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Showdown looming on Korea trade without deal soon

By Doug Palmer

WASHINGTON (Reuters) - President Barack Obama appears headed toward a fight with Republicans over a long-delayed trade deal with U.S. ally South Korea, even though both sides say they want it to pass Congress.

Obama administration officials say no deal has emerged to ease passage of an agreement that supporters contend would create tens of thousands of jobs and help the White House aim of doubling U.S. exports in five years.

"We've yet to hear any workable ideas" from Senate Republican Leader Mitch McConnell, said one of the officials who spoke on condition they not be identified.

The administration still hopes something can be found, the aide added.

The sticking point is a worker retraining program the White House wants approved along with the Korea pact but which Republicans oppose as they push for broad spending cuts.

The Korean deal, and two other pending pacts with Colombia and Panama, were negotiated and signed under former President George W. Bush. He could not win their approval after Democrats took control of Congress in November 2006.

A year ago, Obama moved to resolve Democratic concerns with the deals. That accelerated after Republicans won the House of Representatives in November and demanded action on all three deals by July 1.

Obama could send the agreements to Congress as early as this week after committee-level action in the House and Senate last week.

The administration has signaled to business groups it intends to submit the Korea agreement with the controversial Trade Adjustment Assistance (TAA) retraining program included, one business source said.

McConnell strongly opposes that but the administration official said they see no other way to win approval of TAA, a key White House priority along with the pacts.

The administration does not want to further upset organized labor, which is wary of trade deals over their potential impact on U.S. jobs and is an key Democratic Party constituent.

"We've been clear: the legislative agenda on trade must include a robust renewal of TAA and including it in an implementing bill is the only viable pathway that's emerged. So far, no other credible alternatives have been offered to get the trade agreements and TAA done in a timely fashion," the official said.

Most farm and business groups recognize TAA has to be part of the mix and worry the fight will leave them further behind the European Union and Canada, which have put in place their own trade deals with Korea and Colombia.

BIPARTISAN DEAL ON TAA, BUT NOT PROCEDURE

Congress created TAA in the 1960s. An expanded version expired in February after newly elected Republicans, who now lead the House, balked at the $1 billion annual price tag.

Although the underlying TAA program remained in place, the White House warned Republicans in May that it would not send the three free trade agreements to Congress until there was a deal to renew many of the expanded benefits approved in 2009.

A bipartisan deal was reached in June on a slimmed down version of the 2009 TAA reforms but the two sides remained apart on how to present the compromise to Congress for a vote.

Democrats believe the administration needs to include it in the Korea bill to prevent Senate Republicans from killing it. Republicans believe they should be kept separate and have called plans to put TAA in the Korea bill "a poison pill."

Obama appears poised to defy Republicans, apparently counting on their traditional support for free trade deals which many of his fellow Democrats traditionally oppose.

That strategy might backfire. "We can't speak for every Republican, but (McConnell) has said he'd be compelled to vote against the Korean trade bill if it includes TAA," a McConnell spokesman said, adding the Republican leader would first do "everything in his power" to block action on the bill.

MCCONNELL PUSHES 'FAST TRACK'

A business source sympathetic to the White House said one of McConnell's proposals, tying TAA to a renewal of the president's fast-track powers to get trade deals through Congress, was unpalatable to the White House.

Those powers, called the Trade Promotion Authority (TPA), allow the White House to negotiate new trade agreements that it could submit to Congress for straight yes or no votes without amendments. It has long been considered vital for securing trade deals with U.S. trading partners worried that without it their agreements could be picked apart by Congress.

The South Korea, Colombia and Panama pacts are all covered by TPA because they were signed before it expired in June 2007.

A push to renew TPA could split Obama and Democrats in Congress and so far he has not sought its extension.

A Republican aide said McConnell believes TAA would pass in the Senate on its own and would not work against it if he got a vote on renewal of the TPA fast-track powers.

House Speaker John Boehner also wants separate votes on the TAA program and the trade bill.

One idea administration officials discussed with business groups on Friday is for Boehner to split the Korea bill in two parts, one covering TAA and the other the trade agreement so lawmakers could vote on each individually.

Then Boehner could stitch the two parts back into one bill and send it to the Democrat-controlled Senate where it would still have fast track protection, the business source said.

Boehner's office refused to comment on the idea or respond to other questions about the issue. Administration officials also say Boehner has yet to clearly signal his plans.

(Reporting by Doug Palmer)

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