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South Korea and U.S. fail to resolve trade deal row

By Patricia Zengerle and Jack Kim

SEOUL (Reuters) - The United States and South Korea failed on Thursday to revive a stalled free trade agreement, dealing a blow to both countries' leaders and putting a brake on bilateral trade.

President Barack Obama and South Korea's Lee Myung-bak said negotiators would continue talks to address U.S. concerns that the deal does not do enough to open South Korean markets to U.S. beef and autos.

"We agreed that more time is needed to resolve detailed issues and asked trade ministers to reach a mutually acceptable deal as soon as possible," Lee told a joint news conference with Obama on the sidelines of a G20 summit.

Lee added negotiators will return to the table after the G20 meetings are over this week to try to resolve U.S. concerns, but rejected the suggestion that trade between the two allies was on a fundamentally unfair footing.

"U.S. trade (deficit) against South Korea is about $8 billion a year. Americans seems to think it is very large; it may have used to be, but it's come down by a lot," Lee said, adding the two were on more or less an even playing field when U.S.-made parts and intellectual property rights are factored in.

Obama said he was confident that the two sides would eventually reach an agreement and was reassured of Lee's commitment, but said any deal would have to be something that the American public could accept.

The two sides have been working frantically to address U.S. congressional and industry demands for changes to the deal signed in 2007 by the previous administrations of the two countries.

Obama and Lee had set a deadline earlier this year of resolving remaining concerns by the G20 summit.

The failure to do so is an embarrassment for Obama who, coming off a mid-term election setback last week, had hoped to advance the pact and send a signal on U.S. commitment to greater trade.

AUTOS THE MAIN PROBLEM

U.S. Trade Representative Ron Kirk denied that the failure to reach agreement was a defeat for Obama because the goal has been to achieve a trade pact that worked for the United States.

Mike Froman, an economic adviser to Obama, told reporters that there were a number of sticking points but autos had been the main obstacle to a deal.

U.S. opponents of the trade pact wanted a slower phase-out of tariffs on South Korean made cars and the removal of safety and mileage standards that they feel act as non-tariff barriers to American cars' entry into the Korean market.

Washington, however, is under pressure to conclude a deal with Seoul after South Korea signed a free trade agreement with the European Union last month and plans to ratify it in time to enact it in July next year.

The United States 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.

Washington had also demanded South Korea drop restrictions on beef imports from older cattle, a potentially explosive political issue for Seoul, which said it would not give in on this issue.

Some South Korean studies have said a free trade deal would boost annual bilateral trade by as much as a quarter.

The U.S. International Trade Commission said a pact would boost annual trade by as much as $17.8 billion, the growth coming more from greater U.S. exports to South Korea, primarily in farm goods, machinery, and electronics.

(Additional reporting by Jeremy Laurence and Alister Bull; Editing by Tomasz Janowski)

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