The U.S.-Korea Free Trade Agreement, or KORUS FTA, has now been in effect for one year and, as with any agreement, it is natural to reflect on what the FTA has achieved. As the largest U.S. FTA in more than two decades, and one of the few with a major developed economy, the KORUS FTA holds the promise to make significant trade gains for both the United States and Korea. Beyond the prospect for increased trade, the agreement has helped to ease trade by improving transparence and customs procedures for exporters, while further opening up the Korean market to U.S. service exporters.

The early results for trade in goods which saw an immediate tariff elimination or reduction from the KORUS FTA have been positive. Through the first ten months (the most recent data available) exports of U.S. products that have seen tariff reductions are up 2.2 percent.  For example, sales of U.S. autos are up nearly 50 percent, while exports of U.S. agricultural products have seen strong growth with sales of products such as oranges up more than 30 percent and almonds nearly 60 percent. However, products that did not immediately benefit from the KORUS FTA saw a decrease in exports to Korea by nearly 17 percent as economic growth in Korea slowed in 2012. This helps explain the increase in the overall U.S. trade deficit with Korea, along with the still sluggish global economy.

At the same time, the United States has done well on the services and investment side of the ledger. Exports of U.S. services to Korea are up more than 10 percent, while Korean investment into the United States over the first three quarters of 2012 was $4.8 billion, nearly $3 billion more than U.S. investment into Korea.

With growth in Korea slowing down due to a broader slowdown in the global economy, it is impressive that U.S. exports have continued to grow at a modest rate. However, it is important to keep in mind that first year data for any agreement is inconclusive as the results are highly susceptible to short term economic conditions. A better gauge of the agreement’s success will come in the years ahead when the agreement will be more fully in effect and data is less susceptible to short term factors such as global economic slowdowns or fluctuations in companies purchasing.

To learn more about how to utilize the agreement go to the United States Trade Representative’s KORUS FTA page or visit U.S.-Korea Connect.

Watch the recorded video of the event here:

Photo from Scott Hess’ photostream on flickr Creative Commons.

By Seongjin James Ahn

Over the last two decades the United States and South Korea have had a dynamic bilateral trade relationship.  Together they have reached impressive achievements in trade growth, but have also weathered through economic crises, experienced contractions in global demand, and had their fair share of disagreements. Yet in spite of these mutual challenges and disagreements, data shows that the trade relationship has only strengthened with each passing year.

Macro Trade Highlights in Context

According to data by the U.S. Census Bureau, in the last eight years Korea has consistently remained the U.S.’s 7^th largest trading partner and is on track to remain so this year.  Over this period, the small nation of just 50 million people and a GDP of about $1.5 trillion has managed to exceed countries with much larger populations and economies in trade with the United States, including France, Italy, and Brazil.  At times analysts draw attention to the fact that the large U.S.-Korea trade relationship is not evenly balanced, but the figures indicate that between 2004 and 2011, U.S. exports to Korea expanded by about $17.2 billion, which also consistently placed Korea as a top 7^th destination for American goods just behind Germany over this period.  So far in 2012, Korea is ranked 7^th across the board in trade in goods with the U.S. (i.e. imports, exports, total).

In light of all the global trade rankings and superlatives that are often cited to underscore the positive economic relationship shared between two countries, it is easy to overlook how impressive U.S.-Korea trade figures truly are.  To put it into context, for example: Germany, an export-driven economy like South Korea, has a GDP of about $3.6 trillion in size and is a destination for about 3.3 percent of all U.S. exported goods.  Korea, on the other hand, has an economy approximately a third of the size of Germany’s and yet is still a destination for about 3 percent of U.S. exports.  For a country like Korea, which is relatively smaller in almost every regard when compared to the U.S.’s other top trading partners (i.e. Canada, China, Mexico, Japan, etc.), it has quite a weighty trade relationship with the U.S. that is still only growing.

Three Attributes of U.S.-Korea Trade Growth

A deeper analysis of U.S. state-by-state trade with Korea reveals three important aspects of the growth in bilateral trade.

