Ambassador Speeches

Ambassador Christopher R. Hill Speech to Korea University

November 1, 2004

AMB Hill: Thank you very much. It is a really great pleasure to be back here at Korea University, and to see Dr. Lee Pil Sang, who is a friend of mine from the 1980s.

Let me just say what a beautiful campus Korea University has; it was nice in the 1980s, but there's obviously been a lot of investment, and the place really looks nice.

Once again - it's great to be here, and I look forward to this being sort of an interactive opportunity. I want to give you some of my thoughts, then I want to hear some of your thoughts, and maybe we can have a little dialogue after that.

What I wanted to talk to you about today was a subject that comes up fairly frequently in the Korean press, and elsewhere, and it's a subject that I think is going to need a lot of discussion before something is really done about it. That is the issue of a Free Trade Agreement between Korea and the United States.

I think we are probably a long way from concluding a Free Trade Agreement - that is, I think we probably have many years before it's done. But I don't think it's too early to start having a realistic discussion about it; a discussion about it from a point of view of understanding what our interests are, and whether it's something our two countries want to pursue.

Clearly Korea has many immediate challenges ahead of it, challenges such as dealing with North Korea. But I think probably the most important challenge Korea will have ahead of it is to determine what type of economy it wants to be, how it is going to function in the region between the growing industrial economy in China, and the now-growing post-industrial economy in Japan.

As Korea begins to navigate in this very challenging and I think very really exciting part of the world, Northeast Asia, it needs to make decisions about what type of relations it needs, what type of tools it needs to navigate successfully in this very new environment.

I think a Free Trade Agreement with the United States may be an important tool for Korea to use in the years ahead.

Korea already has an enormous amount of trade with the United States; trade that exceeds some 60 billion dollars per year, and I think this is trade that is very important to both countries.

Indeed, when you look at some of the academic studies of a Free Trade Agreement, the conclusions are that it really does have the potential of benefiting both countries.

But as Korea considers a Free Trade Agreement, I think one should always bear in mind that you need to be careful what you wish for.

Korea currently has very few of the types of comprehensive trade agreements envisioned in an FTA. In fact, Korea has probably the fewest number of FTA-type agreements of any industrialized country in the world right now.

So an FTA with the U.S. would be a very serious undertaking. It would be a comprehensive agreement. That is, the U.S. does not pursue sector-based FTAs; the FTAs must be comprehensive, involving all the sectors of the economy. We are not just going to have an FTA in say, cell phones, or small cars. It would be an FTA that would include goods, services, agricultural products, investment, environmental issues, labor standards, technical standards, and pharmaceuticals. Everything, in short, would be on the table.

Now, to be sure, in negotiating - in putting all of these things on the table, it doesn't mean that everything would need to be solved in a free trade way. For example, there might be some extremely politically sensitive issues, such as a certain crop that might be treated differently. At best, you could exempt a couple of items from a sector.

Moreover, some of the difficult aspects of the trade regime now, for example the U.S. anti-dumping procedures that we have in effect now, where U.S. industries will monitor whether industries from another country are selling at below cost, those anti-dumping procedures would remain in effect, because they are also protected by the law, so the Free Trade Agreement does not solve all of those problems either.

But even before we can really proceed on the road to an FTA, we're going to have to clear up some of the trade issues - disputes, really - that exist now, that act as blockages on the road. Some of these issues are themselves not easy to clear up, but they are causing a blockage, they are impeding our ability to get to a full discussion of an FTA. One of the examples of these is the so-called screen quota issue.

Now, probably a number of you don't know what the screen quota issue is, but let me try to explain. Korea has today one of the most exciting and successful film industries in the world. Korean films are increasingly popular, not only in Korea, but also really throughout the world, especially in Asia.

Yet despite the popularity of Korean films, there is a requirement that Korean movie theaters need to reserve - 40% of the screening days for Korean films.

From the point of view of, for example, the U.S. film industry, they see this 40% requirement as very much protectionist. Moreover, when one looks at the strength of Korean films these days, they are running at something on the order of 50% of screening days. That is, they don't require this 40% quota, because already they are operating at 50%.

My purpose in raising the screen quota issue is not to tell you "you need to get rid of screen quota;" I'm not here to tell you anything. I'm just here to explain that if we're going to make progress on a Free Trade Agreement, something like a screen quota is going to have to be solved.

I'm also not here to tell you that it's easy to solve, because there are a lot of people who feel very strongly about this issue, especially in your film industry. Many people feel it's very important to protect Korean films as a means of protecting national identity, even. So I'm not even here to tell you it's easy to do.

But in the interest of honesty, I do need to tell you that you can have a screen quota, or you can have a Free Trade Agreement, but you can't have both.

There are other issues as well. For example, in Korea today there are some very very high agricultural tariffs on issues that should not be that sensitive, but it turns out they are. For example, just to keep on the theme of movies, popcorn has got extremely high tariff rates, some 600% tariff rates on popcorn, to go to a movie.

There are also some very high tariffs on other agricultural products: fruit juice, for example. And moreover, we have a lot of issues on automobiles, where Korea has the fewest number of imported automobiles of any country in the world today.

Thus to go to a Free Trade Agreement involves some very difficult and fundamental choices that the Korean government, and by extension the Korean people, are going to have to make. There will have to big changes in agricultural imports, there will have to be big changes in automobile imports, there will have to be changes in intellectual property rights, telecom regulations, there are a lot of things that are going to have to be changed. I think it's important for people to think about those things, and decide, "Do we want to make these important changes in order to have a Free Trade Agreement?"

