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Europe poised to pounce on stalled U.S.-Korea trade deal
Question of the Day
Failure by the United States and South Korea to ratify a 2007 free trade agreement has American businesses fretting that European competitors may be about to outflank them.
The long-languishing Korea-U.S. Free Trade Agreement (FTA) is widely expected to be on the agenda when Presidents Obama and Lee Myung-bak meet at their Seoul summit Thursday. Adding to criticism of U.S. trade policy aired at the Asia-Pacific Economic Cooperation summit in Singapore last weekend, Seoul is irked that the deal, signed in June 2007 after exhaustive negotiations, has not been ratified 2 1/2 years later.
The European Union is taking advantage of the paralysis. The European Union signed a free-trade agreement with Korea last month that mirrors the stalled deal Korea reached with the United States.
American observers are convinced that the U.S. did the heavy lifting in negotiations, creating a “gold standard” free-trade agreement for the European Union to benchmark. But now, because of congressional inaction, the European Union may beat the U.S. to ratification - a blow for American exporters who fought hard for the deal.
“There is no question that the successful conclusion of the [Korea-U.S.] FTA made discussions between the EU and Korea much easier,” said Amy Jackson, head of the American Chamber of Commerce in Korea. “It would be very unfortunate if the [Korea-U.S.] FTA were implemented after the EU-Korea FTA.”
South Korea is the world’s 14th-largest economy. The U.S.-Korea merchandise trade relationship totaled $82.9 billion last year, as the Asian nation exported $48.1 billion worth of merchandise to the United States while importing $34.8 billion of goods from the U.S.
But that trade relationship has been faltering. From being South Korea’s No. 1 trading partner in 2004, the U.S. now trails China, Japan and the European Union.
The U.S. Chamber of Commerce estimates that a failure to implement the Korean FTA will lead to a decline of $40.2 billion in American exports and that its impact on U.S. employment could total 383,400 lost jobs. The chamber is now trying to calculate specific losses to U.S. companies if the EU deal is implemented while the U.S. deal remains on hold.
The European Union’s FTA is expected to phase in during the second half of 2010. In Seoul last month, when asked whether there would be holdups in the ratification process, British Business Secretary Peter Mandelson replied: “The EU does not have a U.S. Congress.”
The Korean-U.S. FTA remains in limbo on Capitol Hill, largely because of lobbying by the U.S. automobile and beef industries, which say the deal will not ease their problems gaining access to Korean markets.
Non-tariff barriers to trade are their key issues.
U.S. automakers sold fewer than 7,000 vehicles in Korea last year - less than 1 percent of the market - while Korean manufacturers sold more than 53,000 vehicles in the U.S. in October alone, U.S. Trade Representative Ron Kirk said in a speech this month to the U.S. Chamber of Commerce.
Analysts believe that the Obama administration, already pursuing an ambitious policy agenda at home, is unwilling to spend precious political capital trying to sell this trade deal to Congress.
“The FTA will be significant, but the average citizen and small- to medium-sized business owner anticipates little change,” said Tom Coyner, a Seoul-based business consultant and author of “Mastering Business in Korea.”
“The bigger issue could be the real or perceived changes and threats to jobs; but at this point, labor fallout from a [Korean-U.S.] FTA remains fairly hypothetical,” Mr. Coyner said. “As such, few people are worked up about it.”
But Ms. Jackson of the American Chamber in Korea says the deal is about more than trade.
“Many view the FTA as an essential third pillar in our relationship with Korea, which includes political, military and economic aspects,” she said. “At a time when North Korea is trying to drive a wedge between our two countries, this FTA is an important counterbalance to tie our countries - long-standing allies - together.”
(Corrected paragraph:) It is not just U.S. business in Korea which is impatient: Seoul is also getting fidgety. Although the FTA has not gone to Korea’s National Assembly for a ratification vote, the agreement has passed in the assembly’s Foreign Affairs Committee, and pundits are convinced that once Washington moves, Seoul will act decisively.
“The opposition are criticizing the government, saying, ‘Why do you go first?’ as we are a bit ahead [of the United States],” said Hahm Sung-deuk, a politics professor at Korea University. “But when Congress starts to ratify, we will. The ball is in the U.S. court - not ours.”
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