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South Korea, U.S. go down to wire on trade talks

By Jack Kim

SEOUL (Reuters) - Talks on reworking a free trade agreement between the United States and South Korea are going down to the wire, with the two sides trying to resolve differences on cars before their leaders meet on Thursday.

South Korean Minister for Trade Kim Jong-hoon and U.S. Trade Representative Ron Kirk, meeting for a second day, were unable to resolve issues raised by the U.S. auto industry and holding up approval by the U.S. Congress.

"Discussions are ongoing and the situation is extremely variable," South Korea's Deputy Minister for Trade overseeing FTA negotiations, Choi Seok-young, told a briefing. "The trade ministers will meet again tomorrow."

Choi said Tuesday's discussions centered on U.S. concerns that the deal signed three years ago does not do enough to ensure access to South Korea's auto market for U.S. manufacturers.

"The U.S. side has raised concerns on automobile fuel mileage and greenhouse gas emission standards," Choi said, declining to disclose further details.

Washington has said South Korea's auto standards discriminate against American cars and act as non-tariff barriers, keeping their market share at less than 1 percent.

The two countries hope to reach a deal before President Barack Obama meets South Korean President Lee Myung-bak on the sidelines of the November 11-12 G20 summit.

A failure to resolve differences could embarrass Obama who, coming off a mid-term election setback last week, hoped to advance the pact and send a signal on U.S. commitment to greater trade.

But many of Obama's fellow Democrats are demanding substantial changes to pact, especially in the auto provisions, to open Korea's market to more American exports while protecting American workers against a surge in imports.

"Any deal that doesn't do that is going to be met with strong opposition from many members of Congress who are concerned about the economy and do not want any part of a trade agreement that was negotiated by the Bush administration and doesn't help domestic industries," Representative Louise Slaughter, a New York Democrat, said in a statement.

'DIGESTIBLE' DEAL?

Jeffrey Schott, an analyst at the Peterson Institute for International Economics in Washington, said he believed the two sides were headed for an agreement.

"They are working out a deal that is digestible on both sides," Schott said.

The agreement was signed under the previous administrations of both countries.

Some South Korean studies say the deal, the largest signed by the United States since the North American Free Trade Agreement, could boost by as much as a quarter annual bilateral trade, which sank to $66.7 billion last year.

Choi said the two sides did not discuss any further opening of South Korea's beef market, a potentially explosive issue for Lee's conservative government and the ruling Grand National Party, which has broad support for the free trade deal.

Some South Korean media said Washington was dropping the beef issue to win concessions from Seoul on autos.

Such a bargain would make sense, since U.S. beef exporters have regained a lot of the sales they lost in South Korea in the wake of mad cow disease being discovered in the U.S. herd in 2003, Schott said.

In addition, the itself phases out a 40 percent tariff on U.S. beef over 15 years.

"If this works out, the way it will be portrayed is the U.S. gets a little bit more on autos, the Koreans stand firm and protect their position on beef. Win-win," he said.

Schott said he expected South Korea to make "some sort of accommodation" on U.S. auto emissions standards.

A more disturbing development for free trade would be if United States reneges on an FTA commitment to phase out its 25 percent tariff on light trucks, or if a "snapback" provision allowing Washington to reimpose a 2.5 percent tariff on autos under certain conditions is made easier to trigger, he said.

Korea's opposition Democratic Party said it would block as a matter of principle any deal subject to modifications at this week's discussions.

(Additional reporting by Doug Palmer in Washington; Editing by Ron Popeski and Eric Walsh)

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