washingtonpost.com
U.S. trade deal with S. Korea falters

By Scott Wilson and Howard Schneider
Washington Post Staff Writers
Friday, November 12, 2010; A01

SEOUL - President Obama's inability to secure a free-trade agreement with South Korea reveals in sharp relief the limits of his leverage overseas after a devastating midterm election.

Obama's visit to four Asian democracies is aimed at promoting trade and other economic partnerships to boost long-term job creation in the United States, where voters pounded his Democratic Party this month over a moribund employment market.

But after visits to India and Indonesia, where Obama on his own removed trade barriers and announced specific export contracts, the politically weakened president could not bring home the agreement that would have the most far-reaching effect on the U.S. economy.

Administration officials say the nearly complete South Korea deal, which Obama inherited from the George W. Bush administration, would increase exports of U.S. goods by $10 billion annually and support 70,000 jobs in the United States. Although the list of outstanding issues was short and the U.S. Chamber of Commerce lobbied heavily for the agreement, key labor and auto interests and their allies in Congress demanded a fuller opening of South Korea's market. Any deal would have required congressional approval, leaving Obama little room to compromise after elections that lessened his clout on Capitol Hill.

Officials were aiming to finish the agreement before the president sat down Thursday with South Korean President Lee Myung-bak. But talks foundered, and the two leaders were left with nothing more to announce than that they would keep working.

"We don't want months to pass before we get this done," Obama said in a news conference after his meeting with Lee. "We want it done in a matter of weeks."

Although no one has said that Obama was unable to reach agreement directly because of his midterm losses, neither Lee nor other leaders in Seoul for the Group of 20 summit appear eager to help him with his biggest concerns or ingratiate themselves with the American president, as they had a year ago.

The setback, a characterization that White House officials rejected, occurred in a country where the United States has more leverage than perhaps any other. Nearly 40,000 Americans died in the Korean War, and the United States maintains tens of thousands of troops in Seoul to guard the thriving commercial capital against a North Korean attack.

As in his dealings with Iran and North Korea on nuclear issues, Obama - who in June set this meeting in Seoul as his deadline for finishing the trade deal - saw negotiations falter because of a country's inability to move from a strongly held internal position. In this case, it was South Korea's overriding national interest in protecting its robust domestic auto industry from outside competition.

Lee, a former chairman of Hyundai Engineering and Construction, expressed gratitude for the United States' sacrifice on what was Veterans Day.

But he did not relent on measures to ensure an open market in South Korea for U.S. cars and beef, not even for an American president to whom he privately confessed - during their first lunch together a year ago - feeling a deep personal gratitude for the support of the United States.

"I know that it will be beneficial for everyone if we can create good jobs in the United States," Lee said. "And I said it before, that that will be helpful not only to the American consumers but to the Republic of Korea, as well."

Obama's trip is meant to underscore the steps he has taken to reorient U.S. foreign policy toward Asia, the world's most dynamic economic region. He has made the United States a larger and more consistent presence in regional economic forums, including Asia-Pacific Economic Cooperation, whose conference he will attend in Japan.

He also has pushed to elevate the G-20 as the main forum for coordinating world economic policy. The change has given three of the nations on his Asian itinerary - including South Korea - a far larger voice on global economic issues.

But the G-20, which began its summit in Seoul on Thursday and continued Friday, has also defined the boundaries of the United States's influence in the aftermath of an economic crisis that many blame on U.S. policy. The group has produced consensus around a set of core principles, but the details of how to implement them have been more elusive.

"There does seem to be a kind of leadership vacuum, and it's a surprise," said Yoon Young-Kwan, a professor of international relations at Seoul National University and a former foreign affairs minister. "People are recognizing that the U.S. can't go it alone, that they need other countries' help."

As the G-20 summit began, Obama was facing criticism - even from some close allies - over U.S. monetary policy. The group held a working dinner on Thursday, and discussions continued about how to resolve the dispute over world currency rates and unbalanced trade patterns.

In the run-up to the meeting, countries such as inflation-wary Germany said the Federal Reserve's decision to pump $600 billion into the economy would undermine Obama's ability to pressure China over its undervalued currency, which keeps its exports cheaper and imports from the United States and other countries more expensive.

Obama met separately Thursday with German Chancellor Angela Merkel and Chinese President Hu Jintao, who is scheduled to make a state visit to Washington in the spring.

White House officials said that most of Obama's 80-minute meeting with Hu involved the currency issue and that Hu reiterated his commitment to adopting a more flexible exchange rate that could allow the yuan to appreciate against the dollar.

Obama and Merkel addressed the recent German criticism of the Federal Reserve's move, administration officials said.

"There was a sort of glancing reference to the concern that of course we all have, which is that we're all trying to figure out that direct policy mix to bolster growth but not create risks that are going to need careful management," said Lael Brainard, undersecretary of the Treasury for international affairs.

But Obama appeared to be heading into the G-20 policy discussions Friday with little support for U.S. policies.

Asked whether he worries that U.S. economic policy will cause inflation in South Korea, Lee, who faces his own domestic political pressures, said, "I think that kind of question should be asked to me when President Obama is not standing right next to me."

Obama had hoped to use a completed South Korea deal to place the issue of free trade squarely on the U.S. agenda, over objections from protectionist voices that are loudest within his own party.

Other nations, meanwhile, are pushing ahead.

The European Union and South Korea recently completed a free-trade pact, meaning European cars and other products will soon face lower duties as they enter South Korea.

The Association of Southeast Asian Nations is negotiating a regional agreement that might expand to include economic powers such as Japan. Australia also is making deep inroads in Indonesia and other Asian countries.

U.S. opponents of the South Korea pact, including lawmakers representing districts involved in the auto industry, complimented Obama for insisting on more concrete steps to ensure that South Korea would import more U.S. autos into a market dominated by local favorites Hyundai and Kia.

"It was essential for our government today to deliver a strong message," House Ways and Means Committee Chairman Sander M. Levin (D-Mich.) and ranking Republican Dave Camp (Mich.) said in a joint statement.

But in the context of Asia's fast growth and quick economic integration, the inability to seal a deal could worry U.S. business groups and others concerned that the United States is slipping behind.

wilsons@washpost.com schneiderh@washpost.com

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