November 11, 2010 / 9:26 AM / 9 years ago

UPDATE 4-South Korea, U.S. fail to resolve trade deal row

* Embarrassing setback for two leaders

* Autos the main sticking point

* Obama says any deal must appeal to American public

(Adds U.S. lawmaker comments in paragraphs 12-13)

By Patricia Zengerle and Jack Kim

SEOUL, Nov 11 (Reuters) - The United States and South Korea failed to revive a stalled free trade agreement on Thursday, dealing a blow to both countries’ leaders and putting a brake on bilateral trade.

U.S. President Barack Obama and South Korea’s Lee Myung-bak said negotiators would continue talks to address U.S. concerns that the deal does not do enough to open South Korean markets to U.S. beef and autos.

“We agreed that more time is needed to resolve detailed issues and asked trade ministers to reach a mutually acceptable deal as soon as possible,” Lee told told a joint news conference with Obama on the sidelines of a G20 summit.

The deal, if ratified by the two countries’ assemblies, would be one of the largest free trade pacts ever. It is the largest signed by the United States since the North American Free Trade Agreement that went into effect in 1994.

Studies said the deal would boost the $66.7 billion annual two-way trade by as much as a quarter. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

U.S. seeks to sustain shaky G20 unity [nN10121378] ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

Lee said negotiators would return to the table after the G20 meetings are over this week to try to resolve U.S. concerns but rejected the suggestion that trade between the two allies was on a fundamentally unfair footing.

“U.S. trade (deficit) against South Korea is about $8 billion a year. Americans seems to think it is very large; it may once used to have been, but it’s come down by a lot,” Lee said, adding the two were on more or less an even playing field when U.S.-made parts and intellectual property rights were factored in.

Obama said he was confident the two sides would eventually reach an agreement and was reassured of Lee’s commitment.

“President Lee and I agreed that we need to make sure that over the next several weeks, we are crossing all the T’s, dotting all the I’s, being able to make the case to both the Korean people and the United States population that this is good for both countries.

“... We don’t want months to pass before we get this done, we want this to be done in a matter of weeks.”

AUTOS THE MAIN PROBLEM

The two sides have been working frantically to address U.S. congressional and industry demands for changes to the deal signed in 2007 by the countries’ previous administrations.

Two powerful U.S. lawmakers from Michigan, the heart of the U.S. auto industry, said in a joint statement further negotiations would succeed “only if South Korea adopts concrete steps to open its market to U.S. exports.”

“While there are other unresolved issues, nowhere is this more evident than in the dangerously lopsided trade in automotive vehicles,” Representatives Dave Camp and Sander Levin said. “In 2009 alone, South Korea exported more than 476,000 autos to the U.S. while fewer than 6,000 U.S. vehicles managed to get through Korean trade barriers.”

Levin is chairman of the powerful House Ways and Means Committee but, after the Republican victories in this month’s congressional elections, Camp is in line to take the chairmanship. The committee has jurisdiction over trade and plays a key role in consideration of any agreement.

Obama and Lee had set a deadline earlier this year of resolving remaining concerns by the G20 summit. Failure to do so is an embarrassment for Obama, who, coming off the mid-term elections setback, had hoped to advance the pact and send a signal on U.S. commitment to greater trade.

U.S. Trade Representative Ron Kirk denied the failure to reach agreement was a defeat for Obama because the goal has been to achieve a trade pact that worked for the United States.

Mike Froman, an economic adviser to Obama, told reporters there were a number of sticking points but autos had been the main obstacle.

U.S. opponents of the trade pact wanted a slower phase-out of tariffs on South Korean made cars and the removal of safety and mileage standards that they feel act as non-tariff barriers to American cars’ entry into the Korean market.

Analysts said the deal would be give a big boost to South Korean companies such as Hyundai Motor (005380.KS) and Kia Motors (000270.KS), which already have surged in the U.S. market.

Washington is under pressure to conclude a deal with Seoul after South Korea signed a free-trade agreement with the European Union last month and plans to ratify it in time to enact it in July next year.

The United States has said South Korea’s auto standards discriminate against American cars and act as non-tariff barriers, keeping their market share at less than 1 percent.

Washington had also demanded South Korea drop restrictions on beef imports from older cattle, a potentially explosive political issue for Seoul, which said it would not give in on this issue. (Additional reporting by Jeremy Laurence and Alister Bull in Seoul and Doug Palmer in Washington; Editing by Nick Macfie and Bill Trott)

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