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Monday, Oct. 24, 2011
U.S. remembers trade diplomacy
On the morning of Oct. 14, U.S. President Barack Obama signed three free-trade agreements, one each with South Korea, Colombia and Panama. The trade deals are important steps forward for the United States and its partners. While these deals are economic agreements, they are much more. In particular, the deal with South Korea is a reaffirmation to and deepening of the relationship between the U.S. and a crucial trade partner. There is the lens through which such deals should be viewed: as strategic agreements rather than "mere" trade deals.
The trade agreements have awaited congressional action for five years. The deals were negotiated by the Bush administration, but the arrival in 2006 of a Democratic majority in Congress effectively shelved the initiatives. While Republicans and economists tout the economic advantages that flow from such agreements — virtually every study shows an increase in GDP resulting from new efficiencies — Democrats have countered that such deals are job-killers, making it easier for companies to outsource labor. According to Mr. Richard Trumka, president of one U.S. union, the deals will cost the U.S. 159,000 jobs by encouraging companies to send work overseas.
As a Democratic president, Mr. Obama is well aware of the concerns of his constituents. But Mr. Obama has also made the doubling of U.S. exports by 2015 a priority and he has been forced to recognize — perhaps even against his instincts — that trade deals can help him achieve that goal. Of course, workers need assistance to deal with the inevitable dislocations that follow in sunset industries. To that end, the White House and its congressional allies pushed for support of Trade Adjustment Assistance (TAA), a measure that expands benefits to workers who lose jobs to foreign competition. Republicans had opposed the measure, saying it was too expensive.
The impending visit of South Korean President Lee Myung Bak to Washington pushed the White House to redouble its efforts to get the deals passed. With pledges that the Republicans would end their opposition to TAA, the Democrats pushed the three deals forward. Each passed handily.
The trade agreement with Colombia passed first. It was the most controversial deal because of charges that union leaders there are targeted for assassination and poorly protected by the conservative government. It was followed by approval of the deal with Panama, and then the Korea-U.S. Free Trade Agreement, often referred to as KORUS.
KORUS is the largest free trade agreement signed by the U.S. since the North American Free Trade Agreement (NAFTA) was signed in 1994. It links the first and 11th largest economies of the world, and is expected to provide a bump to each country's economies by removing tariffs on more than 95 percent of exports over five years. It is reckoned that U.S. GDP could grow $10 billion-$12 billion as a result, with South Korea's economy expanding an additional 2 to 2.25 percent over the long term.
The real advantages of the KORUS are not economic, however; they are strategic. The trade agreement will more tightly couple the U.S. and Korean economies. It will more deeply enmesh the two countries at a time when there are some doubts about how deeply the U.S. is committed to the defense of South Korea (and Asia as a whole). This deal should demonstrate that the U.S. is in the region for the long haul.
Strengthening trade relations with South Korea also serves defensive purposes. While the U.S. negotiated an FTA with South Korea first, the European Union concluded its trade agreement with South Korea in the interim and trade between Korea and Europe has grown rapidly ever since. KORUS helps level the playing field between those two trade giants.
A third strategic dimension of KORUS is that increasing access to the U.S. market diminishes to some degree the attractiveness of the Chinese market. Proximity and culture will ensure that China remains an alluring trade partner for Korea, but a trade agreement with the U.S. should help provide better balance.
Seoul knows well the advantages of such deals. It has aggressively pursued trade diplomacy to lower barriers to economic interchange with all its major partners. That process not only helps gain access to those markets but increases South Korea's leverage in negotiations with other countries — and it wants a piece of the action to move into those other markets. South Korea has become a trade gateway, a policy that underpins that country's dynamism and competitiveness. That said, there is still debate in South Korea about KORUS. The South Korean National Assembly has not yet passed the agreement and it promises to be a messy process.
One of the most troubling outcomes of KORUS for Japan is how it could hurt Japanese interests. If KORUS goes into force, South Korea's trade with FTA partners will account for nearly 36 percent of its total trade. The corresponding figure for Japan is less than half of that percentage. Business leaders and government leaders think that Japan is falling behind, and losing competitiveness in the U.S. market. As a way out, they are contemplating Japan joining the negotiations for the Transpacific Strategic Economic Partnership. Since the TPP, which is more than a simple free-trade agreement, is a sweeping free-trade scheme encompassing a wide areas of economic activities, Japan should carefully approach the idea while paying due attention to keeping the Japan-U.S. relations in trade and other matters on a smooth path.