March 7, 2008

March 7, 2008 | Commentary on Asia

The Korea-U.S. FTA: Greater Partnership for the Future

About two years ago, Washington and Seoul jointly announced their intention to negotiate a free trade agreement (FTA). Despite some skepticism, the announcement was greeted overall as a welcome surprise as the two long-time allies demonstrated their determination to pursue a FTA. Over the next months, the two countries conducted intense negotiations on the Korea-U.S. (KORUS) FTA and, in a rather dramatic move, signed the landmark trade deal on June 2007.

The deal shocked skeptics of the KORUS FTA, who expected contentious trade issues and legislative time constraints to prevent an agreement. They argued that, in the end, the many deadlocks revealed during complex trade negotiations would damage the relationship between Korea and the U.S. and that they would fail to find common ground for the difficult issues. However, the final outcome after eight formal rounds of trade negotiations is characterized as "strong and balanced" and as "an agreement for the 21st century."

The KORUS FTA now waits for the most critical step, ratification by Korea's National Assembly and the U.S. Congress. Approval of the trade pact will not only benefit the two allies economically, but also prepare them to be more effective partners in dealing with new tasks and opportunities of the future. Successfully passing the trade accord this year will be critical to that undertaking. Now is the time to follow through on the commitment to the KORUS FTA that the two allies have built up over past two years.

Back to Basics: Why Pursue the KORUS FTA?

Korea and the United States have more in common today than ever before in a relationship that has endured for more than a half century. This includes shared values of open markets, respect for the rule of law, and democratic principles. With Korea's development into one of Asia's most vibrant market-oriented democracies, its economic relationship with the United States has steadily grown stronger, becoming one of the most important pillars supporting the alliance between the two countries.

Reflecting this reality, the KORUS FTA aims at further cementing the relationship to promote the greater prosperity of the peoples of both nations. The comprehensive trade pact benefits both countries by injecting new competition into their domestic economies, lowering consumer prices, shifting factors of production to more efficient uses, and leveling the playing field for exporters.For Korea and the United States, the KORUS FTA makes immense sense considering the existing areas of economic convergence and complementarities along with the potential for even greater future gains.

As proven in past decades, Korea's experience with free trade has been exceptionally good. Today, Korea is Asia's third-largest economy and the world's 11th largest, producing nearly 3 percent of the world's exported goods. Korea's pursuit of liberal trade policies has undeniably contributed to growth of the country's real GDP per capita from below $1,000 to over $15,000 in three decades. Pursuing free trade agreements (FTA) has become an important pillar of Korea's trade policy in recent years, and Korea already enjoys FTAs with Chile and Singapore.

The KORUS FTA, Korea's most comprehensive trade accord and the most commercially significant FTA for the U.S. in more than 15 years, will scrap nearly 95 percent of tariffs on commodities within three years of the FTA entering into effect and abolish all tariffs on traded goods over time. It is expected to increase the two countries' robust $78 billion annual bilateral trade by 20 percent, creating more job opportunities.

Korean producers and exporters would gain an edge over businesses in other countries in accessing the vast U.S. market. More importantly, Korean consumers will be the true winners of the KORUS FTA. The Korean consumers would benefit from lower prices, a wider range of choices, and greater access to U.S. services.

Beyond these economic benefits, the KORUS FTA will reinforce the strong and mutually beneficial relationship between Korea and the U.S. and ultimately pave a path to a greater partnership in the future. Washington's policymakers and many Americans realize that Korea has become one of the world's most respectable democratic powerhouses. Korea also desires a stronger, closer relationship with the United States as a competitive and dynamic partner, rather than a relationship between a patron and protégé.

This desire for unique opportunities has lead Korea and the U.S. to negotiate the KORUS FTA: an opportunity to advance both economies, an opportunity to show other countries the path of mature partnership by example, and an opportunity to promote freedom, peace, and stability in the Northeast Asia through a stronger economic and strategic alliance. Combined with tangible economic benefits, these opportunities make the KORUS FTA all the more "an agreement for the 21st century."

Challenges Confronting Washington

It is in both countries' national interests to see these benefits and opportunities delivered in a timely manner. Yet, nine months have passed since the trade negotiations were concluded in 2007 and the KORUS FTA is still bogged down in the legislatures in Seoul and Washington. Regrettably, its prospects for moving forward have not grown brighter in both capitals.

Washington is facing challenges to ratification of the KORUS FTA in Congress at the same time as Korea is faces its own hurdles in the National Assembly. Certain domestic constituencies in Korea oppose the FTA on the ground of the supposedly negative impact that opening their market will have on their way of life. National Assembly elections in about a month further complicate the challenges.

