Former ambassadors endorse FTA with South Korea

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Envoys: Approve free trade with S. Korea
Accord signals U.S. commitment to Asia

James R. Lilley, Donald Gregg, James T. Laney, Stephen W. Bosworth and Thomas C. Hubbard

August 13, 2007

On June 30, U.S. and Korean representatives signed the most significant free-trade agreement since NAFTA -- the U.S.-Korea FTA, known as KORUS. As former ambassadors to the Republic of Korea, we know that KORUS will not only bolster bilateral trade and investment ties but also reinforce our countries' important political and security partnership at a time of dramatic change in Asia.

In dollar terms, the scale of this agreement is enormous. With two-way trade totaling $78 billion last year, Korea is our seventh-largest trading partner. KORUS will effectively become the third-largest free trade area in the world -- exceeded only by the European Union and NAFTA -- and set new standards for bilateral trade agreements. Nearly 95 percent of bilateral trade in manufactured products will become duty free in three years as will two-thirds of U.S. agricultural exports.

Whereas the United States has been one of the world's most open markets, Korea has until recently been one of the most closed in the industrialized world. American exporters of industrial and farm products who have long struggled to compete in Korea, therefore, have much to gain from the elimination of Korea's relatively high tariffs and complex non-tariff barriers.

The agreement also gives important new rights and protections to U.S. investors and service industries. KORUS provides U.S. financial service companies the right to full ownership of banks, insurance companies and other financial businesses in Korea and establishes rules that will allow them to compete effectively. It also provides increased access to U.S. express service companies and expands opportunities for U.S. studios to sell television programs and films to Korea.

The political and strategic arguments for this agreement are equally compelling.

Now the world's 12th-largest economy, the Republic of Korea is a vibrant democracy whose standards in the areas of labor and environmental protection are equal to our own. Korea has provided valuable economic and military support in Vietnam, the Middle East and Afghanistan.

The trade agreement will complement our military alliance, which continues to deter North Korean aggression as we seek to deal with its nuclear-weapons program and build a broader peace on the divided Peninsula. More broadly, KORUS will underscore our nation's commitment to preserve our leadership in the Asia-Pacific region, the world's most dynamic center of economic activity.

The economies of East Asia are rapidly integrating, with such countries as China, Japan, Korea and India now trading with each other more than they are with the rest of the world. Moreover, they are actively pursuing bilateral and regional free-trade arrangements that could leave the U.S. on the outside if we do not remain engaged. The agreement with Korea will help ensure that the U.S. remains an insider as Asian economies continue to grow and join forces. U.S. exporters, service providers and investors will have preferential access to Korea's market and an important base for business with the rest of the region. At the same time, Korea's preferential access to the U.S. market could be a powerful incentive for others in the region, such as Japan, to open their markets to the United States with free-trade agreements as comprehensive as KORUS.

For all of these reasons, we urge Congress to act quickly to approve this agreement when it is ready for submission this fall. We are well aware that certain American industries feel they are not getting all that they desire in terms of KORUS benefits.

However, the overall U.S. economy will benefit hugely from KORUS, and we urge all Americans to support this agreement and not let the pursuit of elusive perfection become the enemy of the good.

For more than 50 years, the United States' political and economic commitment to Asia has contributed to the region's stability and prosperity. Nowhere has our engagement been more positive than with the Republic of Korea, which with our help rose from the ruins of the Korean War to become a vibrant democracy and one of the largest economies in the world. The accord with Korea will strengthen America's relationship with a longtime ally and enhance our presence and influence in the region. We are convinced that America, for its own sake, must remain a leader in Asia. Ratification of this agreement is one way of ensuring that our engagement with the world's fastest-growing region will support our fundamental security and economic interests into the future.

James R. Lilley was U.S. ambassador to Korea from 1986-1989. Donald Gregg was ambassador to Korea from 1989-1993. James T. Laney was ambassador to Korea from 1993-1997. Stephen W. Bosworth was ambassador to Korea, from 1997-2001. Thomas C. Hubbard was ambassador to Korea from 2001-2004. They wrote this commentary for the Orlando Sentinel. ◦

Former ambassadors endorse FTA with South Korea

South Korea's financial markets

For those South Koreans who want to transform their sometimes insular country into an Asian financial hub, July 3rd was a momentous day. South Korea passed its own version of Britain's “big bang”, the 1986 deregulation that enabled London to become a global financial centre. In South Korea the legislation will remove bureaucratic barriers in its securities industry and help brokers, banks and possibly insurers to consolidate.

For those foreign bankers who wonder why anyone bothers to get off a plane in Seoul, a decision by a tax appeals court on July 5th sent just the opposite message. Lone Star Funds, a Texas-based buy-out firm, lost an appeal on a $110m assessment stemming from the lucrative sale of an office block held in what had been thought to be a tax-exempt subsidiary. The ruling refocused attention on what, for both Lone Star and South Korea, has been a public-relations disaster.

Back in 2003, when South Korea was stuck in a protracted slump, Lone Star was something of a hero. It came in when other investors would not and made investments that included taking control of a big bank. It seemed a shrewd bet. In the subsequent recovery, the returns were spectacular—too much so for some South Koreans, who believe that Lone Star got too sweet a deal. Well-publicised prosecutions followed a public outcry. Lone Star is now involved in two big trials and a number of smaller actions, all suggesting it manipulated figures in order to buy companies on the cheap or to avoid paying taxes. It is fighting the charges.

