[Ip-health] Bloomberg: U.S. Reaches Free-Trade Agreement With South Korea

[Thiru Balasubramaniam]

U.S. Reaches Free-Trade Agreement With South Korea (Update2)

By Heejin Koo

April 2 (Bloomberg) -- The U.S. and South Korea reached a free-trade
accord that, if ratified by Congress, would be the largest for the U.S.
since the North American Free Trade Agreement in 1994.

``We have a deal,'' Stephen Norton, a spokesman for the Office of the
U.S. Trade Representative, said in a phone interview. He declined to
give further details ahead of a briefing to be held later today.

U.S. exports to South Korea may rise by $19 billion annually under a
proposed accord, according to the U.S. International Trade Commission.
An agreement would also help reduce the U.S.'s $9.5 billion trade
deficit with South Korea. South Korea stands to get a $10 billion jump
in exports to the U.S., the commission said.

The accord ends 10 months of negotiations that peaked with almost
round-the-clock talks in Seoul for the past two days. Negotiators were
trying to meet a deadline for notifying Congress. President George W.
Bush's authority to negotiate trade deals that can't be altered by
Congress expires June 30.

The marathon negotiations sought to resolve the last sticking points,
including South Korean imports of U.S. beef, rice and automobiles, and
the inclusion of South Korean goods made in North Korea in the accord.

The accord has been the focus of violent protests by South Korean
farmers who opposed opening the nation's markets. Two people died in
clashes in 2005 and 60 people were injured last year.

Agricultural Production

South Korea's agricultural production may decline by as much as 2
trillion won ($2.1 billion) a year under a free-trade agreement
proposed with the U.S., according to the Seoul-based Korea Rural
Economic Institute. That compares with total agricultural output last
year of about 35 trillion won, it said in an Aug. 4 report.

Production of beef, chicken and other meats may fall by as much as 1
trillion won a year, while bean output may decline by 300 billion won,
as U.S. imports gain ground, the report said.

A protester set himself on fire yesterday on the road that leads into
the hotel where the negotiations were taking place. Riot police doused
the fire, but the man remains in critical condition with burns to 63
percent of his body, according to the Hallym Medical Center.

About 8,000 protesters staged sit-ins and rallies in front of the Seoul
City Hall and in front of the U.S. Embassy on March 30. Another 2,500
people gathered across the road from the U.S. Embassy and held a
candlelit vigil.

The U.S. wants South Korea, formerly the third-largest buyer of
American beef, to relax customs rules such as rejecting individual
shipments that contain bone fragments. Bush said last week that
persuading South Korea to remove restrictions on beef imports was ``an
important part of our foreign policy.''

Beef Tax

A fully open South Korean market for U.S. beef would be worth about $1
billion a year, according to Greg Doud, chief economist for the
National Cattlemen's Beef Association.

U.S. dairy exports to South Korea last year were valued at $60 million,
according to the International Dairy Foods Association, the U.S. lobby
group that represent a $90 billion a year industry. Most of the dairy
product imported from the U.S. to South Korea is in the form of baby
formula, on which there is a tariff of 36 percent.

The free-trade agreement, if ratified, would be the biggest for the
U.S. since the 1994 accord that linked it with Mexico and Canada. Under
fast-track treatment, Congress must accept or reject trade agreements
without change.

The deal would be South Korea's largest if approved by its legislature.
It has already signed such accords with Chile, Singapore and the
European Free Trade Association, consisting of Switzerland, Norway,
Iceland and Liechtenstein.

Auto Tariffs

South Korea wants the U.S. to lower its 2.5 percent tariff on
automobiles, while the U.S. is seeking to lower South Korea's average
duty of 8 percent on automobile imports.

The U.S. also wants South Korea to trim taxes on cars with larger
engines, the kind Ford Motor Co. and DaimlerChrysler AG are seeking to
export to Korea. The companies claim that Korea uses a combination of
tariffs, taxes and regulation to keep out their vehicles. As a result,
last year Korea sold 700,000 vehicles in the U.S. while the U.S. sold
4,000 in Korea.

If the U.S. eliminates its 2.5 percent automobile tariff, South Korea's
auto exports will likely increase by about $860 million next year,
according to forecast by the Seoul-based Korea Institute for Industrial
Economics & Trade.

Last year, South Korea sold $8.6 billion worth of cars to the U.S.,
while U.S. cars sales in South Korea reached about $90 million,
according to the Korea Automobile Manufacturers' Association.

In Dispute

South Korea is also trying to include in the deal goods made at an
industrial complex in the North Korean city of Gaeseong. The U.S. has
said it doesn't want those products covered by a trade agreement. South
Korea began financing the 25-acre Gaeseong Industrial Complex in 2002
as part of its policy of engaging with North Korea.

One dispute has centered on the U.S. bid to put in place an
investor-state dispute system, which would allow investors to file a
suit with an international arbitration body if the policies of other
countries inflict damage upon investments.

To contact the reporter on this story: Heejin Koo in Seoul at
hjkoo@bloomberg.net
Last Updated: April 2, 2007 01:24 EDT

---------------------------------
Thiru Balasubramaniam
Geneva Representative
Knowledge Ecology International (KEI)
voice +41.22.791.6727
fax +41.22.723.2988
mobile +41 76 508 0997
thiru@keionline.org