Our other Korea problem
By Phil Levy This week, President Obama hosted South Korean President Lee Myung-Bak at the White House. The meeting was cordial, of course, and the countries vowed their mutual allegiance, of course. But everyone had to tiptoe around the elephant in the room: the Korea-U.S. Free Trade Agreement. Back in 2005, the United States and ...
By Phil Levy
By Phil Levy
This week, President Obama hosted South Korean President Lee Myung-Bak at the White House. The meeting was cordial, of course, and the countries vowed their mutual allegiance, of course. But everyone had to tiptoe around the elephant in the room: the Korea-U.S. Free Trade Agreement.
Back in 2005, the United States and Korea had a series of discussions on how to improve trade relations between the two countries. Then, in February 2006, the two sides launched negotiations for a free trade agreement. The KORUS FTA was signed on June 30, 2007. This was right in the wake of a May 2007 agreement on trade between the Bush administration and Congressional leaders which the Bush administration had thought would pave the way for Congressional votes on all four pending trade agreements (Peru, Colombia, Panama, and South Korea).
Under the KORUS FTA, the United States would gain new access to the Korean market in consumer and industrial goods, agriculture, and services. The agreement is predicted to raise U.S. output by $10 billion to $12 billion annually, and increase U.S. exports to Korea by about $10 billion.
The Koreans did their part: The government opened its market to some U.S. beef exports, a politically difficult and highly divisive move that brought over a million protesters into the streets of Seoul and threatened to bring down the Korean cabinet. The United States did… nothing. We left the Koreans standing at the altar. Democrats in Congress, including then-Senator Obama, opposed the agreement. Perhaps the most significant reason given for opposition was that the Korean government meddled too much in its auto sector.
Actually, Korea had agreed to cut its tariffs on autos and to take some measures to address its non-tariff auto trade barriers; however, opponents contended that those measures would not go far enough. This criticism, of course, predated the Obama administration’s decision to take over much of the U.S. auto sector and erect its own non-tariff trade barriers.
One experienced Washington trade lawyer this week noted the enormous missed opportunity for a silver lining with the recent auto bailout. As the Obama administration poured tens of billions of dollars into the auto industry and handed large ownership chunks of Chrysler and GM to the United Auto Workers, it could have asked the auto industry and the UAW to drop their opposition to the KORUS FTA in exchange. It didn’t.
The U.S. bungling of the KORUS FTA matters not just because of the foregone economic benefits mentioned above. U.S. behavior sends signals about our reliability as an ally, both in economic matters and beyond. The U.S. Congress had authorized the Bush administration to negotiate the agreement. The Koreans had made politically painful public concessions on the understanding that they had reached the moment of truth and that the concessions would lead to a vote on the agreement. Instead, the vote was scuttled and the Koreans faced Congressional demands to negotiate some more.
What should trade negotiators around the world conclude? All negotiators like to postpone the most difficult concessions until the last moment, but how can they know when that moment has arrived with the United States? Does the U.S. Trade Representative really represent the United States, or should partners be talking with the chairman of the House Ways and Means Trade Subcommittee instead?
And what of the U.S. role in Asia? The United States has long sought to portray itself as dependable and indispensable in the region. The U.S. image has mattered even more of late as regional political structures have become rather fluid. China has promoted an East Asian Summit that excludes the United States as an alternative to groupings like APEC. The United States hardly looks dependable when it snubs one of its closest allies in the region. What’s more, how confident can we now be that Asian countries will draw a sharp distinction between our unreliability on trade and our reliability in providing a security umbrella? This is all the more important considering that the latest South Korean visit to Washington came against the backdrop of further threatening behavior by the North.
So this week, when the Koreans came to town, Commerce Secretary Gary Locke and his Korean counterpart agreed to hold discussions on how to improve trade relations between the two countries, as if it were 2005 all over again. President Obama said the United States was committed to a "sustained strategic partnership" with the Republic of Korea. Apparently this all holds just so long as that commitment doesn’t require any awkward free-trade votes in the House of Representatives. The President isn’t willing to cross the KORUS line. And that’s the elephant in the room.
Phil Levy is the chief economist at Flexport and a former senior economist for trade on the Council of Economic Advisers in the George W. Bush administration. Twitter: @philipilevy
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