When the Free Trade Agreement with Chile was finally reached, it turned out to be a major difficulty in the Korean National Assembly because even the Free Trade Agreement with Chile, which involved very few number of products, even that involved some very difficult political choices. So my point is we have to really think these things through.

But I also want to emphasize that on the U.S. side, we too have very many difficult choices to make. That for us, a Free Trade Agreement with Korea could actually mean the end of some of our industries.

I know many of you have probably followed the U.S. election campaign, and you've heard the term "outsourcing" and other issues like that. We too are facing a certain protectionist pressure in the U.S. because people understand that Free Trade Agreements can be very harmful to particular industries.

But I want to emphasize that if Korea is ready to make these tough choices, that is to go in the direction of a Free Trade Agreement and away from the protection of individual industries, I want to assure you the United States is prepared to do that with Korea.

We value our partnership with Korea, and it's a partnership that goes beyond just economic issues, but really embraces security and other issues as well.

One of the things that excites me today about coming back to Korea is to see the ambitions that Korea has in becoming a sort of hub in Northeast Asia.

And this ambition to be a hub I see less as a matter of nationalist feeling and more as a matter of internationalist feeling. I see this as a result of people realizing that Korea has no choice but to move ahead and to become as open an economy as possible.

But even this ambition of becoming a hub for the region will also involve difficult choices, as Korea will have to look for ways to open up the financial sector as it's never done before.

To be successful, Korea would have to open up this financial sector rather aggressively, not just piecemeal, not just small chunks at a time, but very aggressively and boldly to deregulate the financial sector and declare Korea open for foreign capital, in a way that a place like Hong Kong became.

Liberalization is the right direction for Korea, but we all have to be very respectful of the difficulties of doing this, and respectful of the people who are a little afraid to make this jump. I think it's the right jump, but it's not an easy jump.

So as you consider the value of a Free Trade Agreement and what it will mean you need to look at the effect it will have on intellectual property rights, agricultural tariffs, screen quotas, telecom regulations. Indeed, it's a lot to think about.

Ultimately, for Korea it's going to require a lot of courage to make these decisions, it's going to require a lot of changes, and change is never an easy process. But I think it reflects the Korean experience of making difficult changes, and sticking with those changes, and coming out with a better outcome. So I hope that the Free Trade Agreement will itself create a much greater sense of, a much more honest discussion, a willingness to discuss the trade-offs, and ultimately a decision to go forward with a Free Trade Agreement, because if Korea wants such an agreement, we are ready to sit down and negotiate.

And so with those comments on the Free Trade Agreement, I am open to questions and comments, not just about the Free Trade Agreement, if you want to talk anything else - politics, U.S. elections, what else could we talk about? The Boston Red Sox winning the World Series, my favorite subject of the day - but anyway, I'm open to any kind of dialogue, so please.

So, Professor Lee, are these very shy students who don't like to ask questions?

QUESTION: Hi. First I want to thank you for your speech, and I listened very carefully, but I'm very curious about what effects would happen to the U.S., the pros and cons, if the FTA between Korea would happen?

AMB Hill: Well, Fred Bergsten's Institute in Washington did an analysis on it, and concluded that it would be a positive effect in the U.S., especially in terms of certain high-tech exports and agricultural exports, but it would also involve some structural adjustment, as Korean manufacturing products would come in at a cheaper rate.

But you're asking a very empirical question, that is, specifically how will this affect various sectors, and too it would involve investment trends and other things, so it's a very complex empirical question, and frankly I don't think all the data exist yet to answer it.

QUESTION: I'd like to ask a really big question: you just mentioned earlier that when cheap products from Korea come into the U.S. market, the U.S. is bound to undergo structural changes, but I think that situation will be true for only about five years. Then, China is bound to catch up with the Korean products, so such an FTA would bring about benefits to the U.S. in terms of finance or agricultural industries, and then for cheaper products then China is going to benefit in the long run. So what is Korea to do in that situation? Is the U.S. simply going to say that it's a problem that Korea has to deal with on its own?

AMB Hill: Well, I think ultimately you're asking probably the fundamental question for Korea in the next fifty years. That is: how will the Korean economy relate to the Chinese economy, especially given the ambition of the Chinese economy to become the manufacturing center of the world.

I think a Free Trade Agreement with the U.S., with Korea, would be helpful to Korea in terms of position itself in the U.S. market before China has a chance to do that.

And I think it will be necessary or helpful to Korea to stay ahead of China on the technology ladder. I think freer trade would help Korea do that.

We have a great interest in Korea's success, and we would see obligations under a Free Trade Agreement to work very closely with Korea. Ultimately, Korea needs to work out this relationship with the Chinese economy, but in another sense, all of us need to work out a relationship with the Chinese economy.

But one thing I'm absolutely positive of: Korea will not succeed vis-a-vis the Chinese economy with protectionist strategies. Korea needs to be as open as possible, and to move quickly. You know, being a country the size of Korea relative to the size of the Chinese economy, it's a little like in the National Basketball Association: if you're going to be small, you've got to be quick. I think Korea will need to make decisions very quickly, and stay ahead of some of the bigger competition.

QUESTION: First I would like to appreciate your speech; thank you for sharing your precious time with us. My name is Seung-ho Choi; I am a senior student in Business Administration at Korea University. Through your speech I can understand better about mutual profit between Korea and America, and I agreed also with most of your opinions - we have to open up our market as much as possible. But I'm curious: do you think the Korean economy is ready or mature to open our economy, because without (inaudible) preparation our economy is going down and we will be just like South America - several South American countries - so I'm curious about your opinion about the condition of the Korean economy and the level.

