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On the last leg of his four-nation tour in Asia, U.S. President Barack Obama revived the issue of a still-pending free-trade agreement signed in 2007 with South Korea (KORUS FTA), but an auto trade imbalance will continue to be a major obstacle to Congressional approval.
At a news conference in Seoul, President Obama and Korean President Lee Myung-bak, both showed willingness to renegotiate elements of the deal and to have both countries ratify it as soon as possible.
"I am a strong believer that both countries can benefit from expanding our trade ties," President Obama said. "I have told President Lee and his team that I am committed to seeing the two countries work together to move this agreement forward."
That could be easier said than done, especially for Capitol Hill democrats that rely on support from labor unions.
"Before we move forward with the U.S.-Korea Free Trade Agreement, I feel it necessary to remind my colleagues in Congress that the draft agreement allows Korean discriminatory treatment of imported U.S. automobiles to perpetuate," said U.S. Rep. John Dingell, D-MI today (Friday).
Certain Korean cars are among the bestsellers here, he said, while U.S. automakers have "grave difficulties accessing the market."
Those difficulties can be attributed to an 8% duty on U.S. auto exports to Korea as well as taxes on engine displacement, both of which would be removed under the trade agreement.
Despite this, officials in both Washington and Detroit say the deal doesn't address certain non-tariff barriers, which are preventing more American cars from entering Korea, a report in The Korea Herald says.
Kim Do-hoon, an economist at the Korea Institute for Industrial Economics and Trade (KIET) argues the deal addresses all U.S. concerns, including Seoul's safety and environmental standards as well as the removal of the duty on autos.
The opposition to the deal stems from Korea's domestic auto tax laws on larger cars, which are typically American, Kim says. Korea's auto registration tax and special consumption tax are on the rise as a measure to contain the growing demand for bigger cars by Korean consumers.
"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," Kim said. "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. 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."
When it comes to autos, there's a huge trade imbalance between the United States and Korea. In 2008, U.S. auto exports of 7,000 to Korea represented just 1% of Korean imports.
However, many analysts believe this imbalance is being dictated by the market not trade barriers.
"The Korean government has opened up the domestic car market to the fullest satisfaction of the U.S. in the FTA," KIET's Kim said. "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."
It is not clear whether further negotiation on autos is an option.
"If automobiles are a problem, we are in a position to discuss them again," President Lee said yesterday (Thursday) during a joint news conference with President Obama.
However, one official from the Korean president's office speaking to The Herald on the condition of the anonymity says a deal is a deal.
"If we rewrite the document, that is a renegotiation. It is the government's policy that the agreement not be changed."
Korean Trade Minister Kim Jong-hoon appeared to clarify the Korean president's remarks, saying "it just means if they say there are problems, we are willing to listen. But I believe most of the problems [the United States] prepare and bring to us, if they do, will be those that can be addressed by simple explanations," he added.
News and Related Story Links:
South Korea President Lee Myung-bak
- The New York Times:
South Korea Trade Pact is Revived by Obama
- The Korea Herald:
Seoul Rules Out U.S. FTA Revision
- Los Angeles Times:
A "Grand Bargain" for North Korea