Friday, September 08, 2006

US ROK FTA - Yehaaa! Begin the Third Round Round-up

The third round of the US ROK FTA talks are now underway, and with it a flood of news about what the Koreans are doing to “defend” Korea against the Americans in a agreement they “must” make that will cause Korea “pain and toil”. And the funny thing is this the language used by the Pro-FTA forces! Further more expect the anti-FTA forces to come out of the woodwork as the US makes further demands this round. More importantly the US’s head trade rep touches the third rail of Korean politics!

Speaking of pro and anti forces, something must said in passing about the protests in Seattle during the talks. An account from the Hani:

"I don't understand why our government pushes ahead with the free trade talks with the U.S., because it would be no help for our national interest," Kang Ki-gab, a South Korean opposition lawmaker, said at the rally.

Wearing South Korea's traditional cotton robe and slippers, the farmer-turned lawmaker from the labor-friendly Democratic Labor Party claimed the proposed free trade deal would only help big businesses…

"America's workers have too much experience with failed agreements like NAFTA," said Thea Lee, a policy director of the American Federation of Labor and Congress of Industrial Organizations…"The promises are always the same: more jobs, more investment, more economic growth. But the reality is always the same: jobs lost and greater inequality," she said.

Aehwa Kim, an official with the Korean Alliance Against the Korea-U.S. FTA, which organized the Seattle rally, said, "American workers will be just affected as well as Korean by low-paying jobs or unemployment, and the loss of benefits."

That must have been some protest. One person with a sign that says “FTA Takes Korean Jobs” and the other “FTA Takes US Jobs”. One has to wonder where all those jobs went. Perhaps this what Ross Perot meant by the “giant sucking sound” of jobs leaving.

Meanwhile back in Korea members of the Assembly have protested in what could be described in new fashionable way in Seoul, claiming the whole FTA process is unconstitutional:

In Seoul yesterday, 23 lawmakers, including 13 from the Uri Party, filed a lawsuit at the Constitutional Court contending that the administration had violated the National Assembly's right to ratify international treaties guaranteed by the Constitution — even though no treaty has been agreed to or signed.

The lawmakers complained that the administration was unilaterally and aggressively pushing the free trade deal without sharing information with the National Assembly or seeking its assent.

So in other words the lawmakers are saying because nobody is talking to them, their feelings are hurt, and that is unconstitutional somehow. I know it will not happen, but I hope the Constitutional Court throws the book at these guys. Any book, but preferably something big and heavy.

As expected, Korea is commenting over and over again on how rice will not be on the metaphorical table. This is part of a regime of 284 goods that they want to exclude from the treaty. As you can also expect these 248 goods happen to be exactly of the caliber that the US is eager to export, rice, beans, beef, pork, chicken, peppers, onions, garlic, fruit, etc. This impasse will likely either stall/end the talks, or if included in the pact will make it exceedingly difficult for the US senate to ratify the FTA (IMHO anyway).

Meanwhile, of the agricultural goods Korea is willing to lift the tariff on, Korea wants the tariffs lifted in 15 years not the US request of 10. All this looks somewhat silly given the Korean side also demands the US the speed up its lifting of textile tariffs to five years from the US proposed (reciprocal) proposal of 10 years.

The stalemates that hindered the first rounds, cars and drugs, are expected to continue. However, there may be a compromise in the offing in regards to drug pricing. The US recently at a side meeting in Singapore agreed to Korea’s positive list system, as long as additional steps are taken so as US drug companies are not discriminated against

(Personal note, frankly I think the US has given up the drug issue. The US proposals are laughable in that they require the cooperation of sectors of the Korean government who are not really use to cooperating with foreigners. I think it’s all a face saving measure by the US)

Remember the “Singapore plus” statement in the last round of talks? This was the Korean offer that said we will restrict 100 sectors plus a few more, same as the Korea Singapore FTA. What was outrageous about this was this was basically most of the things the US trades, services, agriculture, entertainment, etc. The issue of these services, ex. Agriculture, is finally boiling over. We start with the Dong-A:

Reports have it that Korea said it will exclude about 100 services, including electricity, postal service, legal service, accounting and medical service from opening up. Earlier, the U.S. said it has no interest in the opening up of the educational market, but U.S. chief negotiator Wendy Cutler said at the second round, “We are interested in access to Korea’s Internet education service market.”

Some of these are understandable. However it should be said that the Korean media’s ambiguity can lead to some drastic misunderstandings. For example take “postal service”, this is not get rid of the Korean Postal Service, nor allowing the US Postal Service to set up shop in Korea. It is about the domestic delivery of packages in Korea. Again from the Dong-A:

With regard to home-delivery service, whether U.S. companies such as FedEx could advance into Korea’s home-delivery service market, especially for small-sized items, is likely to be a hot issue.