(See the embedded Dashboard. When a U.S. state is selected on the map, export and import trends can be viewed over the last four or five years.  Additionally, the state’s top 3 export and import categories for 2011 can be viewed.)

First, the growth in U.S.-Korea trade is balanced throughout most of the fifty states.  In other words, the impressive trade growth figures are not attributed to just a handful U.S. states, but rather it is an overall trend throughout the country. For example, in terms of U.S exported goods to Korea, the majority of states – with the exception of eight – increased exports between 2007 and 2011.  In some cases, states even doubled the value of goods exported to Korea.  Louisiana, for instance, increased exports from $921 million in 2007 to about $2.1 billion in 2011.  Georgia, Idaho, West Virginia, and half a dozen others also doubled exports to Korea, while Maryland nearly tripled exports to Korea. The intra-state balanced growth strongly suggests that the expansion of a state’s trade with Korea usually does not mean a decrease in trade with Korea for another state.

Second, the growth in trade is consistent.  Over past five years, state-by-state data shows that with each successive year (with the exception of 2009 during the global financial crisis) there were steady increases in the value of goods trade with Korea.  With the KORUS FTA now entered into force, trade can be expected to expand further as tariff elimination schedules take effect over the next few years.

It is important to note here that in 2012 trade has been sluggish and even decreased due to the euro crisis and overall contractions in global demand. However, a recent report by the Korea Customs Service  reflects data which indicates that the KORUS FTA has helped to partially offset the negative effects of the global economic slowdown. The report showed that in the first 6 months of KORUS FTA entering into force, year-on-year exports of beneficiary items for both countries actually expanded, although marginally for the U.S.  On-year trade in non-beneficiary items for both countries, however, contracted.

The third aspect of U.S.-Korea trade which is attracting the attention of some analysts is the balance of trade in goods.  Each year as trade in both exports and imports expand, Korea’s exports appear to be increasing at a faster rate.  In 2011, for instance, Korea’s trade surplus with the U.S. was roughly $13.1 billion (or 13 percent of total bilateral trade), whereas a year earlier it was $10.1 billion (or 11.5 percent of total trade.) However, when compared to other U.S. top trading partners (i.e. China, Germany, and Japan) Korea’s trade with the U.S. is relatively balanced.  In 2011, the U.S. had a trade deficit of 59 percent of total bilateral trade with China, 33 percent with Germany, and 32 percent with Japan; figures that more than triple U.S. trade with Korea.

Additionally, as the KORUS FTA settles in further and the global economy recovers, the U.S. has new opportunities to grow its side of the economic relationship with Korea. According to information collected by U.S.-Korea Connect, American businesses – both large and small, and across a range of industries and states in the U.S. – look forward to benefiting from trade and investments with Korea by taking advantage of new consumer markets in Korea.

Despite the internal, external, and bilateral challenges that have existed for the U.S.-Korea trade relationship, data shows that trade between the two partners has not failed to grow.  Even now as the global economy struggles to recover, bilateral trade has maintained some level of resilience.  Looking ahead, it will be interesting to see the course of the trade relationship that KORUS FTA will facilitate between the two countries.

Seongjin James Ahn is a Visiting Fellow with the Korea Economic Institute. The views expressed here are his own. 

By Troy Stangarone

In recent days there has been significant discussion on the impact of Korea’s FTAs with the United States and the EU. The agreement with the EU has been in place almost a year now after having gone into effect last July 1, while the KORUS FTA has only been in effect since March 15.

While the desire to determine the impact of each agreement is understandable, it is likely far too early to determine what the long-term impacts from the two agreements will be. In the case of the agreement with the United States, a few months’ data are largely insignificant for drawing any hard conclusions, while in the case of the EU; Europe has faced significant economic headwinds from the euro crisis that have affected the prospective gains from the agreement.

Perhaps unsurprisingly given the economic conditions, Korea has seen an increase in exports to the United States and a decrease in its export to the EU. Exports to the U.S. in the first 100 days of the agreement were up 8.4 percent, while exports to the EU from July 1 of 2011 through June 15 of this year were down 12.1 percent. At the same time, EU exports to Korea are up 13.5 percent, while the United States has seen a drop of 6.3 percent in its export to Korea.

