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Free-Trade Talks Between US, S. Korea End Without Success

A disagreement over pharmaceutical products has derailed attempts to negotiate a free-trade agreement between South Korea and the United States. While negotiators still hope to reach a deal, serious disputes remain to be overcome.

A week of free-trade talks here in Seoul came to an end earlier than scheduled Friday, when South Korean negotiators announced they were canceling the afternoon session.

Their decision was in response to the U.S. side's boycott of the previous day's session, devoted to a discussion of medical and pharmaceutical products.

The controversy involved a pending new South Korean policy to reimburse South Koreans when they buy government-approved medicines from a so-called "positive list." Chief U.S. negotiator Wendy Cutler complains that many U.S. pharmaceutical products are not on the list. "The proposed positive list system would end up discriminating against innovative drugs," said Cutler.

The positive list system is slated to go into effect in September, the same month the two countries are scheduled to hold a third round of free-trade talks in Seattle.

The two sides remain at odds over several elements, but the main point of controversy is agriculture, especially rice. The U.S. delegation says a comprehensive deal must allow U.S. producers to sell more rice and other farm products to South Korean consumers.

That demand faces sharp opposition from South Korean farmers, who have traditionally enjoyed a high level of government protection.

Another sticking point is the Kaesong industrial zone in North Korea, where South Korean companies use cheap North Korean labor. Chief South Korean negotiator Kim Jong-hoon says products made in Kaesong should be treated under the deal as having originated in the South.

Kim argues that Kaesong is included in free-trade agreements South Korea has concluded with other countries, and suggests Washington should follow that precedent.

However, U.S. leaders say too little is known about how North Korean workers in Kaesong are treated and paid. North Korea's pursuit of nuclear weapons and its recent missile tests may have further stiffened U.S. opposition to Kaesong's inclusion, because the zone generates hard currency, which Pyonyang may choose to spend on its military.

The negotiators are hoping to have a deal in place before next July, while President Bush still has the authority to submit a proposed deal to Congress for a simple yes-or-no vote.

After that, Congress will have the right to submit amendments, which could be unacceptable to South Korea, and could kill the deal.