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S. Korea, U.S. preparing for trade talks

Business Week

By Kelly Olsen, AP Business Writer

S. Korea, U.S. preparing for trade talks

1 February 2006

The Associated Press/SEOUL, South Korea. South Korea and the United States could announce as early as this week their intention to launch formal negotiations aimed at a free trade accord seen as the biggest for the U.S. since the landmark North American Free Trade Agreement of 1994.

Though trade between the nations is already huge, U.S. companies hope that lower trade barriers will allow them to sell more automobiles, pharmaceutical products and financial services in South Korea, the world’s 11th-largest economy.

For example, a pact would likely cut Seoul’s 8 percent tariff on imported vehicles.

For its part, South Korea sees a pact as a way to give its steel and textile makers better access to the United States — and a chance to beat regional rivals China and Japan in forging closer trade ties with Washington. Neither of those two nations have FTAs with the U.S.

South Korea is the United States’ seventh-largest trading partner, with two-way trade amounting to about US$61 billion (euro50 billion) in 2003, according to U.S. government figures. The United States is the second-biggest destination for South Korean exports after China, according to the South Korean government.

Besides the NAFTA agreement, which involves the United States’ two largest trading partners Canada and Mexico, Washington has since 1985 concluded nine free trade pacts with individual countries, the largest with Australia.

South Korea launched its first free trade pact in 2004 with Chile and has since forged an agreement with Singapore and the European Free Trade Association, which comprises Switzerland, Iceland, Liechtenstein and Norway.

A final agreement with the 10-member Association of Southeast Asian Nations, however, has been stalled by a rice import dispute with Thailand.

The U.S. has made no secret of its desire for a free trade agreement with South Korea, Asia’s fourth-largest economy, and the two sides have been engaged in preliminary talks for the past year.

But South Korea, under constant pressure from a vocal farm lobby, will face strong pressure to hold the line on its highly protected rice market in talks with the United States.

A key sticking point was removed last week when South Korea agreed to halve the number of days movie theaters are required to show domestic films, giving in to a long-held U.S. demand.

Seoul also agreed earlier this month to soon resume imports of U.S. beef, which had been suspended for more than two years after mad cow disease was discovered in a cow in the United States.

Analysts say the emphasis Washington has placed on reaching a trade agreement with South Korea ahead of other countries such as Japan suggests the importance the U.S. attaches to its security relationship with Seoul.

"Those countries with which the United States have made bilateral FTAs are the ones that are indispensable to its for America’s economic stability and security maintenance," Yoo Jang-hee, professor of economics at Seoul’s Ewha Womans University, wrote in the JoongAng Daily newspaper this week.

A key negotiating issue for the U.S. will be more access for its autos.

"We would like to see more Korean consumers enjoying and driving our imported vehicles," Wayne Chumley, president of DaimlerChrysler Korea Ltd., the local arm of DaimlerChrysler AG, told reporters Wednesday.

American cars accounted for slightly less than 3 percent of South Korea’s vehicle imports last year, Chumley said, adding such a level compares with the average of about 10 percent among other industrialized nations.

There are also time pressures.

The Bush Administration’s authority to negotiate an agreement and submit it to Congress for a vote minus amendments runs out in June 2007.

Tami Overby, president of the American Chamber of Commerce, is confident the two sides will overcome the obstacles.

"Both governments clearly understand what is involved," Overby said. "And neither government would want to approach this if they didn’t have a high degree of certainty that they could complete it within the time."