact.

South Korea is no longer required to eliminate immediately its eight per cent tariff on US auto imports, but will reduce it to four per cent for four years before eliminating it. Seoul will still immediately eliminate a 10 per cent tariff on US trucks under the revised pact.

Elsewhere, South Korea was given an additional two years — until 2016 — to eliminate duties on some US pork products.

"We made substantial progress in our discussions," US Trade Representative Ron Kirk said in a statement after his final meeting with South Korean Trade Minister Kim Jong-hoon.

Kim said he hoped this week's work would allow US and South Korean lawmakers to approve the FTA deal in 2011.

South Korea is the United States' seventh largest trading partner and eighth largest export market. Last year, the United States exported $28.6 billion worth of goods to South Korea and imported $39.2 billion of products from the country, for a US trade deficit of $10.6 billion.

The two countries agreed to work with Baucus to address his concerns about remaining restrictions on imports of US beef, but South Korea did not commit to any immediate action, sources familiar with the talks said.

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