South Korea, U.S. reach free trade agreement

Associated Press • Apr 2, 2007 at 11:51 AM

SEOUL, South Korea - The United States reached its biggest free trade agreement since NAFTA on Monday, clinching a last-minute deal with close security ally South Korea that it hopes will bolster bilateral ties and provide added spark to the Doha Round of global trade talks.

"The free trade agreement we are announcing today is a historic accomplishment," Deputy U.S. Trade Representative Karan Bhatia told reporters after eight days of talks. "It is an agreement for the 21st century."

The deal, which requires approval by lawmakers in both countries, is the biggest for Washington since the North American Free Trade Agreement signed in 1993, and is expected to lead to more than 90 percent of U.S. exports to South Korea being duty free within three years.

In Washington, two key senators warned though that the agreement will not win congressional approval unless South Korea drops a ban on the import of U.S. beef that it imposed in December 2003 after the first reported U.S. case of mad cow disease. Negotiators were unable to resolve the issue as part of the free trade talks.

"I will oppose the Korea Free Trade Agreement, and in fact I will not allow it to move through the Senate, unless and until Korea completely lifts its ban on U.S. beef," said Sen. Max Baucus, D-Mont. and the chairman of the Senate Finance Committee, which handles trade issues.

"This agreement is dead on arrival until the beef issue gets resolved," said Sen. Chuck Grassley of Iowa, the top Republican on the Finance Committee. He said while U.S. pork and soybean producers stand to benefit he was disappointed that South Korea refused to open its rice market.

While many business groups from high-tech to music voiced support for the deal, auto executives at Ford Motor Co. and Daimler Chrysler AG's U.S. unit Chrysler Group said they would urge rejection because negotiators failed to do enough to lift Korea's high barriers to U.S.- made cars.

"This agreement as we understand it will not open the Korean market to free trade in automobiles," said Steve Biegun, a Ford vice president.

It is the biggest trade deal ever for South Korea, which in nearly 50 years has grown from one of the world's poorest countries to become its 10th-largest economy.

"We cannot become an advanced country without challenging ourselves," President Roh Moo-hyun said in a televised address, addressing the concerns of many who felt South Korea cannot compete against an economy 15 times bigger.

President Bush, who phoned Roh last week to reconfirm their commitment to help push through a deal as negotiators were stuck on contentious issues such as auto trade, said the deal went beyond economics.

"The agreement will also further enhance the strong United States-Korea partnership, which has served as a force for stability and prosperity in Asia," Bush said of Washington's first free trade deal in Northeast Asia, which also includes powerhouse economies Japan and China.

South Korea and the U.S. agreed to eliminate and lower tariffs and other trade barriers in a wide range of industrial goods and services, including automobiles, agricultural products and financial services. The agreement also covered sectors such as e-commerce. Bhatia said that the bilateral deal is positive for multilateral efforts such as the Doha Round of global trade talks. "Trade liberalization begets more trade liberalization," he said. "Doha remains the Bush Administration's No. 1 free trade priority, but the benefits to be accrued from a significant bilateral deal like this Korea deal are significant." The so-called Doha round of trade talks has stumbled since its inception five years ago in Qatar's capital, and collapsed in July. The U.S.-South Korea deal culminated 10 months of negotiations with a final week of intense haggling that yielded an agreement and allowed Bush's notice to get to Congress "literally minutes before the deadline expired," Bhatia said. Negotiations began last June in Washington amid much fanfare. Both sides strongly advocated a deal, saying it would boost economic growth in two countries, which already do more than $75 billion in trade a year. Estimates vary about how much an agreement could boost bilateral trade. A study by the U.S. International Trade Commission in 2001 concluded the figure could rise as much as $29 billion. South Korea, under pressure from farmers who were worried that eliminating protections for rice would destroy the domestic industry, succeeded in keeping the staple food out of the deal. But Seoul agreed to lower tariffs on other agricultural goods, including U.S. oranges. "We kept our promise that rice will be excluded from the market opening," South Korean Trade Minister Kim Hyun-chong told reporters. The two sides also agreed to cut and phase out tariffs on automobiles, with South Korea also agreeing to change its auto tax system for larger vehicles, which the U.S. claimed was discriminatory. South Korea, home to global brands Hyundai Motor Co. and Kia Motors Corp., sells more than 700,000 vehicles a year in the United States, while U.S. makers manage to sell about 5,000 in South Korea. In the final round of talks in Seoul, South Korean Trade Minister Kim Hyun-chong, Bhatia and their subordinates held eight days of marathon talks, sometimes going all night, to clinch the deal. The negotiators faced added pressure because Bush must notify Congress that he plans to sign a trade agreement 90 days before his special Trade Promotion Authority expires July 1, meaning the agreement had to be concluded by Sunday in the United States. That so-called "fast track" authority allows Congress to ratify or reject, but not modify, trade deals negotiated by the White House. South Korean labor and farm groups have denounced the free trade deal, demonstrating in Seoul and other cities, saying an influx of U.S. imports will cost jobs and harm livelihoods. -- Associated Press Writers Burt Herman, Kwang-Tae Kim and Bo-Mi Lim in Seoul contributed to this report. AP-CS-04-02-07 1749EDT

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