Thesis for the degree of Master of Arts in International Studies
The Pivot to Asia: Political and Economic Ramifications of the KORUS Free Trade Agreement
February 2017
The Graduate School of International Studies Pusan National University
Major of International Trade
Erling Thompson Thesis for the degree of Master of Arts in International Studies
The Pivot to Asia: Political and Economic Ramifications of the KORUS Free Trade Agreement
Supervisor Lee Jae-woo
February 2017
The Graduate School of International Studies Pusan National University
Major of International Trade
Erling Thompson
2 This thesis for the degree of Master of International Studies By Erling Thompson has been approved January 3rd 2017
Chair Sang Youl Kim Signature Committee Member Chul-Ho Lee Signature Committee Member Lee Jae-woo Signature
3 Table of Contents
List of Tables ...... 5 List of Figures ...... 5 I. Introduction ...... 6 1. Research Methodology ...... 6 2. Research Scope ...... 8 II. American Foreign Policy in the Asia Pacific ...... 9 1. Overview ...... 9 2. What is the United States-South Korea Free Trade Agreement? ...... 12 3. Where will Trade Increase? ...... 14 4. Where will Trade Decrease? ...... 17 5. Strategic Goals of KORUS ...... 22 III. Research Findings ...... 26 1. Overview ...... 26 2. Implementation ...... 28 3. Benefits to South Korea ...... 31 4. Benefits to the United States ...... 41 5. South Korea Trade & Investment Flows (China, Japan, U.S., EU) ...... 51 6. Trade Losses ...... 57 7. Trade Irregularities ...... 59 8. Limitations of Analysis ...... 61 IV. KORUS FTA Case Studies ...... 63 1. Overview ...... 63 2. Individual Case Studies ...... 64 1. Blue Diamond Growers ...... 64 2. Boeing Defense, Space & Security ...... 65 3. Brown-Forman Corporation ...... 65 4. CJ BIO America, Inc...... 66 5. Glanbia Foods, Inc...... 66 6. Kia Motors Manufacturing Georgia (KMMG) ...... 67 7. Ropes & Gray LLP ...... 67 8. Smithfield Foods ...... 68 9. Texas Instruments ...... 68 10. Welch Foods ...... 69 12. Discussion in Cases ...... 69 V. Impacts of KORUS ...... 70 1. Economic Implications ...... 70 2. Political Implications ...... 78 VI. Conclusion ...... 83 References ...... 90 Abstract (English) ...... 96 Abstract (Korean)…………………………………………………………………………………………96
4 List of Tables
TABLE 1. 2015 U.S. MAJOR TRADING PARTNERS (EXPORTS) ...... 10 TABLE 2. TIMELINE OF U.S. FREE TRADE AGREEMENTS...... 11 TABLE 3. U.S. TRADE VOLUME (ROK) ...... 31 TABLE 4. ROK EXPORTS IN GOODS (U.S.) ...... 34 TABLE 5. 2015 TOP 10 ROK EXPORTS (U.S.) ...... 35 TABLE 6. ROK EXPORTS IN SERVICES (U.S.) ...... 36 TABLE 7. ROK MAJOR INDUSTRIAL EXPORTS FIGURES ...... 39 TABLE 8 ROK MAJOR EXPORTS DESCRIPTIVE STATISTICS ...... 40 TABLE 9. U.S. TRADE BALANCE (ROK) ...... 42 TABLE 10. U.S. EXPORTS IN SERVICES (ROK)...... 43 TABLE 11. U.S. EXPORTS IN GOODS (ROK) ...... 45 TABLE 12. 2015 TOP 10 U.S. EXPORTS (ROK) ...... 46 TABLE 13. U.S. MAJOR INDUSTRIAL EXPORTS FIGURES...... 48 TABLE 14. U.S. MAJOR EXPORTS DESCRIPTIVE STATISTICS ...... 50 TABLE 15. U.S. INTERNATIONAL STUDENT COUNTRIES OF ORIGIN ...... 73
List of Figures
FIGURE 1. 2015 U.S. GLOBAL EXPORTS IN GOODS & SERVICES ...... 23 FIGURE 2. ROK MAJOR INDUSTRIAL EXPORTS FIGURES ...... 38 FIGURE 3. U.S. MAJOR INDUSTRIAL EXPORTS FIGURES ...... 47 FIGURE 4. TREND IN KOREA-CHINA TRADE SINCE 1992 ...... 52 FIGURE 5. TREND IN KOREA-CHINA INVESTMENT ...... 52 FIGURE 6. TREND IN KOREA-JAPAN TRADE SINCE 1965 ...... 53 FIGURE 7. TREND IN KOREA-JAPAN INVESTMENT ...... 54 FIGURE 8. TREND IN KOREA-EU TRADE ...... 54 FIGURE 9. TREND IN KOREA-EU INVESTMENT ...... 55 FIGURE 10. TREND IN KOREA-U.S. TRADE ...... 56 FIGURE 11. TREND IN KOREA-U.S. INVESTMENT ...... 57
5 I. Introduction
1. Research Methodology
The research for this project primarily utilized a series of impact reports and economic studies, which were commissioned by both the governments of the United States and South Korea. In particular, this research relied heavily on the 2007 United States International Trade Commission KORUS Report, the 2014 Congressional Research Service (CRS) KORUS Report, the 2012 Congressional Research Service Dispute Settlement KORUS Report, the Trade Works Business Case Study, and the 2007-2015 Ministry of Foreign Affairs (MOFA) White Papers.
By analyzing initial impact studies and progress reports published by both countries, it was possible to determine the ways in which both the United States and South Korea sought to advance their national interests via KORUS. This literary analysis also helped to contextualize bilateral trade data, used to evaluate the contemporary effects of the KORUS FTA.
These trade figures were collected primarily using the U.S. Census Bureau, the U.S. Department of Commerce, and the United Nations Commodity Trade Statistics Databases, which revealed both monthly and annual trade balances, as well as export revenues. The data collected was then further classified based upon industry or
6 commodity, in order to review the effectiveness of critical provisions within the KORUS FTA.
After analyzing trade flows between the United States and South Korea from a macro perspective – observing which industries constituted the highest bilateral trade volumes, as well as those industries which had been designated as KORUS beneficiaries – these findings were then cross-referenced, using business case studies provided by the South Korean Embassy. The purpose of using this resource was to highlight the most successful U.S. firms, currently operating in South Korea, in order to illuminate the initial effects of KORUS’ implementation. However, these cases studies are not representative of all U.S. firms operating in South Korea, and instead, are intended to only demonstrate the potentiality of the KORUS FTA.
Finally, all data collected on bilateral trade volumes was observed using Eviews, an econometrics software package, which enabled the impact of KORUS to be tested in terms of its effectiveness, via log form linear regression. By running a regression analysis based upon ex- ante trade data, it was possible to quantify the economic influence of bilateral free trade on the GDP of both countries.
In regards to model specification, the Gravity Model of Trade is typically used to determine the influence of transaction costs (distance) and GDP, on bilateral trade volumes. However, the political relationship between the United States and South Korea supersedes this approach, and therefore, such an analysis was excluded from this work.
7 As mentioned previously, the benefits of KORUS are not constant for both countries, which is represented by the scale and specialization of economic development. Therefore, econometric modeling techniques were utilized in order to isolate the causality of shifts in bilateral trade flows, in an attempt to determine the ways in which free trade has impacted economic growth for the United States and South Korea.
2. Research Scope
In this thesis, trade data has been collected from 1985-2016 in order to properly assess the role KORUS has played in regards to economic relations between South Korea and the United States. The KORUS FTA is a continuation of this historic relationships, which is why it is essential to understand international relations between both countries through a strategic lens.
Therefore, the purpose of evaluating data from the mid-1980s, was to determine the ways in which international trade has influenced the South Korean economy in comparison to other economic or political flash points such democratization, Nordpolitik1, and the 1997 East Asian Financial Crisis. Moreover, it is also important to consider the consistency of U.S.-ROK relations during these times of instability and reform.
1 Nordpolitik was the signature foreign policy initiative of South Korea’s 6th president, Roh Tae-woo, who governed the country from 1988-1993 and utilized economic relations with the former communist bloc, and other communist nations in East Asia, to establish South Korea as a global actor in international politics (Don Oberdorfer, 1997).
8 II. American Foreign Policy in the Asia Pacific
1. Overview
The end of the 20th century saw the beginning of a new economic order, whereby the flow of international trade and capital was diverted away from the Atlantic for the first time in American history (Yergin & Stanislaw, 2002). This reallocation of international goods and services was the result of a burgeoning new middle class, emerging from the post-war economies of Asian developmental- states. The decision by many of these nations to utilize the global free- market system in order to access wealth and technology from abroad, enabled East Asia to introduce new centers of finance, production, innovation, and education into the world economy (Johnson, 1995). By the dawn of the new millennium, countries like Japan, Singapore, South Korea, China, and Taiwan had ushered in a historical paradigm shift, in which the vitality of global free-markets became increasingly dependent on trade in the Pacific.
In many ways, the contemporary definition of ‘globalization’ as it pertains to economic convergence, technological proliferation, and the standardization of political economic institutions; is defined by the ascendency of East Asia as a model for post-industrial development, free-market reform, and democratization. What began as a region primarily recognized by the United States for its strategic value during the Cold War, now defines the legitimacy of America’s global influence in the 21st century (table 1)
9 Table 1. 2015 U.S. Major Trading Partners (Exports)
Country Billions USD$ Total Exports Canada 280.0 18.6% Mexico 236.4 15.7% China 116.2 7.7% Japan 62.5 4.2% UK 56.4 3.7% Germany 49.9 3.3% South Korea 43.5 2.9% Netherlands 40.7 2.7% Hong Kong 37.2 2.5% Belgium 34.1 2.3% Brazil 31.7 2.1% France 31.5 2.1% Singapore 28.7 1.9% Taiwan 25.9 1.7% Australia 25.0 1.7%
Source: U.S. Census Bureau
The significance of an ascendant East Asia is not only reflected in an American effort to advance its regional economic alliances, but also that of every nation whose welfare is largely predicated on access to Asia’s ports and manufacturing base. However, the rewards of globalization also often come at the expense of our national security, as demonstrated by the threat of global terrorism, global warming, and political isolationism (The Economist, 2016).
In light of such events giving rise to anti-globalist sentiment across the Western world, it is necessary to re-evaluate the United States’ commitment to free trade in the Pacific as it pertains to the KORUS FTA, in an attempt to sustain the ‘Pivot to Asia’, and future trade initiatives (Trans-Pacific Partnership or bilateral FTAs). As the major
10 economies of East Asia continue to politically mature, now more there ever, it is essential to support the expansion of global free-markets, in hopes of creating a more equal and transparent world.
Furthermore, because most of the international trade responsible for sustaining the growth of the U.S. economy is conducted without a formal free trade agreement, the United States is unable to capture the greatest benefits from trade due to accruing transaction costs (table 2). Therefore, lowering barriers to entry between the U.S. and its allies, is critical in the pursuit for greater economic growth. Table 2. Timeline of U.S. Free Trade Agreements
Year Country 1985 Israel 1994 Canada 1994 Mexico 2001 Jordan 2004 Australia 2004 Chile 2004 Singapore 2005 Costa Rica 2005 El Salvador 2005 Guatemala 2005 Honduras 2005 Nicaragua 2005 Dominican Republic 2006 Bahrain 2006 Morocco 2006 Oman 2007 Peru 2012 Panama 2012 Colombia 2012 South Korea
Source: Council on Foreign Relations
This thesis chose to analyze the KORUS FTA as a precursor to future American trade initiatives, due to its level of sophistication, strategic
11 value, and date of implementation. By observing trade flows between both the United States and South Korea, it is possible to determine where trade has expanded between these two nations, in terms of exports, and to what extent GDP has increased commensurate to free trade reform.
2. What is the United States-South Korea Free Trade Agreement?
The KORUS FTA was initially negotiated between the administrations of President George W. Bush and South Korean President Roh Moo- hyun, and signed into effect on June 30, 2007. However, at the time, implementation of the KORUS FTA was deferred after being rejected by a democratically controlled U.S. congress2, due to issues over trade in agriculture and auto-manufacturing.
Consequently, the political climate of the United States at that time also prevented KORUS from being ratified by the South Korean parliament, due to the perception that the treaty was largely an ROK initiative, or at least, politically infeasible in the United States. As a result, neither country was able to see the agreement come to fruition until 2010, when the administrations of President Barack Obama and Lee Myeong Bak re-opened trade negotiations to resolve all outstanding issues in regards to KORUS (Williams, Manyin, Jurenas, Platzer, 2014).
1 President Bush’s second term was largely marred by low approval ratings due to a steady decline in public support for the wars in Iraq and Afghanistan. The 2006 congressional elections reflected a popular shift away from the views of the Republican Party, as the Democrats were able to win majorities in both the House of Representatives and the Senate.
12
On March 15, 2012 the U.S.-South Korea Free Trade Agreement entered into force, making it the largest FTA ever signed by the United States since NAFTA, and heralded as the most integrated and advanced trans-Pacific free trade agreement in the world (Schott, Jung, Cimon-Isaacs, 2015). For both countries, KORUS immediately became a watershed moment, directly impacting both the Korea- China FTA negations, as well as the Trans-Pacific Partnership proposal.
