[Ip-health] Wall Street Journal: U.S., South Korea Reach Trade Pact

[Thiru Balasubramaniam]

U.S., South Korea Reach Trade Pact
By EVAN RAMSTAD
April 2, 2007 12:41 a.m.; Page A5

SEOUL -- Now that the U.S. and South Korea have reached a landmark
free-trade agreement, it faces the next challenge: Getting approval
from politicians, economists and business leaders in both countries.

The two countries announced a free-trade deal Monday afternoon after
negotiations that began 14 months ago ended in marathon bargaining
sessions over the weekend. The agreement aims to build on a
relationship that amounted to $75 billion in two-way trade last year.

The agreement is a boost to U.S. President George W. Bush and South
Korean Presiden Roh Moo Hyun, who are both lame duck presidents coping
from low support ratings and slowing economies. For Mr. Bush, the deal
proves that the U.S. can forge major bilateral trade pacts as global
trade talks flounder. For Mr. Roh, the deal may be the largest economic
accomplishment of his five-year presidency, which ends early next year.

But the deal is narrower in scope than the countries planned when they
began formal talks. And the hard work is yet to come. Leaders of the
two countries will face an uphill battle winning approval the trade
deal needs from lawmakers in both to take effect. In recent weeks, key
members of both the U.S. Congress and South Korea's National Assembly
voiced skepticism about the uncompleted deal.

The U.S. and South Korea needed to finish the deal by late Sunday U.S.
time for it to reach the U.S. Congress ahead of a deadline tied to the
expiration of the Bush administration's trade negotiating powers.

The two sides compromised on the food dispute that threatened to
scuttle the deal in the last days of talks. The U.S. wanted South Korea
to end a three-year boycott on U.S. beef and accept imports of rice. In
the end, South Korea agreed to resume purchases of U.S. beef and the
U.S. dropped its insistence on rice.

To settle another major dispute, South Korea agreed to drop tariffs and
other restrictions on imported cars. Those penalties have created one
of the most lopsided car markets in the world: just 3.5% of cars sold
last year in Korea were foreign-made, compared with 37% in the U.S. As
part of the deal, the U.S. will also drop a much smaller tariff on
Korean cars.

A complete draft of the deal will take a week or two, following
meetings by trade lawyers and translators to settle its price wording.

Forecasts before the agreement showed that trade could grow to between
$90 billion to $100 billion within three years after a pact. South
Korea, which had a $14 billion trade surplus with the U.S. last year,
would continue to have the upper hand. But its advantage would likely
shrink as the overall pie grows.

The final pact lowers tariffs in many industrial segments and reduces
investment protections in service industries. The decision to leave
rice out of the deal reduces its economic impact in South Korea because
rice accounts for just over half the country's agricultural production.
Korean rice farmers rely heavily on competitive barriers and high
prices to stay in business.

South Korea also excluded rice from its previous free trade pacts with
Chile and Singapore. The U.S. decision to go along with the rice
exclusion gives South Korea more power to insist on that in its
free-trade dealings with Australia, Canada, Japan and New Zealand and
others.

Write to Evan Ramstad at evan.ramstad@wsj.com1

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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