hankyoreh

The third round of South Korea-U.S. free trade agreement (FTA) talks will begin September 6 in Seattle, and observers expect Washington to demand that Seoul cease giving aid to certain financial institutions, including government-run banks.

A South Korean negotiator said yesterday, "The United States will likely take issue with the government’s giving assistance to public entities based on the ’national treatment’ provision. Under this provision, neither country is allowed to discriminate against products and services of the other country. At the previous two rounds of talks, the two nations merely confirmed the existence of the issue, and they will begin discussing it seriously beginning at the upcoming third round of negotiations," added the official.

The U.S. side’s agreement proposal clarifies that public entities competing with private entities are to be included in the negotiation. A Korean delegate remarked, "If this provision is included in the agreement, foreign financial institutions can file a lawsuit over government assistance to those banks." For example, if the government-run Korea Development Bank (KDB) raised money under favorable conditions and then lent the money to a domestic company at a lower interest rate than other banks, CitiBank would be able to sue KDB for unfair competitive practices.

State-run banks like KDB, the Industrial Bank of Korea (IBK), the Export-Import Bank of Korea, and Korea Housing Finance Corporation (KHFC), as well as other financial institutions such as the National Agricultural Cooperative Federation (NACF) and financial services provided by the post office all stand to be objects of contention. These institutions function on behalf of the government but compete with the nation’s commercial banks and insurance companies.

Seoul has maintained that the financial service providers under contention are public entities, calling them "special financial institutions regulated by unique laws" and not subject for negotiation.

A Korean delegate to the FTA talks said, "These institutions play the role of a kind of public safeguard and support small and medium-sized businesses, key industries, and the public sector. If Seoul and Washington sign a fair trade agreement, it will be more difficult to request private banks to consider the public good. Then the national economy will face a serious problem," he added.

The U.S. also may raise complaints over government measures to compensate state-run banks for losses, exemption of the post office from financial supervision, and the fact that the NACF performs the functions of both a bank and an insurance company. South Korea and the U.S. will exchange proposals today on financial services in preparation for the 3rd round of FTA talks.