The United States and South Korea failed on Thursday to revive a stalled free trade agreement, dealing a blow to both countries' leaders and putting a brake on bilateral trade.
President Barack Obama and South Korea's Lee Myung-bak said negotiators would continue talks to address U.S. concerns that the deal does not do enough to open South Korean markets to U.S. beef and autos.
"We agreed that more time is needed to resolve detailed issues and asked trade ministers to reach a mutually acceptable deal as soon as possible," Lee told a joint news conference with Obama on the sidelines of a G-20 summit.
Lee added negotiators will return to the table after the G-20 meetings are over this week to try to resolve U.S. concerns, but rejected the suggestion that trade between the two allies was on a fundamentally unfair footing.
"We don't want months to pass before we get this done," Obama said. "We want this to be done in a matter of weeks."
"U.S. trade (deficit) against South Korea is abou t $8 billion a year. Americans seems to think it is very large; it may have used to be, but it's come down by a lot," Lee said, adding the two were on more or less an even playing field when U.S.-made parts and intellectual property rights are factored in.
Obama said he was confident that the two sides would eventually reach an agreement and was reassured of Lee's commitment, but said any deal would have to be something that the American public could accept.
The two sides have been working frantically to address U.S. congressional and industry demands for changes to the deal signed in 2007 by the previous administrations of the two countries.
Obama and Lee had set a deadline earlier this year of resolving remaining concerns by the G-20 summit.
The failure to do so is an embarrassment for Obama who, coming off a mid-term election setback last week, had hoped to advance the pact and send a signal on U.S. commitment to greater trade.
Breaking a global deadlock
Lee and Obama's joint news conference came as major nations struggled to break a deadlock on how to fix the global economy.
Obama earlier warned the U.S. cannot continue to be a profligate consumer on borrowed money.
Obama and the leaders of China, Japan, Germany and South Korea were also scheduled to hold a flurry of one-on-one talks bound to touch on sensitive trade and security issues ahead of the Group of 20 summit of major rich and developing nations, which officially opens later Thursday.
Compromise among major G-20 countries has looked difficult in recent weeks. It is divided between those like the United States that see the top priority as getting China to let its currency rise and those irate over U.S. Federal Reserve plan, effectively devaluing the dollar.
"Reducing imbalances between developed countries and developing countries is an urgent matter we have to resolve for a balanced global economy," South Korea's Lee told a business leaders' conference ahead of the meetings.
European Commission President Jose Manuel Barroso said G-20 leaders should question Obama.
"I think it is important during the G-20 summit to listen to President Obama and get a better understanding of the different aspects behind the decision of the Federal Reserve," Barroso told reporters.
He said he believed growth of the United States is important but he understood the concerns other countries had about the Federal Reserve's move.
"It is especially important to avoid negative spillover effects from action taken by one country on the rest of the world," he said.
'Sherpas'
The G-20, which brings together the world's richest economies and emerging countries such as China, India and Brazil, has become the centerpiece of top-level efforts to revive a struggling global economy and to prevent a financial meltdown of the kind seen two years ago.
Over the past two days, government ministers and senior G-20 officials — called 'Sherpas' in diplomatic-speak because they do much of the groundwork — have labored to hammer out a substantive joint statement to be issued at the end of the summit Friday.
"Major countries have been deadlocked, so the agenda is likely to be handled when leaders gather at the formal reception and working dinner" that is scheduled for Thursday evening, said a summit spokesman, Kim Yoon-kyung.
A goal of the G-20, established in 1999, is to help coordinate economic policies among major economies.
A major issue confronting the G-20 is how to craft a new global economic order to replace one centered on the U.S. running huge trade deficits while countries such as China, Germany and Japan accumulate vast surpluses. The U.S. runs a trade deficit because it consumes more foreign products than it sells to others.
In a letter to fellow leaders at the G-20, Obama made it clear that the U.S. cannot remain the world's consumer, propping up others by borrowing and spending. He is pitching for a balanced recovery across the globe — tougher to achieve when national interests collide.
"The foundation for a strong and durable recovery will not materialize if American households stop saving and go back to spending based on borrowing," the president wrote.
The message was primarily aimed at China, whose trade surplus with the U.S. is bigger than with any other trading partner, including the European Union. The U.S. contends that China deliberately undervalues its currency, the yuan, which gives it is exports an unfair competitive edge.
In his letter, Obama pushed for exchange rates based on the market and no more "undervaluing currencies for competitive purposes."
As the summit approached, the currency spat received fresh fodder when Federal Reserve last Wednesday announced its $600 billion plans to try to drive down interest rates, spur lending and boost the U.S. economy.
"I will say that the Fed's mandate, my mandate, is to grow our economy," Obama told reporters. "And that's not just good for the United States, that's good for the world as a whole."
Analysts say it could spark an influx of cash into the financial markets of emerging nations in search of higher returns, making their currencies stronger, their exports more expensive and creating bubbles in stocks and other assets.
While a cheaper dollar would benefit U.S. exports it could also trigger a so-called currency war as countries race to devalue their currencies.
Germany addresses imbalances
Another key issue expected to be discussed at the summit is a proposal by Washington to set fixed targets for trade gaps. But Chancellor Angela Merkel said Germany won't accept it, echoing the sentiments of many other countries.
Germany is the world's second-biggest exporter after China and strong exports have helped its economy to stage an impressive comeback this year — but its trade surpluses have drawn criticism abroad.
"For strong, balanced growth it is necessary to reduce the global imbalances in the current accounts of countries," Merkel said in a speech at the G-20 business summit, according to a text which was released in advance.
"Only cooperative action could get us forward. The key to reduce the existing imbalances is mainly to have flexible moving exchange rates of the major currencies. They have to reflect the economic fundamentals of the countries."
She made clear that she would not accept any numerical limits for current account imbalances.
"Fixing limits for current account surpluses or deficits is neither economically justified nor politically appropriate. This would also be in contrast to the principles of free trade in the world," she added.
Apart from currency issues and trade gaps, the G-20 leaders are expected to endorse beefing up supervision of large banks and other financial institutions and to voice support for giving developing countries a bigger say in the International Monetary Fund.