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Will South Korea and the U.S. Sing in a KORUS FTA?

Thursday, November 3rd, 2011
korean pavilion

A chorus occurs when a group of people harmonize their singing. Therefore, how appropriate that the free trade agreement (FTA) designed to link South Korea and the United States in a synchronized, deeper -- and mutually beneficial-- trade relationship is called the KORUS FTA, with the first pact appearing in 2007. Already, South Korea offers America US$80 billion in annual trade as its seventh largest export market. For the small and medium sized enterprises (SMEs) that account for 90 percent of U.S. exports to the RoK, the latter is their second-fastest-growing target in Asia. The average trade for each SME equals US$500,000 in exports.

To be sure, the KORUS FTA has many American detractors in an era when many there wonder if more free trade -- part of the wider phenomenon of globalization -- begets higher levels of prosperity or job losses to foreign competition as “our jobs get shipped overseas.” However, the agreement also has stalwart supporters. Among the most articulate is L. Gordon Flake, director of Mike and Maureen Mansfield Center in Washington. In this exclusive interview, he traces how doubts among some highpowered Americans about the wisdom of the pact gradually changed to endorsement and also observes the weakening of opposition in South Korea.

To start, recalls Flake, the North American Free Trade Agreement (NAFTA), first between the U.S. and Canada, and then Mexico, preceded all negotiations for KORUS by a generation and sets the wider context for the debate as the granddaddy liberal trade pact to which Washington has committed itself. The critics insist that American jobs “went south” of the border as manufacturers relocated to profit from cheap labor.

But Flake counters that economists generally agree that “NAFTA has on net been good for the U.S. economy [creating] an overall growth in jobs. However, as evidenced in the 2008 Democratic [presidential] primaries, NAFTA remains very politically controversial... particularly among organized labor.”

But why oppose NAFTA if it created jobs? Flake responds that, “My own assessment is that this is partially knee-jerk opposition to any trade agreement [by] labor. One issue may be the types of jobs created versus the types of jobs lost.” In fact, some unionists and their sympathizers fear that the skilled, highly paid jobs are sacrificed for ones that freeze or retard the worker’s economic well being. The doubters also maintain that free trade means more products at lower prices, benefiting mainly consumers who already enjoy a high standard of living while the country suffers from low savings and federal debt. “Still, in my mind, technological innovation is the biggest factor in the loss of jobs, and trade is just an easy scapegoat,” asserts Flake.

In addition to big labor, a certain dynamic candidate named Barak Obama was also a skeptic on aspects of free trade, including parts of NAFTA and KORUS. Obama’s original doubts were driven by Hillary Clinton’s initial opposition during the campaign and by labor’s initial opposition. The pressure of the campaign trail forced him and other contenders for the Oval Office to show the voter -- facing recession, high joblessness and unpaid bills -- that they would keep their jobs in the U.S.

Flake praises the turnaround in attitudes among special interests and Washington leaders. “The most serious original opponents to KORUS FTA, Ford and the United Auto Workers, are now strongly in support of the agreement,” he observes. This is because Obama sought changes that “were relatively moderate, with the most sensitive being in the auto sector.”

Specifically, to review some of the cardinal changes, Seoul committed itself to weakening its safety rules for imported U.S. cars. Now a supplemental agreement to the 2007 document permits 25,000 cars per U.S. automaker to enter Korea if they meet U.S. safety standards, four times the original number. Also, the 2007 agreement held that all car tariffs would be eliminated within three years after implementation.

The new accord permits Washington to keep its 2.5 percent tariff on autos in place until the fifth year. Meanwhile, Seoul will immediately slash its tariff on U.S. auto imports from 8 percent to 4 percent and fully eliminate the tariff in the fifth year. In addition, the U.S. assented to phase out its 25 percent tariff on South Korean trucks in 10 years in 2007. But now it can keep its tax until the eighth year and cut it down step by step by the tenth year.

Some American farmers, however, lost out as Seoul extracted concessions, too. With the first agreement, South Korea would scotch tariffs on U.S. pork by 2013, but now the deadline is 2015. Also, American visas for South Korean workers sent to the U.S. under the accord will run for five years, far beyond the previous one year. Other influential American commentators on ties with South Korea have also voiced stalwart support for KORUS-FTA. For instance, Victor Cha, head of Asian Studies at Georgetown University, opined in the Chosun Ilbo, South Korea’s leading newspaper, on January 11, 2008, even before Obama’s election, that the KORUS FTA is in keeping with new economic conditions in the U.S. because it liberalizes markets for the American service sectors that are vital to general economic growth. Service “accounts for some 80 percent of American GDP and 80 percent of the U.S. private sector workforce. But manufacturing and agriculture, which often are the focus of opposition to FTAs, only account for a combined 15 percent of American GDP.” Also, services create “better-paying high skilled jobs,” insists Cha.

