[Viewpoint] Leave the Korus as it standsUnited States President Barack Obama came to Seoul for a nuclear summit, but his trip also underscored the importance of the Korea-U.S. economic relationship. The trip was an opportunity for Korean and U.S. leaders to reaffirm their commitment to the recently-implemented Korea-U.S. (Korus) free trade agreement. Regrettably, some Korean officials want to reopen - or worse - revoke the agreement, which would be a mistake.
Korea’s remarkable economic expansion over the last half-century has been fueled largely by international trade, with the United States serving as a vital trading partner. The U.S. is currently Korea’s third-largest trading partner, and two-way trade surpassed $101 billion in 2011, up from the previous year’s $90.2 billion. Korus will only bolster this relationship, and with great benefit to the Korean economy.
Economists who have studied Korus have found that it will lead to the expansion of Korea’s economy by more than five percent in the long term, as it will lead to more Korean exports by reducing trade barriers. Korean annual merchandise exports to the U.S. are expected to grow by $6-7 billion, with service exports making this number even larger. In addition, the agreement will create about 350,000 jobs, helping ease tightened labor market conditions in Korea.
The agreement also serves as a signal to the world of Korea’s openness to foreign direct investment (FDI). Korea has suffered in recent years from the perception of hostility to foreign business. This perception has led foreign investors to deploy their capital elsewhere, resulting in a sharp decline in FDI in Korea. According to the OECD, Korea’s FDI peaked in 2004 at $9.2 billion, but fell to $1.8 billion in 2007. Since then, FDI has shown some signs of returning, but remains well off its highs in the early 2000s. Attracting additional FDI would be a source of future growth for Korea’s economy and would establish Korea’s position as a global economic leader.
Ironically, it is the investment provisions of the Korus agreement that have been the chief target of its opponents. The agreement calls for each country to provide nondiscriminatory treatment to investors from the other country, to provide compensation in the event of government expropriation and to provide a neutral forum to resolve disputes. Opposition members of the National Assembly have called for Korea to renegotiate these investment provisions, conduct a complete review of the agreement and have even suggested nullifying it. This is despite the fact that the agreement was initially negotiated in 2007 by the Roh Moo-hyun administration.
The substance of the opposition is, however, greatly misinformed. Opponents have asserted that the investment provisions included in the agreement infringe upon Korean judicial sovereignty. The provisions do nothing of the sort. Instead, Korus allows both Korean and U.S. investors to take disputes to a neutral World Bank dispute resolution tribunal, known as the International Center for the Settlement of Investment Disputes (ICSID). Korea has, in fact, been a member of ICSID since its inception in 1966, and Korea has entered into numerous bilateral investment treaties and free trade agreements containing investment arbitration clauses similar to those in Korus. Thus, Korea has long been supportive of and a party to the sort of investment provisions found in Korus.
Furthermore, the criticism levied against the Korus agreement reflects misguided sentiment that could jeopardize an agreement offering significant economic and geopolitical benefits to Korea. Calls to nullify Korus could harm Korea’s relationship with the United States at a time when bilateral cooperation is critical to maintain regional stability. Moreover, abrogation of the agreement would severely harm Korea’s credibility with other prospective trading partners and hinder its ability to reassert itself as the leading financial hub in Asia.
In a time of global economic uncertainty, the implementation of Korus should stand as a testament to the interests and values shared by Korea and the United States - including opening markets and expanding exports, which would benefit businesses, workers and consumers in both nations and which, in turn, would demonstrate the strength and unity of this bilateral alliance. Upending the agreement would, conversely, do irreparable harm.
*The author specializes in international trade at Akin Gump Strauss Hauer & Feld LLP in Washington.
by Sukhan Kim