[Viewpoint] Real reasons for the FTA ratification

The long-pending bill to ratify the Korea-U.S. free trade agreement was finally passed by the National Assembly in Seoul. The reason for this has nothing to do with pleasing the United States. It also has nothing to do with forgoing a successful renegotiation of the investor-state dispute settlement (ISD) clause of the agreement. The primary reason for the ratification of the FTA is that this is the best way to address the current malaise and anger that exists in Korean society over the economy and the politics in the country.

Let me explain what I mean by this. As Korean readers are well aware, the Democratic Party has been locked in a death struggle with the government opposing ratification of the FTA. The DP has demanded a written agreement with the United States to renegotiate the ISD provision prior to National Assembly ratification. President Lee Myung-bak offered that the government would raise the ISD issue with the United States within three months of ratification. In an attempt to help foster compromise, the U.S. trade representative, Ron Kirk, reportedly said last week that all issues pertinent to the implementation of the FTA, including the ISD provision, would be open for discussion as part of the consultative procedures that would accompany implementation of the agreement.

With the resulting deadlock, the GNP had to ram the agreement through the legislature, exercising its majority. This spectacle on CNN of legislators physically fighting over the FTA’s passage will make Korean democracy look bad in international eyes. But in the end, it was necessary.

This is because the FTA’s passage is a critical step in helping Korea out of its current funk. As the recent election for the Seoul mayorship showed, Koreans are angry at politics in the country and dismayed at their socioeconomic situation. Slow growth, high commodity prices, high tuition and high unemployment have created popular disenchantment. While the official unemployment rate is around 3.2 percent in Korea (which is low compared with the U.S. double-digit unemployment rates), the youth unemployment rate is closer to 20 percent.

According to Professor Park Yoon-shik at George Washington University, who participated in a State Department conference with me in Washington a couple of weeks ago, the work force participation rate for the 15-24 age cohort in Korea is only 25 percent, which is half of the OECD average (48.5 percent). The number of temporary jobholders, moreover, is nearly eight million today, which only adds greater uncertainty and angst, even among those lucky enough to have a job.

These numbers have fueled the DP’s criticism of the Lee government as failing to deliver the economic goods. But the plain fact is that any government in Korea today would have faced similar problems. This is because the economy is going through a transformation now where traditional manufacturing jobs that fueled Korea’s stupendous growth are both less available and less appealing to affluent Koreans as cheaper production markets exist elsewhere in Asia.

As Park has argued, the key area for future growth in employment in Korea is not in manufacturing but in the service sector. What is needed is drastic deregulation of the banking, finance, insurance, medicine, telecommunications and other high-value sectors.

This will create high-paying and high-skilled jobs for the economy, in particular for the overeducated and underemployed younger Koreans today. But there is great resistance to this in Korean society as well as in the bureaucracy, as evidenced by the president’s failed efforts to create a for-profit medical industry.

So the question then becomes, what is the best way to deregulate the service sector and shift the Korean economy into these high-value sectors? The answer is implementation of the Korus free trade agreement. The FTA will open up the Korean domestic market to international competition from the U.S. and European service sectors. This will benefit consumers as they will have more choices in everything from legal services to overnight delivery services. But it will also create new jobs by both foreign and domestic companies in Korea.

The Korus FTA is more than simply a trade agreement, and it is more than a decorative ornament to hang on the U.S.-Korea alliance tree. It is fundamental to Korea’s future as a competitive economy and as a vibrant and confident society. That’s why the FTA was approved in the National Assembly, even if the passage was not pretty.

*The writer is professor and director of Asian studies at Georgetown University and senior adviser at the Center for Strategic and International Studies in Washington.

By Victor Cha