Speeches and Transcripts 2008
The Korea-U.S. Free Trade Agreement:
Building a 21st-Century Economic Alliance
Alexander Vershbow
U.S. Ambassador to the Republic of Korea
Hanyang University School of Business
Seoul - April 30, 2008
Dean Yae, thanks to you and President Kim for the opportunity to be here today to speak to you and your students. Hanyang University was founded in 1939 with the goal of “educating and training students to understand and to love one another, based upon the virtues of diligence, honesty, humility and service, to heighten the noble spirit of learning, and to become men and women who work not only for themselves, but also for the nation and its people, and further, for all mankind.” The problems that mankind faces today – poverty, disease, climate change, threats to security and prosperity – and their needed solutions are becoming more global every day, and it becomes more critical every day for nations to join with each other to find those solutions.
It is with that in mind that I’d like to speak today about the economic relationship between Korea and the United States, and the efforts both governments have been making recently to deepen and expand that relationship. I believe this relationship is vitally necessary for our two nations to meet the challenges we will face together in the 21st century. After I’ve delivered my remarks, I’d like to open up the floor to answer some of your questions. One of the benefits of these kinds of events is that they give me a chance to hear what you’re thinking, and not just have you listen to me talk up here.
I’m particularly pleased to be here at the School of Business today. Since I arrived in Korea two and a half years ago, I’ve had the opportunity to speak to many students of international relations about U.S.-Korea relations. Those have all been interesting discussions with the young Koreans who are training to be policy professionals in the civil service, diplomatic corps, and military services. But when we talk about the U.S.-Korea relationship, we must recognize that there is a much broader range of participants in that relationship than simply the foreign policy professionals in both governments. That is something I’ve found particularly noteworthy during my time here in Korea, particularly compared with some of my previous assignments in Europe – namely, that the strength of the U.S.-Korean bilateral partnership is drawn not only from strong government-to-government ties, but also from exceptionally vibrant citizen-to-citizen exchanges and personal relationships between our two nations.
The business community in our two countries has been, and continues to be, an important pillar of the U.S.-Korea relationship. Living here in Seoul, I have found that some of the most dedicated advocates of a close U.S.-Korea partnership are Korean business executives who have either lived in the United States or done a lot of business there. Likewise, I find that some of the Americans with the best insights into Korea, and the greatest friendship for Korea, are those American businessmen and women who have lived here in Korea and done business here.
This is true at other levels as well. If you ask the Americans who work at a Samsung semiconductor plant in Austin Texas, or the Koreans who work at a 3M plant in Gyeonggi Province, you’ll find those businesses are having a tremendous impact on how Koreans and Americans (at least in those communities) view each other – probably an even greater impact than the front pages of the daily newspapers. Taken individually, an individual import or export contract, or an investment decision, may just seem like business; but when you add them all up, they become an important source of the common interest that makes for an enduring partnership between our two countries.
The products that businesses make also play an important role in shaping each country’s perceptions of the other. If you ask Americans what they think about Korea, many of them would say, “Well, I’ve never been to Korea, but I know they make good cars, and they make great cell phones, so I guess it must be a very technologically advanced society.” That is true. Similarly, if you asked Koreans what their impressions are of the United States, a lot of them would say, “Well, I know Microsoft is American, and Google, and a lot of the big drug companies like Pfizer and Merck, so I guess the U.S. must be a society that values innovation.” And that’s true too.
The point I’m making is that we should recognize that Korean and American businessmen and women, by building the trade and investment ties between our two countries, play a very important role in the wider relationship between our two countries. Moreover, our two governments have the responsibility to take the appropriate steps to support and facilitate those business-to-business ties. Obviously for advanced economies like the United States and Korea, our governments should not be leading the business community, or telling them how they should conduct their business (other than to follow the law). But we should be thinking of steps we can take to enable those business ties between the United States and Korea to grow, and remove the barriers that are preventing their growth.
That brings us to where we were a few years ago. By any measure, the U.S.-Korea business relationship continued to be a thriving one: trade was growing in both directions between the U.S. and Korea, and so was foreign investment. For Korea, the United States was no longer Korea’s number one trading partner – China had taken that role, thanks to both its close proximity and booming economy – but we were Korea’s second largest trading partner, and probably remained Korea’s most important market (since so many of Korea’s exports to China were components and factory equipment that would be used to make consumer products that would be exported to the United States). As for the United States, Korea was our seventh largest trading partner – more important to the U.S. economy than larger economies like France and Italy. As for investment, while there had been a boom in Korean investment in China, if you looked at two-way flows of foreign investment, the United States was still Korea’s largest foreign investment partner.
Big Korean companies, particularly in the autos and electronics industries, had rapidly created a very sizeable presence in the U.S. consumer market, as had Korean capital goods manufacturers like steel and ships. While it was harder for U.S. companies to get into the Korean economy for many years, after the economic reforms of the late 1990s, many more U.S. companies like Citibank, Qualcomm and GM began to have a meaningful presence here in Korea as well. So it was clear that the business community in both countries had done an excellent job of taking advantage of the opportunities that existed.