This is actually a bigger issue than it may seem. One of the largest complaints about doing business in Korea, and not just by foreigners, is the cost of shipping and logistics in country. In my opinion, allowing foreign competition and with it certain amount of consolidation for efficiency sake will drastically alter the prices of most goods in Korea.

Among the other things the US wants to talk about is the media restrictions in Korea (from the Chosun):

When it comes to broadcasting, the government thinks Washington will not go as far as to demand privatization of state-run network KBS, allowing U.S. investors to buy shares in it, but the details remain to be seen...The U.S. reportedly wants Korean national TV networks to scrap or reduce a quota obliging them to fill 80 percent of their broadcasts with domestic content, and the government to lift regulations preventing cable TV channels from dubbing foreign broadcasts in Korean.

Wow, imagine the furor that will come from KBS after this. MBC may have done its chop piece on NAFTA. I expect the rest of the Korean media to pile on as more details of this comes out. All the major broadcasters have invested much money on TV production here, expect them to fight to protect that investment.

Another US requests you can read through the links in this post are change in the ownership rules of communication firms and openings of the Legal, Education, and Medical markets.

The biggest news though is Wendy Cutler, the head US Trade Rep, makes an admirable effort but ends up touching the third rail of Korean politics, the cheabols! From the Dong-A:
During the third round of FTA negotiations between Korea and the U.S. that started on September 6, local time, the U.S. required that trade related laws including fair trade laws should be strictly applied to the Korean companies including large conglomerates (known as Chae-bol) and this be clearly stated in an FTA agreement.

How about that for Cutler doing what I think would be diplomatic equivalent to nailing somebody’s balls to the wall. In other words Cutler is asking Korea to agree in writing to something everyone knows, the chaebols play by a different rules than everyone else.

Needless to say this does not sit will with Korean government (from the Korea Times):

In response, chief Korean negotiator Kim said, “The U.S. view toward chaebol is wrong,'' citing the rules of investment ceiling on funding to subsidiaries.
Officials at the Ministry of Foreign Affairs and Trade also left no room for negotiation over the U.S. demand in consultation with the Fair Trade Commission (FTC), Korea's anti-trust regulator.
“Their demand was worth no consideration,'' a senior government official said on condition of anonymity.
“We are applying the competition law rigorously to all companies. We had ignored the demand involving a crackdown on chaebol.''

And that was just the government response mind you. While a FKI statement was somewhat restrained, one can only wonder what the reaction was in the boardrooms in Korea. In case you are wondering the whole position of the FKI and the government is “Some regulations are being strictly applied, you expect ALL the rules to be applied?”. As head Korean negotiator Kim Jong-hoon notes:

Korea’s Chief Negotiator Kim Jong-hoon responded to this issue by saying, “With regard to the regulation on large conglomerates, the U.S. perspective is clearly wrong. Large conglomerates in Korea are currently subject to reverse discrimination, in terms of Korea’s fair trade law and a law that puts limits on the total amount of corporate financing.

What is really puzzling about all this is the language in the FTA is simply something like “Both parties agree to apply competition laws equally among US and Korean corporations”. All they would be doing is agreeing to an existing fact (a fact on paper that is). What would be so wrong with both companies confirming their respect for the rule of law? I think we all know the answer to that question in relation to the chaebols.

Actually I see Cutler working here. Time to ask for things that Korea would really be against to get concessions elsewhere. Or so I hope.

Finally as part of my mission to point out things that can sell the FTA I would like to point out to this in the Chosun:

The prices of major foods including beef, pork, milk and potatoes in Korea are the fifth highest among 34 leading economies. The country has become one of the world’s most expensive nations, with consumer prices soaring about 20 percent since 2000.

A comparative study on consumer price growth in 30 OECD member countries from 2000 to the first six months of 2006 showed Korea experiencing a growth rate of 20.3 percent on average, the sixth highest after Turkey, Hungary, Mexico and Spain…When Korean consumer prices are set as the standard of 100, U.S. prices stood at 180 in 2000. But the figure dropped to 148 in 2002, 116 in 2005 and 110 in June 2006. In other words, U.S. consumer prices were 80 percent higher than in Korea in 2000 but only 10 percent higher this June. British and Swiss consumer prices were twice as high as Korea with 180 and 209 in 2000 but only at 126 and 159 June this year. In Japan, consumer prices were 1.38 times as expensive as in Korea in June, down from 2.64 times.

Hmm…what can Korea do to lower food prices? Anybody?


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