The initial purpose of the KORUS FTA was to inspirit the U.S.-South Korean alliance in an attempt to pursue greater economic integration, cooperation, and transparency across East Asia. By augmenting its political and economic commitment to South Korea, the United States began to further ingratiate itself with a region of the world still defined by statism, post-colonial rancor, and cultural acrimony; in hopes of pursuing long-term economic sustainability.
By opening its markets to South Korean manufactures, the United States essentially agreed to absorb greater trade deficits, in order to embolden innovation, opportunity, and prosperity within its own economy, despite the cost of economic reform. This calculation was based upon a firm belief in the potentiality of East Asian hegemony, as both an economic actor, but also a political administrator and arbiter of international security.
For South Korea, exclusive access to the American market determines its competitive advantage against other regional export economies
13 such as Japan, China, and Taiwan, and enables the country to utilize trade surpluses in order to buoy economic growth (GDP). However, initial previsions within KORUS threatened to significantly alter the economic structure of various South Korean industries, which eventually caused negotiations to languish from contention between both parties. Nevertheless, these issues were ultimately resolved in principle following the 2010 G20 Seoul Summit.
3. Where will Trade Increase?
From the outset, any FTA between South Korea and the United States was expected to initially affect both countries disproportionately, due to the size and scale of their economies. Furthermore, the political landscapes of both countries also played a critical role in shaping the optics of expanded free trade, due to variations in public policy, economic development, and industrial organization.
For the United States, South Korea was an ideal trading partner in regards to the export of agricultural products such as beef, pork, and produce, due to the country’s lack of arable land, high population density, and sizeable middle class. According to the findings of the 2014 Congressional Research Service report, “The USITC study concluded that U.S. GDP would be higher by $10.1 billion to $11.9 billion (approximately 0.1%) when the KORUS FTA is fully implemented….”(9).
Moreover, South Korea was also considered an attractive market for the sale of capital-intensive goods and services, at both the public and
14 private level, due to the composition of its highly industrialized economy. Aerospace exports, professional financial services, pharmaceutical & medical devices, and foreign direct investment (FDI) were all predicted to find heavy demand within the South Korean economy, as mentioned in the Congressional Research Services report. (Williams et al., 2014).
In particular, “The (USITC) study concluded that U.S. exports of goods would likely be higher by $9.7 billion to $10.9 billion, primarily in agricultural products, machinery, electronics, transportation equipment, including passenger vehicles and parts. U.S. imports would increase $6.4 billion to $6.9 billion, primarily in textiles, apparel, leather products, footwear, machinery, electronics, and passenger vehicles and parts” (USITC, 2007. pp. xvii-xviii)
In addition, the United States anticipated that an increase in South Korean imports would be predominately negligible, in regards to aggregate U.S. output and employment, due to the relative difference in size between both economies (Christ et al., 2007). In short, whatever inroads were to be made because of KORUS, were considered strategic and complementary, and would not hold absolute sway over the American economy at the macro level. South Korea on the other hand, viewed an integrated relationship with the United States as a seminal moment in its economic development, due to its heavy reliance on export driven growth and foreign capital.
By the early 2000s, South Korean conglomerates such as Samsung, Hyundai, LG, and KIA had successfully established themselves as global leaders of industry, and stood to benefit greatly from increased
15 access to the U.S. economy. In addition, in 2005 the Korea Institute for International Economic Policy (KIEP) published an ex-ante impact assessment, arguing that a theoretical free trade agreement between the United States and South Korea “…would eventually lead to a 0.42% to 0.59% increase in South Korea’s GDP according to a static analysis, and 1.99% to 2.27% according to a dynamic analysis.” (Lee, Junyu and Hongshik Lee, 2005)
In particular, South Korea anticipated an FTA with the United States to increase exports in regards to automobiles (passenger cars), electronic products & components (semi-conductors and computer components), steel, textiles & apparel, and FDI (Williams et al., 2014).
Furthmore, the global success of the South Korea’s largest firms has also lead to the emergence of supportive industries, specialized in cultural–based consumer goods and services (Hallyu), whose demand is relative to the value of South Korea’s secondary economy3. Therefore, the ‘Korean Wave’ is indirectly supported by expanded trade with the United States, as industries related to the development of cultural goods are popularized through the market share of South Korea’s multinational corporations (MNCs).
Furthermore, establishing an FTA with the United States was not only critical for South Korea in regards to the globalization of said MNCs, but also the development of the nation’s foreign relations and international reputation. Due to the political and economic dynamics
2 The international success of South Korea’s fashion, film, popular music, and cosmetic industries is often attributed to the corporate and political regulation of said industries, similar to its MNCs.
16 shaping East Asia, South Korea is in constant competition with other export-based economies, primarily Japan, Chain, and Taiwan. Therefore, accomplishing a free trade agreement with the United States also meant receiving preferential treatment4 in regards to the movement of South Korean goods, services, and people; a highly significant advantage for Korean firms exporting to the U.S. (Williams et al., 2014).
4. Where will Trade Decrease?
For both South Korea and the United States, each country views the risks of KORUS relative to the structure and scale of their own economy. For the United States, expanded trade with South Korea was expected to dramatically affect steel exports, due to the competitive advantage of the Korean steel manufacturing industry (POSCO). This advantage was also seen as a liability to the U.S. auto-manufacturing industry, which demanded specific “snapback provisions” within the FTA, to enable the United States to re-implement duties on trucks and passenger cars if South Korea violated any KORUS regulations, or the U.S. experienced “any harmful surges in South Korean auto imports due to the FTA agreement” (Williams et al., 2014).
Furthermore, a study conducted by the Economic Policy Institute (EPI) estimated that an FTA between the United States and South Korea would “…increase the U.S. trade deficit by $13.5 billion and
4 Currently, the U.S. only holds FTAs with 2 other Asian-Pacific nations: Singapore and Australia. Therefore, KORUS dramatically increases the competitiveness of South Korean exports in relation to similar goods and services originating from China, Japan, and Taiwan.
17 eliminate approximately 159,000 jobs” (Robert E. Scott, 2010).
Although the strength of South Korean auto-manufacturing was a point of concern for the American auto industry, when negotiating KORUS, many U.S. auto-manufacturers felt that sluggish exports had traditionally been due to the lack of “transparency of South Korea’s trading and regulatory systems”, designed to favor local industry (Williams et al., 2014).
In this regard, both countries committed to promoting economic transparency by establishing a Committee on Trade Remedies, an organization composed of representatives from both countries, which is scheduled to meet at least once year, in order to promote informational exchanges regarding trade remedies and regulation policy.
In concert with transparency and issues related to non-tariff barrier reduction, the United States was also concerned about copy right protection, in particular regard to pharmaceutical manufacturing. Due to the enormous value of American R&D, as it pertains to the field of medicine, maintaining the intellectual property rights of U.S. firms was a major concern during the KORUS negotiations. To remedy this situation both countries made commitments to:
require each government to extend national treatment to IPR holders from the other country; require transparency through the publication of regulations and laws regarding intellectual property rights;
18 facilitate the registration of and protection of trademarks and established limitations on the use of geographical indications; ensure the right of authors, performers, producers of recordings to determine the use of copyright products; require copyright protection for no less that 70 years; thus, South Korea agrees to extend its copyright protection term, an objective of U.S copyright holders; protect copyrighted material against piracy and provide penalties for those who abet piracy including the seizure and destruction of pirated and counterfeit products; protect copyrighted performances on the Internet and protect encrypted programming over satellites and cable signals.
In summary, the United States was most concerned about the commitment to and facilitation of transparency measures, designed to protect intellectual copy rights, and mutual standards & regulations. Although South Korea held certain economic advantages over the U.S. in regards to industrial manufacturing, the United States believed the Korean market was historically unresponsive to U.S. exports due to a tradition of protectionism. And if KORUS were to be successfully implemented, market liberalization could inspire a new demand for American goods and services.
For South Korea, expanded trade with the United States enables the country to capitalized on market access to an economy considerably larger, and more open than its own. This in turn, allows South Korean MNCs to be rewarded for their innovation and competitiveness, as beneficiaries of a preferential trade regime. However, in return for
19 this access, KORUS also requires South Korea to pursue potentially disruptive economic reforms, by opening its industries to foreign competition.
As mentioned before, the most susceptible Korean industry to globalization – insofar that it is the country’s least internationally competitive economic sector – is agriculture. During the KORUS negations, South Korea took an unwavering position on the protection of its domestic rice industry, and virtually agreed to rebuke any FTA that did not acknowledge the cultural and economic significance of ‘Korean rice’.
Although there were similar points of contention regarding the liberalization of the South Korean beef industry – popular opinion within the country was highly skeptical of foreign beef imports in the wake of mad cow disease – these market reforms where eventually agreed to be phased in over the course of a 16-year period, whereas rice was deemed sacred, and non-negotiable5 (Williams et al., 2014).
Lastly, KORUS will not only challenge barriers to trade surrounding South Korea’s agriculture industry, but due to the advancement of the United States’ service economy; professional, financial, express delivery, and telecommunications services were also targeted for
3 The South Korean government was also highly concerned about potential damages incurred from an increase in U.S. citrus fruits imports, particularly to the economy of Jeju Island. During KORUS negotiations, a compromise was reached to reduce tariffs on U.S. navel oranges, and phase out tariffs on all other mandarin oranges over the course of 15 years.
20 market liberalization. In an attempt to open their respective service industries to one another, both countries committed to:
provide national treatment and most-favored-nation treatment to the services imports from each other; promote transparency in the development and implementation of regulation in services providing timely notice of decision on government permission to sell services; prohibit limits on market access, such as a caps on the number of service provides, on the total value of services provided, on the total quantity of services provided, and on the total number of persons that can be employed by service providers; prohibit foreign direct investment requirements, such as export and local content requirements and employment mandates; and prohibit restrictions on the type of business entity through which a service provider could provide a service (Williams et al., 2014).
In particular, the United States had a specific interest in the South Korean insurance market (7th largest in the world), and sought provisions to guarantee equal regulation for both American and Korean, state-owned and cooperative, insurance providers.
In conclusion, South Korea’s biggest concerns were centered on the implementation of market liberalization, as it related to the pace of tariff reduction and deregulation. Key industries, such as agriculture,
21 were spared from immediate market reform, while the country’s most advanced economic sectors were slated to be liberalized. However, even where immediate free trade was agreed upon, the rate at which non-tariff trade barriers will be reduced is still very much uncertain.
Despite both nations celebrating the establishment of KORUS, the reduction of non-tariff trade barriers will most likely still be influenced by national interests, and require multiple stages of negotiation. Therefore, it is important to remain cautiously optimistic in regards to the promises of total free trade between both countries. Nevertheless, the initiatives proposed in the KORUS FTA will ultimately be fulfilled in principle.
5. Strategic Goals of KORUS
As demonstrated in table 1, the U.S. perceives the Asia-Pacific, specifically Northeast Asia, as the most economically dynamic region in the world, and strategically invaluable to the strength of American foreign policy. By utilizing economic integration in order to maintain an entrenched U.S. presence in the region, the KORUS FTA enables America to develop relations with South Korea, and in essence, use the success of its alliance as a proxy for other Asian nations it aspires to diplomatically engage on both regional and global issues.
The United States’ ability to strengthen its cultural, political, and economic influence through South Korea is best observed in China, where American interests are seen as both invasive and antithetical to the state. Therefore, in this particular situation, South Korea has the
22 potential to act as a surrogate for Western policy, as it is far easier for a nation like China to relatively acquiesce to the cultural, political, or economic ambitions of a benign “westernized” neighbor, than it is to accept the will of a foreign rival, such as the United States.
Furthermore, as a more internationally engaged China seeks to determine the region’s economic framework and balance of power, the United States has more risk to manage in regards to its influence and investments in East Asia. Therefore, using FTAs as a means of economic diplomacy will enable the United States to outmaneuver competing interests, such as China or the EU, as it pertains to augmenting its economic hegemony in an increasingly invaluable strategic region of the world (figure 1).
Figure 1. 2015 U.S. Global Exports in Goods & Services
Source: United States Department of Commerce
23 At its center, KORUS is a structure designed to advance communication and cooperation between the United States and South Korea. By dismantling institutional barriers, both countries are agreeing in principle, to mimic the other in such a way, that the movement of information, people, goods, and services is guaranteed. To this effect, both countries have ratified a system of dispute settlement mechanisms, which seek to create a legal framework for the regulation of KORUS mandates, and includes up to 19 different committees administered by the United States Trade Representative (USTR) and the Ministry of Trade, Industry and Energy (Tami Overby, 2014).
In particular, the settlement system focuses on State-State disputes, and Investor-State disputes, as they pertain to all investment, labor, and environmental obligations under the KORUS FTA (Jeanne J. Grimmett, 2011). In some respects, the integration of its settlement dispute system has enabled KORUS to become more efficient, transparent, and accountable than any other FTA previously signed by either party. However, many of KORUS’ critics have also questioned whether such expansive legal obligations are actually a means to undermine national sovereignty in the name of market liberalization (Kim Hyung-joo, 2013).
