News and Analysis • Volume 10 • Number 7 • November 2006
US Korea, Malaysia FTAs Inch Forward
Free trade negotiations between the US and Korea will not conclude this year as originally hoped.
During the fourth negotiating round in late October, the two sides addressed less contentious issues such as customs administration, re-manufactured goods, administration of agriculture tariff rate quotas and anticorruption provisions. Progress in these areas was a welcome change from the third round of negotiations, which saw no progress at all.
The US revised its market access offer on textiles to cover more tariff lines, but Korean negotiators rejected it due to the 10-year phase-out period proposed by the US. US chief negotiator Wendy Cutler said she was surprised by the move, as the new offer would have affected US$1.35 billion in trade, or almost half of the total in this sector. In parallel with broadening its offer, however, the US is trying to negotiate a textiles safeguard that would allow it to raise tariffs to most-favoured-nation levels in case of import surges. For its part, Korea is pushing for changes in the rules of origin the US generally includes in its FTAs. Specifically, Seoul would like the US to bend the yarn-forward rule under which fabric and clothing are eligible for duty-free access only if the yearn used is either Korean or American.
Korea welcomed the US offer to immediately remove tariffs on 1,000 industrial goods (out of more than 10,000 tariff lines in total), and improved its own agricultural tariff reduction offer by moving up phase-out schedules for 138 tariff lines valued at US$88 million. The US, however, is holding out for greater concessions, including at least some market access for rice and beef. The two sides have agreed in principle to establish an agricultural emergency safeguard, but differ on whether it should be permanent. Koreas thinks so, while the US wants it to be temporary.
Korea’s attempt to include US anti-dumping practices in the pact made no headway at all.
Pharmaceuticals and automobiles, which are considered the most sensitive sectors, will be discussed in early December. Democrats have vowed to push the US administration to address Korea’s non-trade barriers –particularly in the vehicles sector – in the negotiations.
Despite the difficulties ahead, both sides appear cautiously optimistic about the chances of wrapping up the negotiations early next year.
Slow Progress in US-Malaysia Negotiations
A third round of US-Malaysia FTA talks held in October-November provided more clarity on the sensitivities on both sides, but made little concrete progress. Two more rounds are scheduled for early next year, but the negotiations are unlikely to conclude in time to be considered by the US Congress before the expiry of the president’s trade promotion authority.
On services, the two sides continue to differ on whether to use a negative or positive list approach. A ‘positive list’, preferred by Malaysia, would explicitly spell out the sectors that will be opened up. The WTO’s General Agreement on Trade in Services uses this approach. The US would like all services sectors to be considered open unless a specific reservation is made in a ‘negative list’. This approach would automatically open to competition any new services sectors that may develop in the future, since they would not figure on the list of exceptions.
The US is still trying to convince Malaysia to include government procurement in the treaty. Malaysia is also resisting US efforts to make provisions on the enforcement of domestic environmental laws subject to dispute settlement, and would prefer to keep labour issues out of the agreement altogether.
According to a summary of the government’s goals and positions released on 13 November, Malaysia is seeking early tariff elimination on textiles and clothing, rubber and wood products, ceramics, electrical and electronic products, and agricultural goods.