AMB Hill: You know, I don't think anybody should be suggesting that the Korean economy should make all these changes this afternoon. A lot of these things need to be phased in, for some of the reasons that are implied in your question, which is that probably that the Korean economy is not ready for some of these things.

But the trouble with the arguments of not being ready is those arguments are used all the time to justify protectionism. Even in my country, you hear arguments from industries that they're not ready to open up.

Because ultimately, the only way to improve is through competition. I mean, there's a reason you learn all that in business school: it's because it's true.

One of the reasons the American car industry became so weak was that for so many years there was not enough competition, and the technology, our most advanced technology, was not getting into the automobile market, and I think we've really paid a price for not having more competition in the automobile market.

There's someone up there, who keeps having her hand up - waiting very patiently.

QUESTION: Thank you for your great talk. I wonder is it possible to make exceptional items in the FTA? I heard that there are 58 exceptional items on the FTA between the U.S.A. and Canada. Right?
AMB Hill: That there are 58…?

QUESTION: …exceptional items.

AMB Hill: There are exceptional items. I'm not in a position to confirm that there are 58, but there are not 58 exceptional sectors. So you're absolutely right, there can be exceptional items.

QUESTION: I think the most important exceptional items - issues between the U.S.A. and Korea is the agricultural agreement because Korea's agriculture is insufficient compared to U.S. Is it possible to make agriculture issues as exceptional items?

AMB Hill: I think one could handle agriculture through different ways. For example, agricultural items could be contained within the WTO process, and so to some extent you could insulate them from the FTA process.

But I don't think you should approach an FTA with the idea of exempting the sector of agriculture, because obviously the agriculture sector is as important to us as some of the manufacturing sectors are to Korea. We would not be prepared to go in with a sector exemption, but we would be prepared to look at specific items within that sector.

I can see, just having been here in Korea for two months, I can see the problems in the agriculture sector. That is, the enormous growth in urban sectors in Korea doesn't mean your overall population is growing; it means your rural population is shrinking, and shrinking rather dramatically.

You have some rural areas now where the average age of the inhabitants are over 50. In fact, you have some rural areas now where in certain villages they're not recording a single new birth.

My point is that people should not arrogantly just dismiss farmers and the agriculture sector. It's a big problem in Korea and in many other countries, and we need to find ways to address it.

QUESTION: Hello, and thank you very much for visiting Korea University, one of the best universities in Korea.

AMB Hill: With the best students, too.

QUESTION: In talking about the FTA from the Korean perspective, of course this will be profitable for certain sectors, such as semiconductors, but certain other sectors like agriculture are bound to collapse. Already the Samsung executives are receiving billions of Won in salary; however, an FTA would make the farmers in Korean even poorer, thus aggravating the gap between the rich and the poor in our country. So theoretically, of course, FTA has a lot of benefits, but do you think socially this will be beneficial to the Korean society as well? I'd like to hear your thoughts on this.

AMB Hill: Well, I'm not a member of your faculty, so I'm not really in a position to give you the empirical data on these questions. But I think historically, generally speaking, more economically open societies have resulted in reduced income disparity.

I also wouldn't assume that large companies necessarily would be always better exporters than smaller companies. I think sometimes large companies have found decision-making too slow a process and have been unable to get into a market quickly. So I would not assume that a Free Trade Agreement benefits larger companies.

I think this issue of the relationship of large companies in Korea - "chae-bols" - to smaller companies, is one of those great Korean questions that has been posed for many decades. In fact, I think, Professor Lee, we first met over that precise topic of the relationship of the large companies to the SMEs in Korea.

Finally, I think as you move up the technology ladder - and I think free trade will force you up that ladder and away from large-scale manufacturing - you will be moving into areas where you have more smaller companies operating, and therefore… again this would be a good research topic for somebody… therefore I think an FTA will probably end up with more small companies benefiting than large companies.

QUESTION: Concerning your opinion with (inaudible) I would just like to ask you about… because you keep saying that Korea should open up all the sectors of economy simultaneously -

AMB Hill: - I didn't say that, but go ahead. I didn't keep saying that you should open up all your economies simultaneously.

QUESTION: …all the (inaudible) from all the industry should…

AMB Hill: …should be on the table if you want an FTA.

QUESTION: Yeah. I think that means that we should open up all the economies simultaneously.

AMB Hill: No, I think you have to put them on the table and negotiate them all simultaneously. And I think some you will build in some delays, some timetables for opening them. Some will be immediate, some will be longer term, and some, in some rare cases, will be totally exempted.

QUESTION: The reason I thought there is some problem with opening our economies simultaneously because you said the Korean economy is a little too small, and the small player should move quickly, but if we talk about all the issues of all the economies it's going to take a long time and we're going to lose our chance to get some of our goals like the international hub. So I just want to ask you about why you think we open up the markets simultaneously.

AMB Hill: Well, one of my basic points here is that these are tough decisions. But, if you want an FTA, that means you want free trade, and that means you need to be willing to put everything out on the table for negotiation. Now, some of the items cannot be… [end of tape side 1]
[begin tape side 2] …after some time period. So FTA doesn't mean immediate. But it does mean that a broad number of sectors - not just a few sectors, but virtually everything from the economy needs to be on the table, and there will be some exceptions or exemptions, and some agricultural crops are an example of that. For example, I can imagine that the rice business would continue to have some unusual amount of controls on it in Korea, because of its great sensitivity. But my point is to just emphasize that the U.S. is prepared to negotiate a Free Trade Agreement. We're prepared to sit down with Korea. But we're not prepared to look at a sort of "phony" Free Trade Agreement. That is, we're prepared to look at a Free Trade Agreement, then that means free trade - that means everything, with things that are excluded being the exception, not the rule. So my point is that there has been a lot of - I've noticed a lot of enthusiasm in Korea for the idea of Free Trade Agreements. But people need to be very careful as they think that through, because a Free Trade Agreement can also mean some very painful structural adjustment in some sectors. So I understand what you're saying, and really you've spoken right to my point, which is just be really careful what you wish for. If you want a Free Trade Agreement, be prepared to handle the politics and the very painful social political process that would be involved.

