In break from the downbeat, U.S. and S. Korea finally open new trade era

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By Donald Kirk,

SEOUL — The United States and South Korea stood on the brink of a brave new world on Friday with a triumphant state visit to Washington by South Korea’s President Lee Myung-Bak marking the passage by both houses of the U.S. Congress of the much-delayed Korea-U.S. Free Trade Act.

The final victory for the KORUS FTA, as it’s widely known in Korea if not the U.S., marked a high point in an era of surprisingly good relations between Washington and Seoul — and a brief respite from nasty fighting between congressional Republicans and Democrats.

South Korean President Lee Myung-bak walks with President Barack Obama tour the General Motors Orion assembly plant in Orion Township, Mich., on Oct. 14. / Detroit Free Press, Eric Seals / AP)

Two days after Senate Republicans destroyed President Barack Obama’s attempt at ramming through a far more important bill to create jobs for American workers, all members of the feuding parties joined in standing ovations as Lee declared the opening of “a new chapter” in the U.S.-Korean alliance.

In the face of recurrent criticism of the deal from workers in the U.S. and farmers in Korea, Lee in his address to both houses of the U.S. Congress predicted the alliance “would strengthen and elevate our military and political alliance to a whole new level”. As if on cue, moreover, the senate finally confirmed, by unanimous vote, the appointment of a new U.S. ambassador to Korea, Sung Kim, a veteran Korean-American diplomat whom, some senators believed, had been too soft in talks with the North before deals brokered with North Korea during the presidency of George W Bush finally broke down.

Senate Republican leaders had just one criticism before the FTA sailed through the senate by an 83-15 vote. Why, asked the senate Republican leader, Mitch McConnell, had Obama waited for nearly three years to send the Korea FTA bill, and bills for FTAs with Colombia and Panama, to congress?

As the Republicans know perfectly well, American motor vehicle manufacturers had insisted on revisions of terms that they contend will still make it difficult for them to get U.S. vehicles into the Korean market in significant numbers. Other manufacturing sectors, notably textiles, are complaining loudly, if vainly, that an influx of Korean products will destroy what’s left of their business after all the imports from everywhere else, notably China.

On top of that, Obama has had to contend with the aggrieved complaints of labor unions that the bill will strip still more jobs from workers in a wide cross-section of industries, notably motor vehicles. Union leaders remain unconvinced by assurances, and some important allies, notably the senate majority leader, Harry Reid, voted against all three FTA bills.

The bill finally received the reluctant approval of the United Auto Workers, but the United Steel Workers are clearly not happy. United Steel Workers International president Leo Gerard predicted Korean manufacturers would buy parts on the cheap from China for cars flooding U.S. markets.

Estimates of the benefits of the FTA have flown around government offices and think-tanks with wild abandon. There were predictions that Korean exports to the U.S. would go up 5 percent or 6 percent and that two-way trade might increase by $10 billion — though Korea would still have a highly favorable balance.

Secretary of State Hillary Clinton said the agreement, the biggest FTA deal since the conclusion in 1994 of the North American Free Trade Agreement with Canada and Mexico, would mean an additional 70,000 jobs for Americans, but the real winners on the U.S. side were likely to be farmers, not manufacturers. Most U.S. analysts doubt if the agreement will create that many more jobs, and the Economic Policy Institute has warned that nearly 160,000 workers will be laid off amid spiraling trade deficits.

Despite South Korean barriers on inspections and other technicalities, however, the fact is that South Korean tariffs on vehicle imports, now 8 percent, will go to nothing in 2016. That’s also the year when the U.S. drops its own tariffs on vehicle imports, now 2.5 percent — an incentive that won’t mean so much considering the hundreds of thousands of cars turned out in the U.S. by Hyundai Motor and Kia.

The FTAs with Colombia, Panama and Korea would not have flown had it not been for a final vote by the House of Representatives of a separate bill providing benefits for workers who can show that imports cost them their jobs. The lower house approved that one by a wide margin after it had already won passage in the senate.

Despite doubts, however, the official atmosphere, in Washington and Seoul, was one of unalloyed triumph and relief after all the debate and haggling since the FTA was finally signed by negotiators from both countries five years ago They had been meeting for one-and-a-half years, all with the enthusiastic endorsement of governments that were quite different from those in power now.

The Republican George W Bush, a conservative whom Obama has strongly criticized for jettisoning regulations and lowering taxes on business, was president of the U.S. during those talks. The left-leaning Roh Moo-Hyun, whom the conservative South Korean President Lee Myung-Bak blamed for economic difficulties as well as his soft-line policy toward North Korea, was president of South Korea at the time.

