Advocates of the controversial Korea-U.S. Free Trade Agreement toasted in the New Year with joy and relief as if the compromise finally and firmly endorsed by the presidents of the United States and the Republic of Korea was a dream come true, a holiday gift to cheer and celebrate.

“This deal alone will increase America’s industrial output more than all our previous FTAs combined,” the U.S. ambassador to South Korea, Kathleen Stephens, told a general meeting of the American Chamber of Commerce in Korea in December. “Korea’s major business groups have come out in favor of it,” she said, “and some of the biggest winners are consumers” – customers who will be able to buy imports from each country after tariffs are stripped away from major industrial and agricultural products.

There’s no denying, however, the FTA faces tough hurdles in both South Korea’s National Assembly and the U.S. Congress now that negotiators have forged a historic compromise. It was just as hopes were fading for what’s known in Korea by the acronym “KORUS FTA” that negotiators agreed on prying open the South Korean motor vehicle market, to a carefully limited degree, to placate angry U.S. motor vehicle makers and labor unions.“I had about given up hope,” says James Rooney, chairman of Market Force, an investing and consulting firm here. “It seemed to me they weren’t going to push it through.”

With the agreement ready for ratification, Rooney believes “both countries have so much to gain by closer industrial cooperation” so “let’s get on with it and stop the political nonsense. “ That may not be easy. U.S. President Barack Obama and South Korea’s President Lee Myung-bak face the daunting task of convincing legislators in Washington and Seoul to ratify a deal that proponents say would do away with 95 percent of tariffs in five years and increase U.S. exports to South Korea by $10 billion a year.

Obama couched the agreement, the biggest U.S. trade deal since the signing of the North American Free Trade Agreement with Canada and Mexico in 1994, as a breakthrough in American efforts to overcome its yawning trade deficit and regain lost respect as a top trading power. With that goal in mind, he said the agreement “shows the U.S. is willing to lead and compete in the global economy” while “opening new markets around the world to products that are made in America.” President Lee said the agreement “lays the groundwork for a ‘win-win’ relationship by reflecting the national interests of Korea and the United States in a balanced manner.”

Both presidents seemed particularly happy since negotiators had failed to come to terms on motor vehicles when Obama was in Seoul for the summit of leaders of the Group of 20 leading economic powers in November. The two presidents, after lunching at the Blue House, the center of presidential power, said negotiators still had to iron out “final details” and hoped to do so in a few weeks. Those words impressed some observers as face-saving rhetoric that might signal the death knell of the deal, worked out in one and a half years of grueling negotiations and finally concluded in June 2007.

Perhaps the greatest irony is that Obama, as a U.S. senator from Illinois, and Secretary of State Hillary Clinton, then a senator from New York, had opposed the agreement for fear a flood of South Korean exports would hurt U.S. manufacturers and cost jobs. Another irony is the liberal Obama’s conservative predecessor, George W. Bush, and the conservative Lee’s left-leaning predecessor, the late Roh Moo-hyun, had both strongly favored the agreement.

Although South Korean negotiators repeatedly said they would not “revisit the text” of that deal, they finally had to accept a “supplementary” agreement.

Its main terms:



Opening South Korea to import of 25,000 cars a year from each U.S. motor vehicle manufacturer without demanding they meet detailed South Korean rather than American safety standards;
Easing fuel consumption and greenhouse gas emission standards for U.S. motor vehicles;
Cutting tariffs on U.S. imports from 8 to 4 percent for five years and then eliminating them while the U.S. retains its 2.5 percent tariff for the same period.
Retaining the 25 percent U.S. tariff on trucks for eight years before dropping the tariff after ten years;
Cutting South Korea’s tariff on electric cars and hybrids from 8 to 4 percent and ending the tariff after five years;
Retaining a tariff on pork until 2015 rather than 2013 and continuing to bar import of U.S. beef from cattle more than 30 months old.
The failure to open up the import of American beef was sure to disappoint some members of Congress. Senator Max Baucus of the state of Montana, noted for its huge cattle ranches, has long been one of the strongest foes of the agreement. The beef issue, though, diminished in importance since U.S. beef has captured 35 percent of the beef imports, in strong competition with Australian beef, since mass demonstrations shook the city for several months in 2008 after Mad Cow disease was wrongfully reported found in an American cow.