QUESTION: I have two questions. First question: you mentioned earlier that it's been two months since you've come back to Korea. I would like to know how much you know about Korea - in other words, your background, in terms of your career experiences related to Korea. And second question, this is a visa question: when you say - or when we say "Free Trade Agreement" this connotes freedom of movement, not only in terms of goods and services, but also human exchanges as well. So to promote that, I would guess that there needs to be an easing of visa regulation, but as you can see - particularly with regard to students it's becoming more difficult to receive a U.S. visa. So does the U.S. have any intention of easing the visa regulations?

AMB Hill: Okay. On the first question: I'm a career diplomat, so I travel, I work in different countries, but I did have the opportunity to serve in Korea for three years, from 1985 to '88. While I learned a lot about Korea in 1985 to '88, one thing I know, in the last two months, is that a lot of what I learned is a little obsolete.

But, you know, learning continues to be a process… you will continue learning long after you leave university, and I learn every day, and I must say I've learned something in the last hour here. It's a continuing process, and, I've read a lot of books about Korea, I've met a lot of Koreans, but I have a lot more to learn.

Now on your second question, your, frankly, very very important question about visas, let me make a few comments. The worst part of my day is when I arrive at the embassy in the morning and I see this long line of people standing there waiting to have their visa interview.

I would like very much to simplify the process and to encourage more visas, in particular to encourage more Korean students to study in the States.

To some extent, what has been going on is a reflection of the events in the United States in September 2001, and the great reaction to those events in New York and Washington. To some extent, they have affected the overall climate of immigration to the U.S.

For example, the State Department, which has the responsibility for giving visas, was under pressure from Congress because some Congressmen wanted to take away that authority from the State Department, and give it to our law enforcement agencies to be responsible for visas.

So just on that basis, one of Secretary Powell's accomplishments has been to maintain the visa function in the State Department and not allow it to go to some law enforcement agency.

Now, what I am very much dedicated to, and what one of my major goals is here, is to improve the visa operation at the embassy - reduce the amount of waiting time, and essentially to make sure we are able to free up travel. That is a short-term goal.

But as I'm sure your mothers and dads tell you, you also need longer-term goals. So let me tell you what my longer-term goal is.

My longer-term goal is that - you may be aware that there are a number of countries, I think 27 countries where their citizens do not need visas to travel to the U.S.

That is a list of countries, which has not grown in the last few years, since the terrible events of September 2001, but it is a list of countries that will grow in the future.

Now, why is it those 27 countries? The answer is those are countries whose citizens overwhelmingly - that is, over 97 percent - when they apply for a visa, they are eligible for a visa and they are granted the visa. So, over 97 percent of the time those citizens were able to show that they were eligible for the visa, and that's why the visas were abolished for those countries.

In Korea's case, we're actually kind of close. We're not at 97 percent, but it's certainly in the 90s.

But, unfortunately, we still have some people who say they want to go visit Disneyland, when they really want to go work.

My goal is to encourage those people to stop applying for tourist visas, or at least to encourage that only less than 3 percent of the visa seekers represent such people - that is, people who are not going to be eligible for a visa.

Because it's not fair that those people are affecting everybody else.

If we can get Korea to a stage where over 97 percent of applicants are eligible, and then once there is an expansion of the visa waiver countries, I want to see Korea on that list, and I'm going to work very hard on that.

I'm sorry to give you such a long answer, but it's an important question for me.

QUESTION: Thanks for your lecture, and I want to give you a simple question. But I think it's a hot issue in Korea. It's related to attacking North Korea, because I heard, and we all know that George W. Bush considered North Korea as an "axis of evil" and he also said North Korea is the next enemy. And in addition to that, John Kerry said he could attack North Korea if it was possible. So I'd like to hear about attacking North Korea.

AMB Hill: There is no military solution to this challenge we face with North Korea. We need to find a diplomatic solution.

We are working very hard with the Republic of Korea through something called the Six-Party Talks to find that diplomatic solution.

Now, within the framework of the Six-Party Talks, we can also have bilateral discussions with the North Koreans. We have them, you have them, the Chinese have them, the Japanese have them, the Russians have them. We can all have bilateral talks, but they should be in the framework of the six-party process.

But I can assure you nobody is going to abolish the six-party process in order to have just U.S.-North Korean talks.

And the reason is very simple: these other countries, and I would say especially the Republic of Korea, need to be at the table.

There should never be a case where the people from Korea wait at the airport for an American diplomat to come to Seoul to tell them what is going on in the negotiations. That simply should not happen.

This six-party process is going to be very very difficult, and at times we're going to be very frustrated by it. But in my view, we have to stay with it and make sure we succeed, because what the North Korean leadership needs to understand is if they want to join the international community, they can't do it with nuclear weapons programs.

So, I guess I'm out of time.

INTERPRETER: The Dean would like to present you with a small token of appreciation…

Thank you. Thank you very much. Thank you. Kam sa ham ni da.