On Thursday night in Washington, however, the liberal Obama, who had spoken out against the FTA when he was a junior Democratic Party senator from Illinois during those talks, and Lee Myung-Bak celebrated the Korea-U.S. FTA’s passage at a press conference and White House dinner.

Whatever differences the U.S. and Korea may have had, you would never have known it from their euphoric words. The U.S. commitment to South Korea “will never waver”, said Obama. “The alliance is unbreakable.”

Hanging over the verbiage, however, was the constant threat of a nuclear program that both of them are aware is not going to go away in negotiations. The U.S. and South Korea might be “united” on confronting the issue, as Obama said, but there is no knowing what might happen next.

Obama did indicate that Washington would not be sending aid to North Korea as long as South Korea opposed it. The two had changed “the equation with the North by showing that its provocations will be met not with rewards, but with even stronger sanctions and isolation” — a remark that came as a jibe at the softened line of the Bush administration as well as a rebuff of Lee’s predecessors, notably Kim Dae-Jung, the president who preached the “Sunshine” policy of reconciliation during his years in the Blue House from 1998 to 2003.

Nuclear talk aside, however, Lee’s mission was about trade — and allaying American misgivings. Come Friday, just to show everyone how much the deal will do for the U.S. motor vehicle industry, the two presidents are off to Motown, Detroit, the historic but decaying hub of the industry, and a tour of a General Motors plant at nearby Lake Orion. The claim to fame of the 1,500 workers at the plant is that their union, the United Auto Workers, agreed on a 15 percent pay cut for producing a Chevrolet subcompact, the Sonic.

If the air is one of victory and vindication, the KORUS FTA comes with a downside that worries both Americans as well as South Koreans. The South Korean national assembly has yet to approve the deal, and it’s a sure bet the opposition Democratic Party will drum up demonstrations against it even though the party had to support it while their man, Roh Moo-Hyun, was in office.

Roh committed suicide more than two years ago amid an investigation into a corruption scandal, and leaders of Korea’s Democratic Party are now talking as though the KORUS FTA is almost a betrayal of Korea’s birthright. The most sensitive issue is the elimination of tariffs on imports of beef and pork. The tariff on beef, now 40 percent, goes to zero by 2026, and the tariff on pork, 25 percent, goes to nothing in just five years.

Negotiators, however, did not dare to do anything about rice, sold at exorbitant prices in Korea while imported rice is virtually banned. Any effort to open up the rice market, as both sides are well aware, would touch off violent mass protest that could actually endanger national security. The U.S. is one of the world’s top rice-exporting countries.

Nor is there any guarantee that Lee will return to South Korea, the world’s 13th biggest economy, to real approbation over the victory of the FTA in Washington. No one forgets the months of rioting, night after night, in central Seoul in the summer and early autumn of 2008 after he agreed, in smiling happy talk at Camp David with George W Bush, in the final year of his presidency, to accept American beef imports, banned for the previous five years due to fears of “Mad Cow” disease.

Edward Reed, Asia Foundation representative in Seoul, offered a downbeat view. “U.S. ratification of the FTA may be a mixed blessing for President Lee,” Reed wrote in a commentary published while Lee was in the U.S.. “The [Korean] opposition party and civil society are already mobilizing to call for renegotiation or rejection of the pact, or at least to make the political debate very difficult, as Korean parliamentarians and demonstrators are wont to do.”

As Reed, who has a doctorate in agricultural economics from the University of Wisconsin and has spent years in South Korea, noted, “Koreans’ ambivalence about the role of foreigners in the economy has again been heightened by fears that the U.S. economic slump may be exported to Korea through the FTA and by suspect practices on the part of U.S. companies.”

There was no denying, however, the joy of a wide range of supposedly qualified observers on both sides of the pond.

Korea’s two most powerful trade groups, the Korea Chamber of Commerce and Industry and the Federation of Korean Industries, said in unison that ratification of the FTA by the legislative bodies of both countries would “be a boon to exports that have been the main engine of economic growth” and would “raise competitiveness of locally made automobiles, car parts, textiles and electronics.”

The American Chamber of Commerce Korea was just as happy. “The agreement is a win-win deal that will increase bilateral trade and create much-needed jobs in both countries,” it said, urging final passage ” to ensure that businesses, workers, and citizens in Korea and the United States fully benefit from this historic agreement.”

The cheering was infectious. “For once, we were treated to a display of mature, adult behavior by the U.S. Senate,” wrote Tom Coyner, a long-time economic consultant in Korea, though “we also need to soberly remind ourselves that the real work has yet to begun.”

As Coyner warned, “Fair and appropriate implementation of trade deals can be much more difficult than negotiating and ratifying such treaties.”

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