Still, there were some signs that there was untapped potential for greater, mutually beneficial expansion of the business ties between our two countries. For example, it was clear that while U.S. companies are some of the biggest foreign investors around the world, creating jobs and bringing new technologies to the communities where they invest, Korea had generally attracted less foreign investment, including from the United States, than a country of its economic size and potential would expect. So clearly in that respect, the existing framework of our business relations was not doing enough to draw American investment to Korea. Similarly, one of the big economic challenges Korea faced was to expand its service sector, which has been the biggest source of job creation in most advanced economies in recent years.
The United States has some of the biggest and most competitive service sector firms in the world – in media, in financial services, in leisure and tourism, in professional services like legal and accounting services – and yet they had not been able to create jobs in Korea the way they had in other countries, either because there were formal barriers that kept them out of the Korean market, or because other regulations made establishing operations in Korea not commercially viable. With respect to consumer price levels, Korea had some of the highest food prices in the world, and yet the Korean distributors who wanted to bring in competitive U.S. food products often found their efforts blocked by high tariffs or other barriers.
On our side of the Pacific, the U.S. found that many excellent Korean suppliers were being undercut in our market by Chinese competition, and that by applying the same tariffs to Korean products and low-wage Chinese products, we were seeing fine Korean suppliers of textile and apparel products being squeezed out of the U.S. market by Chinese rivals – certainly not an outcome we intended.
So as our two governments looked at these trends, and listened to the concerns of our business community, we began to wonder if maybe it was time to update the framework for the economic relationship between the U.S. and Korea. For years we had handled bilateral business issues that arose on an ad hoc basis – dealing with problems as they came up. But maybe it was time to go beyond that, and establish a new, comprehensive framework for trade and investment between our two countries.
The specific goals of such a framework would be to remove all the remaining barriers to trade and investment, so that businesses from both countries would have freedom to operate in both countries, and to create greater transparency and predictability, so that businesses would know exactly what sort of regulatory requirements they would face. The broader goals would be to establish a privileged economic partnership between the United States and Korea – closer than either country has with, say, Japan or with China, or with most other countries.
Another goal would be to update our economic relationship to reflect Korea’s phenomenal development over the past half-century – development that took it from poverty to one of the world’s leading technology powers. 50 or even 25 years ago, it would have made no sense to talk about “reciprocal responsibilities and obligations” for the U.S. and Korea, but by the 21st century, that had changed, and we needed to find a way to reflect that the U.S.-Korea economic relationship had truly become a partnership of equals.
We – our two governments – took this idea to the business leadership in both our countries a few years ago and asked them, “How would you feel if our two governments established a new economic framework for you to have greater freedom to conduct trade and investment between the United States and Korea?” Their answer was – perhaps unsurprisingly – an emphatic “yes!” And so our two governments sat down together and tried to think of how exactly we’d go about doing that.
Well, what I’m talking about is of course the Korea-U.S. Free Trade Agreement, or KORUS FTA. The KORUS FTA has become such a publicized and politicized issue in both our countries that it’s easy to lose track of what it was designed to do. But basically, the FTA was intended to remove the barriers and limitations on business communities, so they would have freedom to operate in both the United States and Korea. By doing that, we would also deepen the business ties between our two countries. And by creating a more competitive environment, we would both strengthen both own economies and also benefit consumers in both countries.
We often refer to the KORUS FTA as a win-win agreement, because both Korea and the United States will benefit, but it might be more appropriate to call it win-win-win-win, because not only will both countries benefit, but competitive businesses and consumers in both countries will benefit as well.
The basic history of the KORUS FTA negotiation is rather well-known, so I’ll just summarize it briefly. We announced the launch of FTA negotiations in February 2006, began the talks in June 2006, completed negotiations in April 2007, and signed the agreement on June 30 last year. I know looking at the television and newspaper reports, it might have seemed as if the negotiations were going on for a long time; but in fact, never before has either country negotiated a trade agreement that is this big, so quickly. I think that reflects the high degree of professionalism that both Korean and American negotiators brought to the table, but also the fact that we began the FTA negotiation with a common vision – of a comprehensive, high standards trade agreement that would eliminate virtually all the barriers to trade and investment that our businesses face in the other’s market.
I think anyone who looks at the FTA we signed would have to agree that the United States and Korea successfully accomplished what we set out to do. The KORUS FTA is the biggest FTA Korea has signed, and the biggest FTA for the United States in 15 years. 95 percent of industrial tariffs will be eliminated within three years; tariffs on most agricultural products will be eliminated within ten years, most service sectors will be opened up to foreign investment, and new rules will be set up to strengthen foreign investor protection and enhance regulatory transparency.
All the experts who have reviewed the KORUS FTA have agreed that it really is the “gold standard” FTA – the benchmark against which all other FTAs in the region will be based. As evidence of that, once Korea showed it could sign up to the strong commitments contained in the KORUS FTA, suddenly the European Union, and Japan, and China and Australia and New Zealand showed interest in concluding an FTA with Korea too. (Indeed, it’s correct to say that thanks to the KORUS FTA, Korea now has the most ambitious FTA agenda of any country in the world).