Ambassador Christopher R. Hill Speech to Korea University

November 1, 2004

AMB Hill: Thank you very much. It is a really great pleasure to be back here at Korea University, and to see Dr. Lee Pil Sang, who is a friend of mine from the 1980s.

Let me just say what a beautiful campus Korea University has; it was nice in the 1980s, but there's obviously been a lot of investment, and the place really looks nice.

Once again - it's great to be here, and I look forward to this being sort of an interactive opportunity. I want to give you some of my thoughts, then I want to hear some of your thoughts, and maybe we can have a little dialogue after that.

What I wanted to talk to you about today was a subject that comes up fairly frequently in the Korean press, and elsewhere, and it's a subject that I think is going to need a lot of discussion before something is really done about it. That is the issue of a Free Trade Agreement between Korea and the United States.

I think we are probably a long way from concluding a Free Trade Agreement - that is, I think we probably have many years before it's done. But I don't think it's too early to start having a realistic discussion about it; a discussion about it from a point of view of understanding what our interests are, and whether it's something our two countries want to pursue.

Clearly Korea has many immediate challenges ahead of it, challenges such as dealing with North Korea. But I think probably the most important challenge Korea will have ahead of it is to determine what type of economy it wants to be, how it is going to function in the region between the growing industrial economy in China, and the now-growing post-industrial economy in Japan.

As Korea begins to navigate in this very challenging and I think very really exciting part of the world, Northeast Asia, it needs to make decisions about what type of relations it needs, what type of tools it needs to navigate successfully in this very new environment.

I think a Free Trade Agreement with the United States may be an important tool for Korea to use in the years ahead.

Korea already has an enormous amount of trade with the United States; trade that exceeds some 60 billion dollars per year, and I think this is trade that is very important to both countries.

Indeed, when you look at some of the academic studies of a Free Trade Agreement, the conclusions are that it really does have the potential of benefiting both countries.

But as Korea considers a Free Trade Agreement, I think one should always bear in mind that you need to be careful what you wish for.

Korea currently has very few of the types of comprehensive trade agreements envisioned in an FTA. In fact, Korea has probably the fewest number of FTA-type agreements of any industrialized country in the world right now.

So an FTA with the U.S. would be a very serious undertaking. It would be a comprehensive agreement. That is, the U.S. does not pursue sector-based FTAs; the FTAs must be comprehensive, involving all the sectors of the economy. We are not just going to have an FTA in say, cell phones, or small cars. It would be an FTA that would include goods, services, agricultural products, investment, environmental issues, labor standards, technical standards, and pharmaceuticals. Everything, in short, would be on the table.

Now, to be sure, in negotiating - in putting all of these things on the table, it doesn't mean that everything would need to be solved in a free trade way. For example, there might be some extremely politically sensitive issues, such as a certain crop that might be treated differently. At best, you could exempt a couple of items from a sector.

Moreover, some of the difficult aspects of the trade regime now, for example the U.S. anti-dumping procedures that we have in effect now, where U.S. industries will monitor whether industries from another country are selling at below cost, those anti-dumping procedures would remain in effect, because they are also protected by the law, so the Free Trade Agreement does not solve all of those problems either.

But even before we can really proceed on the road to an FTA, we're going to have to clear up some of the trade issues - disputes, really - that exist now, that act as blockages on the road. Some of these issues are themselves not easy to clear up, but they are causing a blockage, they are impeding our ability to get to a full discussion of an FTA. One of the examples of these is the so-called screen quota issue.

Now, probably a number of you don't know what the screen quota issue is, but let me try to explain. Korea has today one of the most exciting and successful film industries in the world. Korean films are increasingly popular, not only in Korea, but also really throughout the world, especially in Asia.

Yet despite the popularity of Korean films, there is a requirement that Korean movie theaters need to reserve - 40% of the screening days for Korean films.

From the point of view of, for example, the U.S. film industry, they see this 40% requirement as very much protectionist. Moreover, when one looks at the strength of Korean films these days, they are running at something on the order of 50% of screening days. That is, they don't require this 40% quota, because already they are operating at 50%.

My purpose in raising the screen quota issue is not to tell you "you need to get rid of screen quota;" I'm not here to tell you anything. I'm just here to explain that if we're going to make progress on a Free Trade Agreement, something like a screen quota is going to have to be solved.

I'm also not here to tell you that it's easy to solve, because there are a lot of people who feel very strongly about this issue, especially in your film industry. Many people feel it's very important to protect Korean films as a means of protecting national identity, even. So I'm not even here to tell you it's easy to do.

But in the interest of honesty, I do need to tell you that you can have a screen quota, or you can have a Free Trade Agreement, but you can't have both.

There are other issues as well. For example, in Korea today there are some very very high agricultural tariffs on issues that should not be that sensitive, but it turns out they are. For example, just to keep on the theme of movies, popcorn has got extremely high tariff rates, some 600% tariff rates on popcorn, to go to a movie.

There are also some very high tariffs on other agricultural products: fruit juice, for example. And moreover, we have a lot of issues on automobiles, where Korea has the fewest number of imported automobiles of any country in the world today.

Thus to go to a Free Trade Agreement involves some very difficult and fundamental choices that the Korean government, and by extension the Korean people, are going to have to make. There will have to big changes in agricultural imports, there will have to be big changes in automobile imports, there will have to be changes in intellectual property rights, telecom regulations, there are a lot of things that are going to have to be changed. I think it's important for people to think about those things, and decide, "Do we want to make these important changes in order to have a Free Trade Agreement?"

