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U.S., South Korea Fail to Agree on Trade Pact on Cars, Beef

President Barack Obama and his South Korean counterpart Lee Myung Bak failed to reach agreement on a free-trade accord as the two nations wrangled over automobile and beef imports to Asia’s fourth-biggest economy.

Talks will resume after the Group of 20 meeting in Seoul, where world leaders are at odds over how to avoid trade imbalances and manage currency discord, Obama and Lee said at a joint press conference in the South Korean capital.

“If we rush something that can’t garner popular support that’s going to be a problem,” said Obama. “We think we can make the case, but we want to make sure that case is air tight.”

Ford Motor Co. and the United Auto Workers union are leading opposition to the trade accord in the U.S., citing the need to address South Korea’s tax and regulatory regimes. Beef imports to the Asian nation, restricted since 2003 when the U.S. discovered its first case of mad cow disease, sparked street protests by tens of thousands of people when Lee tried to ease curbs in 2008.

Obama has shied away from pushing through Congress trade pacts approved by President George W. Bush in 2007 with South Korea, Colombia and Panama amid high unemployment and opposition from some fellow Democrats and the party’s supporters in organized labor. Progress on these agreements may help kick- start the stalled Doha round of global trade talks, William Toppeta, president of MetLife Inc.’s international business, said in Seoul today.

Source: Yonhap News via Bloomberg

U.S. President Barack Obama, left, and Lee Myung Bak, South Korea's president, attend a joint news conference in Seoul, South Korea. Close

U.S. President Barack Obama, left, and Lee Myung Bak, South Korea's president, attend a... Read More

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Source: Yonhap News via Bloomberg

U.S. President Barack Obama, left, and Lee Myung Bak, South Korea's president, attend a joint news conference in Seoul, South Korea.

‘One Wish’

“The world is awash in capital but it’s not being deployed,” Toppeta said. “If the genie gives me one wish, I’m going to choose the trade issue over the currency issue.”

Obama had said in June he would like to see the deal completed by his visit to Seoul for the summit, a commitment he reaffirmed in a Nov. 2 telephone conversation with Lee.

Automobiles and beef are the main sticking points, U.S. Trade Representative Ron Kirk told reporters. He had held talks with his South Korean counterpart since Monday in Seoul.

“The most important thing is we remain committed to completing what would be a very economically compelling free trade agreement,” Kirk said. “I like to think we’re closer to the end.”

Two-Way Trade

With almost $68 billion in two-way trade between the nations, the deal would be the U.S.’s largest free-trade accord since the North American Free Trade Agreement in 1994 and could Obama meet his goal of doubling American exports in five years.

“The short-term effect of the FTA will help Korea more than the U.S. because whatever you do for American auto manufacturers, they are not going to sell more of their cars in Korea,” said Tony Michell, president of the Korea Associates Business Consultancy in Seoul.

U.S. carmakers, facing an 8 percent tariff in South Korea, sent only 6,140 autos to the nation last year. U.S. market share in South Korea slid to 10.1 percent of imported car sales last year, from 11.3 percent in 2008, according to Korea Automobile Importers and Distributors Association. European cars held a 62 percent share of the imports market in 2009, with Japanese brands on 28 percent.

Hyundai Motor Co., South Korea’s largest automaker and affiliate Kia Motors Corp., raised their combined share of the U.S. market to 7.9 percent this year from 4.8 percent in 2007.

Without Delay

American beef exporters have pushed the Obama administration and Congress to approve the trade pact without delay rather than hold out for concessions, for fear of losing market share to Australian and Canadian competitors.

South Korea restricts U.S. beef imports to meat from cows that are younger than 30 months, which account for more than 90 percent of U.S. beef exports, to lower any risk for mad-cow disease, or bovine spongiform encephalopathy.

Under the terms agreed in 2007, the FTA would phase out South Korea’s 40 percent tariff on U.S. beef over 15 years. This would increase the competitiveness of American farmers and may help them recover lost market share, said Jeong Min Kook, an agricultural economist at the Korea Rural Economic Institute in Seoul.

Beef Exports

South Korea bought 246,595 tons of U.S. beef valued at $815 million in 2003, making it the third-biggest U.S. export market for the meat behind Japan and Mexico, according to data on the website of the U.S. Meat Export Federation. It imported 186,451 metric tons in the first nine months of this year, with Australia supplying the largest amount, followed by the U.S., according to data from the Korea Meat Trade Association. U.S. beef accounted for 37 percent of imports, according to the data.

South Korea’s trade surplus with the U.S. will widen by $463 million annually over 10 years, helped by increased exports of automobiles, electronics and textiles, after the pact, according to a 2007 study by South Korean think tanks, including the Korea Institute for International Economic Policy. The nation’s agricultural imports from the U.S. will grow $370 million annually over 15 years, led by pork and beef, according to the study.

South Korea reported a trade surplus of $8.6 billion with the U.S. in 2009, with $37.6 billion in exports, according to the Korea International Trade Association.

To contact the reporter on this story: Bomi Lim in Seoul at blim30@bloomberg.net

To contact the editors responsible for this story: Bill Austin at billaustin@bloomberg.net

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