Wednesday, September 13, 2006

US ROK FTA - Third Round Score Card

The third round is now over, and depending who you talk to little or
no progress was made. However due to all the press reports, we can
now construct a scorecard on what was wanted, and how much progress
was made. Lets look at things by sector. Please excuse the lack of

Negotiation Tactics

Before the details, I want to give my thoughts on the negotiation
tactics being used by the both sides. I think part of the reason for
the significant impasses in part have to do with the fact that both
sides seem to have different styles. The Korean side seems to want to
keep negotiations compartmentalized. Korea says “we talk about
agriculture now, that’s it”, so compromises are to be very narrow in
their view. The US side meanwhile seems to want to make compromises
on a broad level, e.g. “We accept your position on Textiles, and you
accept our position on Automobiles.”


Little progress was made, and I do mean little. The little progress
is mainly due to both are still talking about it and the Korean
government seems to agree that their list of agricultural goods could
be revised by mid-September. It is a ray of light, but who knows if
its light at the end of the tunnel, or an on rushing train.

To clarify the current status is the US wants every agricultural good
to be imported freely by opening up the market in stages lasting 10
years. Korean meanwhile wants to protect 280+ items (284 says
Joongang, 288 says Chosun) and lift what is not included in stages of
15 years.

Of those items not on the 280+ list, little of it makes sense that
will take 15 years to be tariff free; there is not much sanity in my
opinion. Accordingly to the Dong-A two items in debate in this area
are corn and beans for animal feed. What makes Korea’s resistance a
little odd is that Korea produces negligible amounts anyway. So
eliminating this tariff right away will not impact farmers one iota.


This is something the US is being hard on (perhaps to mirror Korea’s
stonewalling on agriculture). Korea wants the US to eliminate all
tariffs on textiles. The US basically agrees, but wants them to be
phased out in 10 years (similar to their agricultural proposal,
reinforcing my mirror idea). Korea finds this unacceptable and wants
them phased out much faster.

For some reason the Textile issue has seemed to fixate the media.
This is somewhat puzzling to me since China, India, and others are
(or are set) to become booming textile importers to the US in their
own right. Granted it is a big industry for Korea, but their face a
very competitive market in the future in the US.


Basically, no change. The US wants cars to be subject to a lower
tariff and a revision to the engine displacement taxes. Korea is
holding firm. Korea though seems to be offering a compromise on the
initial tariff and giving a two-year grace period on emissions. What
this last part means is not described, however clearly Korea is
holding firm in my opinion.

Despite initial word that foreign nameplate cars will be excluded
from the talks, some news reports says this issue is still up in the
air. Out of curiosity, I wonder how a Hyundai made at their new
factory in Alabama will be taxed if brought back to Korea.


One of Korea’s more interesting issues is their worries about US Anti-
dumping and other trade protection measures. The US is firm this is
not to be discussed. I wonder if again this is firmness to mirror
Korean firmness in other areas.

Backing up this theory is I wonder if some of these measures can
actually be placed from the executive to judicial branch of the US
government. Currently once a firm is found by the Executive branch as
dumping product, companies involved can sue to get compensation. Why
not in turn just leave the determining and compensation to the court
system? Also it the companies could conceivably be protected by anti-
trust statues (granted though after Matsushita v. Zeinth this can be
dicey). Anyway, there is a fall back position to this for the US
which can be a good compromise.

On the other hand, the US may be linking this issue to the use of
government owned banks to subsidize Korean companies. Recently
government subsidies given to Hynix Semiconductor were found to
violate WTO rules. Part of the Hynix case was the company was allowed
to dump (sell below cost to gain market share) memory chips on the US
market because of these subsidies. Perhaps if Korea would agree to
change its banking sector, including the somewhat controversial Korea
Development Bank, a compromise can be found here.

Finally, the time difference may make this negotiation moot. The Dong-
A reports that the US side has to make reports to congress about
changes in anti-dumping policy six month before signing. Keeping in
mind the March to June deadline for signing (I forget the exact
date), this means that an agreement on this area must be reached in
the next couple months. If no progress is made the next round in
Jeju, this may be a dead issue.


As you may recall, some progress was made in a special session in
Singapore regarding Korea’s “positive list” system. In short the US
was willing to accept it if other concessions were made in areas such
as intellectual property rights, testing and access in relation to
pharmaceuticals. This seemed to get a positive reaction initially
from the Korean side.

The US likely came into Seattle ready to put this to rest.
Unfortunately this was not to be so. As further details came out from
both sides, negotiations seemed to have stalled. Or perhaps somebody
added more restrictions. It is unclear from the media what exactly
happened, but this can was kicked down the road.

Something left out of this reporting that concerns me is there is no
talk of medical devices and such being included in this. Many of the
complaints about barriers, such as regulation, testing, and even the
positive list system (as I recall) also applies to medical devices.
Is the lack of discussion simply an omission and press shorthand or
does it show a quiet compromise on the issue?

Television Market

It seems some progress was made in the TV market. The US has seemed
to have won some concession on laws limiting foreigners to a minority
share of cable TV channels.

Intellectual Property

Both countries have made the obligatory pledge to respect and enforce
IPR rights. Meanwhile the US has requested Korea to extend the time
of copyright protection from 50 to 70 years. It is expected this will
be a big issue the US will raise in the future.

Gaesong Industrial Complex

It stands as it always did, the US saying “Over my cold dead body!”


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