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U.S., South Korea Agree on Revisions in Trade Accord

South Korean President Lee Myung Bak
South Korean President Lee Myung Bak. Photographer: Munshi Ahmed/Bloomberg

Dec. 4 (Bloomberg) -- The U.S. and South Korea agreed to change automobile provisions in a pending free-trade deal, gaining the support of Ford Motor Co. and lawmakers in both parties for the stalled accord.

Both nations will scale back initial tariff cuts for cars, and South Korea said it would allow more imports of U.S.-made vehicles that meet American standards and not Korean rules. The U.S. will maintain a 25 percent tariff on truck imports for eight years instead of beginning to phase it out immediately.

“This was the only way to reverse the historic, lopsided pattern of one-way trade with South Korea,” Representative Sander Levin, chairman of the House Ways and Means Committee and a critic of the earlier accord, said yesterday in a statement supporting the agreement.

With almost $68 billion in trade between the nations, a deal would be the U.S.’s largest since the North American Free Trade Agreement in 1994, and would help President Barack Obama meet his goal of doubling American exports in five years. It was backed by companies including Citigroup Inc., Caterpillar Inc., General Electric Co. and JPMorgan Chase & Co.

The trade accord is a “win-win for both our countries,” Obama told reporters in Washington today. The agreement will level the playing field for automakers, boost U.S. exports by as much as $11 billion, support job growth and enhance the U.S. partnership with South Korea, the president said.

Step Forward

“The free trade deal with the U.S. will bring huge economic benefit to both countries,” South Korea’s President Lee Myung Bak said in a statement on the website of the presidential office. Lee said the agreement will help the alliance between the two countries move a step forward, according to the statement.

Obama requested changes in the deal, which was negotiated during the administration of President George W. Bush, to meet demands from lawmakers over what they called unfair Korean barriers to U.S. exports of autos and beef.

The agreement “is an integral part of my administration’s efforts to open foreign markets to U.S. goods and services, create jobs for American workers, farmers and businesses, and achieve our goal of doubling of U.S. exports over five years,” Obama said yesterday in a statement. The agreement will support at least 70,000 U.S. jobs, the president said.

Failure in Seoul

Obama and Lee failed to seal a deal during a summit in Seoul last month.

“I didn’t agree to it then for a very simple reason: the deal wasn’t good enough,” Obama told reporters at the White House today. “As I said in Seoul I am not interested in signing trade agreements for the sake of signing trade agreements. I am interested in agreements that increase jobs and exports for the American people.”

Trade negotiators from both nations spent this week huddled at a hotel in Columbia, Maryland, to resolve differences. The agreement needs approval by Congress before taking effect, and polls show waning public approval for trade deals.

Levin, a Michigan Democrat, and Dearborn, Michigan-based Ford lobbied to change provisions in the deal, which has languished since being signed in 2007. Ford Chief Executive Officer Alan Mulally praised the result.

Ford’s Praise

“These new provisions provide Ford greater confidence that we will be able to better serve our Korean customers,” Mulally said yesterday in a statement.

Representative Dave Camp, a Michigan Republican who will become chairman of the House Ways and Means Committee next year, joined Levin in praising the changes.

“I look forward to working, on a bipartisan basis and with the administration, to implement this agreement,” Camp said.

Under the revised terms, the U.S. will end its 2.5 percent tariff on automobiles in five years, instead of immediately or after three years, as was previously agreed. South Korea will cut its 8 percent tariff on U.S. automobile imports to 4 percent immediately, instead of eliminating it entirely, according to a White House fact sheet.

Safety Standards

In addition, each U.S. automaker would be able to send South Korea 25,000 cars a year that meet U.S. safety standards. They would be exempt from separate South Korean standards. U.S. automakers would also be given flexibility in meeting South Korean emissions and environmental requirements.

“We basically welcome the agreement as it removes uncertainty, helping companies set up business plans,” Huh Wan, executive director at Korea Automobile Manufacturers Association, said by telephone today. It will also boost the competitiveness of South Korean auto parts, Huh said.

In exchange the U.S. agreed to higher tariffs on its pork products for a longer time period, a change that U.S. pork producers said they would accept.

“To get a final agreement, we needed to give a little, we needed to take one for the team,” Sam Carney, president of the National Pork Producers Council, said in a statement. “This is still a good deal for us.”

The two sides didn’t announce changes on beef trade. Senate Finance Committee Chairman Max Baucus, a Montana Democrat who had demanded that South Korea drop restrictions on U.S. beef imports from older cattle, said he was unhappy with the agreement.

Baucus on Beef

“I am deeply disappointed that today’s deal fails to address Korea’s significant barriers to American beef exports,” Baucus said in a statement yesterday. He said he would reserve judgment on the full accord.

American beef producers lobbied to get the deal completed quickly to gain an advantage over competitors in Australia by securing cuts in a 40 percent South Korean tariff. Once the deal is in place, U.S. pork and beef exports to South Korea could increase by $2 billion a year, the American Meat Institute estimates.

The agreement may help Obama repair a rift with the business community, which fought his efforts on health care and financial regulation.

“The administration has done its part,” U.S. Chamber of Commerce President Thomas Donohue said in a statement. “Now it’s time for the new Congress to make passage” of the agreement a priority. Donohue said the Chamber will help round up votes.

Trade Deal Critics

The changes Obama negotiated wouldn’t be enough to satisfy many Democratic critics of trade deals, Lori Wallach, the director of the consumer group Public Citizen’s Global Trade Watch in Washington, said in a statement.

The Chamber “must be gleeful that they are getting the Obama administration to take ownership of another Bush Nafta-style trade deal that would simultaneously favor their job offshoring agenda and put Obama’s re-election in peril,” Wallach said.

Two other agreements, with Panama and Colombia, were also signed by Bush administration officials and are awaiting approval in Congress.

“I had hoped for more from this White House, which campaigned on a need to change the way we negotiate trade agreements so that they truly benefit American workers and businesses,” Representative Michael Michaud, a Maine Democrat, said in a statement. “I will work with allies on Capitol Hill to do whatever I can to defeat it.”

To contact the reporter on this story: Mark Drajem in Washington at

To contact the editor responsible for this story: Larry Liebert at

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