When the Free Trade Agreement with Chile was finally reached, it turned out to be a major difficulty in the Korean National Assembly because even the Free Trade Agreement with Chile, which involved very few number of products, even that involved some very difficult political choices. So my point is we have to really think these things through.

But I also want to emphasize that on the U.S. side, we too have very many difficult choices to make. That for us, a Free Trade Agreement with Korea could actually mean the end of some of our industries.

I know many of you have probably followed the U.S. election campaign, and you've heard the term "outsourcing" and other issues like that. We too are facing a certain protectionist pressure in the U.S. because people understand that Free Trade Agreements can be very harmful to particular industries.

But I want to emphasize that if Korea is ready to make these tough choices, that is to go in the direction of a Free Trade Agreement and away from the protection of individual industries, I want to assure you the United States is prepared to do that with Korea.

We value our partnership with Korea, and it's a partnership that goes beyond just economic issues, but really embraces security and other issues as well.

One of the things that excites me today about coming back to Korea is to see the ambitions that Korea has in becoming a sort of hub in Northeast Asia.

And this ambition to be a hub I see less as a matter of nationalist feeling and more as a matter of internationalist feeling. I see this as a result of people realizing that Korea has no choice but to move ahead and to become as open an economy as possible.

But even this ambition of becoming a hub for the region will also involve difficult choices, as Korea will have to look for ways to open up the financial sector as it's never done before.

To be successful, Korea would have to open up this financial sector rather aggressively, not just piecemeal, not just small chunks at a time, but very aggressively and boldly to deregulate the financial sector and declare Korea open for foreign capital, in a way that a place like Hong Kong became.

Liberalization is the right direction for Korea, but we all have to be very respectful of the difficulties of doing this, and respectful of the people who are a little afraid to make this jump. I think it's the right jump, but it's not an easy jump.

So as you consider the value of a Free Trade Agreement and what it will mean you need to look at the effect it will have on intellectual property rights, agricultural tariffs, screen quotas, telecom regulations. Indeed, it's a lot to think about.

Ultimately, for Korea it's going to require a lot of courage to make these decisions, it's going to require a lot of changes, and change is never an easy process. But I think it reflects the Korean experience of making difficult changes, and sticking with those changes, and coming out with a better outcome. So I hope that the Free Trade Agreement will itself create a much greater sense of, a much more honest discussion, a willingness to discuss the trade-offs, and ultimately a decision to go forward with a Free Trade Agreement, because if Korea wants such an agreement, we are ready to sit down and negotiate.

And so with those comments on the Free Trade Agreement, I am open to questions and comments, not just about the Free Trade Agreement, if you want to talk anything else - politics, U.S. elections, what else could we talk about? The Boston Red Sox winning the World Series, my favorite subject of the day - but anyway, I'm open to any kind of dialogue, so please.

So, Professor Lee, are these very shy students who don't like to ask questions?

QUESTION: Hi. First I want to thank you for your speech, and I listened very carefully, but I'm very curious about what effects would happen to the U.S., the pros and cons, if the FTA between Korea would happen?

AMB Hill: Well, Fred Bergsten's Institute in Washington did an analysis on it, and concluded that it would be a positive effect in the U.S., especially in terms of certain high-tech exports and agricultural exports, but it would also involve some structural adjustment, as Korean manufacturing products would come in at a cheaper rate.

But you're asking a very empirical question, that is, specifically how will this affect various sectors, and too it would involve investment trends and other things, so it's a very complex empirical question, and frankly I don't think all the data exist yet to answer it.

QUESTION: I'd like to ask a really big question: you just mentioned earlier that when cheap products from Korea come into the U.S. market, the U.S. is bound to undergo structural changes, but I think that situation will be true for only about five years. Then, China is bound to catch up with the Korean products, so such an FTA would bring about benefits to the U.S. in terms of finance or agricultural industries, and then for cheaper products then China is going to benefit in the long run. So what is Korea to do in that situation? Is the U.S. simply going to say that it's a problem that Korea has to deal with on its own?

AMB Hill: Well, I think ultimately you're asking probably the fundamental question for Korea in the next fifty years. That is: how will the Korean economy relate to the Chinese economy, especially given the ambition of the Chinese economy to become the manufacturing center of the world.

I think a Free Trade Agreement with the U.S., with Korea, would be helpful to Korea in terms of position itself in the U.S. market before China has a chance to do that.

And I think it will be necessary or helpful to Korea to stay ahead of China on the technology ladder. I think freer trade would help Korea do that.

We have a great interest in Korea's success, and we would see obligations under a Free Trade Agreement to work very closely with Korea. Ultimately, Korea needs to work out this relationship with the Chinese economy, but in another sense, all of us need to work out a relationship with the Chinese economy.

But one thing I'm absolutely positive of: Korea will not succeed vis-a-vis the Chinese economy with protectionist strategies. Korea needs to be as open as possible, and to move quickly. You know, being a country the size of Korea relative to the size of the Chinese economy, it's a little like in the National Basketball Association: if you're going to be small, you've got to be quick. I think Korea will need to make decisions very quickly, and stay ahead of some of the bigger competition.

QUESTION: First I would like to appreciate your speech; thank you for sharing your precious time with us. My name is Seung-ho Choi; I am a senior student in Business Administration at Korea University. Through your speech I can understand better about mutual profit between Korea and America, and I agreed also with most of your opinions - we have to open up our market as much as possible. But I'm curious: do you think the Korean economy is ready or mature to open our economy, because without (inaudible) preparation our economy is going down and we will be just like South America - several South American countries - so I'm curious about your opinion about the condition of the Korean economy and the level.

