Ford, Hyundai Sales Mismatch Shows Obama’s Free-Trade Quandary

Nov. 19 (Bloomberg) -- President Barack Obama is in Seoul today, giving him a last chance on his four-nation Asia trip to show he opposes protectionism. Standing in the way is a U.S. auto lobby that is blocking a free-trade agreement.

It’s a tall order. A top item on South Korea’s agenda is the trade accord, which was signed in 2007. The deal has been held up in Congress, where lawmakers are demanding wider access to Korea for Chrysler Group LLC, Ford Motor Co. and General Motors Co., and neither side shows signs of compromise.

The U.S. Chamber of Commerce estimates that failure to enact the accord means the loss of $35 billion in exports and 345,000 jobs. South Korea signed a rival agreement with the European Union last month that calls for 99 percent of commerce to be duty-free within five years.

“Team Obama talked the talk, now we’ll see if they walk the walk,” said Gary Hufbauer, a senior fellow at the Peterson Institute for International Economics in Washington. “Possibly in Seoul the president will achieve another breakthrough” with a commitment to seek ratification of the U.S.-South Korea pact.

U.S. automakers sold 6,980 vehicles in South Korea last year, or 0.72 percent of the overall passenger car market, according to the Korea Automobile Importers & Distributors Association. Those figures exclude GM’s local Daewoo unit, which captured 7 percent of the market in the first nine months of this year.

Hyundai Motor Co., Korea’s biggest carmaker, accounted for almost half of all sales. Through October this year, Hyundai raised its U.S. sales 4.1 percent to 373,222 vehicles. The collective U.S. market share for Hyundai and its Kia Motors Corp. affiliate was 7.3 percent in October.

Trade Barriers

While in Asia, Obama has been called on by regional leaders, including Malaysian Prime Minister Najib Razak and Chinese President Hu Jintao, to demonstrate the U.S. will work to reduce trade barriers. At the Asia-Pacific Economic Cooperation summit in Singapore, Obama expressed interest in joining and expanding a regional free-trade group that so far includes Chile, New Zealand, Singapore and Brunei.

Forging an agreement that would ensure passage of the Korea trade accord will be “politically tough back in the U.S.,” Hufbauer said.

Democrats, who have majorities in the House and Senate, are holding up a vote on the agreement. Representative Sander Levin, a Michigan Democrat and chairman of the House Ways and Means Committee’s trade panel, said South Korea first must remove tax and regulatory obstacles to sales of U.S. autos, refrigerators and other manufactured goods.

No Budging

The South Korean government’s position remains unchanged. There will be “no re-negotiation,” Ahn Ho Young, South Korea’s deputy minister for trade, said in an interview in Seoul yesterday. “We’re trying to coordinate so that both countries ratify the agreement” as soon as possible.

Any breakthrough will come without U.S. Trade Representative Ron Kirk, who accompanied Obama on earlier stops in Singapore and China and is returning home.

South Korea is the seventh-biggest U.S. trading partner. Last year, two-way trade totaled $82.9 billion, according to the Commerce Department.

China, the second-biggest U.S. trading partner after Canada, has been subjected to a series of trade sanctions by the Obama administration on tires and steel pipe in the months leading up to the president’s Asia trip. China called the pipe tariffs “discriminatory” and said it would start its own anti-dumping probe of American cars.

Obama didn’t mention trade during a joint appearance with Hu Nov. 17 at Beijing’s Great Hall of the People. Hu urged Obama to “oppose and reject protectionism in all its manifestations in an even stronger stand.”

Currency Issues

Obama is pushing to reduce the U.S. trade deficit with China, which widened to a 10-month high in September, by boosting U.S. exports and seeking a revaluation of the yuan, which has remained fixed at about 6.83 to one U.S. dollar since July 2008.

In Beijing Nov. 17, Obama suggested he won no new commitment from Hu on revaluation, instead referring to “past statements” made by China “to move toward a more market- oriented exchange rate over time.”

In the hour before Obama spoke, Yu Yongding, a former adviser to China’s central bank, told attendees at a Beijing conference that China had no confidence in the U.S. dollar.

Obama’s visit had little effect on the value of yuan futures. Twelve-month non-deliverable yuan forwards traded at 6.6205 per dollar as of 5:30 p.m. in Hong Kong, from 6.6237 yesterday. The contracts indicate traders are predicting a 3.1 percent gain in a year. In the spot market, the currency was little changed at 6.8270, according to the China Foreign Exchange Trade System.

‘Mutual Interest’

Administration officials said they weren’t expecting to leave China with a major agreement.

The U.S.-China relationship “is based on mutual interest; that is strengthening, that we’ve made progress on,” White House press secretary Robert Gibbs said. “We understand there’s a lot of work to do.”

Still, U.S. companies used the president’s visit to help cement business ties in China. Tempe, Arizona-based First Solar Inc. advanced its plan to build the world’s biggest plant directly converting sunlight to electricity in Inner Mongolia, signing an agreement in Beijing Nov. 17 with U.S. Energy Secretary Steven Chu and Chinese Vice Premier Li Keqiang in attendance.

China is the third-biggest export market for the U.S., with outbound shipments last year amounting to $71.5 billion, an increase of 9.5 percent from 2007. The U.S. imported $337.8 billion from China last year, more than from any other country, according to the Commerce Department.

North Korea

In Seoul, Obama will discuss North Korea’s nuclear program with South Korean President Lee Myung Bak in talks today. China is host to six-party talks aimed at removing nuclear weapons from the Korean peninsula. The negotiations, which also include the two Koreas, Japan, Russia and the U.S., were broken off after North Korea launched a rocket in April in violation of a United Nations resolution.

Obama is also scheduled to visit U.S. troops today at Osan Air Base south of Seoul.

--Julianna Goldman, Edwin Chen, Michael Forsythe. With assistance from Seyoon Kim, Bomi Lim and Seonjin Cha in Seoul, Mark Drajem in Washington and Belinda Cao in Beijing. Editors: Joe Sobczyk, Bill Austin.