Image: South Korea's President Lee Myung-bak and President Barack Obama
Reuters
South Korea's President Lee Myung-bak and President Barack Obama hold bilateral talks Thursday at the presidential Blue House in Seoul.
msnbc.com news services
updated 11/11/2010 4:33:25 AM ET 2010-11-11T09:33:25

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.

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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."

Video: At G-20, Obama fails to secure trade deal (on this page)

"U.S. trade (deficit) against South Korea is about $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.

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"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.

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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.

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"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.

The Associated Press and Reuters contributed to this story.

Video: At G-20, Obama fails to secure trade deal

Interactive: Obama in Asia

Photos: Obama tours Asia

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  1. Barack Obama waves as he walks on the South Lawn of the White House upon his return on Nov. 14, in Washington, D.C. Obama returns from a 10-day Asian tour where he held bilateral talks with Russian President Dimitry Medvedev. (Getty Images) Back to slideshow navigation
  2. Barack Obama visits the Great Buddha statue in Kamakura, Japan, on the sidelines of the ongoing APEC Summit, Nov. 14. (Jim Young / Reuters) Back to slideshow navigation
  3. Barack Obama, left, talks with Russian President Dmitry Medvedev at The Asia Pacific Economic Cooperation (APEC) leaders retreat in Yokohama on Nov. 13. (Tim Sloan / AFP - Getty Images) Back to slideshow navigation
  4. U.S. President Barack Obama is escorted to his position by Japanese Prime Minister Naoto Kan and his wife Nobuko Kan at the APEC Summit in Yokohama, Japan, Nov. 13. (Jim Young / Reuters) Back to slideshow navigation
  5. German Chancellor Angela Merkel, center, speaks with President Barack Obama during the opening plenary session of the G20 Summit in Seoul on Friday, November 12. (Andy Rain / Pool via Reuters) Back to slideshow navigation
  6. President Barack Obama speaks during a news conference at the G20 Summit in Seoul on Nov. 12. (Jason Reed / Reuters) Back to slideshow navigation
  7. President Barack Obama gestures as he takes a seat at the G20 Working Dinner at the National Museum of Korea in Seoul on Thursday, Nov.11. Local beef and halibut from the Yellow Sea were on the menu as world leaders opened their G20 summit talks over a welcome dinner. (Yonhap / Pool via AFP - Getty Images) Back to slideshow navigation
  8. President Barack Obama is escorted to his position by South Korean President Lee Myung-bak as First Lady Kim Yoon-ok looks on during the official arrival for the G20 Summit working dinner at the National Museum in Seoul on Nov. 11. (Jim Young / Reuters) Back to slideshow navigation
  9. President Barack Obama lays a wreath at the Yongsan War Memorial during a Veterans Day event at the U.S. Army Garrison Yongsan in Seoul on Nov. 11, on the sidelines of the G20 Summit. (Jim Watson / AFP - Getty Images) Back to slideshow navigation
  10. President Barack Obama greets military personnel at a Veterans Day event at the U.S. Army Garrison Yongsan in Seoul on Nov. 11. (Jim Young / Reuters) Back to slideshow navigation
  11. President Barack Obama steps off Air Force One as he arrives in Seoul, Nov. 10. (Jason Reed / Reuters) Back to slideshow navigation
  12. U.S. President Barack Obama and first lady Michelle Obama listen as Grand Imam Ali Mustafa Yaqub gives them a tour of the Istiqlal Mosque in Jakarta on Nov. 10. (Jason Reed / Reuters) Back to slideshow navigation
  13. Members of the audience cheer President Barack Obama after he delivered a speech at the University of Indonesia in Jakarta on Nov. 10. (Jason Reed / Reuters) Back to slideshow navigation
  14. President Barack Obama waves as he arrives to deliver a speech at the University of Indonesia in Jakarta on Nov. 10. Obama said Muslim-majority Indonesia's national philosophy of unity bewteen people of different faiths and ethnic backgrounds is an inspiration to the world. (Jim Watson / AFP - Getty Images) Back to slideshow navigation
  15. First Lady Michelle Obama and President Barack Obama pose for an official photo with Indonesian President Susilo Bambang Yudhoyono and his wife Mrs. Yudhoyono at the State Palace Complex Istana Merdeka in Jakarta, Indonesia, on Tuesday, Nov. 9. The two leaders began bilateral talks expected to focus on security and economic issues, on the second leg of Obama's ten-day Asian tour. (Jim Watson / AFP - Getty Images) Back to slideshow navigation
  16. President Obama walks with Michelle Obama along the red carpet with Indonesian officials upon arrival at the Halim Perdana Kusuma airport in Jakarta on Nov. 9. (Roslan Rahman / AFP - Getty Images) Back to slideshow navigation
  17. The official band runs to get out of the rain moments before the arrival of President Obama for an official arrival ceremony at State Palace Complex-Istana Merdeka on Nov. 9. in Jakarta. Obama made a much-delayed homecoming of sorts to Indonesia, seeking to engage Muslims and cement strategic relations on the second leg of his Asia tour. (Tim Sloan / AFP - Getty Images) Back to slideshow navigation
  18. President Obama and the first lady arrive in Jakarta on Nov. 9. (Jason Reed / Reuters) Back to slideshow navigation
  19. President Obama toasts alongside India's President Pratibha Patil, right, during a state dinner at Rashtrapati Bhavan in New Delhi, on Monday, Nov. 8. (Jason Reed / Reuters) Back to slideshow navigation