The euro crisis has clearly impacted trade with Korea in recent months. Through the first three months of 2012, exports to the EU are were down by 38 percent in January and 20 percent in March from the same months in 2011. While it is not surprising that exports to Greece, Italy, Spain and other countries caught up in the euro crisis are down, even exports to Germany which has been the strongest economy in the euro zone are down 14 percent in March. In 2009, when the global financial crisis was at its height, Korea’s exports to the EU were down by 20 percent.

When it comes to Korea’s increased imports from the EU, there are a couple factors to consider. In the last year, the won has appreciated against the euro by about a 100 won, making imports items from the EU slightly cheaper beyond the tariff cuts that have been in place. Additionally, as Korea sought to diversify its energy imports away from the Middle East, especially with the current stand-off with Iran, oil imports from the EU rose from zero to $1.58 billion.

At the same time, the Korean Fair Trade Commission has been tracking price reductions on goods covered by tariff cuts to see how the savings are being passed along to consumers. In a survey of 22 bestselling imports, the commission found that there have been price reductions on 15 of the 22 items.

Because of the economic uncertainty in Europe and other parts of the world, the EU and US FTAs have likely helped to minimize what might otherwise have been larger reductions in Korea’s broader global export profile. At the same time, it will be difficult to draw any conclusive results from these agreements until the global economic situation stabilizes and they have more time to be put into effect.

Troy Stangarone is the Senior Director for Congressional Affairs and Trade for the Korea Economic Institute. The views expressed here are his own.

Photo from Ronnie MacDonald’s photo stream on flickr Creative Commons.

By Troy Stangarone

Voting in the shadow of North Korea’s missile launch and a prospective third nuclear test, South Korean voters went to the polls on April 11 in an election that some 60 percent described as a referendum on the administration of President Lee Myung-bak.  Despite perceptions that that there was widespread dissatisfaction in South Korea with the current administration, results indicate that South Koreans came away from the polls undecided about their nation’s future but giving a slim majority to the conservative New Frontier Party (NFP).

With almost all of the votes counted, the NFP had secured a small majority in the 300 seat National Assembly with at least 152 seats. Turnout was estimated at nearly 55 percent, which means that the results go somewhat against the grain of prior Korean elections as turnout near the 55 percent mark has historically favored liberals. However, the NFP’s slim majority means that Korea may avoid the gridlock that seemed likely when early polls indicated that neither of the major parties would secure an outright majority in the National Assembly. Though, that could change with defections and bi-elections in the years ahead, but for the moment the NFP’s slim majority means stability in the legislative branch.

The NFP’s victory also means we are unlikely to see any major foreign policy shifts in the near future. President Lee will remain in office for the rest of the year and he will now have support within the National Assembly to maintain his policies. The Democratic United Party (DUP) tried to make revision of the KORUS FTA a major point of its campaign, but the issue never seemed to gain traction as the DUP might have hoped. While the agreement may still remain a campaign issue, the DUP will likely shift its emphasis away from the FTA as it tries to build a winning coalition for the presidential election in December.

While the DUP may press for a softer policy towards North Korea, it seems unlikely to change in the near future as well. With even Russia calling North Korea’s satellite launch a violation of UN Security Council Resolutions and the prospect of a 3^rd nuclear test in the near future, it seems unlikely that the Lee administration would change course in its final months despite pressure from the DUP.

One significant milestone from the elections related to North Korea is the likelihood that the first North Korean defector will be elected to the National Assembly. Cho Myong Chul, who is running as one of the proportional candidates for the NFP and seems likely to gain a seat based on the early results.

On the domestic front, less may divide the two parties than many realize. Both parties campaigned on platforms of strengthening Korea’s welfare state and implementing policies that would help small and medium sized businesses in the face of increasing competition from the Chaebols. This may provide opportunities for liberals and conservatives to work together in the National Assembly as the NFP will only have the smallest of margins with which to pass major legislation.

