Korea’s Unique Historic Opportunity
by C. Fred Bergsten, Peterson Institute for International Economics
Op-ed in the Chosun Ilbo
February 10, 2007
© Chosun Ilbo
Political developments within the United States suggest that Korea has a unique historic opportunity to achieve a preferred trade and indeed overall relationship with the United States that is unlikely to be available to any of its main competitors for a prolonged period of time. This will be realized if Korea can conclude its negotiations for a comprehensive and balanced free trade agreement (FTA) with the United States within the next two to three months so that the deal can be approved by Congress under the “fast track” provisions of President George W. Bush’s current trade promotion authority. Since that authority is unlikely to be extended when it expires next July, or even when a new administration takes office in the United States in 2009, Korea’s key competitors such as Japan and Taiwan will probably be unable to receive similar treatment in the foreseeable future and thus Korea will achieve preferred status for a considerable period.
The Korean economy would gain substantially from an FTA with the United States. Studies by both our Peterson Institute for International Economics and several analysts in Korea suggest an expansion over time of several percentage points for the Korean economy and a significant boost to Korean per capita income, especially by increasing efficiency in the services sector. An FTA would bring considerable additional investment to Korea while a failure of the negotiations would reinforce Korea’s image as being inhospitable for foreign firms. The agreement would reduce Korea’s rapidly growing dependence on China as well as its traditional reliance on Japan. Perhaps most importantly, an FTA would provide Korea with an important insurance policy against future protectionist measures by the United States. Significant adjustment measures will be required in several sectors, notably agriculture and a few specific industries, but the overall payoff will be quite large.
Two critical aspects of the FTA issue may not have been fully recognized, however. First, the time available to complete the negotiations and thus to seize these opportunities is very limited. President Bush’s negotiating authority will expire on July 1, and his negotiators must complete the talks at least 90 days prior to that time to assure timely congressional action without amendments. Korea has a major interest in avoiding congressional reopening of the agreement so completion by March is imperative.
The sweeping victory of the Democrats in the recent congressional elections underlines the importance of this conclusion. All congressional votes on major trade issues for the past twelve years have been excruciatingly close, and the antiglobalization sentiments of many of the new members suggest that the new Congress is highly unlikely to give President Bush further negotiating authority. All unfinished negotiations, such as those with Thailand, will thus fail. Korea should make every possible effort to “get in under the wire.”
This evolving sea change in American politics could in fact preclude all additional trade agreements for a prolonged period. Continued Democratic control of the Congress beyond 2008, perhaps for a considerable period, may alone be enough to prevent revival of trade promotion authority and any new trade pacts. A Democratic victory in the next Presidential election now seems quite likely and would reinforce such a prospect, either because the new leadership will simply reject additional globalization of the US economy for a time or because it would insist on conditions, especially with respect to labor standards, that would be unpalatable to potential future partners.
This outlook suggests that Korea’s major trade competitors will be unable to achieve the same preferential access to the US market that Korea can obtain by timely completion of the current FTA talks. Japan will almost certainly ask for its own FTA, or economic partnership agreement, if the Korea–United States talks succeed but there will be no authority under which the United States could undertake such an initiative. Similar considerations hold for China, Taiwan, and the Southeast Asian countries except for Singapore, which already has an agreement, and possibly Malaysia if it too can complete its present talks by the looming deadline.
Hence Korea faces a truly historic opportunity to achieve, and maintain for a prolonged period, a significant degree of preferential access to the US market and an enhanced overall relationship with the United States. Korea should make every effort to grasp this unique prospect by successfully concluding a comprehensive and balanced FTA with the United States within the next two to three months.