South Korea Free Trade Agreement key to prosperity and security

Unemployment remains high, with Washington politicians clamoring for job creation.  China is ever more confident, challenging the U.S. economically and politically.  The People’s Republic of China (PRC) even has displaced America as the number one trading partner of such leading East Asian states as South Korea.

How have the Obama administration and the Democratic Congress responded to these challenges?  By retreating economically from the region.  Sen. Barack Obama termed the U.S.-South Korean free trade agreement (FTA) “badly flawed” and urged the Bush administration not to submit it for ratification.  At his confirmation hearing to be President Obama’s U.S. Trade Representative, Ron Kirk called the agreement “unacceptable” and “just not fair.”

This policy was remarkable for both its economic and geostrategic folly.

As we approach the second anniversary of President Obama’s election victory, trade policy may be undergoing a reset of sorts.  When he met South Korean President Lee Myung-bak at the last G20 Summit, President Obama expressed his desire to revive the agreement.  He said “It is the right thing to do for our country, it is the right thing to do for Korea.”  He added that the U.S. intended to work in a “methodical fashion” to meet congressional objections.

The president spoke of “adjustments” rather than “renegotiation” of the FTA and said he hoped to wrap up outstanding issues by the next G20 meeting in November, to be held in Seoul.  However, leading congressional Democrats remain opposed and the Lee government refuses to rewrite an agreement reached at great political cost at home.  The road forward remains bumpy.

Washington should be expanding American investment and trade opportunities throughout East Asia.  The starting point should be ratifying the FTA with the Republic of Korea (ROK).

South Korea possesses one of the world’s largest economies — number 13 at last count — and is among the top dozen trading nations.  Total bilateral trade between the U.S. and the ROK ran about $85 billion in 2008.  The seventh largest merchandise trading partner of the U.S., the ROK is a major importer of aircraft, cereals, chemicals, machinery, and plastics.  Even a small expansion of U.S.-ROK trade would offer a significant benefit for America’s economy.

Despite its stunning economic success due in large part to exports, the South has never welcomed international competition.  Korean business professor Moon Hwy-chang admits: “Korea has not been a very open economy.”

The FTA helps change that.  Jeffrey Schott of the Peterson Institute for International Economics reported: “The U.S.-Korea pact covers more trade than any other U.S. trade agreement except the North American Free Trade Agreement” and “opens up substantial new opportunities for bilateral trade and investment in goods and services.”  Roughly 95 percent of trade would become duty free within three years and most of the other tariffs would be lifted within a decade.  The accord would provide particularly significant benefits for U.S. agriculture, financial services companies, and American firms seeking access to ROK government procurement.

Obviously, the FTA does not eliminate all economic barriers in the South — just as it does not eliminate all import restrictions by America.  Nevertheless, even in the contested areas of autos and beef the FTA makes progress, eliminating taxes on the former and reducing tariffs on the latter.  Only by ratifying the current agreement is further progress likely.

Next: both countries would benefit from a FTA