The big winner in the elections would seem to be Park Geun-hye. Runner up to Lee Myung-bak in the then Grand National Party’s (GNP) presidential primary five years ago, and presumptive nominee for the NFP this time, she is being credited with engineering the NFP’s turnaround. The election results should only enhance her chances in this fall’s presidential race.

However, in the long-run the National Assembly elections are only the first step in determining who will lead Korea. Much of the future foreign and trade policy will be shaped by the next occupant of the Blue House. While the quite support of Ahn Cheol-soo did not work as well for the DUP as it did during last fall’s Seoul mayoral election, there is one lesson for both parties from that campaign. Eight months in any political campaign is an eternity. After losing the mayor’s office in Seoul it seemed as though the then GNP was down and out. That didn’t happen and December is an eternity away.

Troy Stangarone is the Senior Director for Congressional Affairs and Trade at the Korea Economic Institute. His views are his own.

Photo from Chitra Chaaya’s photo stream on flickr Creative Commons.

With the KORUS FTA set to come into effect, The Peninsula talked with Amy Jackson of the American Chamber of Commerce five questions about the benefits of the KORUS FTA, the politics around the agreement, and the future of U.S.-Korea economic relations:

1.  With the KORUS FTA set to come into effect on March 15, what are some of the immediate benefits we should be looking for (U.S.)?

The KORUS FTA is a comprehensive agreement covering substantially all trade in goods, services and agriculture.  Both nations will benefit significantly from an increase in trade and investment across all sectors through the elimination of tariffs and other trade barriers. 95% of tariffs on consumer and industrial products will be eliminated in the first five years of implementation, and most remaining tariffs will be eliminated within ten years (USTR). The U.S. International Trade Commission (USITC) estimated in 2007 that the KORUS FTA would increase U.S. exports to Korea by $10-11 billion annually as well as increase U.S. GDP by at least $10 billion.

Today’s Korean market is crucial as a ‘test bed’ for entering the Asian market. Consumers demand high tech and high quality, regardless of industry or sector, and Korea is now seen as a ‘trend setter’ nation among its neighboring countries.  So winning over Korean consumers, is good for U.S. companies’ competitiveness elsewhere in Asia.  Further, U.S. companies compete head-to-head with European companies in the Korean market in a variety of sectors. The Korea-EU FTA went into effect eight months ago, so one key immediate benefit of KORUS is that American companies can compete on a level playing field with EU companies in Korea.

Although KORUS covers virtually all sectors, a number of American industries will benefit in particular from the KORUS FTA, including the agricultural, auto, textile and apparel, manufacturing, pharmaceutical, medical devices, and financial and other service industries. Taking a look at the agricultural and food processing sectors, for example, on March 15, almost two-thirds of U.S. exports of agricultural products to Korea will become duty-free, including wheat, corn, cherries, almonds, orange juice and wine. The USITC estimated that sale of agricultural products would be from $1.9 billion to $3.8 billion (44% to 89%) higher than exports under a no-agreement scenario (Congressional Research Service paper, March 2011).

The KORUS FTA will also phase out Korea’s 40% tariff on U.S. beef over the next 15 years, which the USITC estimated could increase U.S. beef exports from about $600 million to almost $1.8 billion (58% to 165%) above what would be the case otherwise.

Small and medium-sized manufacturers of both nations are in particular expected to strongly benefit from the KORUS FTA. In a statement issued by the U.S. National Association of Manufacturers in February of 2012, nearly 19,000 small and medium-sized American companies export goods to Korea, representing 90 percent of total U.S. exporters that can benefit from trade liberalization.

The KORUS FTA will also lead to an increase in win-win partnerships between Korean and U.S. firms.  GM already has a partnership with LG Chemical in battery supplies, and other U.S. companies—both large and small—can form fruitful partnerships with Korean companies, whose global competitiveness in technology, quality and managerial practices continues to grow.

