A $20-billion trade opportunity
The new U.S. free-trade pact with South Korea, hailed as the biggest such agreement since the countries of North America signed one in 1992, is likely to enhance Washington’s regional clout and bolster sales of U.S.-produced cars, oranges and television programs.
The accord, which calls for the immediate elimination of tariffs on more than $1 billion in U.S. farm exports, could boost two-way trade by $20 billion in coming years and open up one of Asia’s largest markets further to U.S. law firms, banks and chip makers, analysts said.
U.S. entertainment companies would appear to be the big winners in the pact announced Monday. They would gain tougher copyright protections, expanded access for their television programming and the right to purchase as much as a 100% share of South Korean content providers.
Most important to South Korea, its apparel producers and automakers would gain better access to the giant U.S. market.
“It sounds like they’ve gotten a good deal across many different sectors of the economy,” said Myron Brilliant, a U.S. Chamber of Commerce executive and president of the U.S.-Korea Business Council.
The deal awaits passage by legislators in both countries -- not a foregone conclusion given the compromises both sides had to make. But for now, it appeared to give President Bush a boost when he is under pressure to rein in America’s soaring trade deficit and could provide momentum for stalled global trade talks.
More broadly, Washington struck a strategic economic pact with a longtime ally in a region where China’s influence has risen sharply in recent years -- something that was not lost in Beijing.
Mei Xinyu, an economist at a research institute affiliated with China’s Ministry of Commerce, said it was “a very clever move of the U.S. to sign a bilateral free-trade agreement with each important economic entity in East Asia to separate and prevent them from allying.”
To seal the wide-ranging deal, U.S. negotiators had to make last-minute compromises on import restrictions on rice and beef, agreeing to drop those politically sensitive commodities from the agreement.
That could torpedo the accord if the issues are not addressed before the proposal heads to Congress for a vote this year, unhappy politicians warned. Democratic leaders have said more generally that they would not approve any trade agreements unless stronger protections for workers and the environment were included.
Karan Bhatia, a deputy U.S. trade representative, expressed disappointment that the U.S. failed to persuade South Korea to open its protected rice market, but he said the overall deal represented a big win for both sides.
He said both governments understood that the agreement might need to be revisited if the White House and Democratic leaders in Congress reached a new understanding on how trade deals such as this one could better incorporate guarantees on labor and environmental concerns.
Those subjects have not figured as prominently with South Korea, which has a strong labor movement, as they have with pending deals in other parts of Asia and in Latin America.
Bhatia also said South Korean officials understood that the bilateral pact would not pass congressional muster unless the government lifts restrictions on U.S. beef imports that were imposed after a 2003 outbreak of mad cow disease. Before that, South Korea was the third-largest export market for U.S. beef producers. In May, the World Organization for Animal Health is expected to rule officially that U.S. beef is safe for export.
The two governments also agreed to continue talks about the status of goods produced at an industrial park in North Korea, an idea pushed by the South Koreans but resisted by the Bush administration.
“We opted for the very good over the perfect, especially because the perfect is not going to be available,” a tired Bhatia said in Seoul, speaking in a telephone conference with reporters.
Negotiators were under pressure to reach a deal so they could give Congress 90 days’ notice before the expiration of the president’s so-called fast track negotiating authority. That allows him to send trade deals to Congress for an up-or-down vote.
The trade agreement was the biggest by projected dollar value for the U.S. since the North American Free Trade Agreement was signed in 1992. South Korea was the United States’ seventh-largest trading partner last year, with $72 billion in goods and services crisscrossing the Pacific, and the third-largest in Asia after China and Japan, according to the U.S. government.
The removal of tariffs on U.S. autos was viewed as a priority to help an ailing American industry. Seoul agreed to eliminate immediately the 8% duty it slaps on U.S. cars as well as cut a luxury tax that penalizes vehicles with larger engines. But U.S. cars account for less than 0.5% of South Korea’s auto market, where imports are dominated by Japanese and German luxury brands.
For its part, the U.S. agreed to remove the 2.5% tariff that South Korean automakers pay to export their cars to the U.S., although a controversial 25% tariff on pickup trucks will be phased out over 10 years.
The Recording Industry Assn. of America praised the deal, which would clamp down on unauthorized copying and sharing of music and videos. That’s a big concern in South Korea, which has one of the world’s highest rates of broadband access and a serious piracy problem.
California rice growers weren’t happy, but there was positive news for the state’s citrus growers, who won a seven-year phase-out of tariffs on oranges. There will, however, still be seasonal tariffs on the fruit.
Although analysts generally said that the agreement would eventually get the go-ahead, there were unhappy voices on both sides of the Pacific.
Sen. Max Baucus (D-Mont.), chairman of the Senate Finance Committee, said Monday that the deal was unacceptable and that he would not allow it to reach a vote on the Senate floor unless the beef issue was resolved. The accord did call for a 15-year phase-out of tariffs on American-produced beef.
Some South Korean leaders cast doubt on whether the National Assembly would support the agreement, which came after a year of talks and strong, occasionally violent, protests by farmers and labor activists.
“Both countries will have to consider the gains and losses,” said Assemblywoman Lee Hye-hoon, a member of South Korea’s opposition Grand National Party.
South Korean President Roh Moo-hyun, who like Bush is a lame-duck leader who has seen his popularity wane, appeared to anticipate potential opposition to the deal in a televised speech.
“Although there were many voices raised suggesting ‘U.S. pressure,’ and the word ‘treachery’ even made appearance,” Roh said, “our government is not without patriotism or pride.”
Despite losses in the farm sector, some South Korean economists predict the agreement will ultimately create tens of thousands of jobs and bolster the Asian nation’s competitiveness.
“Both countries will have to consider the gains and losses,” Lee said.
evelyn.iritani@latimes.com
Lee reported from Shanghai and Iritani from Los Angeles. Special correspondent Jinna Park in Seoul contributed to this report.