Overall, following the Obama Administration’s alterations to the KORUS FTA, “it became to first major trade agreement to be backed by labor.” That would seem to remove all the road blocks to the pact’s passage and ratification by the U.S. Senate. Flake affirms that “there is no significant substantive opposition at this point, just political gamesmanship holding up ratification,” one aspect of the point scoring and maneuvering in Washington’s highlycharged partisan climate.

Actually, insists Flake, “President Obama has always claimed to be supportive of free trade [in principle]. While opposed to KORUS [specific terms] as originally negotiated, [now he] has pledged to ratify it along with other recent trade deals.” Presently, “pretty much all business sectors” are aligned behind it, so the momentum is building. In addition, Obama has also been supportive of the TransPacific Partnership Trade negotiations. Of course, South Korea and America are both trade partners and also strategic allies. Decades after the Cold War, Seoul -- the smaller economy -- pays hundreds of millions of dollars per year to Washington to station some 30,000 GIs in the south as protection because the two Koreas cannot or will not unite. Inevitably, the wall between economics and politico-strategic issues crumbles as motives and policies among the interdependent partners reinforce.

Flake amplifies this notion, explaining that there is a strong economic rationale for the deal, but also a strategic rationale. What if the United States cannot ratify an agreement of this quality with one of its closest regional allies? The lack of vision, commitment or skill in securing the pact would “dramatically undermine U.S. leadership and influence in Asia.” This is dangerous enough when North Korea keeps attacking South Korea, both symptom and cause of their armed, self-inflicted division. It is even worse “when Chinese influence is growing” economically. Would the benefits of the KORUS FTA to the U.S. and Korea stand out even more as both countries run a trade deficit with China? “Absolutely!” enthuses Flake. What about the South Korean variable in the KORUS equation that is supposed to total up in a win-win sum? Flake concurs with many Korea watchers that the incumbent conservative president, namely Lee Myungbak, and his supporters such as the KORUS FTA Industry Alliance favor it as an advocate of pro-market policies. They point out that in the decade after Mexico signed into NAFTA, its exports rose by 300 percent. As for future prosperity, how can South Korea assure it unless it opens up to foreign competition to encourage its own industries to improve design, quality production, servicing, etc?

Also, 15 nations have FTA agreements with Washington, and some are not allies. So why not South Korea? It would buttress the alliance vital to the south’s survival. Lee challenged the pro-appeasement approach of his left wing predecessors and was in power when Pyongyang sank a South Korean war ship, killing 48 sailors, leading to frantic appeals for help to the Pentagon. Flake sees that in South Korea, “the opposition parties [ are] opposed to the deal [even though] it was their President Roh Moo Hyun who negotiated it.” The recalcitrants here are Roh’s Democratic Party and the Labor Party and supposedly pro labor elements organized under the Korean Alliance Against KORUS FTA and the Korean Federation of Trade Unions. What explains their negativity?

One major motive is the special interests of South Korean elements, for instance those that publicly protested to ban the re-import of American beef after a disease scare in 2008. The Congress cited the barriers erected then as a major impediment to its acceptance of KORUS. However, when Seoul renewed the full import of U.S. beef that same year, the nay sayers in Washington felt relieved.

Also, it is “primarily politics,” argues Flake. “Key policymakers in [South] Korea do see this as more that a mere trade deal, it is a way to strengthen the U.S.-ROK relationship,” which some leftists oppose. Veteran Korea analysts recall that union power was stronger in the past, leading many to predict that they cannot obstruct KORUS but can only delay it. “Hopefully that is true,” responds Flake, “but the longer we wait to ratify the deal the more difficult the process will be -- particularly as we get closer to the ROK’s National Assembly and Presidential elections next year.” The agenda for legislation and public debate will then be more complex and the polls will foster even more politicization of issues.

So it appears that the trend line is toward South Korean and Americans singing the same tune in a trans-Pacific choir called KORUS.

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