Last, but not least, KORUS contains substantial obligations with regard to regulatory transparency, investment policies, intellectual property and services liberalization.  These will help improve Korean economy’s transparency, consistency and predictability, thus improving the business environment and giving both domestic and foreign firms greater security in planning their business strategies and pursuing new investments.

2.  With the Euro crisis limiting the impact of the EU FTA and China’s growth expected to slow, what opportunities does the KORUS FTA provide Korean businesses now that it looks like the U.S. economy might be showing signs of life?

Like their U.S. counterparts, Korean businesses, on the whole, view the KORUS FTA as an important business opportunity. Many Korean companies today are global leaders in the auto, shipbuilding and consumer electronics sectors, and Korean companies are increasingly willing and able to compete with foreign companies in their own market and globally.  Korean companies that can compete well in America, have excellent chances of competing on a global scale.

Further, Korean policymakers have emphasized the need to boost the competitiveness of Korea’s service industries, and this is something many Korean businesses are eagerly anticipating.  KORUS is expected to help mature Korea’s service industry and spur greater productivity and innovation through competition and partnerships with foreign firms.  This will help drive down price of legal services, accounting and other services.

Korea also has an eye to promoting growth in other key sectors of its economy such as healthcare and financial services.  KORUS will help new Korean exports gain access to the U.S. as well as preserve and consolidate Korean companies’ existing share of the U.S. market in the face of growing competition from emerging East Asian producers as the elimination of even low tariffs will give Korean exporters a price advantage.

Korea’s small and medium-sized enterprises (SMEs) are expected to strongly benefit from the KORUS FTA and, as in the U.S, this is important because supporting SMEs will help Korea create more jobs as well as address income inequality, something that the Korean government is very keen on. The Chairman of the Korea Federation of Small and Medium Business (Kbiz), Kim Ki-moon, stated that the KORUS FTA will not only increase Korean SME’s exports to the U.S, but also expand opportunities to form partnerships with U.S. companies, allowing technology transfer and more foreign direct investment (FDI) into the Korean economy.

3.    The opposition in Korea has called for renegotiation of some of the KORUS FTA’s provisions. What impact do you see this having on the implementation and the agreement’s future?

The KORUS FTA went into effect at midnight this morning without a hitch. I think it is important for people outside of Korea to understand that the majority of the Korean people support the KORUS FTA and recognize that the agreement will benefit Korean workers and businesses as well as strengthen the important U.S.-Korea alliance.  Once we begin to see tangible benefits from the FTA, I believe the tone of discussion here will change.

To the extent that policymakers on either side have concerns related to the agreement, there are mechanisms in place where issues can be addressed a cooperative and constructive manner.  No free trade agreement can benefit every citizen in any country.  Already the Korean government, like the U.S. government, has introduced various policies to help ameliorate the negative effects of its FTAs and to assist farmers and companies that could be disadvantaged by an FTA as the Korean market opens.

I think it is crucial to continue to raise public awareness about how KORUS benefits consumers of both sides, and educate companies how they can reap all the benefits of the KORUS FTA.  We at AMCHAM are working in concert with our Korean business partners and the Korean government in such efforts.

4.    Most of the attention on the KORUS FTA was focused on the negotiations. There is a tendency that once agreements are negotiated and go into effect to simply focus on the next deal. What do we need to work on to make sure that the KORUS FTA fulfills its promise?

The U.S. business community understands that it is crucial that we educate the public, workers, and government officials on both sides of the Pacific about:  1) what is in the FTA that can benefit them; and 2) concrete benefits that come out of the KORUS FTA.  We are already focusing on #1 — AMCHAM will be co-hosting a day-long “KORUS FTA Utilization Seminar” with the Ministry of Strategy and Finance (MOSF) on Thursday, May 3rd.  The seminar is aimed at helping both Korean and U.S. companies, large and small, better understand the provisions in the FTA and how they can best utilize them. We are expecting a significant turnout, and attendees will be able to hear directly from the KORUS FTA negotiators themselves among others.  Issues to be discussed include customs procedures and rules of origin, intellectual property rights (IPR) protection, regulatory transparency, and how Korean small & medium sized enterprises (SMEs) can benefit from the FTA.

