Autos and Beef Impede U.S.-Korea Free Trade Agreement

11/12/2010

Outstanding issues regarding automobiles and beef kept U.S. and Korean negotiators from reaching an agreement on a Korea-U.S. Free Trade Agreement (KORUS FTA) this past week. Bush Administration negotiators signed the original KORUS FTA in 2007, however it has seen opposition in Congress because of barriers to U.S. auto and beef exports. President Obama had hoped that U.S. Trade Representative Ron Kirk would be able to reach an agreement with his Korean counterpart this past week that would allow the KORUS FTA to move forward. President Obama and South Korean President Lee stated in a press conference that they intend to continue discussions regarding the KORUS FTA in the near future.

Beef and autos stand as two major points of contention blocking an agreement. South Korea has indicated a willingness to make concessions on certain regulatory issues involving autos, including on safety standards, fuel efficiency standards, and emission standards. South Korea has resisted U.S. demands to limit the amount of duty drawback s that essentially allow cars made with Chinese parts to be imported to the U.S. tariff-free. U.S. auto makers including Ford Motor Co. and the United Auto Workers oppose the 2007 agreement and have demanded that any FTA must lead to a fully open Korean auto market.

Beef is proving an even more difficult negotiating point, as Korea is strongly resisting U.S. demands for increased market access. U.S. beef access to South Korea is currently limited to meat from cattle up to 30 months of age due to fears over the possible presence of Bovine Spongiform Encephalopathy (BSE) in U.S. sources. Despite Korean speculation that the U.S. might back down from its demand that South Korea accept beef from cattle of all ages, the United States has held firm on the issue. Some U.S. beef industry groups have indicated that they would accept a deal in which Korea agrees to fully open its beef market without actually setting a deadline. U.S. beef producers and exporters want the FTA quickly concluded, as it illuminates Korea’s import duties on beef. Korea also resisted U.S. attempts to delay certain tariff phase-outs that were a part of the initial agreement.

The U.S. and South Korea conduct nearly $68 billion in trade per year. Passing the KORUS FTA would help President Obama achieve his goal of doubling American exports in the next five years. President Obama’s decision to walk away from a making a deal in South Korea this week that did not meet his goals of achieving reciprocal trade garnered the praise of some Congress members, including Rep. Sander Levin, the head of the House Ways and Means Committee. Continued delays in reaching an agreement with South Korean, however, creates the risk that other nations will believe that the U.S. lacks the political will to complete and pass a trade agreement. Foregoing a trade deal also creates a risk of losing sales to Australia, which is also in the process of negotiating a free trade agreement with South Korea, and to the EU, which has a trade deal with South Korea that is expected to go into effect next year.