THE US and South Korea have recently launched trade agreement talks, the largest bilateral negotiation undertaken by Washington since the North American Free Trade Agreement (NAFTA) with Mexico more than a decade ago.
When President George W. Bush came to office in 2001, he warned that the US had fallen behind the European Union (EU) and other countries in staking out bilateral trade agreements to open new opportunities for exporters. Since then, he has made good on his pledge to reverse that trend. In the past five years, the US has completed six bilateral trade agreements involving 11 countries, and is in talks that could lead to nine more deals with 13 countries.
With the exception of the Central American Free Trade Agreement (CAFTA), which passed after a huge fight in Congress last year, previous deals were uncontroversial.
Agreements with Chile and Morocco for example were relatively easy because the volumes of trade were so small. With Jordan and Bahrain, there were strong foreign policy incentives for the US - rewarding key strategic allies in an unstable region. Deals now under negotiation with Oman and the United Arab Emirates are widely supported as a means of encouraging moderate regimes in the Middle East.
Difficulties have already started to emerge with most of the other proposed agreements, however. Plans for trade talks with Switzerland were scrapped last month, after the Swiss refused to contemplate opening their highly protected agricultural sector. Egypt's overtures to the US have not been going much better, with the US suspending efforts to launch formal talks since the imprisonment of Ayman Nour, an Egyptian opposition politician.
The talks between US and South Korea, like those already under way with Thailand and Colombia, will require tough compromises in import-sensitive US industries -- including the embattled motor sector and the belligerent sugar producers.
Sander Levin, a Michigan Democratic congressman with close ties to the motor industry, said on February 02 the talks must open up the Korean car market, which remains virtually closed to US exports.
With the US carmakers GM and Ford already on the ropes, any negotiations will prove tough, says Gary Hufbauer, trade expert at the Institute for International Economics. "US automakers and their unions will be hypersensitive to any deal that would shift the competitive balance even slightly."
South Korea's cosseted farmers in turn are prepared to go to extraordinary lengths to retain their very high level of protection. At the Cancún world trade talks in September 2003, one South Korean farmer set himself ablaze in protest, and at the Hong Kong conference of December 2005 farmers jumped into the city's harbour. "Korea's trade minister will have to convince his colleagues that they will still have jobs if the government signs a trade agreement," said Mr Hufbauer.
Protesting South Korean farmers interrupted recently a public hearing in Seoul -- required before the government could launch the talks with the US -- with a sit-in, unfurling banners reading "stop fanner terror action".
Nor does the domestic political environment lend itself to successful trade talks, argues Edward Gresser, a trade expert at the Progressive Policy Institute. "There is a nasty partisan mood on Congress so the first thought of many Democrats is 'Why should I help Bush?'" he says. "This means the Republicans have to lean ever harder on their own members in Congress, raising the political cost of doing deals."
US trade officials say they are well aware of such challenges. But they argue that avoiding tough negotiations with countries such as South Korea and Thailand could freeze US companies out of some of the fastest-growing markets in the world.
With China intensifying its efforts to secure trade deals with its neighbours in the region, US policymakers are anxious that American companies should not be put at a disadvantage. The applied Korean tariff on UE goods is 11.2 per cent -- three times greater than the US average of 3.7 per cent.
Barbara Weisel, assistant US trade representative for south-east Asia, says: "We wouldn't be initiating talks if we didn't believe we could conclude and win approval on the Hill."
FT Syndication Service