Seoul rules out U.S. FTA revision

  • Published : Mar 30, 2010 - 12:55
  • Updated : Mar 30, 2010 - 12:55
Cheong Wa Dae yesterday ruled out the possibility of any revisions to the free trade agreement signed with the United States two years ago, while assuring that Seoul will make its own demands should Washington demand a renegotiation.
"If we do ever have to discuss the issue of the auto industry with the United States, we will make sure to have discussions on the agricultural sector where we have our own complaints," a Cheong Wa Dae official said.
The remarks came in response to President Lee Myung-bak`s declaration on Thursday that Seoul was in a position to reopen discussions with Washington on automobile trade at the joint news conference with U.S. President Barack Obama after their summit meeting in Seoul. The comments have triggered speculation that Korea is bowing down to U.S. demands for a renegotiation. Seoul has adamantly declared that any kind of renegotiation, whether an additional one or a side negotiation, was impossible.
"If automobiles are a problem, we are in a position to discuss them again," President Lee said during a joint news conference with Obama.
Autos have been a major sticking point in the FTA ratification process in the U.S. Congress, amid criticism cited by opponents that the deal is unfair and imbalanced to America`s auto sector. The unprecedented economic crisis has intensified the challenges for U.S. car manufacturers, which had been struggling to cope with declining global competitiveness even before the downturn.
Seoul`s Trade Minister Kim Jong-hoon on Thursday offered to elucidate the president`s remarks.
"It just means if they say there are problems, we are willing to listen," Kim told reporters. "But I believe most of the problems they (the U.S.) prepare and bring to us, if they do, will be those that can be addressed by simple explanations," he added.
The Cheong Wa Dae official, speaking on condition of anonymity, stressed: "If we rewrite the document, that is a renegotiation. It is the government`s policy that the agreement not be changed."
Rep. Chung Sye-kyun, chief of the main opposition Democratic Party, criticized that "it is a mistake for the government to suggest a stance that it may accept a call for renegotiation of the Korea-U.S. FTA."
U.S. labor unions and other groups argue that free trade leads to millions of job losses, particularly in the manufacturing sector.
Seoul and Washington signed the Korea-U.S. FTA in June 2007, making history as a landmark deal that would be the largest trade accord for the United States since its North American Free Trade Agreement took effect with Canada and Mexico in 1994. Analysts say the Korea-U.S. FTA could boost annual bilateral trade by about $20 billion from the current $83 billion.
Experts here say the deal as it stands is balanced for both sides and meets all the needs of the American auto and beef industries, and even more. Seoul argues that it had to accept potential negative repercussions on the economy, especially in the agriculture sector.
Experts say Obama`s biggest challenge is persuading the Democrat-controlled Congress, which has urged for more action on labor and environmental protection with trading partners.
Kim Do-hoon, an economist at the Korea Institute for Industrial Economics and Trade, suggested that Obama`s Achilles` heel is that he opposed the Korea-U.S. trade pact during his election campaign last year, as he sought to win support of labor groups.
"The Korean government has opened up the domestic car market to the fullest satisfaction of the U.S. in the FTA," Kim told The Korea Herald. "There is no more to open up in this sector, so I think it is only fair to say that the auto issue is more of a subject of political rhetoric for the Obama administration aimed at catering to the sensitive labor group."
Seoul officials and industry experts stress that the pact calls for Korea to immediately remove an 8 percent tariff on American autos, while the United States will be able to phase out its remaining 2.5 percent tariff on gasoline and diesel-powered cars over three years. The accord also calls for the United States to phase out a 25 percent levy on pickup trucks over 10 years. Defenders also underline that the deal includes an expedited dispute settlement procedure that allows U.S. tariffs on Korean cars to "snap back" into place if the expected market liberalization does not take place.
Ford, Chrysler and the United Autoworkers Union say the deal fails to remove non-tariff barriers that they believe have been preventing American cars from entering the Korean market.
Defenders like Kim Do-hoon argue that Korea has addressed all the U.S. concerns in the deal, including Seoul`s auto-safety and environmental standards, in addition to the immediate tariff removal.
Kim noted that issues over Korea`s domestic auto taxation regulations are part of the U.S. dissatisfaction.
"Our auto taxation system is of a domestic issue and not deliberately aimed at being a non-tariff barrier, so it could be that this is acting as a misunderstanding," the expert said. He added that Korea`s auto registration tax and special consumption tax for big-sized cars have been progressively on the rise as a measure to contain the growing demand for bigger cars by Korean consumers.
"This is a domestic issue, a policy-related measure aimed at encouraging consumption of smaller cars to reflect our national challenges, whether it be environmental or traffic-related." Kim explained. "I don`t think the U.S. should mistake our local taxation regulations as an intentional means by the Korean government to prevent American automakers from making business here."
Seoul is hoping for U.S. congressional approval by the end of June next year. If not, the November 2010 congressional elections could further delay ratification until 2011 at the earliest.
"The U.S. outcry is not based on the real circumstances and is more of a form of rhetoric; and I believe President Lee Myung-bak suggested Korea`s willingness to discuss auto issues, if necessary, because our country is confident about the whole deal," Kim, the economist said in a telephone interview. "The U.S. auto industry should focus on building its global competitiveness, as it won`t help to blame their weak demand in the Korean market on misinterpreted issues facing the domestic Korean market."

By Yoo Soh-jung