In concert with establishing a singular preliminary legal framework for the resolution of trade disputes, KORUS also aims to pioneer technological integration as it pertains to cross boarder data flow between the United States and South Korea (Overby et al., 2014).
24 With the advent of cloud computing, guaranteeing unfettered access to international data services, and forfeiting national requirements to store data locally, is critical to the integrity of modern free trade. In this regard, South Korea is at an immediate disadvantage, due in part to the cyber security risks posed by North Korea, which it claims prevent the nation from releasing ‘critical’ data to foreign firms6.
Finally, the KORUS FTA will also attempt to ease Visa restrictions for South Korean business representatives entering the United States, as well as Korean nationals working for a U.S. subsidiary of a foreign company (Williams et al., 2014). By limiting Visa restrictions, economic integration between both countries has the potential to be fully realized, as the free movement of peoples will now be supported at the highest political level.
In addition, according to the American Chamber of Commerce Korea (AMCHAM), the benefits of Visa liberalization were immediately recognized at the onset of KORUS:
The total amount spent by U.S. Visa cardholders in Korea increased 40% y-o-y in 1st quarter of 2012. Spending by Korean Visa cardholders in the U.S. increased 8% during the same period.
6 Internet reform may be an early indicator of South Korea’s commitment to market liberalization. Highly conservative censorship laws, as well as, strict regulations on data flows, threaten to severely hamstring Korean innovation, infrastructure, and openness, as demonstrated by the country’s suppression of Google technology (Eric Pfanner, 2013).
25 The increased business opportunities (and resultant travel) between the U.S. and Korea that come from KORUS have played an important part in these gains.
By encouraging the people of both countries to seek out economic opportunities within the other, KORUS may ultimately lead to a higher level of cultural and social integration as well. Perhaps expanded free trade may also inspire more reforms aimed at increasing transnationalism between both countries, and ultimately lead to greater and more diverse levels of innovation.
In conclusion, the KORUS FTA is not only designed to facilitate trade between South Korea and the United States, but also secure long-term economic integration and market stability, through a system of institutional compromise, cooperation, and transparency. Although lofty, these ambitions stem from the historical consistency of the U.S.- ROK alliance, which both countries hope to use as a template for greater economic reform in the Asia-Pacific.
III. Research Findings
1. Overview
As mentioned previously, due to the differing economic scales between both countries, benefits from trade between the United States and South Korea must be observed using two different standards. For South Korea, basic data analysis reveals the obvious advantages its industries stand to gain by exporting to a market far
26 more sophisticated and larger than its own. This is reflected in the concentrated trade volumes and revenues South Korea is able to command via increased exports of high value goods.
In short, trade with the United States has a pronounced impact on the growth of the South Korean economy. However, in regards to the United States, its benefits from trade a far less recognizable on the macro level. Instead, the positive effects of KORUS are more easily observed on an industry by industry basis. This is due to the fact that all economic activity generated by the KORUS FTA is simply swallowed up in the grand design of the U.S. economy.
In fact, the initial growth estimates for KORUS (.01%+) are roughly equivalent to the annual economic surplus gathered from the aggregated tuition, investment, and consumption expenditures ($9.8 billion) of all Chinese international students, pursuing their collegiate education in the United States (Brook, Larmer 2016). Therefore, when analyzing trade volume data sets, it was essential to contextualize figures for both countries accordingly. For South Korea this process was far more straight forward; KORUS is successful or unsuccessful based upon the scale of economic growth in strategic industries, particularly those already established within the U.S. economy.
For the United States however, the opening of the South Korean economy brings the promise of long-term gains best observed by the diversity and breadth of U.S. exports to the Korean market. Moreover, the industries in which the United States is most competitive differ from those of South Korea, and will require the removal of non-tariff
27 barriers in order to be competitive, particularly in regards to trade in services. Therefore, it is essential to evaluate the United States’ position within the South Korean economy based upon the emergence of new revenue streams, and the success of early movers.
2. Implementation
Due to the nature of any FTA, it is impossible to determine the success or failure of economic integration until all barriers to trade have been fully removed. This process is designed to take place over an extended period in order to help markets adjust to changes in domestic economic policy. In the case of KORUS, all tariffs on goods and services are anticipated to be removed over the course of a 23- year period (Williams et al., 2014). Therefore, it is essential to realize that the initial benefits from trade for South Korea and the United States are expected to evolve substantially as the KORUS FTA matures and emboldens greater economic interdependency between both countries.
According to the 2014 Congressional Research Service report, “…on March 15, 2012, 82% of U.S. tariff lines and 80% of South Korean tariff lines became duty free, whereas prior to the KORUS FTA, only 38% of U.S. tariff lines and 13% of South Korean tariff lines were duty free. By the tenth year of the agreement, the figures are estimated to be 99% and 98%, respectively, with tariff elimination occurring in stages and the most sensitive products, such as agricultural products, having the longest phase-out periods…Any significant effects of the KORUS FTA are more likely to be evident on individual firms and
28 industries rather than trade flows as a whole. Moreover, some of the potential benefits of freer trade, which include lower-priced and more diverse goods and services, as well as improved productivity among firms, cannot be easily measured by trade balances” (pg10).
Therefore, the results of the following findings merely indicate where both countries economically complement one another, where demand for international trade is strongest, and where public policy should be targeted to mitigate losses, or account for irregularities. Moreover, the data collected for this thesis should also be evaluated within the strategic value of political, economic, and military cooperation between the United States and South Korea.
Nevertheless, to the extent that both countries valued greated economic integration, the KORUS FTA has also raised a number of concerns regarding the feasibility of certain implementation provisions. In particular, the U.S. was worried about the following issues:
Origin verification: U.S. exporters frequently complain that the South Korean Customs Service (KCS) requires excessive documentation, and conspires against foreign imports in the case of U.S.-origin frozen orange juice, concentrate, chemicals, cars, and other products (USTR, 2014). Express delivery packages: U.S. officials have worried that South Korea may not be abiding by KORUS provisions in regards to express delivery packages of less than 200$, which
29 are exempt from formal entry document requirements (Williams et al., 2014). Data transfers: U.S. companies have raised conferences over issues regarding the ability of financial services companies to practice off-shore data processing (KORUS Implementation Issue Paper, 2014) Proposed automotive regulations: U.S. car manufactures have been concerned about South Korea’s greenhouse gas emission provisions, which has resulted in a tax penalty American firms argue negates benefits from trade (Williams et al., 2014). Pharmaceuticals and Medical Devices: U.S. industry is worried that South Korea’s pricing regime undervalues new drugs produced in America, and their patent linkage system is biased towards domestic generic drug manufacturers (Williams et al., 2014). Currency manipulation: U.S. officials also questioned whether or not the South Korean Won is accurately valued, or subsided to increase the competitiveness of Korean goods and services, and nullify the aims of KORUS (Lessons Lessons Learned Two Years Later, 2014).
30 3. Benefits to South Korea
Upon reviewing the data on South Korean trade volumes, it is apparent that the country has benefited predominately from maintaining a trade surplus with the United States. And with the exception of three years from 1985-2016, South Korea has managed to sustain this pattern of trade while developing a highly sophisticated economy, predicated on the maximization of domestic exports and the minimization of foreign imports (table 3).
Because of this trend in export-driven growth, South Korea has been able to economically develop at a remarkable pace, and leverage its relationship with the United States to support the maturation of its domestic industries via financial aid, institutional development, and international trade. However, recently the foundation of U.S.-South Korean trade relations has come under attack, due to structural changes in the global economy, and the lack of political support for trade and outsourcing, as it pertains to domestic industries within the United States. Therefore, it is critical that both countries consider ways in which FDI can be utilized into order to ‘buy back’ political support for free markets, during a time of anti-globalist populism.
Furthermore, it is also necessary that economic losses accrued through trade be remedied via proactive public policy, as opposed to forbidding market liberalization and foreign competition. In particular, it is for critical both countries to utilize economic integration in order to improve jobs, by virtue of either creation or
31 innovation, and reinvest gains from trade into those displaced by economic reform. Table 3. U.S. Trade Volume (ROK)
Year Imports (millions $) Exports (millions $) Balance (millions $) 2007 47,562.3 34,401.7 -13,160.6 2008 48,069.1 34,668.7 -13,400.4 2009 39,215.6 28,611.9 -10,603.7 2010 48,875.2 38,820.6 -10,054.5 2011 56,661.4 43,461.6 -13,199.7 2012 58,898.9 42,282.6 -16,616.6 2013 62,370.5 41,648.7 -20,721.7 2014 69,679.8 44,625.1 -25,054.7 2015 71,758.7 43,445.5 -28,313.1 2016 64,465.1 37,997.1 -26,468.0
Source: United States Census Bureau
Furthermore, maintaining economic equity between both countries is critical for U.S.-South Korean relations. In particular, we are able to observe from the table that South Korea’s trade surplus has shifted towards an increasing trend within the last 5 years, marking the greatest volume in trade between both countries. Therefore, it is possible to assume that under further investigation, South Korea may be receiving the highest benefits from trade, in terms of economic activity spurred on by exports.
In addition, it is also important to take into consideration South Korea’s market share within the United States. As exports for the Korean peninsula have increased since democratization, South Korean brands have successfully out maneuvered many other global
32 firms, particularly in electronics, in order to command a greater share of the U.S. market. This is turn, has helped increase South Korea’s cultural visibility and dramatically strengthened the country’s global political influence.
Table 4 represents all the goods South Korea exports to the United States since 2006. In this graph, we are able to observe that the total volume of ROK exports in goods to the United States has also increased significantly within the last 5 years, and new export industries are becoming more developed.
Moreover, although general merchandise is South Korea’s primary goods export, capital goods and automotives have also grown substantially since 2006, and have continued to find success within the U.S. market. Therefore, it is imperative that South Korea continue exploring investment opportunities within these industries, in order to help diversify its exports through supportive goods and services.
In particular, it is important that South Korea use the comparative advantages of the American market in order to pursue greater vertical integration. By exporting not only manufactured goods to the United States, but also commanding the entire supply chain, South Korea will have the opportunity to maintain its dominance over other global competitors. Furthermore, by taking advantage of America’s specialization in services it will be possible for South Korean firms to increase their market share in other service-based export industries
33 Table 4. ROK Exports in Goods (U.S.) (figures in millions USD)
Exports 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 General Merch. 46,426 48,732 49,399 40,115 49,762 57,572 59,569 62,961 70,696 72,430 Capital Goods 12,645 13,207 13,609 11,767 15,571 17,282 18,750 19,179 20,679 19,427 Automotives 12,450 12,210 11,317 8,417 11,726 15,424 18,590 20,254 23,216 26,192 Indust. Supplies 9,763 11,069 10,174 6,637 9,120 11,421 12,248 11,533 14,394 13,694 Consumer Goods 10,167 10,762 12,585 11,753 11,528 11,769 8,244 9,905 10,424 10,846 Other Gen. Merch. 1,078 1,147 1,331 1,161 1,396 1,204 1,230 1,516 1,384 1,636 Foods, Feeds, Beverages 324 336 382 379 422 472 507 575 598 634
Source: United States Department of Commerce
Table 5 further reveals which South Korean exports to the United States are in the highest demand based upon 2015 figures. Due to this information it is clear that sales in industrial manufactured goods serve as the basis for trade between South Korea and the United States, and are almost double than the next highest export. As a result, many supporting industries such as articles of iron, steel, and plastic are also supported by U.S. demand, which is reflective in the specialization of the South Korean economy.
In addition, by gaining preferential treatment in the U.S. market via KORUS, it is possible that South Korea has been able to use its
34 popularity in America to globally market its manufactured goods more successfully than in regional markets. Although the demand for South Korea’s most distinguished brands is incredibly high, having access to the U.S. market enables Korean products to be brandished on a much higher level than elsewhere in Asia.
Table 5. 2015 Top 10 ROK Exports (U.S.)
Exports Billions of USD$ Vehicles other than railway, tramway 24.1 Electrical, electronic equipment 12.4 Nuclear reactors, boilers, machinery etc. 12.2 Mineral fuels, oils, distillation products, etc. 2.9 Articles of iron or steel 2.1 Iron and steel 2.0 Plastics and articles thereof 2.0 Rubber and articles thereof 1.8 Optical, photo, technical, medical etc. apparatus 1.2 Organic chemicals 1.1
Source: UN Comtrade International Trade Statistics Database
Table 6 is an overview of South Korean services exports and reveals a substantial increase in all of the country’s service sectors. In particular, the growth in transport services has remained South Korea’s top service export to the U.S. While insurance and financial services, as well as intellectual property charges, have also seen a recent soar in demand in light of KORUS. This increase in service exports represents a critical development in the South Korean economy, as the country inevitably begins its transition away from
35 the production of industrial goods, such as heavy and light manufacturing, to the production of services. In order to make this shift, it is necessary that South Korea be a capital rich country, especially in regards to human capital, and its citizens possess a relatively high level of economic mobility.
