Korea-U.S. FTA: “Big Deals” Imminent on 10 Core Issues

“Now is the time for determination.”

Starting March 26, Korea and the U.S. will hold a meeting of trade ministers for concluding the Korea-U.S. free trade agreement (FTA) at the Grand Hyatt Hotel in Hannam-dong, Yongsan-gu, Seoul, and will have a “final showdown” on their bilateral trade agreement.

On Sunday morning, the Ministry for Trade of Korea’s Ministry of Foreign Affairs and Trade (MOFAT) officially announced on March 25 that a meeting of trade ministers—led by Korean trade minister Kim Hyun-jong and deputy U.S. trade representative Karan Bhatia—would be held.

High-level negotiations on agriculture and textiles are also to be held. If “big deals” on major issues are successfully concluded in this round of talks, the long-standing negotiation on the Korea-U.S. FTA, which has taken over a year since its beginning was declared on February 3 last year, will be completed.

Conclusion to be decided depending on balance of benefits-

This round of talks will not finish unless all the issues are resolved. At this point, there is no turning back.

The deadline for the negotiations is 7:00 a.m. March 31 (Korean time), when the effects of the trade promotion authority (TPA) that the U.S. Congress gave to the administration end. As delegations from the two countries have to report what is negotiated to their home countries and get approvals on the agreement, however, it will likely be around March 30 when it is finally determined whether or not the agreement will be concluded.

For now, it is premature to be either optimistic or pessimistic.

As both sides are strongly committed to concluding the agreement, it is highly likely for the Korea-U.S. FTA to be concluded on March 30. With each other’s interests varying significantly, however, the possibility cannot be entirely ruled out that all-night negotiations could continue until the early morning of March 31 or that the negotiations could rupture.

Regarding the issue, Korea’s deputy prime minister and minister of finance and economy Kwon Okyu stated on March 24, “The high-level talks [held in the U.S. prior to the trade ministers’ meeting] did not produce as much progress as expected. If the balance of interests for the two countries is not stricken, not concluding an FTA can be an option.”

Nonetheless, there are others who are more optimistic.

Kim Jong-hoon, Korea’s chief negotiator for the Korea-U.S. FTA, reiterated, “There are about 10 issues to be discussed in the meeting of trade ministers. When the core issues are resolved, however, the rest will also be agreed on accordingly.”

His remarks are interpreted as meaning that when the issues of opening the automobile and agricultural markets, which are considered major potential deal breakers, are resolved, the others will be dealt with without difficulties.

“Fierce Negotiations” Expected on Rice and Automobiles-

Agriculture and automobiles are expected to be the key to concluding the agreement.

In agriculture, the two countries have yet to present their plans for tariff elimination on 270-280 items including beef, oranges, and pork.

This calculation, however, is based on the Harmonized System (HS), an international nomenclature on trade items. When counting the number of items, the remaining items number only around 20, including beef, oranges, chickens, and pork.

“We will first hold working-level negotiations and narrow the differences as best as possible, and starting from midweek we will present only five or six items in the ministerial talks,” said Bae Jong-ha, Korea’s chief agricultural negotiator. “An agreement can be reached if the two countries show some flexibility.”

Progress in agriculture cannot be guaranteed, however, unless solutions are found regarding standards for importing U.S. beef, an issue linked to the trade agreement.

Considering it a given to be designated as a “controlled risk” country for mad cow disease, the U.S. has demanded inspection conditions be changed within the negotiation deadline so that all the U.S. beef containing bones can be imported.

In response, Korea has compromised on beef tariffs (40 percent) by giving up its previous stance of “maintaining the status-quo,” but has argued that the standard for inspection should be set after the World Organization for Animal Health (OIE) general meeting in late May.

“Right before the import suspension, U.S. beef recorded strong sales in the Korean market despite the high tariff rate of 40 percent,” said a member of the Korean delegation. “The U.S. wants the inspection standard for beef loosened instead of having the tariff eliminated.”

With less than a week to the negotiation deadline, the U.S. maintains it will not eliminate any of its tariffs on automobiles, too.

On the other hand, Korea does not have any options to suggest as it already proposed its plan for overhauling the tariff system.

“In automobiles, both countries are attacking and defending against each other at the same time. So it is highly likely that the issues will be resolved at the very last minute,” stated an official from the delegation.

Working-Level Meetings To Be Held-

During the negotiations, the two countries agreed to hold working-level area-specific meetings on such areas needing additional discussion as goods, agriculture, textiles, services, investment, rules of origin (ROO), financial services, communications, intellectual property, automobiles, and general rules.

Chief negotiators Kim and Bhatia plan to seek “big deals” reflecting each other’s demands on some 10 core issues and focus on coming up with a “package” for a fast-track solution.

When it comes to issues where the two countries cannot reach an agreement by any means, such as trade remedies (e.g. anti-dumping measures) and recognition of goods produced in the Gaesong Industrial Complex (GIC) as Korean, “built-in” measures will likely be applied, under which discussions on the issues are to be suspended for now.

Meanwhile, the Hyundai Economic Research Institute shed light on the Korea-U.S. FTA’s possible impacts—positive and negative—on different industries in the Korean economy in its report published on the day, “Korea-U.S. FTA: Key to Success is Management, Not Conclusion.”

According to the Institute, the bilateral trade agreement will have positive impacts on automobile, steelmaking, textile and component/material industries in the Korean manufacturing sector, but will likely affect machinery, chemicals and others in a more negative manner.

In the automobile industry, domestic businesses will see their price competitiveness enhanced by tariff elimination. Steelmakers will benefit from loosened non-tariff barriers such as less anti-dumping regulation.

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