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HONOLULU (April 11) -- South Korea and the United States signed a landmark free trade agreement (FTA) last week, the first of its kind between the U.S. and a major Asian economy. According to the accord, within the next three years, all but five percent of tariffs the two countries levy against each other's products will be slashed. Small American passenger cars headed for Korea will do so tariff-free. Tariffs on American beef will phase out in 15 years. In return, among other things, Korean textile exports find their way to U.S. shores more cheaply. Noticeably absent from the FTA, and for good reason, was the very sticky issue of rice.
Il SaKong, founder and chairman of the Institute for Global Economics, a non-profit think tank in Seoul, former minister of finance in the South Korean government, and current member of the East-West Center board of governors, offers his expert thoughts on the new Korea-U.S. FTA.
East-West Center Wire: What is the reaction among South Koreans to the Korea-U.S. free trade agreement (FTA)?
Il SaKong: The general reaction has been clearly positive, although there are strong voices of opposition to the deal.
EWC: What do you think of the deal?
Il SaKong: In my view, it is one of the best things that could have happened for Korea's sustained economic growth. Undoubtedly, the Korean economy will benefit a great deal through its freer access to the world's largest market. What is more important, however, is that the Korea-U.S. FTA will provide significant momentum for Korea to upgrade its overall economic system faster.
EWC: Why then do some Koreans oppose the FTA so strongly, and their objections seemingly have substantial support?
Il SaKong: As I mentioned, there are strong opposing voices. Although the overall economic benefit will be substantial, some sectors do face potential short-term losses. For example, currently about seven percent of Korea's total population is engaged in agriculture, accounting for only about three percent of the country's annual GDP. However, as you may know, Korea has been industrializing and urbanizing from an agrarian state so fast that most Koreans still have their direct roots in the agricultural sector.
Consequently, the Korean general public's emotional attachment and its sympathy to the nation's farmers are much stronger than those economic statistics might indicate. So, the Korean government is strongly committed to immediately remedying the situation faced by local farmers and other sectors by offering them substantial amounts of resources. I personally would like to see the government devote more resources for enhancing the basic competitiveness of those affected sectors rather than merely giving subsidies.
EWC: What is the real effect of the trade agreement on ordinary South Koreans?
Il SaKong: Ordinary South Koreans, in fact, will come out of the deal as the real winners. Their cost for food, household appliances and other consumer durables like U.S. automobiles will be substantially lowered as the deal becomes effective.
EWC: The U.S. auto industry, as well as U.S. beef and rice farmers, are not happy about those items being left off the table, or not seeing substantially reduced tariffs. Do you think there might be room for some compromise?
Il SaKong: As far as I know, the Korean government is resolute about not making any compromises. With regard to the U.S. beef imports, I understand that the Korean government promised to lift the import ban as soon as the World Organization for Animal Health's mad cow disease study is released in the near future. I personally would welcome the resumption of beef imports from the U.S.
As for the rice issue, I thought it was wise for both governments to take it off the negotiation table so that the deal could be successfully concluded. The inclusion of rice could have made it politically more difficult to negotiate the FTA. You must understand, for Koreans, rice is more than just a commodity. It has historical, cultural and emotional dimensions.
With regard to U.S. automobiles, I thought the deal was a good compromise. I just hope the U.S. auto industry takes full advantage of the deal, so that it can effectively compete with other automakers in the Korean market.
EWC: What should South Korean manufacturers and businesses do now?
Il SaKong: In this world of globalization, regardless of the Korea-U.S. FTA, Korean manufacturers and businesses cannot avoid greater global competition. I believe that they do appreciate that fact. Therefore, they will have to try to take advantage of the FTA to enhance their global competitiveness perhaps through various networking and strategic alliances with their American counterparts.
EWC: Some critics of South Korean President Roh Moo-hyun are saying this deal gives away too much to the United States. Any observations on that criticism?
Il SaKong: Unless a trade deal is a "win-win" sort of thing, you will not be able to strike a deal in the first place. Obviously, the Korea-U.S. FTA is a positive-sum game for both countries. As for Korea, as I mentioned before, there are potential benefits which are difficult to measure in quantitative terms. So, I don't think it is fair to say that the deal is one-sided.
EWC: The United States and South Korea are strong allies on security issues in the region. How does the FTA play into that? What is the connection between the two, if any?
Il SaKong: I am very sure that the enhancement of the economic partnership and the deepening of economic integration between the two countries will contribute toward strengthening their security alliance. I personally have been a bit concerned about the seemingly weakening security alliance between the two countries in recent years. In this regard, I am pleased to see the deal made and I sincerely hope the legislatures of both countries will approve the deal.
EWC: What made President Roh, known as a labor-based politician with an anti-American bent, so determined to pursue this deal?
Il SaKong: Well, I don't know what was on President Roh's mind in pursuing this deal despite the strong opposition of his close associates and political allies. I suppose he wanted to set a historical landmark in the course of Korea's economic progress. With this vision, I suppose he exerted statesman-like leadership that, I think, will be greatly appreciated in the future. Although I do not support everything he (President Roh) does, I admire his courage and leadership for adamantly pursuing the Korea-U.S. FTA. In fact, according to polls taken after the conclusion of the deal, President Roh's approval rating went up by six-to-seven percent points.
EWC: Is there anything you would care to add regarding the FTA?
Il SaKong: Well, I would like to turn the American voters' attention to another important aspect of the deal. It is a commonly accepted notion that the center of economic gravity has been moving toward East Asia. In that connection, I guess it is critically important for the U.S. to have a strong foothold in the region. The Korea-U.S. FTA can become such a foothold, a base from which the U.S. will be able to engage directly in the region's economic and security-related cooperative activities.
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Dr. Il SaKong, Chairman and CEO, Institute for Global Economics, is a member of the East-West Center Board of Governors. He can be reached through his website at www.igenet.com.
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