In addition, AMCHAM will be hosting visiting Congressional delegations as well as business and local government groups from over 22 U.S. states this year who are interested in forming partnerships and doing business in Korea.  We will use these opportunities to help forge new U.S.-Korea business ties as well as to highlight early gains from the FTA.

5.    There are two competing visions of trade in Asia, one that is trans-Pacific and one that is Asia centric. How does the KORUS FTA fit into these visions and what do you see as the future of U.S.-Korea economic relations?

Although there are many bilateral FTAs in effect within Asia, the KORUS FTA is considered the “gold standard” because of its comprehensive scope and detailed rights and obligations. It covers substantially all trade in goods, services and agriculture, as well as obligations with regard to regulatory transparency, investment policies, intellectual property and services liberalization. It is not surprising that when the EU and Korea began their bilateral talks in 2007, they used KORUS as their initial negotiating text.   KORUS is also the model used in the development of U.S. proposals for the Transpacific Partnership agreement (TPP).   As such, KORUS is already serving as an important model for economic integration in the Asia-Pacific region.

President Obama has signaled a strong interest in increasing U.S. ties to the Asia-Pacific region.  The ratification of the KORUS FTA as well as the launch of TPP negotiations are one – but an important – element of the Administration’s heightened engagement in the region.  Further, U.S. and Korean leaders recognized that the KORUS FTA would provide an important opportunity to strengthen the U.S.-Korea strategic alliance.  As we like to put it, KORUS adds a third economic pillar to the already strong political and military relationship.

While Korea and China are contemplating a near-term launch of a bilateral FTA, we do not see this as a threat.  Firstly, as currently envisioned, this FTA will not be as comprehensive as KORUS.  Further, a Korea-China can offer new benefits to U.S. companies already operating in Korea.  A Korea-China FTA can also become a part of an overall TPP framework in the future, with the U.S. as a key partner.  More broadly, a Korea-China FTA can contribute to peace and stability in the region through deeper economic relations and commitments with China, a rising regional power.  In this sense, American business community welcomes such initiatives.

Photo from Harris Walker’s photo stream on flickr Creative Commons.

By Troy Stangarone

After more than six years of negotiations, debate, and delay, the U.S.-Korea Free Trade Agreement (KORUS FTA) will come into effect tomorrow. Expectations for the agreement run high, especially in Korea where there has been significant public debate over the KORUS FTA. Starting tomorrow we will begin to see if the agreement is an important economic shot in the arm for Korea and the United States during an uncertain economic time globally or if it will lead to the unexpected consequences that opponents argue lie ahead. With that in mind, here are five issues to consider as the KORUS FTA comes into effect:

1.      What Will Be the Economic Impact of the KORUS FTA?

Expectations will be high, but the agreement needs to be judged on its long-term benefits not short-term results. The EU agreement, which is very similar to the KORUS FTA, has presented a mixed picture so far. In the first four months the EU agreement has been in effect, Korea’s overall exports to the EU have fallen as a result of a drop in orders for ships stemming back to the 2008 financial crisis and the slowdown in overall growth in Europe over the last year. At the same time, Korean exports for goods that either fully or partially saw their tariffs removed are up 14.8 percent according to an analysis by the Korea International Trade Association.

The immediate benefits of the FTA will likely be seen by consumers, who are already seeing the cost savings as supermarkets in Korea have recently announced cuts in U.S. food and beverage products. However, Korean exporters should benefit as well. Major U.S. firms such as Wal-Mart, Caterpillar, and GE Aviation have all indicated the FTA will factor into how they source their products.

Overall, though, the expectations are well known. The U.S. International Trade Commission (USITC) estimates that once fully implemented the KORUS FTA will increase U.S. exports to Korea by $10-11 billion, while raising U.S. GDP by $10-12 billion. The same report estimates that Korea’s exports to the United States will grow by $6.5-6.9 billion dollars, while the Korea Institute for International Economic Policy estimates that the FTA will increase Korea’s GDP growth by 5.7 percent over the next decade.

