KOREA LAUNCHES SPECIAL TRADE NEGOTIATIONS WITH

UNCLAS SEOUL 000491

SIPDIS

SENSITIVE
SIPDIS

STATE FOR EAP/K AND EB/TPP/BTA
PASS USTR FOR CUTLER AND KI

E.O. 12958: N/A
TAGS: ETRD PREL KS IN MX
SUBJECT: KOREA LAUNCHES SPECIAL TRADE NEGOTIATIONS WITH
INDIA AND MEXICO


SUMMARY
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1. (SBU) Korea added to its rapidly lengthening list of
trade negotiations by announcing on February 7 the launch of
Comprehensive Economic Partnership Agreement (CEPA)
negotiations with India during the visit to Seoul of Indian
President Abdul Kalam. The same week, Korea and Mexico held
a first round of talks aimed at concluding a "Strategic
Economic Complementation Agreement" (SECA). According to
contacts at the Ministry of Foreign Affairs and Trade
(MOFAT),both agreements are less ambitious in terms of
liberalization than more comprehensive free trade agreements
(FTA's),although MOFAT claims to plan on striving for
getting as close to real FTA's as it can. Both initiatives
will require the partners to hold rounds every two months,
and take approximately two years to conclude. End summary.


2. (SBU) Econoff met on February 10 with MOFAT FTA
Coordination Division Deputy Director Noh Won-il to discuss
Korea's plans for a CEPA with India, and with Deputy
Director Park Tae-young to discuss the negotiations with
Mexico.

INDIA: SHALL I COMPARE THEE TO AN FTA?
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3. (SBU) According to Deputy Director Noh, the decision to
launch CEPA negotiations grew out of a bilateral joint study
group composed of government, business, and academic
representatives that convened four times between January
2005 and January 2006 to analyze the feasibility of a Korean-
India free trade agreement. The group came back with a
positive response. According to an economic impact analysis
done as part of the joint study by the state-affiliated
think tank Korea Institute for International Economic Policy
(KIEP),an FTA with India would boost Korea's exports to
India by 80 percent, and imports from India by 30 percent,
as well as have smaller but positive impacts on national
income. Korea agreed to term the agreement a Comprehensive
Economic Partnership Agreement at India's behest, as India
claimed there would be too much domestic Indian opposition
to a "free trade agreement."


4. (SBU) Noh said that the CEPA would cover the "traditional
FTA aspects" of trade in goods and services, but would also
include coverage of investment promotion and development
cooperation projects that are dear to India. The Korea-
India joint statement announcing the negotiations states
that the agreement will cover trade in goods; trade in
services; trade facilitation measures; promotion,
facilitation, and liberalization of investment flows; and
measures for promoting bilateral economic cooperation in
identified sectors. He commented that the full framework of
what will be included in the final agreement is not yet
certain. Korea is pursuing the inclusion of chapters on
intellectual property rights, government procurement, and
competition policy, but the outcome of this drive is not yet
clear. Noh said that Korea was pleased that India accepted
a line in the joint statement stating that the agreement
could be expanded to include "other areas."


5. (SBU) Noh was less forthcoming about the degree of
liberalization that could be expected from the CEPA. While
he maintained that the scope of sectors covered would be
broad, he implied that the liberalization may not be too
deep in many sectors. Noh said that since India's average
tariff for industrial goods is over 30 percent and Korea
already has a trade surplus with India, Seoul does not
expect India to lower many industrial tariffs significantly.
He predicted that "slightly less" than 90 percent of trade
will be liberalized as a result of the CEPA. For example,
he did not expect India to liberalize automobile imports,
but maintained that Korea's auto makers would not be
concerned, since their India strategy was already focused
more on local production than exports.


6. (SBU) According to Noh, the first round of CEPA
negotiations will take place in mid-March in New Delhi.

MEXICO: WOULD AN FTA BY ANOTHER NAME STILL SMELL SWEET?
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7. (SBU) According to Deputy Director Park, the Strategic
Economic Complementation Agreement (SECA) with Mexico is in

some ways the structural antipode to the CEPA with India.
Whereas the CEPA looks to be broad in scope but shallow in
liberalization, the SECA will cover a much narrower range of
goods, but liberalize trade in those sectors more fully.


8. (SBU) Korea has long sought an FTA with Mexico to counter
trade diversion from Mexico's FTA's with Japan and others,
which Seoul believes is siphoning off its exports. However,
despite the conclusion of a joint feasibility study, Mexico
refused to negotiate a free trade agreement due to strong
opposition from domestic industry, which (as Mexico told
Korea) was already too busy digesting Mexico's existing
FTA's to be able to handle another.


9. (SBU) Park said that Korea consented to a less ambitious
agreement in order to get its nose under the tent and to at
least liberalize those sectors that Mexico is willing to
open. However, the scope and depth of coverage is still
under negotiation. The initial idea is that it would cover
trade in goods (including agriculture),services,
investment, and competition policy, as well as perhaps
intellectual property rights and economic cooperation.
According to Park, Mexico has already informed Korea that it
wants autos, steel and chemicals excluded from the
agreement.


10. (SBU) The SECA negotiations, like the talks with India,
are on a two-month rotating schedule, although the SECA
talks have no notional end date.

COMMENT: WHAT'S IN A NAME?
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11. (SBU) Based on the information currently available, it
is clear that neither of these agreements constitute an FTA
according to U.S. definitions. It was also clear from the
discussions with MOFAT that Korea does not have firm
preconceptions of what it wants out of these negotiations,
and that these agreements are primarily targets of
opportunity. Seoul is entering into the talks without set
goals, but rather with a general approach of seeking to get
as much as can now while laying the institutional groundwork
for being able to gradually expand coverage and
liberalization over time. In the case of India, MOFAT also
considers the CEPA to be a fundamental building block for
defining the economic aspects of its relationship with a
country it views as a future Great Power.

VERSHBOW