The main opposition Democratic Party, which had supported the KORUS FTA when Roh Moo-hyun was president, promised to mount a major campaign against ratification. Roh committed suicide in 2009 during a corruption scandal. Park Jie-won, party leader in Korea’s National Assembly, accused the government of having made “too many concessions” on “people’s lives and safety,” a reference to the provisions on motor vehicles, and promised to launch “a national campaign against the deal.”

South Korea’s trade minister, Kim Jong- hoon, after final talks with U.S. Special Trade Representative Ron Kirk in Washington, denied having made too many concessions, calling it a “win win” for both countries.” Ford Motor CEO Alan Mulally, said Ford, which had previously warned against the deal, now “applauds the outlines” of the agreement. Its revised provisions, he said, give “greater confidence that we will be able to better serve our Korean customers.” He thanked the efforts of “the Obama Administration and Congress to improve this agreement, and open the Korean auto market.”

Whether the agreement will help redress the huge U.S. deficit with Korea, however, remains far from certain. In two-way trade in 2009 totaling $67.8 billion, the U.S. imported products valued at $39.2 billion from Korea while exporting $28.6 billion. U.S. car-makers sold vehicles worth $161 million to Korean buyers in 2009 while Korea’s manufacturers, led by Hyundai Motor Co. and its sister, Kia Corp., earned $5.7 billion from 2009 exports to the U.S.

Advocates, however, are convinced the agreement will work out well for both Korea and the U.S.. “The KORUS FTA will add an important third pillar to our already strong bilateral political and military alliance,” says the chamber’s president, Amy Jackson. “Today’s announcement is great news for all of us, in particular for U.S. and Korean companies and workers who will soon be able to reap the many benefits that this agreement will bring to both countries.”

Kim Sung-han, a professor in the Graduate School of International Studies at Korea University, predicts the majority Grand National Party will muster enough votes in the National Assembly to bring about ratification. “It should be seen as part of the U.S.-Korea alliance,” he says. “That’s why we should not miss this opportunity. It may be the last opportunity we have.”

A senior South Korean diplomat makes a careful distinction between negotiations on North Korea’s nuclear weapons and talks with the U.S. on a deal that was signed in April 2007, but has languished ever since in a political limbo. “Both sides can see consensus on six-party talks,” says the diplomat, talking about U.S. and South Korean cooperation on getting North Korea to return to talks hosted by China on doing away with its nuclear program. The KORUS FTA, is another matter. “That’s a competitive issue,” he says. “There are some differences.”

So deep are the differences that the two highest ranking players on the U.S. side, Obama and Secretary of State Hillary Clinton, both opposed the FTA in 2007 when they were U.S. senators and George W. Bush was in his final months as president. They’ve changed their minds since, but the agreement remained stymied, as far as the Americans are concerned, on the same issues on which they based their objections, the huge disparity between sales of Korean vehicles in the U.S. and those of American vehicles in Korea and restraints on the amount of U.S. beef imported into Korea.

Ambassador Stephens did not mince words in reminding Korean manufacturers of the U.S. role in Korean development. “Korea’s economic rise could not have taken place without access to U.S. markets,’ she told the gathering of the American Chamber of Commerce. While the Hyundai Motor group, including Kia, snared 7.8 percent of the American market in 2010, she said, Americans exported only 8,000 cars to Korea. “We want the same access to Korea as the Koreans do to the U.S.” The U.S. share should increase, she believes, as tariffs on motor vehicles imposed by both countries fall to zero in five years.