Table 6. ROK Exports in Services (U.S.) (figures in millions USD)
Exports 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Transport 5,165 5,594 4,580 3,647 4,500 4,876 4,969 5,351 5,568 5,850 Government 1,448 1,537 1,485 2,100 2,636 2,525 2,509 2,529 2,473 2,353 Travel 892 931 929 1,017 1,079 1,058 1,271 1,327 1,294 1,249 Other Business 367 440 584 664 0 0 1,059 843 695 0 Financial 197 197 318 233 177 209 199 208 272 233 Telecom. 84 97 91 85 129 103 131 120 113 69 Intellectual Property 68 73 52 56 97 130 132 127 152 285 Insurance 13 21 33 37 52 34 84 108 101 101 Maintenance 24 30 8 17 0 0 286 30 40 0
Source: United States Department of Commerce
However, to determine whether or not recent Korean trade surpluses are the result of foreign trade relations with the United States, all import data was imported into Eviews and further analyzed. These results reveal that, based upon the R-squared values, 99% of the variance produced in this regression can be explained by the LS model (Table 7).
Yet, it is also important to note that the data collected on the trade flows of major South Korean exports to the U.S. cannot account for all
36 GDP growth, considering that the U.S. is not South Korea’s largest trade partner. Therefore, these results should be seen as an endorsement of KORUS, but not appropriate parameters for determining the overall health of the South Korean economy. Therefore, it is essential that when evaluating the advantages of expanded trade between South Korea and the United States, to also consider the regional influences affecting the potentiality of trans- Pacific integration.
As a result, the effects of KORUS are naturally impacted by South Korea’s regional and global free trade agreements, and it is necessary to conduct further research into the influence of competing FTAs in order to determine in what way the South Korean economy is influenced by multiple sources of foreign investment and trade.
In regards to U.S.-South Korean trade relations, it is possible to observe in both figure 2 & table 7, that South Korean GDP is partially influenced by the level of major goods exported to the United States. This connection is demonstrated by the general curvature of Log cars (South Korea’s biggest U.S. export) and the trend of Log GDP, during years 2008-2010, where similar movements appear in both slopes.
However, what this data also reveals is the lack of pure economic reasoning behind the KORUS FTA, which directly supports the notion that the benefits of trade between both countries cannot be measured simply through an economic lens. If such were the case, why would the United States attempt to establish a free trade agreement with a
37 vastly smaller, culturally distant, protected market at the expense of American jobs and businesses? The answer: it wouldn’t.
However, when you take into account the strategic value of South Korea, as both a military ally and regional trading partner, it becomes apparent that more trade with the Korean peninsula may prove highly advantageous in soliciting greater trade deals in the future (i.e. China, Japan, and ASEAN). Therefore, KORUS should be evaluated as both an economic tool, and a foreign policy initiative, aimed at maintaining the United States’ interest in the Asia Pacific.
As a result, it is important to note that the critics of KORUS must also consider the political implications of enabling another hegemon to define the regional terms of trade with a country strategically invaluable to the political and economic ambitions of the United States. If U.S. allies support American initiatives, both regionally and globally, because of benefits from trade, is the United States willing to accept a diminished role in Asia’s regional affairs?
In all likelihood, the United States is not prepared to cede its influence over such an economically dynamic region to a burgeoning rival. Therefore, arguments in favor of shutting down America’s reliance on trans-Pacific trade are largely unfeasible. In addition, the political fallout of a trade war may ultimately demonstrate the utility of economic integration, due to the structure of today’s global economy. Not since the 1979 oil crisis has the world seen a whole sale economic war; the effects of which largely contributed to rewriting the rules of globalization. Therefore, a short-term decline in trade may ultimately
38 reinforce global economic integration due to the importance of free- markets in the developing world – and thus, the popularity of anti- globalist will most likely wane under the pressure of convergence. Figure 2. ROK Major Industrial Exports Figures
Table 7. ROK Major Industrial Exports Figures
Year Log (gdp) Log (iron tubes) Log (microcircuits) Log (cars) 2007 12.13178478 8.709269961 9.33243846 9.881954971 2008 12.14789604 8.964730921 9.350248018 9.838219222 2009 12.14501419 8.575187845 9.281033367 9.723455672 2010 12.17762277 8.919601024 9.401400541 9.783903579 2011 12.19297062 9.152288344 9.029383778 9.943494516 2012 12.20716913 9.220108088 9.041392685 10.0211893 2013 12.21494367 9.198657087 9.064457989 10.08990511 2014 12.22660841 9.36361198 8.792391689 10.17318627 2015 12.24273443 9.301029996 8.691081492 10.24797327
Source: UN Comtrade International Trade Statistics Database
39 Table 8 ROK Major Exports Descriptive Statistics
Log GDP = α + β1Log IRONTUBES + β2Log MICROCIRCUITS + β3Log CARS + ut
Variable Coefficient Std. Error t-Statistic Prob.
C 5.037355 2.058349 2.447279 0.0212
Log IRONTUBES 0.533405 0.068375 7.801135 0 Log MICROCIRCUITS 0.392359 0.06797 5.772524 0
Log CARS 0.158776 0.038227 4.153513 0.0003
R-squared 0.895434 Mean dependent var 27.33906
Adjusted R-squared 0.883815 S.D. dependent var 0.677706
S.E. of regression 0.231002 Akaike info criterion 0.027136
Sum squared resid 1.440776 Schwarz criterion 0.212167
Log likelihood 3.579392 Hannan-Quinn criter. 0.087451
F-statistic 77.06976 Durbin-Watson stat 1.133138
Prob (F-statistic) 0
Source: UN Comtrade International Trade Statistics Database
In particular, it is most likely that once anti-trade policies are implemented in Europe and the United States, a global decline in living standards in the developed world will follow, thus prompting the call to end economic protectionism as it happened at the end of
40 the Second World War. Therefore, critics of globalization, willing to close markets in order to avoid economic reform, may find it very difficult to implement policies in conflict with political interests on either side of the global economic spectrum.
4. Benefits to the United States
In the case of the U.S., trade deficits have continued to rise after the implementation of KORUS. However, the country’s total volume of trade has also managed to increase, demonstrating a burgeoning demand for U.S. goods and services in the South Korean market (table 3). The breadth of exports to South Korea also reflects the strength of small and medium size firms within the United States. And a more diverse spectrum of exports seems to indicate the weathering of traditional non-tariff trade barriers, as well as the maturation of the South Korean economy (table 11).
In particular, demand for U.S. general merchandise is quite strong in South Korea. Therefore, the KORUS FTA has succeeded to open new markets for American products; specifically, those related to agriculture, industrial supplies and materials, and capital goods — or areas where the United States should have an absolute advantage over South Korean firms, but has traditionally been unable to promote market liberalization. And despite KORUS’ role in increasing U.S. trade deficits, the United States is only operating at a trade loss with South Korea in terms of goods (table 9) – a byproduct of the structure of the U.S. economy, and not the direct result of a Korean effort to undermine U.S. imports.
41 Since the Reagan administration of the 1980s, the United States has continuously sought to outsource and automate domestic manufacturing. Therefore, any trade deal the U.S. signs must be designed to embolden its competitive advantages; predominately the export of capital intensive goods and services. This position is reflected in the United States’ significant trade surplus in services with South Korea, yet, this reality is almost entirely unaccounted for in the public debate surrounding KORUS. Therefore, the United States should utilize its trade relations with South Korea as a means to promulgate economic reform aimed at supporting the country’s service industries, as opposed to engineering new comparative advantages in domestic industrial manufacturing.
Table 9. U.S. Trade Balance (ROK) (figures in millions USD)
Year Exports (Services) Imports (Services) Exports (Goods) Imports (Goods)
2007 12,485 8,920 35,864 48,734
2008 13,663 8,079 36,740 49,402
2009 13,232 7,857 29,695 40,115
2010 15,451 9,334 39,766 49,762
2011 16,664 9,735 45,219 57,587
2012 18,162 10,641 44,353 59,585
2013 20,956 10,643 43,462 62,962
2014 20,238 10,708 46,265 70,698
Source: United States Department of Commerce
42 In particular, the U.S. specializes in exporting services related to travel, intellectual property rights, and transportation. Therefore, it is essential that the United States support these industries by seeking ways to export more professional services to South Korea via deregulation or domestic promotion (table 10).
However, despite these advantages the United States still maintains an overall trade deficit with South Korea because the majority of business conducted between both countries is defined by the trading of goods. Although it may be possible that a surge in agricultural and manufactured exports will mitigate America’s trade deficit, it is highly unlikely that the United States will ever retain a comparative advantage in industrial manufacturing. Therefore, investing more heavily in services may ultimately prove more effective based upon traditional economic theory.
Table 10. U.S. Exports in Services (ROK) (figures in millions USD)
Exports 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Travel 3,882 4,479 5,015 4,535 5,694 5,903 5,913 6,966 7,244 7,973 Intellectual Property 2,602 2,968 3,318 3,237 3,976 4,529 5,515 7,274 6,089 6,015 Transport 1,773 2,093 2,222 1,861 2,085 2,228 2,237 2,189 2,220 2,324 Other Business 1,252 1,233 1,338 1,490 1,442 1,925 2,177 2,138 2,248 1,883 Financial 469 472 573 624 761 806 920 828 907 912 Maintenance 364 384 435 574 766 540 554 621 685 592 Government 340 403 315 426 253 182 224 300 244 291 Telecommunications 248 231 202 219 208 282 337 344 325 324 Insurance 146 223 247 266 267 268 285 295 277 198
Source: UN Comtrade International Trade Statistics Database
43 In regards to American goods exports, the United States has continued to see strong gains. However, these gains are often overshadowed by the overall trade deficit, which KORUS has exacerbated. Nevertheless, the demand for U.S. branded products is increasing as demonstrated by the strength in exports of American automotives and capital goods (table 11).
Moreover, a U.S. trade deficit with South Korea can also be explained based upon changes in GDP growth. According to U.S.-Korea Business Council “Economies tend to import more goods when they are growing and less when they are slowing. Korea’s economic growth has been in a slow growth mode relative to its previous high levels since before KORUS went into effect in March 2012. Whereas the Korean economy grew at a pace over 6% in 2010, Korean growth has fallen from 3.7% in 2011 to 2.6% in 2015. Korea’s domestic demand, which affects import levels, has weakened as growth has slowed. While U.S. growth rates have been in the 1.5% – 2.5% range, U.S. domestic demand has picked up, and overall U.S. imports have trended up” (Nick Montella, 2016).
Therefore, it is important to evaluate the current stability of both economies before questioning the performance of KORUS. In this case, the United States seems to be recovering from its own economic crises (‘07-‘09 Great Recession), faster than South Korea, and in turn, consumers within the Korean market have not be able to increase or sustain demand as once predicted. As a result, greater academic research between both countries is necessary in order to illuminate economic conditions currently affecting the application of KORUS.
44 Table 11. U.S. Exports in Goods (ROK) (figures in millions USD)
Exports 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
General Merch. 33,511 35,860 36,723 29,692 39,754 45,205 44,327 43,383 46,249 44,377
Capital Goods 15,455 15,208 13,242 11,570 15,408 16,200 17,261 17,527 17,610 18,976
Indust. Supplies 9,516 11,567 12,819 10,378 13,768 17,051 15,393 14,915 15,382 12,810 Foods, Feeds, Beverages 2,695 3,283 5,220 3,679 4,770 6,244 5,476 4,806 6,370 5,677 Consumer Goods 2,329 2,370 2,198 2,202 2,834 2,713 2,962 2,980 3,230 3,153 Other Gen. Merch. 2,783 2,519 2,424 1,394 2,094 1,755 1,908 1,585 1,741 1,518
Automotives 732 913 821 469 880 1,242 1,328 1,571 1,917 2,242
Source: United States Department of Commerce
In addition, when observing America’s top exports to South Korea it is apparent that, despite a trade deficit in manufactured goods and electronics, the U.S. is a major supplier of hi-tech products to the Korean peninsula, specifically aircraft, nuclear technology, and medical equipment (table 12).
Furthermore, the government of South Korea is one of the largest procurers of U.S. military equipment. Therefore, determining the exact volume of trade which occurs between both countries may fluctuate significantly in light of their military alliance (Curtis Brown, Ryan Browne, Zachary Cohen, 2016). This in turn, further complicates the dynamics shaping trade relations between both countries in ways which bisect both politics and economics.
45 Table 12. 2015 Top 10 U.S. Exports (ROK)
Exports Billions of USD$ Nuclear reactors, boilers, machinery etc. 6.9 Electrical, electronic equipment 6.1 Aircraft, spacecraft, and parts thereof 4.4 Optical, photo, technical, medical, etc. apparatus 3.0 Vehicles other than railway, tramway 1.9 Organic chemicals 1.6 Plastics and articles thereof 1.4 Meat and edible meat offal 1.3 Mineral fuels, oils, distillation products etc. 1.2 Cereals 1.1
Source: UN Comtrade International Trade Statistics Database
However, according to the data observed in Eviews, 99% of the variance produced in this regression can be explained by the LS model, based upon its R-squared values (table 12). Therefore, a rise in U.S. trade revenues with South Korea has a positive relationship with GDP. But unlike South Korea’s regression graph, U.S. GDP is not as strongly impacted by bilateral trade with the Korean peninsula (figure 3). This is due, in part, to the differing size of both markets as well as regional influences, and the current strength of either economy. Both countries’ major trading partners are predominantly local neighbors (America; Canada, and South Korea; China). However, in light of South Korea’s role in U.S foreign policy, it’s possible that economic diplomacy may enable the country to augment its influence in North America via KORUS or vice versa. Therefore, benefits from trade must be further contextualized within the data set.