2.      Can the U.S. Auto Industry Succeed in Korea?

This is another area where Korean consumers will benefit from the agreement. Korea’s tariff on autos will be cut from 8 to 4 percent immediately, and U.S. producers are expected to make a strong push into the Korean market. GM has announced price cuts in advance of the agreement, Ford plans on increasing its presence in the Korean market, and Chrysler plans on introducing more models in its showrooms. Additionally, Toyota has made plans to take advantage of the FTA by exporting cars to Korea from the United States. According to the Korea Herald, the FTA could see exports from the United State rise from under 10,000 vehicles a year to 75,000.

3.      What Will the Impact Be on Korean Agriculture

As with any trade agreement, agriculture was a sensitive issue with Korea. However, concerns about the KORUS FTA’s negative impact on Korean agriculture may be overstated. Korea is highly dependent upon imports of food, only growing a little more than 50 percent of its food. Among some of the agricultural products that gain attention, U.S. beef largely competes with Australian beef rather than Korean beef, while rice was excluded from the agreement and oranges only see tariff reductions when they are out of season in Korea. One other factor to consider is the Chile FTA. When it came into effect in 2003 there were widespread concerns that it would have a detrimental impact on Korean agriculture and those fears have not come to pass.

4.      Can Korea Become an FTA Hub?

The KORUS FTA is not only the template for the EU-Korea FTA, but also the potentially much larger Trans-Pacific Partnership. As Korea prepares to start negotiations with China later this year, it could find itself in the advantageous position of being the only country that could connect the world’s great developed and emerging markets together. The challenge for Korea will be to make itself a hub for all of the agreements taking place around it.

5.      Will Korea Seek to Renegotiate the FTA?

With elections approaching for the National Assembly and presidency in Korea, the opposition has called for the renegotiation of the KORUS FTA and suggested that they might consider withdrawing from the agreement should their demands not be met. Recent polling in Korea suggests that support for the Democratic United Party (DUP) is slipping in Korea, but they are still expected to gain seats in the National Assembly and come close to a majority in the National Assembly. Public opinion in Korea is divided on DUP’s position on the FTA, leading the DUP to back off of its talk of withdrawing from the agreement. Until we see how the National Assembly and presidential elections play out in Korea, it will be difficult to know if this represents a significant change in Korea’s trade policy or merely electoral politics.

However, their stand on renegotiation could make it difficult for the United States to resolve longstanding concerns on restrictions on U.S. beef in the Korean market. Having promised Senator Max Baucus that the United States would request consultations under the current beef protocol to allow in all cuts and ages of U.S. beef, the Obama administration may have to delay this to avoid Korean requests for changes in other areas.

Troy Stangarone is the Senior Director for Congressional Affairs and Trade for the Korea Economic Institute. The views represented here are his own.

Photo from Kevin Collins photo stream on flickr Creative Commons.

By Nicholas Hamisevicz, Sarah K. Yun, Chad O’Carroll, and Troy Stangarone

Last year saw significant changes on the Korean peninsula. While 2011 ended with the surprise death of Kim Jong-il and the beginning of succession to Kim Jong-un, last year also saw Korea become one of only nine nations to surpass $1 trillion in total trade, the passage of the KORUS FTA, and a surprise election for the mayor of Seoul. With even more change set for 2012 in both Northeast Asia and on the Korean peninsula, here are twelve economic and foreign policy issues that are worth following in the coming year:

1.      The Transition and Public Events in North Korea: Kim Jong-un has been declared the successor to his father. The North Korean government is working hard to illustrate the unity of the nation and the loyalty of the elites to Kim Jong-un. There will likely be a formal meeting of the Workers’ Party of Korea where titles and positions will be made and adjusted. Kim Jong Un possibly has an advantage with the early schedule of public events where his new leadership will continue to be highlighted, such as the one hundred year anniversary of Kim Il Sung’s birth in April and the start of North Korea’s development as a prosperous and powerful nation. However, after those events, there could be more room for maneuvering if other North Korean elites do not like the direction of the country.