AMB Hill: You know, I don't think anybody should be suggesting that the Korean economy should make all these changes this afternoon. A lot of these things need to be phased in, for some of the reasons that are implied in your question, which is that probably that the Korean economy is not ready for some of these things.

But the trouble with the arguments of not being ready is those arguments are used all the time to justify protectionism. Even in my country, you hear arguments from industries that they're not ready to open up.

Because ultimately, the only way to improve is through competition. I mean, there's a reason you learn all that in business school: it's because it's true.

One of the reasons the American car industry became so weak was that for so many years there was not enough competition, and the technology, our most advanced technology, was not getting into the automobile market, and I think we've really paid a price for not having more competition in the automobile market.

There's someone up there, who keeps having her hand up - waiting very patiently.

QUESTION: Thank you for your great talk. I wonder is it possible to make exceptional items in the FTA? I heard that there are 58 exceptional items on the FTA between the U.S.A. and Canada. Right?
AMB Hill: That there are 58…?

QUESTION: …exceptional items.

AMB Hill: There are exceptional items. I'm not in a position to confirm that there are 58, but there are not 58 exceptional sectors. So you're absolutely right, there can be exceptional items.

QUESTION: I think the most important exceptional items - issues between the U.S.A. and Korea is the agricultural agreement because Korea's agriculture is insufficient compared to U.S. Is it possible to make agriculture issues as exceptional items?

AMB Hill: I think one could handle agriculture through different ways. For example, agricultural items could be contained within the WTO process, and so to some extent you could insulate them from the FTA process.

But I don't think you should approach an FTA with the idea of exempting the sector of agriculture, because obviously the agriculture sector is as important to us as some of the manufacturing sectors are to Korea. We would not be prepared to go in with a sector exemption, but we would be prepared to look at specific items within that sector.

I can see, just having been here in Korea for two months, I can see the problems in the agriculture sector. That is, the enormous growth in urban sectors in Korea doesn't mean your overall population is growing; it means your rural population is shrinking, and shrinking rather dramatically.

You have some rural areas now where the average age of the inhabitants are over 50. In fact, you have some rural areas now where in certain villages they're not recording a single new birth.

My point is that people should not arrogantly just dismiss farmers and the agriculture sector. It's a big problem in Korea and in many other countries, and we need to find ways to address it.

QUESTION: Hello, and thank you very much for visiting Korea University, one of the best universities in Korea.

AMB Hill: With the best students, too.

QUESTION: In talking about the FTA from the Korean perspective, of course this will be profitable for certain sectors, such as semiconductors, but certain other sectors like agriculture are bound to collapse. Already the Samsung executives are receiving billions of Won in salary; however, an FTA would make the farmers in Korean even poorer, thus aggravating the gap between the rich and the poor in our country. So theoretically, of course, FTA has a lot of benefits, but do you think socially this will be beneficial to the Korean society as well? I'd like to hear your thoughts on this.

AMB Hill: Well, I'm not a member of your faculty, so I'm not really in a position to give you the empirical data on these questions. But I think historically, generally speaking, more economically open societies have resulted in reduced income disparity.

I also wouldn't assume that large companies necessarily would be always better exporters than smaller companies. I think sometimes large companies have found decision-making too slow a process and have been unable to get into a market quickly. So I would not assume that a Free Trade Agreement benefits larger companies.

I think this issue of the relationship of large companies in Korea - "chae-bols" - to smaller companies, is one of those great Korean questions that has been posed for many decades. In fact, I think, Professor Lee, we first met over that precise topic of the relationship of the large companies to the SMEs in Korea.

Finally, I think as you move up the technology ladder - and I think free trade will force you up that ladder and away from large-scale manufacturing - you will be moving into areas where you have more smaller companies operating, and therefore… again this would be a good research topic for somebody… therefore I think an FTA will probably end up with more small companies benefiting than large companies.

QUESTION: Concerning your opinion with (inaudible) I would just like to ask you about… because you keep saying that Korea should open up all the sectors of economy simultaneously -

AMB Hill: - I didn't say that, but go ahead. I didn't keep saying that you should open up all your economies simultaneously.

QUESTION: …all the (inaudible) from all the industry should…

AMB Hill: …should be on the table if you want an FTA.

QUESTION: Yeah. I think that means that we should open up all the economies simultaneously.

AMB Hill: No, I think you have to put them on the table and negotiate them all simultaneously. And I think some you will build in some delays, some timetables for opening them. Some will be immediate, some will be longer term, and some, in some rare cases, will be totally exempted.

QUESTION: The reason I thought there is some problem with opening our economies simultaneously because you said the Korean economy is a little too small, and the small player should move quickly, but if we talk about all the issues of all the economies it's going to take a long time and we're going to lose our chance to get some of our goals like the international hub. So I just want to ask you about why you think we open up the markets simultaneously.

AMB Hill: Well, one of my basic points here is that these are tough decisions. But, if you want an FTA, that means you want free trade, and that means you need to be willing to put everything out on the table for negotiation. Now, some of the items cannot be… [end of tape side 1]
[begin tape side 2] …after some time period. So FTA doesn't mean immediate. But it does mean that a broad number of sectors - not just a few sectors, but virtually everything from the economy needs to be on the table, and there will be some exceptions or exemptions, and some agricultural crops are an example of that. For example, I can imagine that the rice business would continue to have some unusual amount of controls on it in Korea, because of its great sensitivity. But my point is to just emphasize that the U.S. is prepared to negotiate a Free Trade Agreement. We're prepared to sit down with Korea. But we're not prepared to look at a sort of "phony" Free Trade Agreement. That is, we're prepared to look at a Free Trade Agreement, then that means free trade - that means everything, with things that are excluded being the exception, not the rule. So my point is that there has been a lot of - I've noticed a lot of enthusiasm in Korea for the idea of Free Trade Agreements. But people need to be very careful as they think that through, because a Free Trade Agreement can also mean some very painful structural adjustment in some sectors. So I understand what you're saying, and really you've spoken right to my point, which is just be really careful what you wish for. If you want a Free Trade Agreement, be prepared to handle the politics and the very painful social political process that would be involved.