  20. White House press secretary Robert Gibbs, right, argues with an official from the Indian Prime Minister's office after the travelling White House press pool was refused entry to the bilateral meeting between President Obama and India's Prime Minister Manmohan Singh at Hyderabad House in New Delhi on Nov. 8. (Jason Reed / Reuters) Back to slideshow navigation
  21. The feet of President Barack Obama, right, and First Lady Michelle Obama, left, are seen as they participate in a wreath laying ceremony at Raj Ghat on Nov. 8. The Obamas were visiting the location where Mahatma Gandhi was cremated. (Jason Reed / Reuters) Back to slideshow navigation
  22. President Barack Obama reviews the honor guard during an official arrival ceremony at the Rashtrapati Bhavan in New Delhi, India on Monday, Nov. 8. (Pablo Martinez Monsivais / AP) Back to slideshow navigation
  23. President Barack Obama and first lady Michelle Obama sprinkle flowers after they laid a wreath at Raj Ghat, the Mahatma Gandhi memorial, in New Delhi, India, on Nov. 8. (Charles Dharapak / AP) Back to slideshow navigation
  24. Activists and survivors of Bhopal gas tragedy sit at a protest against visiting U.S. President Barack Obama in New Delhi, India, on Nov. 8, 2010. The 1984 gas leak from a Union Carbide pesticide plant in the Indian city of Bhopal killed about 15,000 people and sickened some 500,000. (Gurinder Osan / AP) Back to slideshow navigation
  25. President Barack Obama and Indian Prime Minister Manmohan Singh greet each other after a press conference at Hyderabad House in New Delhi, India, on Nov. 8. (Saurabh Das / AP) Back to slideshow navigation
  26. President Barack Obama and First Lady Michelle Obama are welcomed by Indian Prime Minister Manmohan Singh and his wife Gusharan Kaur as they arrive at Rashtrapati Bahavan in New Delhi on Nov. 8. (Jim Watson / AFP - Getty Images) Back to slideshow navigation
  27. President Barack Obama, right, and first lady Michelle Obama tour through Humayun's Tomb in New Dehli on Nov. 7. (Jim Watson / AFP - Getty Images) Back to slideshow navigation
  28. Barack Obama bends down to shake hands with a young child as he tours through Humayun's Tomb in New Dehli on Nov. 7. (Jim Watson / AFP - Getty Images) Back to slideshow navigation
  29. Barack Obama, left, shakes hands with Indian Prime Minister Manmohan Singh as first lady Michelle Obama and Gusharan Kaur, right, watch after arriving in New Delhi on Nov. 7. (Prakash Singh / AFP - Getty Images) Back to slideshow navigation
  30. Barack Obama, left, watches on as first lady Michelle Obama dances with children during their visit to the Holy Name High School in Mumbai, India, on Nov. 7. (Jason Reed / Reuters) Back to slideshow navigation
  31. Barack Obama speaks during a town hall meeting with students at St. Xavier College in Mumbai on Nov. 7. (Tim Sloan / AFP - Getty Images) Back to slideshow navigation
  32. Barack Obama shakes hands with students at St. Xavier College in Mumbai on Nov. 7. (Tim Sloan / AFP - Getty Images) Back to slideshow navigation
  33. Michelle and Barack Obama view the 26/11 memorial Saturday at the Taj Mahal Palace and Tower Hotel, site of the 2008 attacks in Mumbai, India. Obama flew into India's commercial capital on Saturday aiming to boost ties and seal big-ticket business deals to secure jobs and exports days after voters punished his Democrats in mid-term elections. (Jason Reed / Reuters) Back to slideshow navigation
  34. Activists of the Communist Party of India and members of various other organizations stage a demonstration Saturday against Barack Obama's visit in Mumbai. (EPA) Back to slideshow navigation
  35. President Barack Obama waves to photographers through a window from backstage as he waits to deliver remarks at the U.S.-India business council and entrepreneurship summit Saturday in Mumbai, India. (Jason Reed / Reuters) Back to slideshow navigation
  36. President Barack Obama greets members of the audience after delivering remarks at the U.S.-India business council and entrepreneurship summit Saturday in Mumbai, India. Obama announced $10 billion in business deals. (Jason Reed / Reuters) Back to slideshow navigation
  37. Handwritten notes by President Barack Obama, top, and first lady Michelle Obama are seen in the guest book during their Saturday tour of the Mani Bhavan Ghandi Museum, where Mahatma Gandhi resided on his visits to Mumbai. (Jason Reed / Reuters) Back to slideshow navigation
  38. An Indian shopkeeper shows a cushion with a painting of Michelle Obama designed by Arpita Kalra, in New Delhi, India, Saturday. (Manish Swarup / AP) Back to slideshow navigation
  39. Michelle Obama plays a game while entertaining underprivileged children Saturday during her visit to the Mumbai University. (Solaris Images / Getty Images) Back to slideshow navigation
  40. Indian micro-artist Ramesh Sah, 47, shows the nail of his thumb painted with a miniature image of President Barack Obama on Saturday in support of Obama's visit to India in Siliguri. (Diptendu Dutta / AFP - Getty Images) Back to slideshow navigation
  41. Barack and Michelle Obama descend Air Force One as they disembark Saturday on arrival at Chhatrapati Shivaji International Airport in Mumbai, India. (Solaris Images / Getty Images) Back to slideshow navigation
  42. Indonesian Muslims wear slippers during a protest against the planned visit of President Barack Obama outside the presidential palace in Jakarta, Indonesia, on Sunday, Nov. 7. Obama is scheduled to visit the world's most populous Muslim nation next week. (Dita Alangkara / AP) Back to slideshow navigation
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