by Jeffrey J. Schott, Peterson Institute for International Economics
Op-ed in the Korea Times
November 8, 2010
English version © Peterson Institute for International Economics
The Democratic Party suffered a harsh defeat in last week's US midterm elections. President Obama will now have to work with a Republican majority in the House of Representatives. He can expect a rough reception for much of his economic agenda.
For those who relish sterile and uninformed political debate, the next Congress will provide ample entertainment—but little legislative achievement. John Boehner, who will become speaker of the House, has vowed to reverse recently enacted legislation, especially Obama's signature healthcare reforms. He will get support from Tea Party enthusiasts, who will pressure other Republicans to adopt their "government-lite" ideology. Such efforts will inevitably fail, however, in the face of the president's ultimate veto power. But the fight will further enflame partisan debate and contribute to legislative gridlock.
In this bleak political climate, trade provides perhaps the sole source of sunlight. That is good news for the prospective ratification of the Korea–United States (KORUS) FTA, if President Obama and President Lee Myung-bak can resolve outstanding problems when they meet at the Seoul G-20 Summit.
One reason for optimism on trade is the new Republican leadership on the powerful Ways and Means Committee of the House of Representatives: David Camp, who will become committee chairman, and Kevin Brady, who will chair its crucial trade subcommittee. Both favor moving forward on a broad trade agenda, starting with the KORUS FTA. Both are pragmatic politicians who are willing to work with their Democratic counterparts. Both think highly of Obama's US Trade Representative (USTR), Ambassador Ron Kirk, and support his efforts to work with Korean Trade Minister Kim Jong-Hoon to remove the final obstacles to implementing the trade pact.
Second, trade is the one area of economic policy where there is some overlap between Republican and Democratic interests. Republicans strongly support the Trans-Pacific Partnership among Asia-Pacific nations; this negotiation, started by President George W. Bush in 2008, is at the center of Obama's National Export Initiative. They also would like to see progress in the Doha Round of multilateral trade negotiations, which hopefully will get a boost from the G-20 leaders. But, perhaps most of all, the new Republican leaders in the House would welcome the early introduction of implementing legislation for the KORUS FTA. Indeed, Congressman Brady, speaking last month at the Peterson Institute in Washington, hailed Obama's efforts to work with President Lee Myung-bak to resolve outstanding issues and hoped that KORUS legislation could be passed and signed in the first half of 2011.
I am confident that the United States and South Korea will agree to move forward with implementation of the KORUS FTA. Neither country wants to let a few provisions in a major trade agreement create friction in a strategically important bilateral alliance. That's the reason why Secretary of State Hillary Clinton is now a strong advocate within the Obama administration for the KORUS FTA despite earlier reservations voiced during the 2008 election campaign. And, ultimately, that's why President Obama took the initiative at the Toronto G-20 Summit last June to work with President Lee Myung-bak so that the KORUS FTA could finally enter into force next year.
Nonetheless, the KORUS FTA needs to be supplemented with provisions that enhance opportunities for bilateral trade in autos and beef. The election results do not change this political reality. Congressman Camp is from Michigan and sensitive to the hardships of workers in the auto industry in his state. But he should be supportive of new initiatives that benefit auto production and employment in both countries that could result from the current talks between USTR Kirk and Trade Minister Kim Jong-Hoon.
In the Senate, the Democrats maintained a small majority and Senator Max Baucus will continue to chair the influential Finance Committee that will handle KORUS FTA and other trade legislation. The composition of that committee will change markedly; some Democratic members were defeated and more Republicans will be added, possibly including newly elected and former USTR Rob Portman. Overall, the Finance Committee will probably have a stronger majority in favor of the KORUS FTA.
To be sure, Senator Baucus will still weigh the pact based on its impact on beef trade and he expects the two presidents to address remaining issues in this area. However, his constituents would benefit significantly from the phase-out of beef tariffs under the KORUS FTA and already have benefited from the substantial lifting of the sanitary restrictions imposed seven years ago in response to the bovine spongiform encephalopathy (BSE) outbreak. I expect that Obama and Lee Myung-bak will pursue further steps to ensure that Korean policy is consistent with guidelines set by the World Organization for Animal Health, which should help cement congressional support for the pact.
Once the two presidents agree, White House and USTR officials will work with Congressmen Camp and Brady in early 2011 to draft implementing legislation for the KORUS FTA. Because the KORUS FTA was signed just before the expiration of Trade Promotion Authority (TPA) on June 30, 2007, it still qualifies for the TPA's "fast track" procedures: implementing legislation cannot be amended and requires passage by a simple majority in both the House and the Senate within a set period of time. Thus, if a bill is sent to the House Ways and Means Committee in January or February 2011, it would be voted before the summer.
Once a bill is tabled, it is highly likely to pass. Congress cannot say "no" to an important ally—especially now, given sensitive developments on the Korean peninsula. Nonetheless, the vote will likely be close, since Democratic leaders will "excuse" as many of their members as possible from voting yes while still allowing passage of the bill. Passage will require a large majority of Republican votes and a significant minority of Democratic votes, just as with almost every FTA since NAFTA. That task got easier with the large Republican electoral gains.
Book: Witness to Transformation: Refugee Insights into North Korea January 2011
Peterson Perspective: North Korea's Immunity to Outside Pressure: Part I December 12, 2012
Policy Brief 10-1: The Winter of Their Discontent: Pyongyang Attacks the Market January 2010
Working Paper 10-2: Economic Crime and Punishment in North Korea March 2010
Paper: FTAs and the Future of US-Korean Trade Relations November 2009
Paper: Implementing the KORUS FTA: Key Challenges and Policy Proposals February 2008
Policy Brief 08-6: North Korea on the Precipice of Famine May 2008
Policy Brief 07-7: The Korea-US Free Trade Agreement: A Summary Assessment August 2007
Policy Brief 06-4: Negotiating the Korea–United States Free Trade Agreement June 2006
Working Paper 07-7: North Korea’s External Economic Relations August 2007
Book: Avoiding the Apocalypse: The Future of the Two Koreas June 2000
Book: Free Trade Between Korea and the United States? April 2001
Working Paper 08-4: Migration Experiences of North Korean Refugees: Survey Evidence from China March 2008