In behind-the-scenes conversations, both sides agreed on one thing. The G20 summit in November would mark a dividing line, a deadline, for South Korea’s trade minister, Kim Jong-hoon, and the U.S. special trade representative, Ron Kirk, to come up with a formula. The Americans, before, during and after the G20, prayed for a climactic effort to fulfill Obama’s desire, expressed to Lee during the previous G20 in Toronto in June, “to make sure everything is lined up properly by the time I visit Korea.”

The differences were so sensitive that Korean officials, after five hours of inconclusive negotiations with U.S. officials in San Francisco before the G20, refused to discuss them other than to repeat the Korean position, “We don’t want to revisit the text of the agreement.” Still, one official indicated there might be other ways to come to terms. “Basically it’s about autos and beef,” he said. “We are open to consult about U.S. concerns.”

Whether more consultations would work, however, was far from clear. In twoway trade in 2009 totaling 67.8 billion, the U.S. imported products valued at 39.2 billion from Korea while exporting $28.6 billion. Both figures were way down from 2008 when U.S. imports from Korea came to $48.1 billion compared with $34.7 billion earned from exports to Korea. Other numbers were more disturbing. U.S. car-makers sold vehicles worth $161 million in 2009, down from $370 million in 2008, while Korea’s manufacturers, led by Hyundai Motor Co. and its sister, Kia Corp., earned $5.7 billion from 2009 exports, down from $7.4 billion in 2008, a disparity due in part to rising production at HMC’s plant in Montgomery, Alabama, and Kia’s new plant in West Point, Georgia.

In the first nine months of 2010, U.S. manufacturers exported 10,162 vehicles to Korea, compared with 41,664 exported from Germany. Korean manufacturers exported 449,403 cars to the U.S. in that time frame, led by HMC, 173,226 vehicles, and Kia, 156,672. While GM Daewoo, the subsidiary that GM wrested from Daewoo Motor’s creditors after the 1997-1998 economic crisis, accounted for 22,295 vehicles shipped to the U.S. in the same period, Hyundai and Kia’s U.S. plants between them turned out 330,493 vehicles.

The fear among U.S. manufacturers was that the FTA, by eliminating tariffs on trucks, would blow apart burgeoning sales of pickup trucks made by U.S. manufacturers while Korean SUVs and cars poured in unabated. The Americans attributed low exports to Korea to a wide range of tests, standards and taxes aside from tariffs. While the tariffs might go, they said, other barriers would keep U.S. exports within circumscribed limits far below the figure of 100,000 vehicles a year that some analysts believe would not be impossible if the playing field were totally level.

Passage of the KORUS FTA, however, always has had one major American advocate whose voice reflects the views of many U.S. business people -- the American Chamber of Commerce in Korea. “We are probably the strongest supporters of the KORUS FTA,” said the AmCham president, Amy Jackson. “We’re the ones on the ground here. We see the possible effects of the FTA. There are significant tariff cuts that will give U.S. manufactured and agricultural goods preferential access to this market. Everything will come down immediately.”

One of the most persuasive arguments for ratifying the FTA is that Korea and the European Union have agreed on an FTA that is sure to raise the EU profile in Korea to the detriment of U.S. sales. The challenge of intensifying competition from Europe is one reason to push the bill through the U.S. Congress. “It’s not going to be that easy,” said Han Kyoung-sung, a research fellow at the Korea Institute for International Economic Policy. “The most important issue is the Congress is not supporting FTA. If the Congress changes its mood, it will be better.”

Han Kyoung-sung came up with an argument with which AmCham and others concur. “If the Korea-EU FTA becomes effective, that will affect U.S. industry,” he said. It is important to implement the Korea-U.S. FTA as soon as possible” – ideally by July 1, the day for the Korea-EU to take effect, but in any case by the beginning of 2012 provided it’s ratified in both Washington and Seoul.