The Heritage Foundation

Lecture #963 on Asia

September 20, 2006

September 20, 2006 | Lecture on Asia

Korea and the United States: Forging a Partnership for the Future

(Delivered September 1, 2006)


Good morning, and thank you for inviting me to speak to you. It is great to be back in Korea. I would especially like to thank Dr. SaGong for his generous introduction, and the Korea International Trade Association for hosting this gathering.

As Dr. SaGong told you, I am from Washington, where I am the president of The Heritage Foundation, a major policy research organization: a think tank. I have been working in public policy since I first arrived in Washington 40 years ago. As a policy per­son, I have concentrated on the very special U.S.-ROK relationship. I have made more than 100 trips to Korea, so I have seen the Korean-American relation­ship evolve over these four decades.

I can remember a time when our relationship was like the relationship of an adult to a child; today our leaders speak, meet, and decide as equal adults. I remember when we sent troops to defend your home­land against totalitarian aggression; today your troops fight side by side with us in the War on Terrorism. I remember when Korea was a tiny trading partner with the U.S.; today you are our fourth largest. I remember when American companies like General Electric and General Motors were the best in the world; today they compete with Korean companies like Samsung and Hyundai.

Washington's policymakers and all Americans realize that Korea has come a long way, and we desire a stronger, closer relationship with the Repub­lic of Korea.

Today we have a unique opportunity: an opportu­nity to advance our economies, an opportunity to show other countries the path of freedom by exam­ple, and an opportunity to promote peace and stabil­ity in the world through a strong economic alliance.

But these opportunities will only exist for a short time, perhaps only the next 12 months. Therefore, this is a crucial moment for Korea and the United States. I believe that the decisions we make in the coming months will set the path of our relationship for decades to come.

There are many obstacles to overcome, however, and it will not be easy.

As president of The Heritage Foundation, I work daily with the leaders of the U.S. Congress and the Bush Administration.

For those of you who are not familiar with Heri­tage, we are a non-profit, public policy research organization that formulates and promotes conser­vative public policy.

Before I continue, let me define American con­servatism. It is different from your preconception of conservatism as an ideology. Conservatism is not an ideology, nor is it a defense of the status quo. It does not support corruption or insider dealings. Instead it is a vision of a society that provides free­dom, opportunity, prosperity, and civil society for its citizens. It promotes free enterprise and open trade, limited government, a strong national defense, individual freedom, and the rule of law. And these are descriptive of the Heritage Founda­tion mission.

We are non-partisan. We do not support candi­dates in either political party. Rather, we support ideas. We have a $38 million annual budget-all of which is raised privately from a broad base of near­ly 300,000 members including corporations, indi­viduals, and foundations both in the United States and abroad.

At Heritage we established an Asian Studies Cen­ter about 25 years ago. Our Center advocates improved strategic and economic relations between the United States and the important nations of Asia. We publish studies, host visitors, and conduct sem­inars and conferences on major Asian policy issues.

I am pleased that the director of our Asian Stud­ies Center, Mike Needham, is here with me today, as is an old friend of many of you here in Korea, Ken Sheffer, who lived here for more than 11 years, and who is now Heritage's resident representative in Hong Kong.

I believe we share many common interests with you, and I would like to address some of those today.

Making Korea an Economic Leader

President Roh Moo-Hyun has expressed his desire that Korea become the "financial hub of North East Asia." I think this is a great and a noble ambition and there is certainly the potential to make it happen.

In the four decades I have been working on the United States-Korean relationship, I have seen your GDP grow from that of a Third World country to an economic powerhouse. Your current econom­ic growth rate is healthy, unemployment is low, exports are high, and your credit rating was recent­ly raised to A.

Therefore, economic prospects are looking good. But I believe Korea can do even better.

Let me talk about economic freedom-a broad term that encompasses factors like trade policy, fis­cal burden of government, wage and price flexibil­ity, and monetary policy.

Annually, Heritage and our partner, the Wall Street Journal, publish our Index of Economic Free­dom. In it we assess economic freedom in 157 countries around the world.

Heritage has discovered that the world's strongest and most prosperous economies are overwhelming­ly those which are the most free economically. The freer a country, the higher the standard of living its citizens will enjoy. Contrary to a common mis­conception, economic freedom does not make the rich richer and the poor poorer. All citizens benefit. Economic disparities are reduced and income in­equality is lowered. As our late President John F. Kennedy said of a growing economy: "A rising tide lifts all boats."

So, how does Korea rank today in our Index?

I'll approach this from two measurements: quan­titative and qualitative. The quantitative rating of Korea, GDP, is good. The qualitative rating, eco­nomic freedom, needs improvement.

Korea is ranked 10th in the size of overall GDP in the world, and yet is only ranked 45th in terms of economic freedom in our Index. Yes, 44 countries are ahead of Korea. They are doing a better job in creating high-quality, open economies, limiting the burden of government, and following the "best practices" of the international economic system. And four economies outpacing Korea in terms of economic freedom are here in Asia: Hong Kong (#1), Singapore (#2), Japan (#27), and Taiwan (#37).

President Roh realizes this and has admitted that Korea "is now faced with severe competition in terms of the quantity and quality of goods and services."

If Korea is to become the economic leader you hope to be, let me suggest several areas you could improve.

