WASHINGTON (Bloomberg) -- Before heading to Seoul, U.S. Trade Representative Ron Kirk was warned by U.S. Sen. Max Baucus that “no deal is better than a bad deal” when it came to negotiating changes in a free-trade agreement with South Korea.
The announcement by the U.S. and Korean presidents Thursday that they failed to agree on changes to auto and beef provisions may make “no deal” the reality for U.S. trade accords across Asia and the world.
With almost $68 billion in trade between the nations, the deal would be the U.S.'s largest since the North American Free Trade Agreement in 1994 and would help President Barack Obama meet his goal of doubling American exports in five years.
The accord, signed in 2007 by negotiators for President George W. Bush, has languished in Washington as lawmakers complained about Korean barriers to exports of U.S. autos and beef. Ford Motor Co. and the UAW opposed the agreement and sought changes.
“It's very disappointing: If they can't deliver under these circumstances, you have to wonder,” former U.S. Trade Representative Susan Schwab said in a Bloomberg Radio interview on Thursday. “If you can't re-close a deal when both leaders say they want it done by a certain time, then you have got some serious problems.”
President Obama's pledge to rework the agreement and submit it to Congress was being watched as a signal of the administration's ability to get any trade deals approved by lawmakers, William Reinsch, president of the National Foreign Trade Council in Washington, said last week.
Obama and Korean President Lee Myung Bak said in Seoul on Thursday that they would seek to resolve differences in coming weeks.
Obama's decision to walk away was praised by critics such as Baucus, D-Mont.; U.S. Rep. Sander Levin, D-Mich. and chairman of the House Ways and Means Committee; and U.S. Rep. Dave Camp, R-Mich., who is in line to be the next chairman of that panel. That may make it easier to win approval, if a deal is reached later.
“This is far too important to the bilateral relationship to blow up over these incremental changes,” Jeffrey Schott, a fellow at the Peterson Institute for International Economics in Washington, said in an interview.
The stakes go well beyond this deal, according to analysts such as Schwab, who spoke on the “Bloomberg on the Economy” program. Schwab signed the Korea agreement as Bush's trade representative.
Without a Korea deal, other nations “won't believe the United States has the political will to complete and pass an agreement,” Ernest Bower, director of the Center for Strategic and International Studies' Southeast Asia Program, wrote in a note Thursday. It's “the acid test for whether the United States can return to a leadership position on trade.”
Aid for Doha
Progress on the agreements may help kick-start the stalled Doha round of global trade talks at the World Trade Organization, said William Toppeta, president of MetLife Inc.'s international business.
During Obama's first two years in office, he didn't attempt to push through Congress trade pacts approved by Bush with South Korea, Colombia and Panama amid high unemployment and opposition from some fellow Democrats and organized labor.
Trade agreements are becoming unpopular among voters, with 44 percent of Americans saying deals such as Nafta are bad for the U.S., up from 32 percent a year ago, according to a poll released this week by the Pew Research Center for the People & the Press. Trade with China and South Korea were the least popular among a list of eight U.S. partners, according to the poll of 1,255 adults conducted Nov. 4 to 7.
Companies such as Citigroup Inc., United Parcel Service Inc. and Ace Ltd. say an agreement would help open the Korean market to more U.S. exports and foreign investment in financial services.