The U.S. and South Korea have reached an agreement on America’s largest trade pact in more than a decade, a highly coveted deal the Obama administration hopes will boost U.S. exports and create tens of thousands of jobs at home.
After a week of marathon negotiations, representatives from both countries broke through a stalemate on Friday morning on outstanding issues related to the automobile industry, which have been a sticking point in the talks. The agreement would be the largest U.S. trade deal since the 1994 North American Free Trade Agreement, or NAFTA, with Canada and Mexico and would bolster U.S. ties with the fast-growing South Korea economy.
South Korea is agreeing to allow the U.S. to lift a 2.5 percent tariff on Korean cars in five years, instead of cutting the tariff immediately. The agreement also allows each U.S. automaker to export 25,000 cars to South Korea as long as they meet U.S. federal safety standards and allows the U.S. to continue a 25 percent tariff on trucks for eight years and then phase it out by the 10th year. South Korea would be required to eliminate its 10 percent tariff on U.S. trucks immediately.
President Barack Obama hailed the agreement as a “landmark trade deal” that would support at least 70,000 U.S. jobs.
“We are strengthening our ability to create and defend manufacturing jobs in the United States, increasing exports of agricultural products for American farmers and ranchers and opening Korea’s services market to American companies,” Mr. Obama said in a statement.
South Korean President Lee Myung—bak praised the deal as bringing huge economic benefits to both countries and further boosting the two nations’ alliance.
“This agreement is meaningful in that it has laid the basis for a mutual win-win by reflecting interests for the two countries in a balanced manner,” Mr. Lee said in a statement posted on the presidential website.
The White House had hoped to strike a deal last month during Mr. Obama’s trip to Seoul for the G-20 economic summit, but both countries were unable to broker a compromise on issues pertaining to trade of autos and beef. U.S. Trade Representative Ron Kirk and his counterpart, Korean Trade Minister Kim Jong-hoon, resumed negotiations outside Washington this week.
The agreement did not address issues with the beef trade. The U.S. had sought greater access to the beef market in South Korea, which restricts imports of older U.S. meat. A senior administration official said discussions on beef are ongoing. The official insisted on anonymity to discuss private negotiations.
The wider agreement would eliminate tariffs on more than 95 percent of industrial and consumer goods within five years, a move that the U.S. International Trade Commission estimated would increase exports of U.S. goods by at least $10 billion. The deal would also open up South Korea’s vast $560 billion services markets to U.S. companies.
Mr. Lee expressed hope for a quick ratification of the deal by the legislatures of the two countries. Obama administration officials offered no timeline for ratification in Congress.
The South Korea deal has been widely supported by those in the private sector and the U.S. Chamber of Commerce, which has criticized other administration policies as anti-business.
“This agreement will create thousands of new jobs, advance our national goal of doubling exports in five years, and demonstrate that America is once again ready to lead on trade,” Chamber president Tom Donohue said on Friday. Ford CEO Alan Mulally said the deal was, “a transformational agreement” that would open one of the most closed auto markets in the world to U.S. manufacturers.
The deal was a bright spot for Mr. Obama on a day the Labour Department reported weak economic weak economic news- the U.S. unemployment rate climbed to 9.8 percent and job growth slowed to a trickle. Mr. Obama has pledged to aggressively seek new markets for U.S. exports in South Korea and other countries as a way to spur job growth at home.
The agreement also won Mr. Obama some rare support from Republicans.
Senate Minority Leader Mitch McConnell said the agreement was, “a positive development” towards promoting economic growth and private sector job creation. Republican Rep. Eric Cantor said the agreement would make U.S. exports more competitive and create more opportunities for American companies to create jobs.
Democratic Sen. Max Baucus said he was deeply disappointed that the deal didn’t address the ongoing issues with the beef trade. Mr. Baucus said he would reserve judgment on the larger trade agreement until those issues were resolved.
The U.S. and South Korea reached a deal in 2007 that slashed tariffs and other barriers to commerce. But the pact has been in limbo since then, due in part to political changes in both countries and the Obama administration’s demands that South Korea make concessions on trade in autos and beef. Administration officials hoped finalizing the South Korea deal could lead to breakthroughs on other pending agreements with Panama and Colombia.
Bilateral trade between South Korea and the U.S. totalled $66.7 billion in 2009, down sharply from $84.7 billion in 2008 as global commerce suffered during the economic downturn.
The U.S. auto industry would be one of the biggest benefactors of the agreements. Figures compiled by auto industry groups in South Korea show that it exported 449,403 vehicles to the U.S. last year, while South Koreans purchased 6,140 vehicles made by American manufacturers, based on vehicle registrations.
“This trade agreement, once finalized, will provide jobs, products, and renewed sense of partnership to both the United States and South Korea,” said Cody Lusk, president of the American International Automobile Dealers Association.
But Lori Wallach, director of the liberal-leaning advocacy group Public Citizen, criticized the deal, saying it would lead foreign investors to move U.S. jobs overseas and put Mr. Obama’s political future in peril.
“Choosing to advance Bush’s NAFTA—style Korea free trade agreement rather than the new trade policy President Obama promised during his campaign will mean more American job loss and puts the White House at odds with the majority of Americans,” Mr. Wallach said in a statement.