46
Figure 3. U.S. Major Industrial Exports Figures
Furthermore, when looking at the United States’ bilateral trade data it is also important to take into consideration the historical isolation of the South Korean market. Like many development states during the Cold War, the government of South Korea sheltered its local firms from foreign competition in order to promote economic growth. Therefore, the lower levels of trade between both countries must also be considered within a historical context. South Korea is relatively at a much earlier stage of economic development than the United States, and expectations must be adjusted in regards to trade relations.
Therefore, it is best to consider South Korea as both an emergent regional hegemony, and transitional economic power administrering
47 reform. The KORUS FTA will be one of South Korea’s greatest tests in its pursuit to adapt to the new rules of the global economy, based upon market liberalization. Similarly, critics of trade relations between the United States and South Korea must realize that there is an enormous amount of domestic political interest in integrating these two markets, as indicated by post-KORUS trade volume data.
In addition, skeptics of trans-Pacific economic integration fail to consider the advantage greater trade relations with Asian economies proposes, as it relates to the development of the U.S. economy. Although trade with Asia has resulted in sector specific job loss, it is important to consider how international trade has also lead to greater innovation and the development of human capital, and augmented the spread of U.S. influence as a global hegemon. To that effect, Asia is a critical piece in the political calculus of America’s global foreign policy. Asia’s emerging nations have already established themselves as the primary engines of economic growth in the global economy. And its most developed societies are rapidly becoming critical drivers of technological innovation and educational advancement, particularly in the fields of science and mathematics (PISA, 2015).
Therefore, it is important for the United States to consider a future in which greater political, economic, and cultural exchange with Asia will not only drive innovation, but through expanded trade and economic convergence, institutional divisions held onto from the Cold War will inevitably be diminished, if not completely dismantled via globalization. These changes will, in turn, greatly bolster the security and dynamism of the region as it continues to economically evolve.
48
Table 13. U.S. Major Industrial Exports Figures
Year ( log (oranges) log (pork) log parts) (aircraft log (beef) log (med. log (cars) log aircraft) (large log
GDP)
)
13.1606 7.95616 8.27184 8.60205 7.93043 8.39445 8.20139 9.22010
2007 9657 1607 9991 9595 1681 7124 8088
843
13.1678 7.96473 8.30319 8.57054 8.24551 8.44090 8.22010 9.02118
2008 0921 6057 2668 9082 8088 9299
665 294
13.1589 7.81491 8.22271 8.58883 8.39269 8.51982 8.05307 8.76042
2009 2611 3181 6471 1726 6953 7994 8443 2483
13.1751 8.04139 8.16731 8.82865 8.55509 8.53781 8.40823 9.20139
2010 1735 2685 7335 9897 4449 9095 9965 7124
13.1908 8.20951 8.66370 8.82801 8.77742 8.62531 8.53907 9.15533
2011 3295 5015 0925 5064 6822 2451 6099 6037
13.2083 8.32428 8.54530 8.78175 8.67394 8.70415 8.83505 9.24054
2012 1503 2455 7116 5375 1999 0517 6102 9248
13.2217 8.26951 8.43456 8.87273 8.72345 8.76117 8.89153 9.07188
2013 5841 2944 8904 8827 5672 5813 7458 2007
13.2392 8.19312 8.54157 8.66370 8.84880 8.82801 8.95951 8.82607
2014 5192 4598 9244 0925 4701 5064 8377 4803
13.2539 8.33243 8.60422 8.61278 8.77815 8.80071 9.08242 9.29025
2015 9186 6053 3857 7078 6301 7269
846 125
Source: UN Comtrade International Trade Statistics Database
49 In regards to KORUS’ potentiality, table 12 highlights America’s most competitive exports to South Korea. In particular, aircraft parts as well as large aircraft exports are tired closely to the changes in U.S. GDP, as demonstrated by high probability values. Conversely, car exports appear to be insignificant, which is an indication that the United States should utilize aggregate export volumes as an indicator of market liberalization and the effectiveness of KORUS previsions.
Table 14. U.S. Major Exports Descriptive Statistics
Log GDP = + 1Log ORANGES + 2Log PORK + 3Log AIRCRAFTPARTS + 4Log BEEF + 5Log MEDICAMENTS + 6Log CARS +7Log LARGEAIRCRAFT + ut
Variable Coefficient Std. Error t -Statistic Prob. C 26.05307 0.421406 61.82418 0 Log ORANGES 0.059956 0.007984 7.509928 0 Log PORK 0.000614 0.007745 0.079245 0.9375 Log AIRCRAFTPARTS -0.009507 0.021463 -0.442951 0.6619 Log BEEF 0.002875 0.003293 0.873125 0.3916 Log MEDICAMENTS 0.2026 0.017016 11.90636 0 Log CARS -0.032193 0.012357 -2.605219 0.0158 Log LARGEAIRCRAFT -0.002261 0.007787 -0.290393 0.7741
R-squared 0.995581 Mean dependent var 29.89502 Adjusted R-squared 0.994236 S.D. dependent var 0.437443 S.E. of regression 0.033212 Akaike info criterion -3.754175 Sum squared resid 0.02537 Schwarz criterion -3.384114 Log likelihood 66.18972 Hannan-Quinn criter. -3.633545 F-statistic 740.2073 Durbin-Watson stat 1.760496 Prob (F-statistic) 0
Source: UN Comtrade International Trade Statistics Database
50 5. South Korea Trade & Investment Flows (China, Japan, U.S., EU)
As mentioned previously, the intended effects of KORUS may be influenced by other regional and global actors, pursuing trade agreements with South Korea in competition with the United States. As a result, it is important to observe how foreign investment has interacted with the economy of South Korea since democratization, and where Korean FDI outflows have moved in relation to KORUS’ implementation.
As South Korea’s largest trading partner, trade with China has the potential to dramatically influence America’s benefits from trade, especially in regards to South Korea’s foreign policy initiatives and willingness to trade in hi-tech governmentally procured goods and services. As figures 4 and 5 demonstrate, both China’s exports and investment in South Korea have increased since 1992, which may influence South Korea’s willingness to make future economic sacrifices in regards to U.S.-South Korean relations.
Furthermore, it is probable that a Trump administration will seek to reduce future U.S commitments in Northeast Asia, thereby greatly augmenting South Korea’s political and economic relations with China. This in turn, may influence the rate at which South Korea chooses to liberalize its markets in favor of either the United States or China. As mentioned previously, South Korea’s unique diplomatic, economic, and cultural influence allows the country to either bolster America’s regional interests, or hinder them in ways other allies, such as Japan, can not mitigate for historical reasons.
51 Figure 4.
Figure 5.
52 Similarly, South Korea’s trade balance with Japan will also have an impact on U.S. exports, which is why contextualizing trade and investment flows pre-FTA will allow the United States to determine the long-term competiveness of KORUS’ provisions.
As demonstrated in figures 6 and 7, Japan’s investment in South Korea is substantially larger than the converse, which is most likely the result of the country’s post-war economic ‘miracle’. However, it is also important to note that South Korea’s trade deficit with Japan has remained constant since the implementation of KORUS; a point of historical significance for the country’s economic development (Kim Tae-gyu, 2016). And if this deficit increases, or political relations worsen, it may cause South Korea to slow economic reform which favors U.S. trade, in light of its own national interest.
Figure 6.
53 Figure 7.
Figure 8.
54 Figure 9.
In addition, South Korea’s trade deficit in goods and services, as reflected in figures 8 and 9, is also another issue which may affect the country’s willingness to economically reform with regards to the provisions outlined by KORUS. Moreover, South Korean investment in the EU, and European imports, have steadily risen since it signed an FTA in 2011 (European Trade Commission, 2016). An event which may also cause the country to see its trade surplus with the United States as a means to mitigate further deficits with the EU.
Lastly, it is also important to consider how South Korea’s foreign trade policy with the EU will impact its support of U.S. regional interests, specifically those which threaten EU initiatives or status.
55 Figure 10.
Lastly, when considering the economic relationship between both countries, the significance of U.S. trade cannot be understated in relation to the growth and stability of South Korea’s GDP. Currently, the country is posting trade deficits with both the EU and Japan; an accurate reflection of South Korea’s economic stature in comparison to other trading super powers. But in regards to the world’s largest economic hegemon, South Korea commands a significant trade surplus and marketing position within the U.S. market. Therefore, it is critical for South Korea to maintain the stability of its economic relationship with the United States, and take advantage of the U.S.’s desire to seek out foreign imports and investment. Furthermore, it is apparent from figures 10 & 11 that since KORUS’ implementation,
56 economic relations between both counties have only deepened – an indication of the opportunity both markets have to offer the other, and the utility of trans-Pacific free trade. Figure 11.
6. Trade Losses
It is important to note that despite showing positive returns in regards to trade revenue, more free trade with South Korea has adversely affected the U.S. labor market. As of 2015, the KORUS FTA has resulted in the loss of more than 95,000 jobs (Robert E. Scott, 2015). Meaning, that although the initial optimism which surround the implementation of this FTA was quite palpable, the notion that KORUS would increase, or bring jobs back to the U.S. was highly inaccurate.
57 Instead, the KORUS FTA has increased the wealth of American MNCs at the expense of U.S. workers, which is why in many ways the United States is seeing diminishing returns for its commitment to trade in the Pacific. Unless revenues from trade are reinvested in maintaining the competitiveness of U.S. manufacturing a la Germany – or international trade is utilized to reduce the cost of U.S. services and transaction costs i.e. education and healthcare – increasing job loss will ultimately negate all benefits from trade.
However, it is also important to recognized that U.S. job losses via KORUS are unlike those experienced in Mexico via NAFTA. Which is to say that, a decline in American jobs is not entirely the result of offshore outsourcing, but rather a decline in demand for products produced in the United States in direct competition with those manufactured by South Korean firms.
Although a decline in domestic revenues for U.S. auto-manufacturers, or electrical appliance firms, may have resulted in the outsourcing of labor to cheaper markets. Very few, if any, South Koreans have directly replaced an American worker in their respective supply chain. In fact, thus far, South Korea has proven to be a much stronger investment partner in the United States (Figure 18), going so far as to expand production and operating facilities into the U.S. market (Kia Manufacturing Motors Georgia, CJ Bio America Inc.).
In particular, the U.S. conservative think tank the Heritage Foundation concluded in 2016 that “…Top 12 South Korean firms alone created more than 35,000 jobs in the U.S. last year alone, three times more than in 2012…and Korean firms are planning to make more direct
58 investment in the U.S.” (Korea-US FTA Working, Yonhap News). Therefore, it is important that the opportunities provided by KORUS are made transparent and not falsely represented via politics.
Lastly, based upon collected figures we are able to observe that South Korea’s largest trading partners in terms of goods and services are China (1st), USA (2nd), and Japan (3rd). However, in terms of investment both the EU (1st) and China (2nd) outrank the United States and Japan (OEC, 2016). As a result, the targeted effects of KORUS may be indirectly influenced by other nations competing to invest and trade with South Korea, which may partially explain why trade irregularities have occurred. As South Korea welcomes more foreign competition into its domestic market, U.S. firms may find it increasingly difficult to improve their market share, despite the presence of a free trade agreement between both countries.
7. Trade Irregularities
In regards to the preliminary impact assessments commissioned by the U.S., it was predicted that the United States would see trade increase in beef, oranges, pork, passenger cars, aerospace exports, pharmaceuticals & medical devices, and professional services among others. However, there remain a number of industries where trade has decreased despite targeted previsions within KORUS, which should be re-examined in order to determine the effectiveness of implementation. These industries include: petrochemicals, fruit, garments, coal, agrochemicals, meat and eggs, cereals and vegetables, and aircraft (OEC, 2014).
59
These results may be accounted for in the 2015 South Korean Ministry of Foreign Affair’s diplomatic white paper, which stipulates that, “Overall, trade and investment between Korea and the US continues to increase in terms of absolute amount. However, the weight of Korea's trade with the US compared to its total trade continues to show a downward trend due to a rapid expansion in trade between Korea and China as well as intensified competition within the US market” (pg 274).
Conversely, industries which saw surges in growth following the implementation of KORUS include: tropical treecrops and flowers, miscellaneous agriculture, oil, milk and cheese, fish & seafood, inorganic salts and acids, food processing, other chemicals, construction materials and equipment, chemicals and health related products, and machinery (OEC, 2014). As a result, these industries appear to demonstrate a point of entry into the South Korean market for U.S. exporters, and should be promoted in order to reduce America’s current trade deficit.
