A marketing exercise

Trade deals require all parties to make concessions, and the negotiations between the United States and South Korea are a case in point. American beef exports plunged after an outbreak of BSE (mad-cow disease) in 2003. Before the mad cow scare, the Asian nation was the third-largest market for U.S. beef exports. In the spring of 2008, a few weeks after taking office, President Lee Myung-bak decided to lift a ban on U.S. beef; in return, the United States agreed to exclude South Korea’s rice industry from the trade agreement.

Why? Rice represents about half of South Korea’s agricultural output; a high import tariff means that local rice farmers can charge much higher prices for their crops than farmers in other rice-producing nations such as China. Even though they pay up to three times more for rice than consumers in other Asian countries, many Koreans sympathize with the farmers’ concerns; domestic rice production is a source of pride and a symbol of self-sufficiency. As one activist noted, “It is a right for a country to feed its own people and a right for a country to produce its own food.”

After President Lee’s decision was made public, news reports suggested that mad cow disease could still be present in U.S. herds. Opposition politicians from the United Democratic Party, whose candidate was defeated in the most recent presidential election, took advantage of the negative publicity to suggest that Mr. Lee had caved in to demands by American trade negotiators. The rumors fueled a backlash that included rumors that American consumers don’t eat the type of beef that is exported and that consumer products such as mascara contain beef by-products and could be tainted. In May 2008, thousands of people gathered in Seoul to protest.

For U.S. President George W. Bush, the trade pact with South Korea was an important political victory. Suspicion and doubt about trade and globalization was growing among Congressional Democrats. Proposed trade pacts with Colombia and Panama had been given a cool reception. Although the accord with South Korea was concluded in April 2007, it still had to be ratified by lawmakers in both countries. In 2009, a South Korean parliamentary committee approved the FTA; the U.S. Congress was scheduled to act on the measure in 2009 as well. However, Ford, Chrysler, and the United Auto Workers opposed the deal. Hyundai and Kia, the stars of Korea’s auto industry, were enjoying great success in the United States despite the recession. Overall sales of both foreign and domestic cars were down by nearly forty percent in the U.S. market. By contrast, sales for Hyundai and Kia were only down 3.6 percent.

Meanwhile, South Korea was also pursuing a trade agreement with the EU. Agriculture was not a key issue in the negotiations; however, regulations that protect Korea’s auto industry needed to be addressed. Some observers have suggested that the backlash against Korea’s trade accord with the United States would spill over and

affect Seoul’s negotiations with Brussels. As Richard Baldwin, a professor at the Graduate Institute of International Studies in Geneva, noted, “This shows that the idea that regionalism is easy and multilateralism is hard has been massively overblown.”

Discussion Questions 1. When a trade deal is passed, there are winners and losers.

Who stands to win if the U.S.-Korea free trade agreement is ratified? Who stands to lose?

Case The United States and South Korea Sign a Free Trade Agreement: The Assignment

2. Why is the global automobile industry often at the center of disagreements over trade relations?