Rough Sailing for
Korea-US FTA Talks

U.S., Korea suspend some negotiations on the final day of the second-round of negotiations

Korea-U.S. negotiations on a Free Trade Agreement indicated the tough task ahead as the United States and Korea failed to appear for their scheduled meetings on the final day of the second round of talks that began in Seoul in July for a five-day run.
U.S. delegates in Seoul called off their negotiations in subcommittee meetings on trade remedies and services with their South Korean counterparts that were scheduled on the morning of July 14, the final day of the second-round negotiations.
The Korean Ministry of Foreign Affairs and Trade said on July 14 as the U.S. side did not show up for subcommittee meetings on trade remedies, services and other areas Friday morning, the Korean side, in return, informed U.S. delegates of its position they would not participate in scheduled negotiations sessions on trade in goods and environment with their U.S. counterparts.
Kim Jong-hoon, Seoul's chief negotiator for the Korea-U.S.
talks, said in a news conference on July 14 that the second-round talks ended earlier than scheduled mainly due to differences in pharmaceutical fields. I don't think this issue is serious enough to suspend the talks, and I believe that the talks will return to a normal track as soon as the misunderstanding over the pharmaceutical issue is resolved.
U.S. chief negotiator Wendy Cutler said at another new conference that she criticized the Korean side over the pharmaceutical issue since it did not enable making substantial process in the talks.
However, both sides agreed to have a cooling-off period for the time being before resuming the FTA talks. Chance are high that the U.S. and Korean sides are expected to make some concessions on the issue and reach a compromise, but some analysts said the FTA talks themselves may be in a crisis of ending up in rupture because both sides showed a wide gap in their positions.
Tens of thousands of Korean protestors held demonstrated against the Korea-U.S. FTA on the streets in Seoul and in the neighborhood of the conference venue in Seoul Shilla Hotel as Korean and U.S. negotiators held sector-by-sector talks.
Korean and U.S. delegates failed to iron out differences in some sensitive issues on negotiations that proceeded from July 10 through July 13, even though they shared the view on quite a few issues.
In particular, both sides clashed over sensitive issues as agriculture, automobiles and pharmaceutical sectors.
The U.S. side unilaterally withdrew from a meeting on pharmaceuticals and medical devices scheduled for July 11, insisting that the "Positive price system"plan under the Korean medical insurance policy should be revoked. Such meetings had been never held since then.
The pharmaceutical issue the U.S. side fingered as the greatest stumbling block in the way of the FTA negotiations is the Ministry of Health and Welfare's plan to implement the positive price system calling for specifying medicines of good quality, to be covered by the health insurance policy, in a move to cut down on health insurance costs, starting in September.
Nearly all medicines put on the market have so far been listed as those that can be covered for reimbursements. However, under the revamped plan, the National Health Insurance Corp. would have the power to negotiate on medicines and their prices for medical coverage.
The Korean side insists that the positive price system, designed to innovate the health insurance finance sector, has nothing to do with the FTA negotiations. The U.S. side demanded that the new plan discriminates against new U.S. medicine and denies access to Korean patients, leading to a new trade barrier.
The U.S. demand in the pharmaceutical issue may be construed as their strategy aimed at gaining concessions in other areas from the Korean side, according to some experts.
Starting with the second-round talks, Korean delegates demanded that rice and some sensitive products be excluded from the free trade talks. But U.S. chief negotiator Cutler made it clear that there would be no exemptions, saying that the U.S. would be willing to extend the grace period for lifting tariffs or grant Korea the right to temporary limit rice imports in case of an emergency.
Concerning imported cars on the Korean market, U.S. negotiators made a strong offensive by demanding that Korea's tax system on imported cars be based on the fuel efficiency, not on the vehicle's engine capacity. The U.S. demand is that U.S. cars with larger engine capacity have disadvantages in the Korean markets. The Korean side would not budge on its position, saying that the tax system is aimed at discouraging the use of cars with bigger engines.
Both sides shared the view on the percentage of overseas parts of use in determining the origin of a car, a move to cope with the import of automobiles into Korea made by Japanese automakers in the United States.
The U.S. side refused to make a concession on the Korea side's demand that the United States remove all tariffs on the products from the Gaeseong Industrial Complex in North Korea, citing a deal on the issue in an FTA pact with Singapore.
The civilian committee on Korea-U.S. FTA said in a statement issued on July 11 that it criticized the divisions of public opinions and imprudent and violent acts in connection with the FTA negotiations now under way. The statement appealed for people to pool wisdoms in concluding a FTA deal the way Korea’s national interests can be maximized.
The statement was issued in the name of Lee Hee-beom, chairman of Korea International Trade Association, Sohn Kyung-shik, chairman of Korea Chamber of Commerce and Industry, Kim Yong-gu, chairman of Korea Federation of Small and Medium Business, Yoo Ji-chang, chairman of Korea Federation of Banks and others.
Chin Dong-soo, second vice minister at the Ministry of Finance and Economy, predicted that if the Korea-U.S. FTA negations are delayed, the U.S. Congress would make more demands, so it would be more favorable for Korea to complete the FTA negotiations before the expiration of the fast-track authority to negotiation trade agreements.
U.S. chief negotiator Cutler warned during her meeting with several Uri lawmakers that the U.S. Congress is unlikely to extend the White House's fast-track authority, which is schedule to expire in mid-2007.
However, both sides also concurred on some issues. The U.S. and Korean negotiators agreed by mid-August to exchange their respective tariffs offers for lifting tariffs on general items (some 8,400 products) except agricultural products and textiles according to the five-period framework - immediately, within three, five, ten and undefined years.
The United States and Korea agreed to exchange a package of tariffs offers in the agriculture and textile sectors. But both sides decided to draft their respective tariffs offers based on their own time schedule as they failed to reach agreement on the timing of opening the agriculture and textile markets.
U.S. and Korean delegates agreed on some points in opening the financial service market.
Both sides exchanged their own proposals for excluding services and investment sectors from market opening. Korea submitted a proposal to the United States that some 100 service businesses, including broadcasting, electricity, electricity, accounting and medical services, should be excluded from marking opening.
A Korean negotiator said both sides formed a general frame during the second-round talks, and a fully-fledged deal will be made during the third round of FTA talks, to be held in the United States in Washington in September. The planned third round is expected to be a watershed of making or breaking the Korea-U.S. FTA, dubbed KORUS. nw

Kim Jong-hoon, Seoul's chief negotiator for the Korea-U.S. talks on FTA, exchanges hands with his U.S. counterpart, Wendy Cutler as they began the second-round negotiations in Seoul on July 10.
Courtesy on Government Information Agency

Lee Hee-beom, chairman of KITA

Tens of thousands of Korean protestors demonstrated against the Korea-U.S. FTA on the streets in Seoul.