As revealed by the findings uncovered via the MIT Observatory of Economic Complexity Database (OEC), the results of KORUS have been mixed, and in some cases, what had been initially predicted has not yet come to fruition. Therefore, it is necessary to conduct extended research in order determine the causality behind trade irregularities, and observe the benefits from trade, as tariffs and non- tariff trade barriers are gradually reduced over time.
60 Furthermore, it is also necessary to consider how expanded trade with other nations will influence South Korea’s reliance on trade with the United States. In particular, because KORUS is no longer the nation’s most recently signed FTA, it would be valuable to compare how the flow of trade and investment between South Korea and its largest trading partners has influenced U.S. firms operating in the Korean market.
In conclusion, trade irregularities observed in the data may exist due to a lack of perspective on behalf of the initial KORUS impact assessments commissioned by the United States congress. And without the foresight to perceive an ascendant China or EU, in regards to trade and investment, the United States may have initially unaccounted for these factors when determining preliminary benefits from trade. It is also possible that in industries deemed vulnerable to foreign competition, regulatory measures have been taken to slow market liberalization, which is why further research must be conducted in order to investigate the transparency of South Korea’s trade regulations in regards to its most strategic industries.
8. Limitations of Analysis
The greatest limitation of this analysis is defined by the variance in statistical classification. For certain data samples, finding the most current figures is feasible, yet in the case of bilateral trade and FDI flows, these statistics are incredibly hard to ascertain. Furthermore, much of the economic data on bilateral trade is often spread out across multiple platforms and classified in a variety of different ways.
61 This lack of consistency is also compounded by the fact that a large portion of economic data on said platforms, only begins in the late 90s or early 00s. In turn, these irregularities are minimized by truncating data samples, which greatly reduces the scope of analysis. Therefore, it is necessary to balance the results of econometric modeling, using in-depth contextual analysis. The most absolute data is reflected in national statistics; however, bilateral data on KORUS is still in its early stages of development.
Lastly, occasionally bilateral import and export values for the same product may vary, lending a greater degree of uncertainty to empirical analysis. To properly interpret these issues, this research adhered to the International Monetary Fund guidelines:
“It is sometimes assumed that corresponding export and import data between partner countries should be consistent. That is, the exports from Country A to B should be equal to the imports of Country B from A…it should be noted that there are several complications that can cause inconsistency between exports to a partner and the partner’s recorded imports f.o.b., or between imports free on board (f.o.b.) from a partner and the partner’s recorded exports. The principal reasons for inconsistent statistics on destination and origin for a given shipment are differences in 1) classification concepts and detail, 2) time of recording, 3) valuation, and 4) coverage, as well as 5) processing errors.”
62 IV. KORUS FTA Case Studies
1. Overview
The KORUS FTA case studies were drafted and published by the South Korean Embassy, 9 months after the Korea-United States Free Trade Agreement had been signed into effect. The purpose of this research was to identify the success of early movers, who had taken advantage of market liberalization and benefited from expanded trade between South Korea and the United States. In essence, the South Korean government used these case studies in order to entice potential trading partners, to follow the example set by the United States by seeking trade and investment opportunities within the Korean market.
Although utilized by their embassy to promote the benefits of the local economy, the early success of these U.S. firms in South Korea accurately highlighted trends corroborated by the data collected for this research, and outlined industries vulnerable to non-tariff barriers. In particular, a general overview of firms interviewed for this case study revealed that most of the South Korean market, which welcomed U.S. imports, appeared to utilize KORUS on a limited scale, insofar that trade imbalances remained consistent.
However, despite the relatively moderate success of the businesses questioned for this case study, there have been major success stories, whereby U.S. exports to South Korea have soared, and appear likely to
63 maintain their competiveness in the long-run7. Therefore, the success of KORUS should be measured against the success of U.S. firms within strategic industries, as well as the scale of foreign firms providing a supportive role to other South Korean businesses.
The following selections are a cutaway of the case study’s largest, and most dynamic globalized firms. However, due to the structure of the U.S. economy, the success or failure of KORUS will be determined primarily by the ability of small and mid-sized businesses to export their products to South Korea, and compete against other local firms. Furthermore, a lack of regulatory awareness on behalf of U.S. SMEs may have also caused KORUS to be underutilized by American firms, unknowing of the opportunities available in the Korean market.
2. Individual Case Studies
1. Blue Diamond Growers
Blue Diamond Growers is a California-based agricultural cooperative, founded in 1910, and is the largest tree nut processing and marketing organization in the world. It is responsible for serving 3,500 almond growers within the state of California, who are responsible for producing nearly 80% of the world’s almond supply (Phil Plait, 2013). Blue Diamond has been exporting its products to South Korea for
7 In particular, brands such as Costco, Starbucks and Shake Shack have established themselves as titans of industry within the South Korean market. For example, the Yangjae Costco (Caroline Fairchild, 2014), and Gangnam Shake Shake branches in Seoul, are both company’s most profitable retail space in terms of sales volume (Korea Herald, 2017). While the market penetration of Starbucks in South Korea currently surpasses New York City, due to the level of brand recognition the company commands amongst South Koreans (Tina Hsu, 2015).
64 more than 30 years, and just within the last year (2012), almond exports have increased by 28%. The elimination of import tariffs from 2012-2017 via KORUS, are anticipated to strongly increase the market share of Blue Diamond Growers within South Korea (Republic of Korea Embassy, Trade Works, 2012).
2. Boeing Defense, Space & Security
Boeing is one of the largest multi-national corporations in the world, specialized in designing, manufacturing, and selling airplanes, rotorcraft, rockets, and satellites. It is the second-largest defense contractor in the world, and the largest exporter of U.S. aerospace technology by dollar volume (Boeing, 2014).
Having a long history of business with the Republic of South Korea, in both the commercial and defense aerospace markets, Boeing currently operates out of Seoul, Busan, Gimpo, Sacheon, Seosan, and Daegu. It also offers performance-based logistical support for nearly 20 South Korea companies and invested more the 250$ into South Korean business in 2011 (Republic of Korea, et al., 2012).
3. Brown-Forman Corporation
The Brown-Forman Corporation is one of the largest manufacturers and distributers of wine and spirits in the United States. Its portfolio includes some of the most recognizable global brands in the world such as Jack Daniel’s, Finlandia, Candian Mist, and Herradura.
65 The Brown-Forman Corporation has been exporting to South Korea since 1998 and today commands a leading presence in the nation’s whiskey market. Brown-Forman sees South Korea as a critical destination for its imports, considering the country’s increasing demand for luxurious foreign spirits (Republic of Korea, et al., 2012).
4. CJ BIO America, Inc.
The CJ Corporation is a South Korean conglomerate holding company, which operates business in a vide spectrum of major industries including, food & food services, pharmaceuticals, biotechnology, entertainment & media, retail, and logistics.
CJ BIO America, Inc. produces an amino acid called Lysine, which is used in the production of corn feed for poultry and swine. The company currently operates facilities out of central Iowa, where it produces more than 100,000 metric tons of amino acids per year, and hopes to expand its FDI model into China (Republic of Korea, et al., 2012).
5. Glanbia Foods, Inc.
Glanbia Foods, Inc. is one of the world’s largest performance nutrition and ingredients groups, and has established itself as a global grand in sports nutrition, cheese, dairy ingredients, specialty non-dairy ingredients and vitamin and mineral premixes.
66 Before the implementation of KORUS foreign cheese imports to South Korea were taxed an additional 30%, however, now those tariffs will be gradually phased out by 2021. The KOURS FTA gives a substantial advantage to dairy exporters like Glanbia Foods, Inc. over other foreign competitors, particularly from New Zealand, who’ve historically been the main supplier of cheese to South Korea (Republic of Korea, et al., 2012).
6. Kia Motors Manufacturing Georgia (KMMG)
Kia Motors is a South Korean automobile company and the fastest growing car manufacturer in the United States. In 2009, it opened a $1.1 billion manufacturing facility in West Point, Georgia with an annual production capability of 360,000 vehicles.
KMMG and Kia Motors are closely affiliated with one another via an employee training program, which allows its companies engineers and manufacturers to train at the company’s R&D headquarters in Namyang, South Korea. KMMG has also had a highly positive impact on the local community in Georgia, contributing an estimated $4 billion per year to the regional economy (Republic of Korea, et al., 2012).
7. Ropes & Gray LLP
Founded in 1865, Ropes & Gray LLP is a highly distinguished international law firm, specialized in intellectual property, mergers & acquisitions, private equity, and business litigation. The firm represents a number of renowned South Korean corporations in the
67 U.S., including Samsung, LG, Hyundai, and Kia. On July 15, 2012, Ropes & Gray LLP became the first foreign law firm permitted to practice in the country by South Korea’s Ministry of Justice. As a result of KOURS Ropes & Gray LLP have been able to expand their services abroad, and will be able to practice law and open offices independently of a Korean sponsor firm in 2017 (Republic of Korea, et al., 2012).
8. Smithfield Foods
Smithfield Foods is the world’s largest producer of pork. Through a network of wholly-owned subsidiaries and joint ventures, the company produces over 50 different kinds of pork products and 200 gourmet foods. As a result of KORUS the company anticipates South Korea will become one of its more important international markets for the exportation of its products (Republic of Korea, et al., 2012).
9. Texas Instruments
Texas Instruments (TI) is an U.S. technology company most famous for inventing the handheld calculator. However, Texas Instruments Incorporated is also the third largest producer of semi-conductors in the world. In 1988 TI established its offices in South Korea and expanded its operations within the country to include an Analog IC Design Center and a Micro Controller Education Center (Republic of Korea, et al., 2012).
68 10. Welch Foods
Welch Foods is one of the largest non-alcoholic beverage producers in the world. The company began exporting its products to South Korea in 1994, and has since become one of the most successful food companies in the country, having grown its business more than 500% from 2002-2010.
However, before the implementation of KORUS, the tariff on grape concentrate was 45%. But as a result of the KORUS FTA, such tariffs have been reduced to 0%, enabled Welch Foods to establish a long- term competitive advantage in the South Korean market (Republic of Korea, et al., 2012).
12. Discussion in Cases
As revealed in the KORUS business case study examples, some of the United States most prominent MNCs have been successful early movers into the Korean market. In fact, many of the examples chosen were firms succeeding in some of South Korea’s most internationally competitive industries. These findings were further corroborated by independent research conducted by AMCHAM, which concluded in a general overview via Korea Customs Service:
Overall U.S. exports to South Korea rose 2% y-o-y in the first two months of implementation of the KORUS FTA (March 15 - May 14, 2012). However, U.S. exports to South Korea increased markedly (in USD terms) for key products for which there were tariff
69 reductions under the FTA, including: oranges (31%), lemons (172%), animal feed (27.3%), semiconductors (35%), and semiconductor manufacturing equipment (49%). 48.2% of Korean importers from the U.S. surveyed reported that they have already taken advantage of the KORUS FTA.
However, in light of the information regarding America’s trade surplus in services, it seems unfortunate that only a handful of case study subjects operated in Korea’s service economy. Perhaps, initially KORUS previsions favored trade in goods, however, market liberalization should ultimately be evaluated more holistically by the governments of both countries.
V. Impacts of KORUS
1. Economic Implications
The most immediate impact of the Korea-U.S. Free Trade Agreement is in many ways stymied by the nature of economic integration – which is to say, the sheer fact that two nations have agreed to lower trade barriers is the most consequential outcome of any FTA. But how does this change the political, cultural, and economic landscapes of both societies? In reality, those outcomes will only be realized once an FTA has had enough time to mature and define normative market expectations. However, in an age defined by global capitalism, those
70 who do not race to harness the benefits of free trade and free movement will inevitably fall to the wayside.
In the case of the ‘pivot’ to Asia, it is best to analyze the long-term ramifications of KORUS in terms of reforms; specifically, the opening of markets, intergovernmental cooperation, political transparency, and economic diversification. Although through this FTA both nations have also made themselves susceptible to new risks, greater competition, and foreign influence; the opportunities the United States and South Korea stand to gain are equally irrefutable.
Since its implementation in 2012, the most visible effects of KORUS have been represented in retail. Foreign goods and services have made domestic markets more innovative, diverse, and affordable. Better products at lower prices have improved living standards for both the middle and upper class, while simultaneously forcing local industries to maximize efficiency in order to survive foreign competition.
From this perspective, consumers and multinational corporations are generally seen as the first beneficiaries of KORUS. However, expanded trade has also had a pronounced effect on the strength and closeness of the Korea-U.S. alliance; insofar that it has made the United States value South Korea beyond a military partnership, and forced both countries to maintain a stronger vested interest in one another.
Closer diplomatic and economic relations between both countries enables benefits from trade to evolve beyond the realm of material
71 goods. With time, international cooperation between the United States and South Korea has the potential to lead to immigration reform, targeted at lowering more barriers of entry for those who remain outside of the political, financial, or academic fray.
The reduction of these barriers is particularly significant for both countries due to the United States’ trade surplus in services, as demonstrated in Figure 4. The demand for greater access to the American service market is not only reflected in the strategic agenda of South Korea’s MNCs, but also demonstrated by the overwhelming desire of the country’s brightest students and young professionals to emigrate to the United States for professional development opportunities8 .
