Dr. Victor Cha: The US Korean Free Trade Agreement: Where Things Stand and Where They’re Headed

author_vcha_wDr. Victor Cha:
“The US Korean Free Trade Agreement: Where Things Stand and Where They’re Headed”

Dr. Victor Cha is former Director for Asian Affairs in the White House, National Security Council and current Director of the Asian Studies Program at Georgetown University. Dr. Cha is author of Beyond the Final Score: The Politics of Sport in Asia.

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Full Transcript of the Interview

Tom: Hello, and thanks for joining us today at KoreaBusinessCentral.com. My name is Tom Tucker. I’m the host for this interview series that we’re producing here at KoreaBusinessCentral.com. Today, we’ve got a terrific and very accomplished guest. His name is Dr. Victor Cha. He’s a professor and author, as well as former Director for Asian Affairs in the White House’s National Security Council with responsibility for Japan, North and South Korea, and Australia, and New Zealand.

He was President Bush’s top advisor on Korean affairs. And he currently holds the DS Song Korea Foundation Chair in Asian Studies. He is the Director of the Asian Studies program at Georgetown University. Dr. Cha, thanks for joining us today. It’s a real pleasure to have you.

Dr. Cha: Well, it’s great to be on your program.

Tom: Thank you. Let’s start of by talking about the South Korean economy. Provide for us kind of a snapshot or an assessment of where the South Korean economy is right now.

Dr. Cha: Well, probably your listeners know better than I do, but it appears to be on the incline. It is one of the first economies to come out of the global financial crisis, largely due to a very forceful and sustained expansionary fiscal program that the Lee Myung-Bak administration has put into place.

I think it’s been successful in that Korea, I think, is going to register positive growth rates after the previous year, year and a half. Perhaps, more importantly, it looks like this administration is committed to continuing the spending to help boost the economy.

I think there are two reasons for that. One is that they don’t really have to deal with high inflation rates at this point. Inflation is pretty low in Korea. And the other is the interest rates are still fairly low and there’s not a lot of labor unrest.

So, this is a pretty good picture for the administration and it looks to continue for the first six months of 2010. The first six months of 2010, of course, are quite important because in June, they will have the first popular mandate of the year with regard to Lee Myung-Bak’s presidency and that is the June local elections.

So, I think with an economy that’s coming along — low inflation, low interest rates — they would be in pretty good stead through June.

Tom: The picture certainly does look good right now. What are some of the other factors that will also contribute to this continued improvement; this continued growth rate in Korea?

Dr. Cha: Well, I think one of the issues will be the degree of optimism or pessimism on the Free Trade Agreement; clearly, a very important agreement for Korea, a very important agreement for the United States.

This was something that we worked on in the Bush administration and signed in the Bush administration, but as all of your listeners know, it still hasn’t passed.

I think most of the independent studies that have been done of this agreement show that it will lead to a net increase in economic activity for both sides as well as create jobs on both sides which is, of course, very important in the US domestic political context.

So, I think there will be a lot of eyes on the future direction of the FTA over 2010 and that could contribute either positively or negatively to South Korea’s economic forecast.

Tom: In February, President Obama indicated he wants to push for Congressional approval of FTA, even though there’s a couple of sticking points remaining, which I’m sure you’re familiar with, especially with regard to the imbalance of auot trade with this agreement and some of the restrictions on shipments of American beef to Korea.

Where does this agreement stand right now and elaborate on some of these issues that were brought up here.

Dr. Cha: Well, first, in terms of the issues, I think you pointed to them. Beef and autos appear to be the big ones; at least, from the view of the United States Congress. This has moved along a much smoother path on the South Korean side and I think there’re a lot of expectations on the South Korean side that the US side needs to really step up to the plate and get this thing passed.

I think, as you mentioned, after February and the President’s statements about trade, I think the picture looks certainly a lot better today than it did this time last year. In other words, I think after the first year, the administration, which gave virtually no statements or actions on trade… The only actions on trade tended to be punitive ones, whether that was Chinese steel pipes or Chinese tires and, really, nothing at all on the positive side with regards to trade.

I think a very important factor that changed that was the President’s trip to Asia in November where he was the first American President in recent history to go to the APEC meetings — APEC countries make up some 44% of total global trade — went to these meetings without a trade policy.

And I think when he sat down and talked with each of the Asian leaders at APEC and got the same question every time which is, “What is your trade policy, Mr. President?” I think he realized that he didn’t have one.

And while it may have been domestically a useful thing to be a little bit quiet on trade, it clearly didn’t help him in the broader international arena.

So, I think that trip in addition to coming into a second year — and, historically, most American Presidents in their second year, tack more to the middle; take more of a centric view — we saw much more positive statements on trade.

