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Chief US negotiator says trade in beef, cars could be stumbling blocks

WASHINGTON, DC - 06/06/06 - Agriculture and auto trade will be among the toughest issues in US-Korea free-trade agreement (FTA) negotiations, according to the lead US negotiator.

"Agriculture is going to be a difficult issue in these negotiations," Wendy Cutler, assistant US trade representative, said in a teleconference yesterday with reporters. 

But, achieving increased access for US car companies in Korea, she said, "is going to present challenges as well."

Cutler made the remarks at the start of the first round of negotiations, scheduled this week in Washington, DC.  The next round is scheduled for July 10-14 in Seoul. 

The first round of talks "should clear away the easiest issues and identify those requiring more attention," she said, expressing optimism that the two sides would achieve a good agreement, in part because they prepared extensively for negotiations in 2005. 

The aim is to conclude by the end of 2006, well before the mid-2007 expiration of U.S. trade negotiating authority.

"The political will is clearly there on both sides," Cutler said, "and there's bipartisan support in both countries for the FTA."

She acknowledged opposition to an FTA, however, as Korean farmers protested loudly on a Washington street just outside the site of negotiations.

South Korea is the world's 10th-largest economy and the US' seventh-largest trading partner, with two-way goods trade totaling about $72 billion last year.

South Korean tariffs for industrial and consumer goods average 11.2%, compared with 3.7% in the US. The difference is even greater in the farm sector, where South Korean tariffs average 52% more than 4 times the US level of 12%.

A successful pact would eventually reduce duties on bi-lateral trade to zero percent.

US farmers want completely free trade in rice, requiring removal of Korean quotas that are now in place through 2014. They also want Korea to eliminate what they view as unnecessary and unscientific health and safety regulations on agricultural imports and to drop what US farmers call unnecessary restrictions on perishable imports.

Cutler said that Washington expects Korea will soon reopen its market to US boneless beef, currently shut out because concerns about bovine spongiform encephalopathy (BSE) or mad cow disease.

"We made it very clear to the Koreans that, even once the market is open to boneless, we are going to be urging them without skipping a beat to further open their market" to cover other US beef products, she said.

US automakers - struggling for domestic sales against a surge in foreign imports, partcularly from Asia - want better access to the Korean market.

In 2005, Korea imported only about 31,000 foreign-made autos, including about 5,800 made in the US, while exporting 730,000 autos to the US.

Among the barriers cited by US automakers are Korea's 8% tariff on auto imports, a domestic sales tax applied to the full price of autos including tariffs, and taxes based on engine size, which are a disadvantage to the larger US-made autos.

The two sides have organized 17 negotiating groups plus two more special working groups, one on auto-sector issues and one on pharmaceuticals and medical devices. 

Regarding the latter concern, Cutler criticized a "very unhelpful announcement" made by the Ministry of Health and Welfare in Seoul a few weeks ago about its plans to move to what it calls "a positive list of reimbursement pricing for pharmaceuticals."

What the Korean ministry proposed May 3 would depart from an approach that now automatically authorizes government reimbursement for medicines and medical devices unless the government specifically excludes them from a list of products.

The proposed switch would require government approval for reimbursing any new medicine or device, potentially giving advantage to generic drugs made by Korean companies over innovative treatments coming mostly from the US, the European Union, and Japan.

"We made it clear to the Koreans that in the FTA negotiations we're not interested in getting back to the status quo," Cutler said.  "We're really looking for improvements, and that really holds for the pharmaceutical sector."

Another tough issue concerns products made in a South Korean-run industrial park in North Korea.

Seoul sees the Kaesong Industrial Park as a model for the eventual unification of the Koreas and wants goods made there to qualify for duty-free treatment in the US market.

That argument is going to be a tough sell in Washington, where many lawmakers oppose any loosening of sanctions on Pyongyang.

In remarks to the Korea Importers Association in Seoul last week, US Ambassador Alexander Vershbow described the free trade agreement with South Korea as "one of the most important developments in US-Korea relations in the 52 years since the signing of our Mutual Defense Treaty."

Citing the lack of an institutional framework for US-Korean commerce, Vershbow said,  "I think a free trade agreement will help to fill this vacuum by letting our two countries reach a mutual consensus regarding the mutual obligations and responsibilities in our trading relationship." 

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