Like China, South Korea deeply values the prestige of an American education, and has made considerable strides to support the global ambitions of its citizens in order to provide them with greater economic opportunities – particularly those tied to the United States. This is reflected in the nation’s complete integration of English into the national education curriculum, the importation of English- speaking educational professionals, the number of U.S.-South Korean dual degree programs at the collegiate level, and the volume of South Korean international students currently studying in the United States (table 13).
8 “When adjusted for population, South Korea sends the greatest number of students among the top five sources of international students in the United States” (Why Asia Matters, 2012).
72 In addition; “International students contributed more than $30.5 billion to the U.S. economy in SY 2014-15. In that year, 72 percent of all international students received the majority of their funds from sources outside the United States: 64 percent from personal and family resources and another 8 percent from foreign governments or universities” (Jie Zong, Jeanne Batalova, 2016). An indication of both the skill and affluence many international students possess when emigrating to the U.S. for their education.
Therefore, in order to maximize America’s ability to innovate it is essential that immigration policy always be cognizant of the need to remain open to those who legally seek to enrich themselves in the United States. As one of the most innovative and economically transcendent countries in the world, South Korea is a nation the United States should more openly recognize for its contributions to modern society, specifically in regards to trade, infrastructure, public safety, and national literacy, in a attempt to improve itself in line with other OECD nations.
By moving towards greater political and economic integration via KORUS, both countries are able to benefit from greater flows goods, labor, and capital from the other. Therefore, it is imperative that the United States does not seek to alienate South Korea, or fail dismiss the value of American brand recognition within Korean society, in response to economic populism.
Although South Korea is not America’s largest trading partner, its interest in expanding political and economic relations with the U.S. is
73 incredibly unique. Perhaps nowhere in the world is American society venerated more than by the people of South Korea; which is precisely why the United States should seek to further develop its relationship with one of its most trusted allies in the Pacific.
Table 15. U.S. International Student Countries of Origin
Country Number Share (%) China 304,000 31.2 India 133,000 13.6 South Korea 64,000 6.5 Saudi Arabia 60,000 6.1 Canada 27,000 2.8 Brazil 24,000 2.4 Taiwan 21,000 2.2 Japan 19,000 2.0 Vietnam 19,000 1.9 Mexico 17,000 1.7 Other countries 288,000 29.5
Source: Institute of International Education (IIE)
In addition to being a country with a long and storied history of international cooperation with the United States, South Korea is also poised to become an even greater business partner in regards to spreading American hegemony within East Asia. As the country has economically developed, overtime, South Koreans have also grown to be supremely confident in the authority of U.S. institutions, and policies which have enabled them to maintain their political, economic, and cultural independence amidst regional tensions. In
74 light of such historic diplomatic stability, it is in the best interest of both countries to protect their free trade agreement in order to further enrich domestic markets, unearth new channels of innovation, and offer a better alternative to regional territorial expansionism.
In addition, the opportunity to increase immigration and investment between both countries, because of services, is another issue that should not be overlooked. Although developing these areas of trade will require both countries to accept greater risks, as it pertains to the increased movement of people and capital, it is also advantageous for the United States to use the KORUS FTA to specialize away from trade in goods, and focus primarily on export-based services. However, due to the influence of the War on Terror on U.S. immigration policy, it is unlikely that the United States will move to reduce trade barriers which indirectly affect national security, regardless of the historical consistency of its relationship with South Korea.
Nevertheless, the United States must consider the opportunity costs in ignoring immigration reform as a means to advance U.S. trade in services. As noted by the Migration Policy Institute “The research that does exist suggests a low transition rate in the U.S. labor market among international students in recent years, pointing to the limited availability of work visas as the main barriers” (Zong, et al., 2016). Therefore, limiting the flight of high-skilled international workers is essential in maximizing KORUS’ economic benefits, as well as augmenting the political and cultural influence of American society in East Asia.
75 However, in the end it is ultimately the responsibility of both countries to facilitate market liberalization commensurate to the other. In regards to educational services, the United States should take full advantage of South Korea’s commitment to the internationalization of its education system, as well as its unwavering endorsement of U.S. colleges and universities.
In terms of trade in goods and services, South Korea has also remained committed to reducing all tariffs on U.S. goods. However, promoting regulatory transparency must be a primary concern in order to globally elevate the reputation of Korean market access to that of Singapore or Hong Kong (Economic Freedom Index, 2016). Because the country is not a major market a la China or Japan, maintaining a higher level of economic freedom, innovation, and efficiency is the only way it will be able to compete against larger regional markets.
Additionally, another matter of concern regarding economic reform is the issue of currency manipulation, specifically the devaluation of the South Korean Won. Although neighboring countries, Japan and China, have also been accused of artificially diminishing their currencies in order to promote exports, neither one currently holds a free trade agreement with the United States. Therefore, maintaining equitable real exchange rates is necessary in order to preserve the integrity of KORUS, and prevent South Korea from being labeled as a currency manipulator (Reuters, 2016).
Lastly, it is incredibly important for the United States and South Korea
76 to continue illuminating the benefits of KORUS, via industry research, and facilitate more international trade at the local level. Although MNCs have predominately seized the opportunity to be early movers, it is critical for small and medium sized enterprises to be equally involved in the integration of these two markets, and understand the advantages of globalization. Because KORUS has not yet had time to implement all of its reforms, any talk of renegotiation would be highly detrimental to both economies, potentially causing “the loss of 240,000 jobs and result in export losses worth 26-point-nine billion U.S. dollars for South Korea between 2017 and 2021” (The Korea Economic Research Institute, 2016).
Despite critics of KORUS citing the trade-offs of NAFTA as a point of reference, the North American Free Trade Agreement when into effect 18 years prior, and at the time, was incapable of taking into consideration the economic impact of future advancements in communication, transportation, and data technologies. Furthermore, at its inception, NAFTA was one of 12 free trade agreements in the world, as thus, is a policy which beckons to be reviewed. However, to associate both FTAs to each other is a false equivalency due to the date and duration both policies. As a result, efforts to seek renegotiation would greatly delegitimize U.S. foreign trade policy, whereas updating matured FTAs would embolden support for American economic hegemony in the global economy.
Therefore, it is essential for both the United States and South Korea utilize KORUS as a means to promote specialization, and improve market conditions for both economies. Although each country faces
77 different challenges in regards to addressing these issues, it is essential for the United States and South Korea to realize the potentiality of economic integration via trade, and adapt according to circumstance.
In particular, the United States must pursue economic reforms designed to embolden trade surpluses (services), and adjust for trade deficits (goods)9. On the other hand, for South Korea KORUS will be a testament to the nation’s institutional credibility and ability to reform away from a tradition of protectionism. By successfully fulfilling its commitment to KORUS, South Koreans will be able to establish a more advanced domestic market and appreciate higher levels of economic freedom. In addition, the success of its FTA with the United States will also heavily influence the landscape of the global trade, due to the opportunity Asian economies will have to supplant American leadership in regards to the direction of economic convergence in the developing world.
2. Political Implications
The political ramifications of KORUS are incredibly significant considering the rise of anti-globalism in Europe and the United States. In particular, President-elect Donald Trump has repeatedly denounced America’s trade with Asia, going so far as to call KORUS a “Job killing trade deal” and promising to renegotiate or terminate
9 In regards to America’s trade deficit in goods, it should be noted that South Korea remains a strong market for U.S. agricultural projects. Therefore, the United States should pursue market liberalization in these areas, but remain weary of low-skill domestic industrial manufacturing initiatives, or initiatives susceptible to automation.
78 many of America’s most important FTAs (The Hankyoreh, 2016). Therefore, maintaining the integrity of KORUS will have a direct impact on the future of U.S.-South Korean relations, as the United States appears to be mulling over a regional trade war, even against its closest allies (Kim Jae-kyoung, 2016).
If the United States attempts to bully South Korea into a renegotiation, it will have a significantly negative impact on the perception of America throughout the Asia-Pacific. Maintaining its economic hegemony in the region is critical for the advancement of U.S. foreign policy, especially considering the fact that Asia has never been as economically dynamic, organized, or competitive against the United States as it is today. Therefore, it would be ill advised for the U.S. to take a ham-fisted approach when dealing with trade negotiations in Asia, or attempt to minimize its exposure to the global economy’s strongest engine of growth (The Korea Society, 2016).
Furthermore, it is also important to consider the positive outcomes of supporting the current incarnation of KORUS. As mentioned previously, the strategic value of U.S.-South Korean relations is highly influential in determining the spread of American hegemony in the region. Because South Korea is a significant regional ‘soft’ super- power, as well as its position in many supranational Asian institutions – such as ASEAN+3, RCEP, and ASEM – it has considerable sway over many emerging economies, particularly those in South East Asia.
Therefore, many of the region’s most significant economic actors see South Korea’s endorsement of U.S. initiatives as a legitimizing factor.
79 Thus, if the United States is able to adapt or acquiesce to South Korea’s export model, its Asian foreign policy initiatives may prove more desirable to the region than Chinese alternatives, such as the Regional Comprehensive Economic Partnership (RCEP), the Asian Infrastructure Investment Bank (AIIB), and other ‘One Belt One Road’ initiatives (Steven Denney, Brian Gleason, 2011).
This concept of economic diplomacy is also of deep historical significance to the structure of America’s most trusted regional allies: South Korea and Japan. Because East Asian foreign relations are still strongly influenced by Cold War alliances – particularly the divide between U.S. and Chinese regional interest – it is imperative that an incoming U.S. administration understand how America’s foreign policy strategy relies heavily on economic diplomacy, specifically the openness of U.S. markets.
By expanding trade between America and South Korea, the United States is able to use bi-lateral economic integration to advance its relationship with a strategic foreign ally and regional hegemon. Furthermore, trade may also be a key component in revitalizing the Korea-Japan-U.S. alliance; insofar that competition for the greatest benefits from trade with the U.S. may encourage South Korea and Japan to establish stronger economic ties, in concert with military efforts to contain North Korea.
Lastly, the success of KORUS will also determine the sustainability of trans-pacific integration as it relates to greater regional economic integration, terms of trade, military disarmament, and political
80 development. However, if the United States and South Korea fail to achieve the goals set forth by the KORUS FTA, many other regional initiatives, which aspire to harness globalization, will most likely fail as well. And in the event that the United States isolates itself from the pacific theatre at the behest of anti-globalists; it’s conceivable that the region will not acquiesce, and instead retaliate by way of China (Mark Williams, 2016).
Therefore, it is essential for the United States to recognize how KORUS has already influenced the political and economic landscape of East Asia. What are the consequences of protectionist trade policies aimed at cutting ties with regional manufacturing, and how will America’s allies react to a ‘pivot’ away from Asia? The process by which the United States chooses to navigate these waters will be incredibly perilous, considering it will not only reverse over 60 years of foreign policy, but also fundamentally undermine an international system predicated on global capitalism.
According to political economist Albert Hirschman, “The threat of an interruption in trade – the ever-present characteristic of commerce between sovereign states – has two main effects upon the economy of the country the trade of which is interrupted: it impoverishes this country and also imposes a process of adjustment when imports are no longer forthcoming and goods formerly exported will no longer be consumed in the home market. The immediate loss from the stoppage of trade is much greater than the ultimate loss after resources have been fully reallocated. The mobility of resources plays a key role in
81 the ability to reallocate resources” (University of California Berkeley Press, 1969).
Therefore, the cost of trade renegotiation, respective to KORUS, is incredibly burdensome, if not entirely infeasible, considering South Korea’s position in the global economy as a regional actor. This is to say that if the initial South Korean backlash against KORUS’ terms of trade10 is any indication of how the country perceives itself, any foreign policy initiative aimed at testing this resolve may be grossly misinformed. Instead, the United States should use its unprecedented access to the South Korean market as an opportunity to support its strategic goals within the region, and pursue bi-lateral economic reforms complementary to KORUS objectives.
In conclusion, South Korea has one of the most dynamic, developed, and innovative economies in the world, making it a natural trading partner for the United States; a nation which strongly believes in global markets. Moreover, as South Korea continues to economically develop, American hegemony in the region will also spread deeper into the region. Although both countries will be required to sacrifice an element of economic sovereignty, in time, the benefits of greater free trade will far outshine the costs of reform. A subtle reminder that the world economy is quickly shifting eastward into the hands of new generation – one the United States must be prepared to receive.
10 Prior to the 2016 President Park Geun-hye impeachment protests, the 2008 U.S. beef protests in South Korea marked the last time in which Koreans nationally organized themselves for a single political cause, akin to democratization or the end of military governance.
82 VI. Conclusion
Perhaps the most important question to ask in regards to the health, effectiveness, and utility of the Korea-U.S. Free Trade Agreement, is to what degree will market liberalization be resisted under a Trump presidency, regardless of the wealth and prosperity international trade has produced in an era of post-war globalization. To many, the 2016 U.S. presidential election represented the first major critique of global capitalism and economic convergence of the 21st century. This period of history – shaped strongly by a handful of economic ‘miracles’ in Europe and East Asia – was made possible by a belief that globalization was good, if not sublime, and that nations should strive to embrace the potential of an increasingly open world, in which unfettered flows of information, capital, technology, and people are commonplace.