The target of trying to double exports and, most importantly, I think for the Korea FTA, the connection that the President drew between trade and the creation of jobs in the United States. So, I think that concatenation of forces led to a much more positive outlook on the trade picture.

Now, some people look at what’s happening on Capitol Hill and they think, “Oh, my, gosh. This thing is never going to get passed.” But my own view is if you just focus on what is happening in Congress, that is not going to be where the Free Trade Agreement gets passed. The place where that agreement is going to get passed is in the White House.

In other words, it’s going to take, regardless of what Congressional opposition might be to certain aspects of this agreement, it’s going to take a big push and decision by the White House to make this a front burner issue.

Once the White House starts to do that, that’s the only way you really start getting movement in Congress, momentum among private sector groups and business to really push this agreement forward.

Free Trade Agreements don’t get passed into Congress by themselves. They are always pushed by the administration whether that was NAFTA, CAFTA — whatever it was. And that will certainly be the case with the KORUS FTA.

So, I think the focus — the thing that I watch in terms of this is not so much what Congress is saying, but really, what the White House is saying on trade.

Tom: So, it sounds like you’re optimistic that, eventually, that this is going to get passed. Is that the case and when do you see this happening?

Dr. Cha: I think it will. It will, eventually, get passed. I think there was some talk early on when the administration also started talking about the TPP, the Trans Pacific Partnership, of possibly folding the KORUS FTA into that.

I think people realize that that’s just not possible. The agreement is too big. It’s too important. It represents too much of a prototype for other future free trade agreements, that they understood it has to stand on its own.

And again, I think this agreement is too important not to pass. It’s the second largest free trade agreement ever negotiated by the United States. It’s the largest bilateral free trade agreement. The only one that’s larger in terms of volume of economic activity is NAFTA and, again, it is important.

Experts have noted this is, commercially, the most significant FTA between the United States and another country.

So, if this were not to be passed, it would not only be a blow to US/Korea trade, it would say a lot about what direction the United States was heading overall in trade, so I think there’s a lot riding on this.

In terms of timing, it’s difficult for me to see this actually moving forward before the elections here in November — the midterm elections — just because there are so many other things on the agenda right now including healthcare, and other issues.

Rightly or wrongly, many Congressional politicians believe that their constituencies either punish or reward them on positions they take on trade issues.

I say that conditionally because I think much of the academic literature on political economy and on voting actually finds there isn’t a significant statistical correlation between how constituencies reward or punish their politicians for their positions on free trade agreements.

Nevertheless, that is the perception. And for that reason, it’s hard to see this thing happening before November and I think there would be a strong push for it after November.

Tom: A couple other sticking points that I brought up a moment ago; an imbalance with regard to the auto trade and these concerns with regard to restrictions on shipments of American beef to Korea. Can you elaborate on those two points a little bit and talk about those issues there?

Dr. Cha: Well, I think on the auto trade side, there are still concerns about non-tariff barriers that many in the US believe that the free trade agreement does not adequately address. Quite simply, that’s the issue. Ford, in particular, has a very strong opinion on this.

And on the beef side, this has been a longstanding dispute between the United States and Korea, and the United States and Japan, and other countries in Asia all stemming from the problem of mad cow disease.

But, I think that both of these issues can be dealt with if the people involved feel that this has become a high priority of the administration and I think working groups will form through the course of this year to try to find ways to resolve these problems. I think both sides remain open — although they don’t want to say this publicly — both sides remain open to trying to find some sort of compromise; if it’s a side agreement or a separate protocol that needs to be agreed to between the two sides. I think they can find a way forward.

I think what both sides to not want to do is they do not want to reopen the text of the agreement because then if you start pulling on one thread, then it starts having effects on all the other threads that are a part of this very sophisticated and complicated agreement.

So, my guess is that this would be handled outside of the text of the free trade agreement, but would carry the full force of the agreement with it as well.

Tom: Is the FTA a good deal for both countries? Is it truly a win/win and if that’s the case, how so?

Dr. Cha: I think it is, but I’m not in business or in trade. But, at least, all the independent views I’ve seen, see it as a win/win agreement across sectors. Some would argue in the auto sector, even though there are things that people don’t like about it, it still is the most dramatic decreases in tariffs on US autos going to Korea.

In the agricultural sector — rice farmers in the United States may not do well, though citrus growers will do well as a result of this agreement, whether it’s oranges, or grapefruits, or what have you.

Service industry will clearly benefit from this agreement, whether that’s delivery services, or insurance — all of them are sitting here waiting for this agreement to move forward because the Korean market is one that all of them would like to get into.

