[OUTLOOK]Exploit strengths, recognize limits

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[OUTLOOK]Exploit strengths, recognize limits

Korea and the United States have made progress in the two rounds of free trade agreement negotiations held so far, but the most challenging issues still lie ahead. With the third round of negotiations scheduled to take place in Seattle, Washington, on Sept. 6-9, it will be important for Korea to understand both the motivating and limiting factors behind the American position in order to maximize its leverage.
First, Korea should recognize that the United States is very eager to conclude a free trade agreement with Korea and that it considers this goal to be one of its highest trade priorities. As Korea knows, the United States has concluded free trade agreements with 16 nations, and two other agreements are awaiting final approval by the U.S. Congress. Most of these agreements are, however, with small economies and are not commercially significant. For example, the United States most recently concluded free trade agreements with Oman, Bahrain and Central America. In contrast to the roughly $72 billion in two-way trade in goods between Korea and the United States in 2005, trade between the United States and Oman during the same period amounted to just $748 million. Similarly, the annual two-way trade in goods between the United States and Bahrain is only $887 million. Even the combined trade in goods between the United States and its six partners in the Central America-Dominican Republic FTA (Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras, and Nicaragua) amounts to only $32 billion per year, less than half of that between the United States and Korea. Indeed, an agreement with Korea would be the most commercially significant trade agreement for the United States since the North American Free Trade Agreement, commonly called Nafta, which was signed in 1992.
Second, the recent breakdown of the Doha Round of multilateral trade negotiations will force the United States to rely more heavily on bilateral trade agreements with major world economies such as Korea in order to advance its trade agenda. In addition to its own substantial economic benefits, a free trade agreement with Korea could establish a model for the United States to pursue with other leading economies such as Japan and Brazil. Thus, a failure to conclude a free trade agreement with Korea would represent an important missed opportunity for the United States to reclaim some momentum for trade liberalization in the aftermath of the collapse of the Doha Round of negotiations.
A third reason why the United States has considerable interest in a free trade agreement with Korea has to do with U.S. strategic and economic interests in Northeast Asia. The United States is increasingly concerned about the growing Chinese influence in Northeast Asia. In that regard, the U.S. government is aware that U.S. trade with Korea has remained relatively flat in recent years while China’s trade with Korea has expanded rapidly. In fact, China has now surpassed the United States as Korea’s single largest trading partner, and U.S. officials view an FTA with Korea as an opportunity to re-energize U.S. economic activity in the region.
Fourth, unlike many other recent FTAs, a trade agreement with Korea has the potential to enjoy relatively broad, bipartisan support in the U.S. Congress. This is, in part, because Korea has internationally recognized labor and environmental standards that would ease opposition by Democrats who traditionally do not favor trade agreements. Also, the economic significance of the agreement would create powerful incentives for the U.S. business community to lobby the Congress in favor of it, which has not always been the case with past agreements. As a result, many advocates for free trade in the United States believe that a successful agreement with Korea could help to generate broader political momentum in the United States in support of free trade policies.
This considerable U.S. interest in a free trade agreement with Korea provides Korea with important leverage that it can use to attain its priority goals. However, Korea should be cognizant of those issues on which the United States is unwilling, either from a legal or policy standpoint, to compromise. Being aware of these realities and limitations will help to keep the negotiations on a productive track. In particular, Korea should recognize that the United States will not allow products manufactured in Kaesong to be covered under the agreement. The Bush administration strongly opposes this outcome, claiming that it would amount to a “softening” of U.S. policy towards North Korea, and an overwhelming majority of Republicans and Democrats in the U.S. Congress share that position. While Korea might attempt to use U.S. intransigence on this issue as leverage to achieve other priority goals in the negotiations, Korea should understand that the United States will be unwilling to compromise on this issue. The most that Korea could hope for is an agreement to revisit the Kaesong issue separately at some point in the future.
Likewise, Korea should understand that U.S. negotiators are constrained in their ability to agree to any significant weakening of U.S. trade remedy laws. Notably, Nafta and the U.S.-Israel FTA provided the nations covered by these agreements with special, albeit very limited, treatment under U.S. trade remedy laws, but the United States has soundly rejected demands by subsequent trading partners for such enhanced treatment. Thus, from a practical perspective, Korea should not believe that a free trade agreement with the United States will result in any major changes to U.S. trade remedy laws.
Finally, some in Korea believe that the United States is forcing Korea to abide by an arbitrary and unreasonable negotiating timetable and that the United States is using this timetable to bully Korea into an unfavorable agreement. Korea should realize, however, that the targeted completion of negotiations by early 2007 is dictated by the July 1, 2007, expiration of trade promotion authority, which permits the U.S. president to negotiate trade agreements with other nations without the threat of subsequent modifications to the agreed-upon text by the U.S. Congress. Although Korea and the United States could conclude a free trade agreement without this agreement from Congress to either accept or reject the agreement but not to modify it, this would be extremely difficult as a practical matter. The U.S. Congress could amend and effectively disregard the negotiated language of such an agreement. Moreover, the power to reauthorize that presidential authority lies solely with the U.S. Congress, and for domestic political reasons it appears doubtful at this time that the U.S. Congress will do so next year. Accordingly, Korea should recognize that U.S. trade negotiators themselves are equally constrained by this deadline.
A free trade agreement with the United States would generate substantial benefits for Korea. It would result in stronger overall economic growth for Korea by producing a more efficient and competitive Korean economy. It would also help strengthen the overall bilateral relationship between the two countries at a time of some strain. Indeed, it is significant that America’s first FTA in Northeast Asia will be with Korea rather than with Japan or China.
Of course, Korea should strive to conclude an agreement with the United States that safeguards and promotes its own interests. There is an old saying that no agreement is better than a bad agreement.
Having said that, if Korea is adequately prepared from a substantive standpoint, including by developing and articulating the strongest policy and legal arguments to support its negotiating positions, and takes full advantage of the leverage it has vis-a-vis the United States while recognizing the limits of the U.S. negotiating position, there is reason to believe the two nations should be able to reach a timely agreement. It would then help create a stronger bilateral relationship that could have a positive spillover onto our most important alliance.

* The writer is a senior partner at the lawfirm Akin, Gump, Strauss, Hauer & Feld in Washington D.C.

by Sukhan Kim
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