South Korea President Roh Moo Hyun has said he wants to transform his country into the business hub of Northeast Asia. Soon, he’ll get his chance.
When the annual Asia Pacific Economic Cooperation (APEC) summit convenes on his home turf, Roh can seize control of the forum and demonstrate his commitment to trade by moving to establish free-trade agreements (FTAs), particularly with the United States
FTAs have become a primary focus of the Roh administration’s trade policy. South Korea already is in negotiations to scrap tariffs with nations such as Japan, Canada, the 10-member Association of Southeast Asian Nations (ASEAN), and the four-member European Free Trade Association (EFTA). Seoul and Washington have completed several rounds of feasibility talks on an FTA, and some South Korean officials say the summit would be a good time to announce the launch of formal negotiations. While such announcements may be premature, President Roh’s timely political leadership is crucial to forging an FTA with Washington in the foreseeable future.
Official Washington support for an FTA with Seoul has been cautious at best. But Congress and the Bush administration, along with growing numbers of officials from the business community, have begun to recognize the merits of pursuing such a pact. For example, the Washington-based National Association of Manufactures has identified South Korea as one of the “top five candidate countries” for a future trade agreement. In a letter circulated to his colleagues on Capitol Hill, Indiana’s Republican congressman Dan Burton, vice-chairman of the Subcommittee on Asia and the Pacific of the House International Relations Committee, emphasized that South Korea would make “an excellent candidate for consideration of U.S.-Korea Free Trade Agreement (FTA) negotiations.”
As preliminary talks have moved forward, South Korea and the United States have found themselves increasingly well-suited to become even closer trading partners. With bilateral trade already at more than $70 billion, encompassing electronics, machinery, chemicals, transportation equipment, and agricultural products, a U.S.-South Korea pact would be the second-largest free-trade agreement for the United States (after NAFTA). It could increase American exports to South Korea by $20 billion and South Korean exports by $10 billion, according to a study by the U.S. International Trade Commission.
The USITC study concluded that the largest gains would be in agricultural products, textiles and apparels. For South Korea, increased trade with the United States is not just beneficial, but necessary in order to achieve its goal of raising annual per-capita income to $20,000 by 2010. Given its scarcity of natural resources and the economy’s heavy reliance on external trade, which accounts for nearly 70 percent of GDP, South Korea will not realize this goal unless it participates in more trade agreements.
Washington also has come to appreciate the strategic value of solidifying our ties to Northeast Asia via trade, especially in light of China’s growing economic influence in the region. For South Korea, steadily growing economic ties have become one of the most important pillars supporting its dynamic and comprehensive alliance with the U.S.
U.S. policymakers see clear advantages to establishing an FTA with South Korea, but they are unsure whether South Korea is serious and ready for such an agreement. Bilateral trade issues (such as screen quotas that limit the screening of foreign films) and agricultural issues (such as lifting the ban on American beef) remain unresolved, and the South Koreans don’t seem anxious to push forward on them.
Seoul’s difficulty in passing the ROK-Chile FTA, which took almost a year to ratify, indicates the difficulties that lie ahead. To make matters worse, growing popular nationalism in response to the opening of South Korean markets has caused concern in Washington. Although nationalism itself is not necessarily a negative trend, in South Korea the tone is worrisomely tied to anti-foreign sentiment, including a popular backlash against foreign investments.
Without progress on those issues, the Bush administration is in no hurry to put FTA negotiations with South Korea on a fast track. As aggressive as the administration has been on pursuing other FTAs, this foot-dragging signals to Congress that it need not take up the issue.
This is where the leadership of President Roh comes in. If he wants to position his country as the trade leader of its region, now is the time. South Korea needs a national debate on the merits of opening the economy to increased opportunities. The Roh government needs to make the case against the claims of the militant unions that have staged sometimes-violent protests against foreign trade, as well as the narrow special interests that have controlled South Korea’s legislative process for too long.
President Roh could lead this debate and even expand it to explore Seoul’s need to upgrade its economic system by removing barriers that still limit economic freedom and therefore entrepreneurial opportunities.
Assembling a coalition to push through an FTA with the United States won’t be easy. But mature democracies make tough decisions for the long term, and they do so with strong leadership and by expanding the circle of cooperation. South Korea is no different. The time to act is now.
– Anthony B. Kim is research associate in the Center for International Trade and Economics at the Heritage Foundation.