So, I think it’s a win/win in that sense. I also think it’s a win/win in the broader context of the evolution of the US/Korea partnership. This was a relationship when the United States and Korea first became allies, many experts — economic experts — in the US government predicted that the South Korean economy would not advance beyond a largely agrarian-based economy and at best, producing light manufactured goods.

This was the assessment of US economic — government economic — experts at the time. You look at Korea today, depending on the metric, 8th — 11th largest economy in the world, the most wired country in the world. Virtually, every high-tech device that you or I have in our house is made by Samsung, or Lucky Goldstar, or some other major Korean company.

Clearly, that aspect of the relationship has blossomed, and the political relationship has also blossomed. The United States works with Korea, not just in Asia, but in Iraq where South Korea, at one point, had the third largest ground contingent, in Afghanistan where Koreans are providing a PRT, in Haiti, in Lebanon, East Timor — all over the world.

But, I think the question for many of us who study and watch this relationship is, what’s the next step? Where does it go from here? It successfully deterred another North Korean invasion. It successfully created the growth of this incredible economy, as well as the most vibrant democracy in Asia and now, the two countries work together around the world. What’s next? What’s the next step?

And I think the FTA is the next step. This is the next step in the relationship because countries that the United States has FTAs with, like Australia, and Singapore, and other places; these things have really advanced the overall relationship to the next level. So, in that sense, I think it’s win/win for both sides.

Tom: This is something you touched upon briefly a moment ago, but in early March, President Obama reiterated his promise to double US exports in the next five years. Do you think that this is a realistic goal and how much of an opportunity is there right now to increase US exports, specifically to South Korea?

Dr. Cha: I can’t tell you whether it’s a realistic goal. I just don’t know. But, to me, what’s important is that the President is talking about trade and talking about trade promotion and, presumably, talking about free trade, which was not something he was talking about in his first year. I think that was very disconcerting for a lot of countries around the world and for a lot of businesses that export to Asia.

So, regardless of what the target is, the fact that he has taken that turn and used the platform, the State of the Union speech to do that, to me, is a very important sign that they’ve kind of turned the corner a little bit and are not looking at trade simply in terms of domestic electoral politics, and that’s an important step.

Whether they can actually hit that mark, it’s hard to say. I think there are lots of questions about who in this global financial recovery, are countries going to continue to consume the way they have in the past? Again, I don’t have a good answer to that.

But, being here in Washington DC, a lot of what matters is politics and I think on the political side, that speech and the statements he made on trade were a good sign, to me, that the administration was heading in the right direction.

Tom: Do you think there is an opportunity to significantly increase US exports to Korea?

Dr. Cha: With this agreement, sure.

Tom: Yeah.

Dr. Cha: I think with this agreement, there is, but not without it.

Tom: What would you say is happening right now in terms of economic engagement between South Korea and North Korea? How would you assess that right now?

Dr. Cha: Well, I think you had a period of quite expansive economic engagement over the past ten years under the Kim Dae-Jung government and then, the Rho Moo-Hyun government. Under the current Lee Myung-Bak government, most, if not all, of that has stopped, in part, because the Lee Myung-Bak government has taken a different position where they are willing to link inter-Korean economic assistance with progress on denuclearization in North Korea, and progress on human rights.

There hasn’t been a lot of progress on either of those two issues, so we haven’t seen very much economic assistance going to North Korea from this government in Seoul.

Tom: So, what do you foresee happening with this relationship, say, over the next three to five years?

Dr. Cha: I think the South Korean government is willing to do things with the North Korean government. Lee Myung-Bak put forward what he called ‘The 3,000 Proposal,’ which was the promise to take North Korea’s income per capita up to $3,000 a year within ten years if the regime would denuclearize and if it would improve its human rights record with South Korea.

What that means is family reunions for the divided families separated by the war, a return of POWs and missing-in-action people.

And if the North were willing to do these things, there’s already a framework for the sort of cooperation that would go forward between these two entities on the peninsula. They would include the joint industrial complex between North and South Korea known as Kaesong which was started under the Kim Dae-Jung government where they marry up South Korean capital and technology with North Korean labor to produce goods that are then exported to the world markets.

And the other is what’s called ‘The Diamond Mountain’ or Kumgang Mountain resort complex on the east side of the peninsula that has been built by Hyundai. Progress in both of these has not been great recently for a variety of different reasons, but that would be one major project that they would restart.

The other would be to actually build much more bigger-ticket infrastructure; mining and other activities in the North. The North has a large amount of mineral resources that could be mined.

But, again, these bigger-ticket items are not going to happen without some sort of real commitment by the North on the nuclear front.

Tom: One subject that you have spent quite a bit of time researching and writing about is what you call sports diplomacy. What exactly is sports diplomacy and can you talk about it in terms of the recent performance of Korea’s medal winning Olympians at the Vancouver games?