QUESTION: I have two questions. First question: you mentioned earlier that it's been two months since you've come back to Korea. I would like to know how much you know about Korea - in other words, your background, in terms of your career experiences related to Korea. And second question, this is a visa question: when you say - or when we say "Free Trade Agreement" this connotes freedom of movement, not only in terms of goods and services, but also human exchanges as well. So to promote that, I would guess that there needs to be an easing of visa regulation, but as you can see - particularly with regard to students it's becoming more difficult to receive a U.S. visa. So does the U.S. have any intention of easing the visa regulations?

AMB Hill: Okay. On the first question: I'm a career diplomat, so I travel, I work in different countries, but I did have the opportunity to serve in Korea for three years, from 1985 to '88. While I learned a lot about Korea in 1985 to '88, one thing I know, in the last two months, is that a lot of what I learned is a little obsolete.

But, you know, learning continues to be a process… you will continue learning long after you leave university, and I learn every day, and I must say I've learned something in the last hour here. It's a continuing process, and, I've read a lot of books about Korea, I've met a lot of Koreans, but I have a lot more to learn.

Now on your second question, your, frankly, very very important question about visas, let me make a few comments. The worst part of my day is when I arrive at the embassy in the morning and I see this long line of people standing there waiting to have their visa interview.

I would like very much to simplify the process and to encourage more visas, in particular to encourage more Korean students to study in the States.

To some extent, what has been going on is a reflection of the events in the United States in September 2001, and the great reaction to those events in New York and Washington. To some extent, they have affected the overall climate of immigration to the U.S.

For example, the State Department, which has the responsibility for giving visas, was under pressure from Congress because some Congressmen wanted to take away that authority from the State Department, and give it to our law enforcement agencies to be responsible for visas.

So just on that basis, one of Secretary Powell's accomplishments has been to maintain the visa function in the State Department and not allow it to go to some law enforcement agency.

Now, what I am very much dedicated to, and what one of my major goals is here, is to improve the visa operation at the embassy - reduce the amount of waiting time, and essentially to make sure we are able to free up travel. That is a short-term goal.

But as I'm sure your mothers and dads tell you, you also need longer-term goals. So let me tell you what my longer-term goal is.

My longer-term goal is that - you may be aware that there are a number of countries, I think 27 countries where their citizens do not need visas to travel to the U.S.

That is a list of countries, which has not grown in the last few years, since the terrible events of September 2001, but it is a list of countries that will grow in the future.

Now, why is it those 27 countries? The answer is those are countries whose citizens overwhelmingly - that is, over 97 percent - when they apply for a visa, they are eligible for a visa and they are granted the visa. So, over 97 percent of the time those citizens were able to show that they were eligible for the visa, and that's why the visas were abolished for those countries.

In Korea's case, we're actually kind of close. We're not at 97 percent, but it's certainly in the 90s.

But, unfortunately, we still have some people who say they want to go visit Disneyland, when they really want to go work.

My goal is to encourage those people to stop applying for tourist visas, or at least to encourage that only less than 3 percent of the visa seekers represent such people - that is, people who are not going to be eligible for a visa.

Because it's not fair that those people are affecting everybody else.

If we can get Korea to a stage where over 97 percent of applicants are eligible, and then once there is an expansion of the visa waiver countries, I want to see Korea on that list, and I'm going to work very hard on that.

I'm sorry to give you such a long answer, but it's an important question for me.

QUESTION: Thanks for your lecture, and I want to give you a simple question. But I think it's a hot issue in Korea. It's related to attacking North Korea, because I heard, and we all know that George W. Bush considered North Korea as an "axis of evil" and he also said North Korea is the next enemy. And in addition to that, John Kerry said he could attack North Korea if it was possible. So I'd like to hear about attacking North Korea.

AMB Hill: There is no military solution to this challenge we face with North Korea. We need to find a diplomatic solution.

We are working very hard with the Republic of Korea through something called the Six-Party Talks to find that diplomatic solution.

Now, within the framework of the Six-Party Talks, we can also have bilateral discussions with the North Koreans. We have them, you have them, the Chinese have them, the Japanese have them, the Russians have them. We can all have bilateral talks, but they should be in the framework of the six-party process.

But I can assure you nobody is going to abolish the six-party process in order to have just U.S.-North Korean talks.

And the reason is very simple: these other countries, and I would say especially the Republic of Korea, need to be at the table.

There should never be a case where the people from Korea wait at the airport for an American diplomat to come to Seoul to tell them what is going on in the negotiations. That simply should not happen.

This six-party process is going to be very very difficult, and at times we're going to be very frustrated by it. But in my view, we have to stay with it and make sure we succeed, because what the North Korean leadership needs to understand is if they want to join the international community, they can't do it with nuclear weapons programs.

So, I guess I'm out of time.

INTERPRETER: The Dean would like to present you with a small token of appreciation…

Thank you. Thank you very much. Thank you. Kam sa ham ni da.