UPDATE 5-S.Korea, US agree on auto deal to save trade pact

Fri Dec 3, 2010 4:43pm EST

Related Topics

* Deal allows longer phase-out of U.S. auto tariffs

* Also address non-tariff barriers to Korean market

* Deal expected to boost U.S. exports up to $11 bln (Adds reaction, background, previous COLUMBIA, Maryland)

By Doug Palmer

WASHINGTON, Dec 3 (Reuters) - The United States and South Korea have reached a deal on auto issues that have blocked congressional approval of a free trade agreement for three years, sources familiar with the talks said on Friday.

As part of the deal, South Korea agreed to let the United States keep a 2.5 percent tariff on Korean-built cars for five more years, rather than cut it immediately, the sources said.

The agreement breathes life into President Barack Obama's trade agenda, which has been in doubt since the two countries failed last month to resolve problems with the pact by a self-imposed deadline.

The failure renewed questions about Obama's commitment to the Korea-U.S. Free Trade Agreement and other pending trade deals supported by U.S. business groups, but which have been opposed by some of Obama's staunchest supporters.

The two countries signed their original trade deal, which is known as KORUS, on June 30, 2007.

It would be the second largest U.S. free trade agreement after the North American Free Trade Agreement with Canada and Mexico in the mid-1990s.

Both the U.S. Senate and House of Representatives would have to approve the deal for it to become law. Supporters hope the changes agreed on this week could lead to action on the pact in early 2011.

Action on the agreement has been delayed mainly by U.S. auto and beef industry concerns.

The United States exported 7,663 cars and light trucks to South Korea in 2009, while it imported 476,857 from automakers there, according to U.S. Commerce Department figures.

Ford Motor Co (F.N) and its supporters in Congress complain the lopsided trade is due to South Korean tax and regulatory barriers that KORUS fails to address adequately.

They also were unhappy with the schedule for phasing out U.S. car and truck tariffs under the pact.

The new supplement agreement allows 25,000 cars per U.S. automaker to qualify for entry into the South Korean market based on U.S. safety standards. That is about four times the amount agreed to under the deal struck in 2007.

It also allows the United States to keep a 25 percent tariff on trucks until the eighth year, instead of beginning to reduce it in the first year. The United States will still have to eliminate the duty in year 10 of the pact.

South Korea is no longer required to eliminate immediately its 8 percent tariff on U.S. auto imports, but will reduce it to 4 percent for four years before eliminating it, the sources said. Seoul will immediately eliminate a 10 percent tariff on U.S. trucks, they added.

U.S. negotiators wrapped up several days of talks with South Korean officials early on Friday in Columbia, Maryland, in a jubilant mood.

'MOVE FORWARD'

"We made substantial progress in our discussions," U.S. Trade Representative Ron Kirk said in a statement after his final meeting with South Korean Trade Minister Kim Jong-hoon.

"It's time for the leaders to review this progress before we move forward," Kirk said.

Once that has been done, "then we will synchronize the same time and date to go into a detailed announcement," South Korean Trade Minister Kim Jong-hoon said before going to the airport.

South Korea is the United States' seventh largest trading partner and eighth largest export market. Last year, the United States exported $28.6 billion worth of goods to South Korea and imported $39.2 billion of products from that country, for a U.S. deficit of $10.6 billion.

The U.S. International Trade Commission has projected the agreement will boost U.S. exports to South Korea by $10 billion to $11 billion, while increasing U.S. imports from that country by $6.4 billion to $6.9 billion.

Kim said he hoped this week's work would set the stage for the U.S. and South Korean legislatures to approve the trade deal in 2011.

The two countries agreed to work with Senate Finance Committee Chairman Max Baucus to address his concerns about remaining restrictions on imports of U.S. beef, but South Korea did not commit to any immediate action, the sources said.

U.S. beef exporters have already recovered much of their lost market share in South Korea under a voluntary industry agreement to address lingering concerns about several cases of mad cow disease found in the U.S. cattle herd.

Much of the beef industry is eager to have the pact approved because it phases out a 40 percent South Korean tariff on U.S. beef and because a major competitor, Australia, is negotiating its own free trade pact with South Korea. (Editing by Peter Cooney)

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