Washington faces similar challenges. The KORUS FTA has support in Congress, but this presidential election year has clearly brought popular protectionism to the fore. Even politicians in favor of the FTA tend to refrain from showing more visible and outward support. More critically, as this U.S. presidential campaign season has continued, populist appeals to voters' sympathy have been also on the rise. For example, the claim that millions of jobs have been lost because of trade agreements is a clear exaggeration and gross oversimplification, but major Democratic presidential candidates repeatedly employed this kind of message. Along with some Members of the Congress, these candidates have said that they would not support the KORUS FTA, even though it would provide much greater benefits to the U.S. economy than the two other pending trade agreements: the FTAs with Colombia and Panama.

Overall, the KORUS FTA has strong support from a wide array of U.S. business sectors that increasingly recognize the importance of this trade deal. However, protectionist demands for managed trade, most noticeably lead by a somewhat narrow slice of U.S. automobile industry and its labor union, pose a considerable threat to the KORUS FTA. Despite the FTA's strong and unprecedented measures to give American automakers' greater access to the Korean market, Detroit is fighting to defeat the KORUS FTA.

Taking a somewhat different approach than the auto industry, U.S. beef producers have persistently asked for the full reopening of the Korean market and reserved their support for the KORUS FTA. Thus, swift resumption of imports of U.S. beef through technical consultation is critical to securing congressional approval of the KORUS FTA. Without reopening of the Korean beef market, key congressional leaders will not support the trade pact.

Slow congressional action on the Colombia FTA is another hindrance to timely approval of the KORUS FTA. Despite the Bush Administration's strong efforts to push the Colombia deal forward, Congress is parroting labor unions' overstated criticism about Colombia's human rights violations and unnecessarily delaying congressional action.

In light of these challenges, the slim prospects for the KORUS FTA are unlikely to improve any time soon without a renewed commitment and momentum from both countries.

The KORUS FTA Needs Political Leadership

The potential opportunities and benefits from the KORUS FTA may not survive more inaction or delays. Time is quickly becoming the biggest enemy to the KORUS FTA as the pact is becoming a more politically charged issue as time passes. The next three to six months will be critical to securing these opportunities.

The next few months will likely determine the fate of the KORUS FTA. Korean President Lee officially took his office on last Monday. President Lee, whose "747" economic plan aims at transforming Korean economy into a more advanced powerhouse, holds a key to injecting a fresh momentum for the KORUS FTA and he should use it.

President Lee is expected to meet President Bush in Washington around April of this year. The summit will present a unique opportunity for President Lee and President Bush to solidify their partnership. They should use the meeting could infuse new life into the KORUS FTA by renewing and reaffirming their support for the KORUS FTA and the strong Korea-U.S. partnership. Such orchestrated support will build up positive momentum for the KORUS FTA and increase prospects for the passage of the trade accord.

To make the most of this critical summit, President Lee must consider pushing for passage of the KORUS FTA in the National Assembly before his meeting with President Bush. In addition, timing resolution of the beef issue to coincide with the summit would maximize momentum for securing congressional approval of the KORUS FTA. President Bush reconfirmed his strong support for the trade pact during his recent State of the Union address, urging Congress to act in a timely manner. President Lee's decisive push for the KORUS FTA in the National Assembly will add more impetus.

Critics and skeptics of this approach may argue that these steps are political and diplomatic concessions to the United States on the low chance of inducing U.S. congressional action. Yet such arguments reflect an old way of thinking that confines Korea to the past, not advancing to a greater future. These steps are not such concessions, but a powerful vindication of Korea's determination to use the KORUS FTA to become a competitive partner to the United States.

Now Is the Time to Act

With President Lee's decisive leadership, successfully ratifying the KORUS FTA in the National Assembly and resolving the beef issue will be a strong expression of Korea's confidence to America. More importantly, it will effectively pressure the U.S. Congress to act as a responsible partner. After the Korean National Assembly passes the KORUS FTA, further delay or failure by Congress in ratifying the trade pact would run risk damaging America's image as a reliable partner.

No matter how bumpy or dramatic the process has been so far, one thing has been clear since the outset of the KORUS FTA. The whole process of negotiating, signing, and ratifying the KORUS FTA has instigated competitive and mature partnership and cooperation between Korea and the United States. Now is the time for decisive leadership to seal the deal and foster a greater partnership for the years to come. It would be a fitting commemoration of this year's 60th anniversary of the founding of the Republic of Korea.

Anthony B. Kim is Policy Analyst in the Center for International Trade and Economics at The Heritage Foundation, Washington D.C.

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About the Author

Anthony B. Kim Research Manager, Index of Economic Freedom, and Senior Policy Analyst
Center for Trade and Economics (CTE)

Related Issues: Asia

First appeared in South Korea's Center for Free Enterprise