U.S., South Korea fail to reach free-trade deal

By Howard Schneider and Scott Wilson
Washington Post Staff Writers
Thursday, November 11, 2010; 10:04 AM

SEOUL - Negotiations over a U.S.-Korea free-trade agreement faltered Thursday after four days of discussions, a setback for the leaders of the two nations and a blow to efforts to rekindle broader world trade talks.

White House officials said the discussions foundered over long-standing disagreements over U.S. access to the Korean auto and beef markets.

Despite optimism from both sides as they began bargaining, domestic political concerns weighed heavily on the talks and ultimately appeared to have prevented the final compromises needed to secure an agreement.

The two sides pledged to continue the discussion, and said that they had made progress in recent days toward narrowing disagreements.

"We have asked our teams to work tirelessly in the next days and weeks to get an agreement, and we are confident we will do so," President Obama said after his meeting with South Korean President Lee Myung-bak.

Obama said he didn't "want months to pass before we get this done. We want it to be done in a matter of weeks."

The failure to produce a signed agreement in Seoul, where the world's largest economic powers are gathering for the G-20 summit, is significant, and illustrates the difficulties facing the Obama administration's efforts to use free trade initiatives to boost U.S. exports.

Obama had set a personal goal of completing the Korea deal during the summit, and Lee had cast the agreement as a way to deepen the strategic and political relations between the two nations, as well as economic ties.

Upon his arrival at the summit, the U.S. president released a letter calling for resumption of the Doha round of world trade talks. Concluding a bilateral deal with Korea would have been a tangible demonstration of intent.

Now, heading into the last half of his current term in office, Obama has neither advanced the series of partially completed trade agreements inherited from the Bush administration - including the one with Korea - nor put his own stamp on a new one.

The dilemma: how to balance the "gold standard" agreement of fully open markets and adequate labor and environmental standards that Obama held out during his campaign with the real-world compromises often demanded by smaller or less-developed countries.

As a candidate "Obama pledged to chart a new course for American trade policy," said Lori Wallach, director of Public Citizen's Global Trade Watch, which argues that the Korea pact is also out of step on issues like financial regulation. "The political liability of an Obama flip-flop ... pushing Bush's Korea deal, cannot be overstated."

"We were disappointed," said U.S. Chamber of Commerce President Thomas J. Donohue, who had traveled to Korea with chamber staff in anticipation of an agreement.

Corporate and trade officials have been watching the Korea-U.S. talks as a barometer for trade issues as a whole at a time when many countries are struggling with high unemployment and trying simultaneously to boost their exports as a way to create jobs.

Obama has pressed for the trade pact as part of his effort to boost U.S. exports. New data released by the federal government Wednesday showed sluggish growth in U.S. overseas sales in September, which were up less than half of 1 percent over the month before. Imports also fell, narrowing the monthly trade gap to $44 billion from $46.5 billion.

The U.S. administration hopes to double American sales abroad within coming years but is also battling a public mood that, both in the midterm elections and recent opinion polls, is wary over whether free trade agreements drain more jobs from the U.S. economy than they create. With the Ford Motor Corp. joining major labor and public interest groups in cautioning against the deal, the administration pushed for concessions that the South Korean president has been hesitant to accept.

Although Korea has benefited mightily from global trade, with exports giants like Samsung and Hyundai fueling rapid growth and a steady trade surplus, consumers here can be touchy about imports - attentive to where staples like wheat and rice come from, and sometimes hesitant to buy imported goods if they feel their neighbors or colleagues might consider them ostentatious.

"The reality is that many of the Asian economies transformed themselves because they were able to produce products that they have been able to sell to Americans because there were no barriers to entry," said U.S. Trade Representative Ron Kirk, who remained optimistic a deal will emerge. "We believe it is only fair that American farmers and ranchers and manufacturers should have access to these growing economies."

In the United States, opponents of the South Korea deal, originally negotiated by the George W. Bush administration, say the agreement would siphon away more U.S. manufacturing jobs without creating a truly open market for U.S. products.

Obama had criticized the deal during his presidential campaign, and officials from the Office of the U.S. Trade Representative are pushing for ways to increase U.S. auto sales in the country and to persuade South Korea to lift a lingering restriction on U.S. beef.

Officials involved in the talks leading up to the summit had reported progress on the auto issue, including a possible agreement by South Korea to accept slightly weaker U.S. emissions standards as long as imports remained below a certain level. Such an agreement would have spared U.S. automakers the expense of modifying a small number of vehicles for the South Korean market.

But in the end, negotiations did not advance enough to assure U.S. officials that American carmakers would gain better access to Korea's market.

Beef has been another major sticking point. South Korea has insisted that it retain for now a restriction on imports of U.S. beef produced from the slaughter of cattle more than 30 months old. That limit was set when Lee lifted a more general restriction on U.S. beef put in place after the mad cow scare several years ago.

Though the rule affects only a small portion of the market, South Korean officials think that public opposition would be too great if they did away with it.

After meeting with Lee, Obama held bilateral sessions with Chinese President Hu Jintao and German Chancellor Angela Merkel, both of whom have been critical of the recent Federal Reserve decision to buy $600 billion in bonds as a way to boost the struggling U.S. economy.

White House officials said Obama and Hu focused largely on currency exchange issues in their 80-minute discussion, but also discussed Iran, North Korea and human rights.

With Merkel, Obama discussed international security as well as economic growth.

"Only together will we be able to tackle the crucial problems of the world today, problems and issues such as Afghanistan, the upcoming NATO summit meeting and also obviously issues of the G-20," Merkel said in brief remarks to reporters. She said she and Obama would "use this meeting to send a signal, a really good signal, for global growth."

Obama marked Veteran's Day by visiting U.S. troops at the Yongsan Army base outside Seoul, and concluded his day by attending a dinner to formally open the summit with other heads of state.

schneiderh@washpost.com wilsons@washpost.com

© 2010 The Washington Post Company