Lengthy lawsuits are not the only factors discouraging investment in South Korea. Foreign-exchange controls make it hard to repatriate profits. The local currency, the won, is not much use in global markets. Regulatory filings must be done in Korean. No foreign company has so far listed on Seoul's stock exchange. Legal barriers limit, or exclude, foreign law firms and accountants. Foreign hedge funds and private-equity firms have, with few exceptions, passed judgment with their feet and stayed away.

Most of the big financial institutions are present, but labour negotiations can be so wretched that many bankers consider the country toxic. Even lenient banks are not let off. Standard Chartered is viewed by competitors as a particularly accommodating employer in South Korea. But a union has festooned the lobby of its Seoul headquarters with hostile billboards.

And yet South Korea's good intentions should not be written off. Its advocates start by spreading a map. The country lies between Japan and China and has a good airport. Its people are well educated; many study abroad. Communications are excellent. In just a few years, Seoul has lost its gritty-city image and the country's television shows, movies and fashion have become hits throughout Asia. For an expatriate banker, it need not be a backwater. South Korea's stockmarket is hitting records, its banks are healthy, foreign-exchange reserves are strong and savings are growing.

More importantly, attitudes are improving. Restrictions on foreign lawyers and accountants are being relaxed; a free-trade agreement has been struck with America. A non-American banker says he was stunned to read the fine print of the deal and to see how much it helped his own business. At the moment, South Korea's financial ambitions seem quixotic, but no Asian market can boast of superlative disclosure and transparency. An opportunity exists for any country that gets it right.

http://www.economist.com/printedition/index.cfm?d=20070714 ◦

South Korea's financial markets

Congress: Ratify the free trade agreement with Korea

It seems that almost every discussion about international trade is focused on the U.S. relationship with China. Our enormous and growing trade deficit with China, coupled with recent scares about the safety of products made there, confirms the importance of this relationship.

Getting much less press is the Free Trade Agreement (FTA) between the United States and South Korea, recently signed by both Presidents and awaiting Congressional approval. Perhaps because the U.S.-South Korean trade relationship is so positive for the people in both countries, we read and hear much less about it.

South Korea is no China, but the numbers speak for themselves. South Korea is the world's tenth-largest economy. Bilateral trade between the United States and South Korea reached US$78 billion in 2006. South Korea is the United States' seventh-largest trading partner, seventh-largest export market, and sixth-largest market for agricultural goods. The United States is South Korea's second-largest trading partner and its largest source of foreign direct investment.

And the numbers are going in the right direction. South Korea today is on track to hit US$20,000 in per capita GDP by 2010. It hosted the 1988 Summer Olympic Games and co-hosted the 2002 World Cup. South Korean women dominate the Ladies Professional Golf Association and South Korean men are striking out hitters in Major League Baseball. South Korean firms have built the three tallest skyscrapers in the world, and South Korea can boast of 41 companies in the Forbes 2000. Among the almost 100 countries that became independent following World War II, none of them can come close to this list of achievements. It’s not called the “Korean economic miracle” for nothing.

But what’s in it for us?
The U.S.-South Korea FTA will promote new opportunities for U.S. businesses, investors, farmers, and consumers in the dynamic South Korean market, and further expand and strengthen this important economic relationship. It will also reinforce the strategic security partnership between our two countries and would likely serve to promote further liberalization efforts regionally and globally.

Sound too good to be true? Let’s look at the data. Last year, U.S. agricultural exports to South Korea totaled US$2.85 billion, making it the sixth largest agricultural market for crops grown by American farmers here at home, including Florida. Under this FTA, about two-thirds of the food that South Korea is importing from the United States will become duty-free, lowering the price to South Korean consumers and thus likely increasing demand.

For non-agricultural goods, the United States currently faces an average tariff rate of 7% when trying to compete in South Korea. This FTA will slash these rates and level the playing field for U.S. exporters. According to the U.S. Chamber of Commerce, studies show that U.S. exports to Korea could grow 50% under this FTA.

South Korea now has a US$1 trillion economy and almost 50 million potential consumers willing and able to buy U.S. good and services. That is why the U.S. Chamber of Commerce in Korea supports this FTA and predicts it will:

· expand the already robust trade between the two countries;
· lock in governmental reforms, providing a level playing field in each others markets and increase the competitiveness of industries in both countries;
· further strengthen the relationship between the two countries as we work together to protect peace and prosperity in Northeast Asia;
· ensure that the United States remains an integral part of Asia’s economic integration.

China is the most important country in Asia, and that is unlikely to change anytime soon. The United States knows this. Korea knows this. The Chinese certainly know this. But also unlikely to change anytime soon is Korea’s position as the fourth largest economy in Asia (after China, Japan, and India on a purchasing power parity basis).

The science fiction author Philip K. Dick famously said, “Reality is that which, when you stop believing in it, doesn't go away.” The reality today is America needs to keep all its remaining friends in the world. An FTA with an old friend like South Korea is the right thing for both sides. Hopefully our Congress will agree. ◦

Congress: Ratify the free trade agreement with Korea