U.S., S.Korea trade talks stumble at last minute

SEOUL (Reuters) - Trade talks between the United States and South Korea stumbled on Friday just hours before a deadline, with the White House saying they could fail.

The two had appeared to be on the verge of closing what would the biggest U.S. trade deal in 15 years following a phone conversation the previous day between President Bush and South Korean leader Roh Moo-hyun when they agreed to urge their trade negotiators to show maximum flexibility.

"The talks are not going well. Unless the negotiations show some sign of progress in the next few hours this agreement will most likely not come together," said White House spokesman Tony Fratto.

There was no immediate word on what specific issues were threatening the talks with collapse.

South Korean officials gave only muted comments.

"We're at the very last minute, and we'll try our best," one flustered-looking South Korean official told reporters as he went back into the talks at a central Seoul hotel where negotiators have been meeting since Monday.

They have until late Friday Washington time (Saturday morning in Seoul) to reach a free-trade agreement that by some estimates could boost two-way trade by an extra $20 billion from the current nearly $72 billion a year.

After that they cannot benefit from the U.S. president's fast-track authority, expiring on June 30, to negotiate a pact that Congress cannot amend, merely approve or reject.

Officials said missing the deadline could mean talks dragging on for years, unless the White House could persuade a reluctant, Democrat-controlled Congress to extend the authority.

Nearly a year of negotiations have been dogged by large and sometimes violent protests in South Korea, mostly over the perceived threat to farmers if local markets are opened up to U.S. imports.

A Reuters photographer said about 1,000 farmers, labor and student protesters against the trade pact broke through police lines and were marching toward the presidential Blue House.

DEMOCRATS CONCERNED OVER DEAL

And on Thursday, Democratic leaders in the U.S. House of Representatives told the administration they were deeply concerned about the way the talks were going, and angry at the lack of progress in South Korea's protected auto sector.

"We now have an $11 billion deficit in auto trade which is 82 percent of the total deficit between our two countries," they said in a letter.

But South Korea is less worried about U.S. car imports than about the threat of agricultural imports overwhelming its heavily subsidized farmers who claim they will lose billions of dollars and tens of thousands of jobs if their market is opened up.

It is rice, which sells in South Korea for four times the international price and a market Washington is demanding be opened up, which has been seen as a potential deal breaker.

Many South Korean leaders say that by opening up the country to competition, the trade pact will help strengthen Asia's third-largest economy, which is being increasingly squeezed by giant neighbors China and Japan.

The United States wants South Korea to reduce tariffs on car imports and cut barriers it sees as blocking sales. It has called for greater access for its pharmaceutical products and progress on a separate dispute about access for U.S. beef.

It also wants greater access to South Korea's lucrative financial services.

Seoul is pressing Washington to change anti-dumping laws it says are unfairly applied to its products.

(With additional reporting by Caren Cohen)