Lower Trade Barriers. Korea has come a long way in liberalizing its economy. However, your trade barriers remain formidable. Korea's average tariff is still substantial, and other trade barriers stop the importation of nearly 1,000 items.

As most of you know, a Korea-U.S. Free Trade Agreement is one way to increase economic free­dom. With Round Three of the negotiations tak­ing place in Seattle in just a few days, we have much to do.

If the business community and the general pub­lic do not support an agreement, it will not happen. And make no mistake: the stakes are high. If we fail to bring these negotiations to a successful conclu­sion, it will be years, or perhaps decades, before we'll be able to try again.

That is why I was disappointed when I read recently in the Korea Times that the approval or support rating of a Korea-U.S. FTA has dropped significantly in the past two months.

I understand that some Koreans are opposed to the agreement because they fear America is growing too powerful in Korea. They fear the deal would make Korea into America's subordinate. That is wrong.

We are equals. We are partners. In fact, a trade agreement would strengthen Korea's economy and allow it to compete more effectively with every oth­er economy in the world.

I believe you in this room have the power to com­municate the truth and reverse the opinion polls.

Let your countrymen, your colleagues, and your employees know why a Korea-U.S. FTA is in the best interest of all Koreans. Remind them that this agreement will allow Korea to compete with Japan as the premier regional economic power; that con­sumer goods will become more affordable; that Korean exports-the very goods their hands and minds are creating-will be bought by more Amer­icans and more consumers everywhere in the whole world.

Both Korea and America have much to gain from a Korea-U.S. FTA. That is what I believe and that is the message we are communicating in Washington. Despite the challenges, I am optimistic that we can succeed together.

That leads me to my second point on how to make Korea more competitive internationally. You and your government should lower the cost of doing business in your country.

Cut and Simplify Taxes. I am sure almost every­one in this room favors tax cuts. After all, it means more money in your family's pockets and less in the government's.

But have you ever thought that Korea competes with other nations in this region and in the world? In a global market and a global economy, your tax policy competes with the tax policy of other coun­tries. If other things are equal-or, as the econo­mists would say-ceteris paribus-where would a corporation prefer to do business? In a economy that costs 25 percent of its bottom line in corporate taxes (like Korea) or one that costs, say, 17.5 per­cent (like Hong Kong)?

There are other improvements you can make: Reduce regulations on companies, abide by the rule of law and equal treatment under the law for both your own companies and the international companies that do business in Korea, and increase the transparency of your whole governmental structure.

Other Thoughts from Washington

In the few minutes I have left, I would like to fill you in on some thoughts from Capitol Hill over several issues I think you may be wondering about.

North Korea. Many in Washington are deeply concerned about the North Korean nuclear pro­gram, their weapons program, and their overall behavior in the international community.

Heritage has done considerable research, which we share with high-ranking government officials in Washington, on how to ensure safety and stability in a world with proliferating nuclear weapons. We find that there are two key elements to safety and stability which are absolutely crucial. First, is a comprehen­sive missile defense system. Missile defense makes nations safer from attacks and, therefore, reduces the attraction to launch weapons.

Second, and equally important, is the absolute strength of the relationship between a strong Amer­ica and her vital allies. Any disruption-either real or perceived-of the ties between America and allies like Korea can be catastrophic for the stability of the Korean Peninsula and the entire region.

We must be united in our approach to Pyongy­ang. That is why, frankly, I worry about the differ­ences of opinion between Korean and American government officials. And I also worry about the relationship between Korea and America's other strong ally in the region, Japan. It is vital that these three nations remain committed to each other, and to preserving the existing international framework, which allows our mutual security and prosperity to advance.

The Visa Waiver Program. As Congressman Henry Hyde said on his visit to Seoul just last month, a visa waiver program is "one of the most difficult problems" between our two countries.

This is indeed a challenge. In 2004, the number of South Koreans traveling abroad rose substantial­ly, yet those who visited the U.S. actually fell. Addi­tionally, as your Ambassador told me just last week, South Korea is now the largest source of foreign students for the U.S.: some 80,000 students.

It is certainly in America's best interest to fix this problem. For the Korea-U.S. relationship exists not just between governments, but between our peoples.

We must understand each other. We must trust each other.

Today I am more optimistic about the chances of Korea becoming part of the U.S. Visa Waiver Pro­gram than I was several months ago. There are sev­eral strong supporters of the program within the State Department.

We at The Heritage Foundation understand the importance of this to our Korean friends, and we will do our best to help the Administration and Congress balance America's heightened national security concerns with our desire for cultural and social exchange among our key allies like Korea.

Because, again, a strong Korea-U.S. relationship is essential to a stronger, freer Asia and a stronger, freer world.

Conclusion

Friends, we have so much to learn from each other; so many similar interests; so many opportu­nities to create more prosperous and free societies for both of our peoples.. As the world continues to grow and to evolve, I expect to see Korea's promi­nence rise as a world leader.

If we stand together-as equals-and act now to promote our mutual interests, we can overcome our common threats. We can change North Korea, win the War on Terrorism, and defeat the ideolo­gies that fight against freedom around the world.

I believe we can. I believe we will.

Edwin J. Feulner, Ph.D., is President of The Heri­tage Foundation. He delivered these remarks to the Korea International Trade Association in Seoul, Korea.

About the Author

Edwin J. Feulner, Ph.D. Founder, Chairman of the Asian Studies Center, and Chung Ju-yung Fellow
Founder's Office