Dr. Cha: Sure. Well, the idea for the book actually came to me while I working in government and I took a trip with then Secretary of State Condoleezza Rice to Australia where we did a bunch of meetings with the Australian Prime Minister and Foreign Minister. And then, they took us to Melbourne to view the Commonwealth Games that were taking place.

So, we got to do all sort of cool things like meet and sit with Ian Thorpe and she got to hand out gold medals. And then, when I got back to my hotel room that evening, the main story in the news was not so much Secretary Rice meets Prime Minister Howard, but Secretary Rice at the Commonwealth Games in Australia.

That, to me, showed how powerful of a tool sport can be in terms of taking a country like Australia and putting them on the center state. So, when I left government, I came back to academia and I thought, with the Beijing Olympics coming up and all — because I left government towards the end of 2007 — this would be a great book to write. And that’s what I did.

I particularly looked at sports and politics around the world, but I looked at it especially in Asia where I think sports diplomacy has been quite successful. Now, I would define sports diplomacy as the use of sport to make advances or breakthroughs in relations in a way that normal, sort of Foreign Ministry of State Department diplomacy, has been unable to do.

The seminal case of this was, of course, ping-pong diplomacy and the US opening to China — I’m sorry, China’s opening to the United States.

But, there have been other very successful cases of this particularly involving the Koreans and the use of sport. The Koreans used the Asian version of the Olympics — something called the Asian Olympics — used it very effectively in terms of opening relations with China in 1992.

They were, of course, very successful at using their hosting the Olympics in 1988 to woo the Soviet Union to participate in the first Olympics they had participated in eight years because, as you remember, the 1980 games were in Moscow and we boycotted. The United States boycotted because of the Soviet invasion of Afghanistan.

And then, the 1984 games were in Los Angeles since the Soviet Union, the Soviet block, boycotted the LA games. So, the ’88 Seoul Games were one in which the Koreans worked very hard to secure Soviet participation and that, eventually, that sort of wooing and cooing, eventually led to the normalization of relations between the Soviet Union and South Korea in 1990 and, effectively, the end of the Cold War in Asia.

So, the South Koreans have been very successful in doing this. They have been very strategic also. What most people don’t know is that in the Beijing Olympics, the Indian Olympic team got their first individual gold medal ever in their participation in the Olympics.

It was by an Indian sharp-shooter. It was in the shooting competition and that Indian’s sponsor was a Korean company. It wasn’t an Indian company. It wasn’t an American company because I think the Korean’s saw that this was a huge market for them and for sports in India and, therefore, they were quick to latch onto this fellow.

Tom: Great move.

Dr. Cha: Great move. That’s right. Now, the Koreans have hosted one Olympics — the ’88 Summer Games — and they have been trying very hard to host the first Winter Games in Asia outside of Japan.

And the history of the modern Winter Games since 1925, I believe, the Winter Olympics have only been hosted twice in Asia and both times, in Japan; 1972 in Sapporo and then, 1998 in Nagano.

The Koreans have tried the last two times to host in Pyeongchang, Korea. They lost to Vancouver, and then they lost to Sochi, Russia.

And this is where I think Kim Yu-Na’s performance in the Olympics in Vancouver may really work to the advantage of the South Koreans, because they can now show that in terms of winter sports, that Koreans are not only competitive, whether it’s speed skating or figure skating, but they are actually at the top of the heap, such that someone like Kim Yu-Na has now become a household name in Winter Olympics sports like Jean Claude Keely, or Eric Heiden, or any of these other people.

And that, I think, may work to their advantage if they bid again, I would imagine, for the next Winter Games after Russia.

Tom: Yeah, Sochi.

Dr. Cha: Yeah, after Sochi. So, I think the Koreans did very well in this past Olympics. They had the most gold medals of any Asian country. They beat out China, and they had the best overall medal count of all Asian countries. I think they came in 7th overall.

And I think for the IOC and for sponsors who see Asia as the next big market for winter sports, this is all the concatenation of forces may all be heading in the right direction for them this time.

Tom: Yeah, it certainly looks like it. It certainly looks like it.

Dr. Cha: Yeah.

Tom: Well, Dr. Victor Cha, it’s been a real treat visiting with you today. We appreciate you taking the time to share your thoughts on these different issues and we’ve thoroughly enjoyed it.

Again, we’ve been speaking with Dr. Victor Cha who is the Director of the Asian Studies program at Georgetown University and he is also an author. Thanks for joining us and we’ll look forward to talking with you next time, Dr. Cha.

Dr. Cha: Thank you.

Tom: Okay, thanks much. Thanks for joining us today at KoreaBusinessCentral.com for this interview series. My name is Tom Tucker and will look forward to visiting with you next time. Have a great day.

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