The impact of the KORUS FTA is expected to be huge. Here in Korea, government think tanks have estimated that, in the coming decade, the KORUS FTA will boost GDP growth by six percent, create 340,000 new jobs, and boost foreign investment in Korea by two to three billion dollars per year. In the United States, our International Trade Commission has estimated that the KORUS FTA will boost the U.S. Gross Domestic Product by roughly ten billion dollars a year – more than all other FTAs the U.S. negotiated in the past five years combined.
I should also add that in addition to all these strong economic benefits, the KORUS FTA will also deepen the bilateral partnership between our two countries, and create an economic pillar to stand alongside our military alliance. In fact, some commentators say that the FTA may well be the most significant document in U.S.-Korean relations since the Mutual Defense Treaty of 1953, which established the basis for our military alliance.
You may be thinking, well, that’s fine for him, but since he said the KORUS FTA is about facilitating business, what exactly will the FTA do for me? Well, to start with, by attracting more U.S. investment to Korea, the FTA will create a greater range of career opportunities for all of you – and those will be high-skill, knowledge-intensive jobs with companies that are successful global leaders. But even if you go to work at a Korean company, you’ll see huge benefits, because when you’re trying to export your products to the United States, your products will get special tariff-free treatment that your competitors in Japan, or China, or Southeast Asia, or Europe, will not. That will give you a big price advantage – your products will basically be competing in the U.S. market on the same footing as a domestic U.S. company. And even if you’re not exporting to the U.S., this agreement will benefit you, because if you decide it serves your business’s interest to bring in some product from the United States, you’ll be guaranteed to be able to do so.
Obviously along with all these benefits, there is a challenge too, and that is the challenge of greater competition. But I think that, as you all are trained to compete and succeed in the domestic business world, the same principle of competition should apply to your international business relations too. Korean businesses have spent the past few decades competing in international markets, and winning; and I have no doubt they’ll continue to flourish under the new FTA framework.
We still have some remaining hurdles to clear with the KORUS FTA. We need to get it ratified here in Korea by the National Assembly, which I understand will be debated in the current special legislative session. President Lee has made clear his strong support for the KORUS FTA; and people tell me that if the FTA is not ratified before the current legislative session concludes, it will be taken up soon after the next National Assembly begins its work in June, when President Lee’s party will have a majority.
In the United States the timing is a little more uncertain. Trade has become a sensitive issue in the U.S. Presidential campaign, and the recent decision by Congress to postpone a vote on the U.S.-Colombia FTA, rather than observe the 90-day time limit for consideration of FTAs, is really without precedent. Moreover, a handful of voices have spoken out in opposition to the KORUS FTA, and while they are a small minority, they are – just like the opponents of the FTA here in Korea – very loud.
Nonetheless, President Bush explained to President Lee at Camp David two weeks ago that it is a priority for him to get Congress to ratify the KORUS FTA in 2008, and I am confident we can meet that goal. The benefits of this agreement for the United States as well as Korea are well-documented; we have more private sector support for KORUS than we have had for any other FTA the U.S. has ever negotiated; and there is widespread recognition of the strategic importance of our close alliance ties with Korea, particularly following President Lee’s very successful visit to the United States two weeks ago. The path ahead to Congressional ratification will not be easy – ratifying a big trade agreement never is. But I believe that as Americans learn more about this FTA, and begin to debate its effects – which are only just beginning to happen – we will be able to win the majority of Congressional votes needed to ratify the agreement.
So that is my homework at the Embassy: to work hard to get the FTA ratified in the U.S. Congress, and to provide any support that is helpful to President Lee’s Government as they work to get the FTA ratified in the Korean National Assembly. But I am also going to leave an optional homework assignment for you – and that is that once you leave here and enter the business world, please take the time to look at the KORUS FTA text, and think about what it can mean for the business you chose to join, and how you can take maximum possible advantage of the opportunities it creates. Government officials like myself can create the framework for a 21st century business partnership between the United States and Korea, but its full potential will only be realized if Korean businesses and U.S. businesses understand what is in that document and decide to seize those opportunities.
I appreciate your taking the time to listen today. I am a strong believer in the KORUS FTA. I have had the privilege to work with my Korean counterparts on many important bilateral issues while here in Seoul – our close cooperation in the Six-Party Talks to eliminate North Korea’s nuclear weapons; our agreement to modernize our defense alliance, including the return of wartime Operational Control to Korea; and the addition of Korea to the U.S. Visa Waiver Program, ideally by the end of this year. All of these are vitally important to both our countries, but I personally believe that the KORUS FTA might have the most profound impact on the relationship between our two countries, and how that partnership will expand in the coming years.
I am also a strong believer in business-to-business diplomacy. I urge you to realize that just like the diplomats sitting in the Ministry of Foreign Affairs and Trade, or in Korean Embassies around the world, you too will be representatives of Korea, whether you are doing business abroad or dealing with foreign firms here in Korea. I hope you will use that role not only to make money for your company but to build bridges between nations, and create greater mutual understanding between Korea and the peoples of the world. Having seen all that Korean business has accomplished over the past 50 years, I am confident you are up to that task.