This kind of unipolar international system was initially realized due to the spread of market-based economics at the end of the Cold War. And at the helm, guiding the direction of globalization, was the United States and its allies, who sought to utilize free trade as a means of securing peace and prosperity in the world. However, in order to maintain a system so ubiquitous required the world’s powers to accept a rule of law in which there would be winners and losers from trade, and in effect, render themselves completely vulnerable to global markets unlike ever before.
As former, U.S. President Bill Clinton explained in the 1993 signing of NAFTA side agreements, “…this debate about NAFTA is a debate about
83 whether we will embrace these changes and create the jobs of tomorrow, or try to resist these changes hoping we can preserve the economic structures of yesterday. Nothing we do in this great capital can change the fact that people can move money around in the blink of an eye. I tell you my fellow Americans, that if we learn anything from the collapse of the Berlin Wall and the fall of the governments in Eastern Europe, even a totally controlled society cannot resist the winds of change that economics, and technology, and information flows have imposed in this world of ours.”
As demonstrated in the aftermath of NAFTA, trade does not inherently help the most economically vulnerable. Instead, it helps the most economically capable, the most innovative, and the most talented members of society. And in doing so it creates a paradox in which, the wealth created by economic freedom both defines our confidence in markets, as well as our suspicion of global capitalism.
However, this conundrum is not simply the result of trade in and of itself, but a consequence of innovation and opportunity; phenomena, which will continue to disrupt society so long as humans and technology coexist. This in turn, is precisely why international trade must remain at the forefront of globalization, for without access to foreign investment, goods and services, society will still remain susceptible to the influences of the global economy, however, without the means to adequately respond or advanced itself within this international system. Therefore, the real question isn’t whether or not global economic integration via trade can be reversed, but rather how
84 nations will respond to changes within an international system, split open by unprecedented technological and economic feasibility.
In short, countries such as the United States cannot afford to prevent market liberalization or the globalization of production, by limiting their exposure to the global economy. Instead, nations must realize that foreign competition, and the allure of globalization, is an inevitable challenge that must be met with optimism, entrepreneurship, and the political willingness to see trade as a catalyst for innovation.
Foreign policy initiatives, like the KORUS FTA, provide such opportunities for the United States, by exposing American firms to global competition, and in turn, improving the competitiveness of U.S. goods and services. Furthermore, as East Asia continues to establish itself as a global manufacturing base, transportation hub, and corporate incubator, it is in the best interest of the United Sates to entrench its presence in such an economically dynamic and strategically valuable part of the world.
South Korea, one of America’s oldest and closest allies in the region, epitomizes the success of U.S. hegemony as it relates to international cooperation, development, and security in North East Asia. Since the end of the Korean War, both nations have worked closely together in the pursuit of peace and prosperity, which ultimately culminated in the democratization of South Korea and its liberation from poverty via market-based economics. Yet, despite the success of this relationship, it is still unknown whether or not the next installment of
85 U.S. foreign policy will continue to support regional economic integration and international cooperation, as it has since the end of the Second World War.
Initially, a successful partnership between the United States and South Korea was considered essential in alluring the U.S. to join the Trans-Pacific Partnership, and continue its ‘pivot’ through economic diplomacy via regional trade-bloc initiatives. However, such speculation was the byproduct of an American administration keen on emboldening its influence in East Asia by deepening its partnerships and diplomatic ties with the region’s leaders of trade and industry. Needless to say, those foreign policy initiatives will be harshly scrutinized by an in-coming administration that views East Asia through a prism of realist skepticism.
To President-elect Trump, East Asia appears to be more adversarial than ally. And the trade deals proposed by the Obama administration, such as the TPP, threaten to undo the foundations of the American economy. Donald Trump has already made it inexplicably clear that his administration will seek to prevent American firms from sourcing goods and services from foreign markets, in order to stymie the outsourcing of U.S. manufacturing. And that the country’s economic sovereignty should only be leverage in bilateral trade negotiations, as opposed to regional or glocal economic initiatives.
In turn, foreign policy tools such as the KORUS FTA will be valued explicitly by the number of U.S. jobs created via trade. Unfortunately, as demonstrated by the data collected in this research, the United
86 States does not have a competitive advantage in manufacturing due to an imbalance in production costs when compared to South Korea. Therefore, it is likely that trade between both countries will be destabilized during the Trump presidency. This in turn, will most likely harm the United States in the long-run more than South Korea due to its FTAs with China and the European Union, and ultimately strongly diminish America’s role in East Asian foreign affairs.
However, it would be far more advisable for the United States to increase trade in services to South Korea, where it has a competitive advantage and will be able to create more jobs via export oriented service industries. Unfortunately, moving human capital in the global economy is not as cost effective as the transportation of goods. Therefore, in order for the U.S. to receive the greatest benefits from trade it needs to undergo significant policy reforms that will invest more revenue into the development of its service economy. It will also need to shift its political support away from labor intensive goods- based industries, in order to negotiation better terms of trade for service-based industries where the U.S. currently maintains a trade surplus.
In addition, although the cost of manufactured goods has steadily decreased in the United States, wages have stagnated while the cost of essential services, such as education and health care, have increased. Therefore, a significant portion of Americans have not been able to benefit from free trade due to the fact that trade revenues have not been successfully reinvested into the U.S. economy. As a result, it is essential to consider more seriously, ways in which the cost of
87 services can be decreased in the U.S. using the same free-market principles, which have led to a decline in consumer goods prices.
Thus, the long-term solution to minimizing trade losses in the U.S. is education reform. In particular, providing greater equal opportunities for American citizens to educate themselves in order to compete more successfully in the global economy. Due to the relatively high costs of producing goods in the United States, it is essential for American workers to possess internationally competitive skills (language, analytics, computer programming, accounting, law etc.), in order to be more economically mobile and innovative than previous generations.
Because competition, innovation, and production are no longer stationary in the global economy, American manufacturers are highly affected by the allure of rapidly emerging markets. Therefore, lower and middle-class U.S. workers are often the most likely to lose out from trade due to the ever decreasing production costs abroad, and cheap transportation costs bringing goods to market. Only in the event that the quality of a product is highly constrained by geography or labor, could a country like the United States maintain its competitive advantage in goods manufacturing.
However, due to the rise of industrial automation, even nations revered for their highly skilled laborers, such as Germany and the Netherlands, are also beginning to phase out human operation in various supply chains. In particular, automation has had a profound impact in the field of logistics where more and more aspects of port
88 management are becoming automated, including vehicle and vessel transportation (Narendra Aggarwal, 2015).
As MIT economist, David Autor posits “People who work in parts of the country most affected by imports generally have greater unemployment and reduced income for the rest of their lives. Still, over time, automation has had a far bigger effect than globalization, and would have eventually eliminated those jobs anyway…Workers are basically supervisors of machines” (Claire Cain Miller, 2016).
Furthermore, as our understanding of artificial intelligence continues to progress, even the most cognitive functions of production or innovation will inevitably be influenced by computerization 11 . According to a 2016 Citibank report co-published with the University of Oxford “47% of U.S. jobs are at risk of automation. In the UK, 35%...China, 77% — while across the OECD it's an average of 57%” (Rob Price, World Economic Forum). Therefore, governments must realize that economic displacement its not exclusively the result of trade, but that greater technological change is far more capable of altering the economy to the detriment of workers, so long as the development of human capital is no longer integral to the pursuit of innovation.
As a result, the plight of U.S. manufacturing is not the result of an ascendant Asian middle-class, but instead the byproduct of a global
11 Advancements in AI data mining have recently enabled computers to begin experimenting in creative automation via deep learning and aggregated analysis; processes, which will further dramatically reduce the use of humans in production (Gaëtan Hadjeres, François Pachet, 2016).
89 free market system in which educational access and internationalization dramatically influence the means of production. Therefore, now more than ever do markets have to prove themselves amidst a swell of anti-globalist sentiment, caused, in part, by the fallacy that trade, and not access to social resources, has undermined the competitiveness of American industry.
In conclusion, without trade the United States and the world will suffer. Not only will living standards depreciate, but also the great peace, which has been sustained due to the economic infeasibility of global war, will begin to be tested by a sense of economic protectionism, nationalism, or suspicion. Although the hopes of one day creating a trans-pacific trade bloc may be suspended in the short term, it is essential that the most recent wave of new FTAs, signed by the pacific trading powers, be used to withstand a short-term rejection of free-market policies in the West.
Hopefully, the United States’ next administration will accept the reality that globalization has brought more nations to the table, so to speak, because of technological proliferation. And while more technology augments the influence of American innovation, it also challenges our economic hegemony in ways native to a capitalist system. Therefore, a less poor world, a more open and interconnected world, should not be feared due to new risks, but celebrated for its opportunity and transparency.
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94 urce=facebook.com&utm_campaign=buffer 41. Chang, J. (2016, September 1). Korea-US FTA working as promised for both economies: Heritage Foundation report. Retrieved from http://english.yonhapnews.co.kr/national/2016/09/01/52/0 301000000AEN20160901000400315F.html 42. Montella, N. (2016, May 12). Here’s the Real Picture of KORUS: The United States is Selling More to Korea than Ever Before. Retrieved from http://www.uskoreacouncil.org/heres-the- real-picture-of-korus-the-united-states-is-selling-more-to- korea-than-ever-before/
95 Abstract (English)
In 2012 the Obama administration announced its most ambitious, and perhaps definitive foreign policy initiative, otherwise known as the “Pivot to Asia”. The purpose of this reform was to divest American interest away from the Middle East, in order to augment trade, diplomacy, and stability in the Asia Pacific. Since its inception, the ‘Pivot’ has been primarily expressed as an economic policy, aimed at supporting regional and trans-pacific integration between U.S. allies via greater free-trade agreements and trade bloc initiatives. However, due to the historically unprecedented outcome of the 2017 U.S. presidential election, the future of America’s foreign policy in East Asia is highly uncertain. Therefore, the purpose of this research was to determine the ways in which the United States’ commitment to trans-pacific integration, as demonstrated by the Korea-United States Free Trade Agreement (KORUS), would evolve in an era of anti- globalist populism. The qualitative research for this project was conducted as a comparative literary analysis, which observed previous impact studies commissioned by the United States government. The results from these studies helped establish parameters used to contextualize ex-post data between the United States and South Korea. Whereas, the quantitative aspects of said research employed the informational resources, econometric modeling techniques, and computational software recommended by the Asian Development Bank FTA impact assessment manual: Methodology for Impact Assessment of Free Trade Agreements. Naturally, due to its recent implementation, any KORUS impact analysis is unable to determine the absolute value of benefits from
96 trade between the United States and South Korea. Therefore, the data curated for this research was gathered in order to reassess the viability of U.S. hegemony in East Asia, as it relates to the economic implications and strategic ambitions of the KORUS Free Trade Agreement.
97 아시아의 중심축 : 한미 자유 무역 협정의 정치적 경제적 파급 효과
톰슨 얼링
부산대학교 대학원 국제통상무역전공
Abstract
2012 년 오바마 정부는 가장 야심하고 단호한 외교 정책 구상을
발표하였는데, 다른 말로 “동아시아로의 축”으로 알려진 것이다. 이
개혁의 주된 목표는 아시아-태평양 지역에서 무역, 외교 그리고
안정을 증진하기 위하여 미국의 관심을 중동으로부터 이지역으로
돌리는 것에 있다. 정책의 입안초기부터 그 ‘축’이라는 것은 주로
경제정책으로 표현되었으며, 자유무역협정과 무역지대구상을
통하여 동맹국들사이의 지역간, 환태평양 경제통합을 촉진시키기
위한 의도를 가지고 있었다. 하지만 2017 년 미국의 전례없는 대선의
결과로 인해 동아시아에서 미국 외교 정책의 미래는 매우
불투명해졌다. 이 연구의 목적은 한미자유무역협정 (KORUS
98 FTA)을 통해 보여주었던 미국의 환태평양 통합에
대한 공약이, 자유무역 반대의 인기영합 시대에 어떻게
진화해나갈지 그 경로를 파악하는 것이다. 이 프로젝트의 정성적인
연구는 비교문헌적인 방법으로 수행되었는데, 이는 미국정부가
이전에 수행했던 영향 (파급효과) 분석을 토대로 한 것이다. 연구의
결과는 미국, 한국 양국 간의 자유무역협정 사후 (ex post) 데이터를
맥락화(즉 이해하고 개념화) 하는데 사용된 매개변수들을 확립하는
데 도움이 되었으며, 이 연구의 방법론 측면에서는 다양한 무역관련
데이터 분석, 회귀분석 등 계량 경제 기법 등을 사용하기도
하였다. 당연히 한미 FTA 가 시행된지 얼마되지 않았기
때문에, 어떠한 영향 분석도 무역확대로 부터 얻는 양국의 편익의
절대적 수치를 얻기가 어렵다. 그럼에도 불구하고, 이
프로젝트에서 수집한 자료를 분석함으로써 양국간 무역 확대의
경제적 의미를 확인하고, 동아시아의 평화와 번영과 관련된 한미 FTA
협정의 큰 전략적 비전을 조명할 수 있었다.
99