WASHINGTON A free trade pact with South Korea could languish for another year or longer unless the two sides recover from a Thursday setback and quickly put together a deal to mollify concerns raised by Ford Motor Co (F.N) and its supporters in the Congress.
The failure to resolve differences over autos while President Barack Obama was in Seoul for a Group of 20 summit raises questions about whether a deal is politically possible, said Ernest Bower, an Asian policy expert at the Center for Strategic and International Studies.
That is a "reason for grave concern" because progress on the Korea-U.S. Free Trade Agreement, or KORUS, is vital to U.S. credibility in talks on a broader trade pact called the TransPacific Partnership, Bower said.
"Without KORUS, partners in the TransPacific Partnership negotiation won't believe the United States has the political will to complete and pass an agreement," he added.
The wider pact includes the United States, Singapore, Malaysia, Vietnam, Australia, Chile, Peru, Brunei and New Zealand, and is seen as a stepping stone to a broader free trade agreement encompassing all 21 member economies of the Asia Pacific Economic Cooperation forum.
The U.S.-Korea pact had already been stalled for three years because of objections from U.S. auto and beef producers.
Obama and South Korean President Lee Myung-bak set a deadline six months ago for resolving those issues by this week's G20 summit. At a joint news conference on Thursday, they said negotiators had made progress but would have to meet again in coming weeks to try to close the deal.
U.S. officials gave no details of the changes they want to make to auto provisions that the United States and South Korea negotiated in 2007. But they said differences over autos were the main reason for the failure to reach a deal.
Ford has complained the pact would phase out U.S. tariffs on South Korean cars and pickup trucks without adequately addressing non-tariff barriers they say have kept American cars out of the Korean market.
"Ford will continue to work closely with the administration and Congress to fully open the Korean market to American-made cars and trucks," Ford President Alan Mulally said in a statement in which he praised Obama and U.S. Trade Representative Ron Kirk's effort to "negotiate a meaningful free trade agreement."
Chrysler also opposes the agreement in its current form, while General Motors Co GM.UL, which is the principal owner of GM Daewoo in South Korean, has been neutral on the pact.
'APPROACHING THE FINISH LINE'
Troy Stangarone, director of congressional affairs at the Korea Economic Institute, said he worried that the talks could linger on indefinitely absent a "key action-forcing point" like the G20 summit.
The longer it takes to resolve the differences, the less likely the deal will make it to the congressional calendar in 2011 to win lawmakers' needed backing, he said.
"If they had finished last night, announced the decision, this would have been on the (congressional) agenda from the beginning and there would be a real chance to get this done. Now I think we've just added additional questions," he said.
Even though no date for a meeting has been set yet, South Korean Ambassador to Washington Han Duk-soo said in an e-mail sent on Thursday from Seoul: "Both our countries have been working very hard together and we are approaching the finish line."
"In today's meeting between the two presidents, which I attended, I can testify that their shared commitment to enacting this free trade agreement is stronger than ever before," Han added.
Jeffrey Schott, a senior fellow at the Peterson Institute for International Economics in Washington, said he was optimistic a deal could still be struck, but he agreed speed was important.
Although U.S. beef producers still cannot ship cuts from older cattle to South Korea, they have recovered much of the sales they lost in that market after the first case of mad cow disease was found in the United States in 2003, he said.
Without the trade deal, they risk again losing sales to competitors in Australia, which is negotiating its own free trade deal with South Korea, Schott said.
Similarly, without KORUS, U.S. automakers will have a harder time competing in South Korea after a European Union-South Korea trade deal goes into effect next year.
Some progress seems to have been made in Seoul this week on South Korean emission and safety standards that have been an obstacle to U.S. exports, and additional minor changes are probably needed to make sure there is sufficient political support in Congress to pass the deal, Schott said.
But if Ford expects to "export a lot of cars from Michigan to Korea, this deal won't do it and no deal would do that ... You're not going to sell 100,000 or 200,000 large cars in the Korean market from Detroit," Schott said.
(Editing by Mohammad Zargham)