US reaches FTA with South Korea

April 2 (Bloomberg) -- The U.S. and South Korea reached a free-trade accord worth as much as $29 billion that if ratified would be the largest for the U.S. since the 1994 North American Free Trade Agreement.
``This is a strong deal for America's farmers and ranchers who will gain substantial new access to Korea's large and prosperous market of 48 million people,'' Deputy U.S. Trade Representative Karan Bhatia told reporters in Seoul today. ``Neither side obtained everything it sought.''
The agreement will eliminate duties on products such as South Korean autos and apparel, and cut investment barriers for American insurers and financial companies. South Korea will abolish its 40 percent tariff on U.S. beef over 15 years and the pork tariff over 10 years, Trade Minister Kim Hyun Chong said at the joint briefing. Rice wasn't included in the accord.
``The FTA should be seen as an economic marriage between both countries,'' said William Oberlin, chairman of the American Chamber of Commerce in Korea. The agreement ``will take the Korea-U.S. economic relationship to the next level.''
South Korean stocks rose to a five-week high, led by automakers such as Hyundai Motor Co.
Scrapping Tariffs
The U.S. will ``immediately'' scrap tariffs on Korean cars with engines of three liters or less and on auto parts, Bhatia said. It will phase out duties on bigger engines within three years, on tires within five years and on pick-up trucks within 10. South Korea exported $6.6 billion a year in automobiles to the U.S. between 2003 and 2005. Auto part exports during the same period averaged $1.4 billion annually.
Trade between the two nations was worth almost $77 billion in 2006, according to South Korea's Commerce Ministry. A free- trade agreement may boost U.S. exports to Asia's third-largest economy by as much as $19 billion annually, while South Korea stands to get a $10 billion jump in exports to the U.S., according to the U.S. International Trade Commission.
The accord ends 10 months of wrangling that peaked with almost round-the-clock talks in Seoul for the past two days. Negotiators extended the talks after missing a self-imposed March 31 deadline. President George W. Bush's authority to negotiate trade deals that can't be altered by Congress expires June 30.
``Both sides worked very hard to make this a win-win deal,'' said Lee Hee Beom, Chairman of the Korea International Trade Association, and former minister of commerce, industry and energy.
Pushing Rice
Bhatia told reporters after the press conference that he wished rice had been included in the accord. About half of South Korean farmers grow rice, and duties keep prices about four times that of the world average, according to a report by the American University in Washington.
``We were pushing rice all the way up until the very end,'' Bhatia said. ``We will look to continually raise the rice issue with our counterparts.''
The plan has been the focus of violent protests by farmers who oppose opening South Korea's markets. Two people died in clashes in 2005 and 60 people were injured last year.
South Korea's 35 trillion won ($37.3 billion) agricultural production will decline by as much as 2 trillion won a year under the proposed accord, according to the Seoul-based Korea Rural Economic Institute. Production of beef, chicken and other meat may fall by as much as 1 trillion won a year as U.S. imports gain ground, the report said.
``We tried to protect the profits of farmers as much as possible during the negotiations,'' President Roh Moo-Hyun said in a nationally televised speech. ``If their income is cut because of increased imports, the government will maintain it.''
Beef
A fully open South Korean market for U.S. beef would be worth about $1 billion a year, according to Greg Doud, chief economist for the National Cattlemen's Beef Association. Bush said last week that persuading South Korea to remove beef restrictions was ``an important part of our foreign policy.''
The free-trade agreement, if ratified, would be the biggest for the U.S. since the 1994 accord that linked it with Mexico and Canada. Under fast-track treatment, Congress must accept or reject trade agreements without change.
The deal would be South Korea's largest if approved by its legislature. It has already signed similar accords with Chile, Singapore and the European Free Trade Association.
Both countries' legislatures will probably approve the agreement, said Frederic Neumann, an economist at HSBC Holdings Plc in Hong Kong.
``This is a positive development for Korean industry, which should provide a much-needed boost to sentiment and possibly investment later in the year,'' he said.
North Korea
Both nations agreed to discuss ``at a later stage'' goods made at an industrial complex in the North Korean city of Gaeseong, South Korea's Kim said. South Korea began financing the 25-acre complex in 2002 as part of its policy of engaging with North Korea.
Bhatia said the U.S. doesn't want those products covered by any agreement.
``Let's be clear,'' he said. ``Gaeseong is not in this FTA. There is nothing in the agreement that will allow goods processed or made in North Korea to enter the U.S.''