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Wednesday, Dec. 8, 2010
Key trade deal concluded
Better late than never. Last week, the United States and South Korea concluded negotiations on their free trade agreement. If passed by the two legislatures, KORUS, as it is popularly known, will provide an economic boost for the two countries.
More important, it could revive enthusiasm in the U.S. for more trade deals, pump new momentum into stalled global trade talks and strengthen ties between the U.S. and South Korea at a time of increasing tension in Northeast Asia. KORUS is a strategic agreement, not just an economic one.
KORUS is the largest trade agreement South Korea has ever signed, the largest for the U.S. since the North American Free Trade Agreement (NAFTA) in 1992, and the first U.S. FTA with a major Asian economy. The George W. Bush administration launched talks with South Korea in February 2006 and an agreement was concluded a little over a year later.
That deal was signed by Mr. Bush and his then South Korean counterpart, Mr. Roh Moo Hyun, in June 2007, but it was never submitted to each country's legislature for approval for fear that it would be rejected.
Opposition of anti-trade legislators notwithstanding, the economic logic behind the deal was strong. South Korea is the U.S.' seventh largest trade partner; the U.S. is Korea's third largest trading partner, trailing only China and Japan. KORUS would lift tariffs on about 95 percent of each country's tariffs on industrial and consumer goods within five years. Economists reckon it would increase U.S. exports by at least $11 billion, and support as many as 70,000 American jobs. It would also open South Korea's long-cosseted services market to U.S. competition. According to U.S. President Barack Obama, KORUS will increase U.S. economic output by more than its last nine free trade agreements combined. But the benefits are not one-sided: KORUS is expected to boost South Korean GDP an additional 0.6 percent per year for a decade.
Of course, that does not guarantee passage through the two legislatures. Two issues had held up approval of the deal (in tandem with a rising suspicion among U.S. unions — and hence, Democratic politicians — of such agreements in general): beef and automobiles. U.S. automakers had complained that the deal was insufficient in its zeal to open South Korea's market to U.S. exports and that greater liberalization was needed.
Negotiations last week yielded a compromise by which the U.S. will lift its 2.5 percent tariff on South Korean cars in five years, instead of immediately. In addition, each U.S. automaker will be able to export 25,000 cars to South Korea as long as they meet U.S. safety standards. Tariffs on each country's trucks would be lifted as well, immediately in South Korea and over time in the U.S.
Representatives of beef interests were not so lucky. The two sides agreed to shelve the U.S. demand for full access to the South Korean market. The fear of "mad cow" disease has created emotional opposition to market liberalization; now only beef under 30 months old — theoretically less susceptible to the disease — can be imported. Still, the original agreement requires Seoul to eliminate a 40 percent tariff on U.S. beef over 15 years. Korean objections were the flip side of U.S. complaints. South Koreans argued that being forced to accept U.S. products that did not meet domestic standards — on security and safety ostensibly — posed unacceptable risks to the public and hurt domestic producers.
This agreement was expected a few weeks ago when South Korean President Lee Myung Bak hosted Mr. Obama at the G20 summit, but they could not close the deal. Mr. Obama walked away from the talks, saying the offerings on the table were not good enough. That gamble seems to have paid off last week.
The new spirit of compromise was animated by a variety of concerns. First, there was the conclusion of a free-trade deal between the European Union and South Korea that threatened to undermine the competitiveness of U.S. exporters. Second, the U.S. midterm elections strengthened free-trade Republicans in the Senate, which must ratify the agreement. Third, high unemployment in the U.S. — figures released late last month showed the jobless rate remaining at 9.8 percent — is pushing Mr. Obama to do more to stimulate exports that create jobs.
Another consideration is the tensions on the Korean Peninsula. KORUS is a trade deal, and much more. It is a strategic agreement that ties the two allies closer together. The trade agreement is a way of renewing each country's commitment to the other. It more deeply integrates their economies — and their futures — which signals to publics in both countries, and elsewhere, the importance of their bilateral relationship. It should reassure friends of the vitality of that partnership and warn adversaries that they two countries remain committed to their mutual peace and security. There is no distance between the U.S. and South Korea on these points.
KORUS shifts the terms of triangular economic ties among Japan, the U.S. and South Korea. In particular, Japanese exports to the U.S. are disadvantaged. Combine this with the strategic value of the trade deal and it should come as no surprise that there are voices in Japan asking if the time has come for Tokyo to begin free trade negotiations with Washington and Seoul. Such a move would demand real — and wrenching — change in our trade policies and our domestic economy. But the price may well be worth paying. South Korea seems to think so.