Trade deals: South Korea finally wins FTA with the US, but hurdles remain

Basking in triumph over the US Congress approval of the Korea-US Free Trade Agreement, President Obama and South Korea’s President Lee Myung-bak still face major hurdles before the deal takes effect.

US-Korean relations appear to have reached a pinnacle of understanding and cooperation on issues from trade to defense against North Korea. Nonetheless Mr. Lee's foes in Seoul are digging in against quick approval by South Korea’s often obstreperous national assembly.

“US ratification of the FTA may be a mixed blessing for President Lee,” wrote Edward Reed of the Asia Foundation in Seoul. “The opposition party and civil society are already mobilizing to call for renegotiation or rejection of the pact.”

There’s no denying, however, the joy of a wide range of observers on both sides of the Pacific.

Trade groups ecstatic

Korea’s two most powerful trade groups, the Korea Chamber of Commerce and Industry and the Federation of Korean Industries, say ratification of the FTA by the legislative bodies of both countries would “be a boon to exports that have been the main engine of economic growth” and “raise competitiveness of locally made automobiles, car parts, textiles, and electronics.”

The American Chamber of Commerce Korea appears just as happy. “The agreement is a win-win deal that will increase bilateral trade and create much-needed jobs in both countries,” says an American Chamber of Commerce official, “ to ensure that businesses, workers, and citizens in Korea and the United States fully benefit from this historic agreement.”

Senate Republicans had just one criticism of the FTA before it sailed to final passage in the Senate by an 83-15 vote. Why, asked the Republican minority leader, Mitch McConnell of Kentucky, had Obama waited for nearly three years to send the Korea FTA bill to Congress?

One answer is that US motor vehicle manufacturers demanded revisions of terms that they contend will still make it difficult to get US vehicles into the Korean market in significant numbers. And other manufacturing sectors, notably textiles, complain that an influx of Korean products will destroy what’s left of their industry.

Obama has also had to contend with the complaints of labor unions that the bill will strip still more jobs. Some important Democrats, notably the Senate majority leader, Harry Reid (D) of Nevada, voted against all three FTA bills.

Despite South Korean barriers on inspections and other technicalities, however, South Korean tariffs on vehicle imports, now 8 percent, will be lifted entirely by 2016. That’s also when the US lifts its own tariffs on vehicle imports from Korea, now at 2.5 percent.

Trade to increase by $10 billion

Estimates of the benefits vary widely, but some analysts in Seoul predict Korean exports to the US will go up 5 or 6 percent and two-way trade might increase by $10 billion – though Korea would still have a highly favorable balance.

The fear of a sharp increase in US farm exports, however, was expected to give Korea’s opposition Democratic Party ammunition for protests even though the party supported it while their late leader, Roh Moo-hyun, was president.

The most sensitive issue is the elimination of tariffs on imports of beef and pork. No one forgets the months of rioting in central Seoul in the summer and early fall of 2008 after Lee agreed, at a meeting at Camp David with George W. Bush, to accept American beef imports, banned for the previous five years amid fears of “Mad Cow” disease.

The tariff on beef, now 40 percent, will be lifted by 2026 and the tariff on pork, 25 percent will be eased until it’s lifted in five years.

Nonetheless, the dominant atmosphere in Washington and Seoul was upbeat after all the debate and haggling since the FTA was signed by negotiators from both countries five years ago.

“For once, we were treated to a display of mature, adult behavior by the US Senate,” says Tom Coyner, a long-time economic consultant in Korea. Now, he warns, “we also need to soberly remind ourselves that the real work has yet to begin."