2.      Political Change in South Korea: While North Korea may have got the jump on political change in 2012, South Korea will conduct elections for both the National Assembly and the presidency this year. With South Korean presidents limited to a maximum term of five years, Lee Myung-bak will be ending his term in December.  Lee’s Grand National Party (GNP) has Park Geun-hye at the forefront of potential presidential candidates. However, she will likely face a significant challenge from Ahn Cheol-soo, founder of anti-virus software company AhnLab.  Although yet to declare his candidacy, there are growing signs that he will run as the opposition candidate – and recent polls suggest that he has strong support polling at 49.7 percent, some 7 percent more than rival Park Geun-hye.

Additionally, in April, all 299 seats of the National Assembly will be up for vote, with 245 in single-member districts and 54 seats determined through proportional representation. The ruling GNP has fared poorly in local elections recently and developments indicate that progressives may be uniting under a unified banner for the April elections that could seriously compound difficulties for the GNP.

3.      Kim Jong-un and China: In the early days of the transition, China has thrown its support behind Kim Jong-un. Who from China visits North Korea, and especially if Kim visits the new leadership in China, will likely provide clues to the relationship between Pyongyang and Beijing, as well as how secure the new regime feels in its position. Given that China will undergo its own leadership transition this year, 2012 will likely set the tone for both sides going forward.

4.     The Role of Social Media in South Korean Politics: Social media, including Twitter, are playing an increasingly prominent role in Korean political discourse. A recent Hankyroreh and Korea Society Opinion Institute poll showed politics to be one of the most retweeted topics by users in South Korea this year. This suggests that the conversations that take place on Twitter in 2012 will play a significant variable in this year’s presidential election.  South Korea’s Twitter community has an active user rate that is some two times higher than the world average, with nearly 10% of the nation signed up.  The important role Twitter plays in politics can be seen in a campaign that was credited with a higher than expected voter turnout among young voters during the during the April 2011 by-elections.

The team behind the one of the world’s most listened to podcast, Naneun Ggomsuda, may have a key role in determining the outcome of elections in South Korea this year.  Specializing in political satire, their podcast has to date taken a vehemently anti- Lee Myung Bak and Grand National Party position.  They have also developed a number of investigative stories that have attempted to highlight mis-steps by the ruling government, often with significant media interest.  Their feature on Na Kyung-won’s alleged visits to a luxury skin care clinic is said to have contributed to her loss of support in recent Seoul mayoral elections.

5.   The Euro Crisis: Strictly speaking, this isn’t about Korea, but with Korea heavily dependent upon trade for growth and Europe a major trading partner, the euro zone matters for Korea. If Europe is unable to restore market confidence and avoid a deepening of its debt crisis, a steep economic decline in Europe or the unraveling of the euro could hit the global economy hard. While Europe has managed to consistently fail to address the debt crisis in a comprehensive manner, there may be some tell tale signs early in the year regarding whether Europe has turned the corner or not. If France is able to maintain its AAA credit rating and Italy and Spain are able to roll over nearly $200 billion in debt in the first quarter of the year, Europe will likely have passed the most immediate dangers. When it comes to Korea, the stats to think about are this, the EU accounted for 10.2 percent of Korea’s exports and 9.6 percent of its total trade through the first 11 months of 2011.

6.    U.S. Defense Budget Cuts: The U.S. Department of Defense budget is expected to cut $260 billion over the next five years and more than $450 billion over the next decade. In the new budget strategy announcement on January 5, President Obama and Secretary of Defense Panetta presented a revamped U.S. military strategy with an emphasis on Asia and space and cyber capabilities, and preservation of missions in the Middle East.

With a reduced defense budget, partner relationships will become more important. Although the 5% increase in the 2012 South Korean defense budget may offset the potential challenges in the U.S.-Korea military alliance, uncertainties continue as both countries enter an election year. Despite reassurances from Obama and Panetta, the future shape of United States presence in Korea and Asia is still to be determined. With both nations preparing for op-con transfer in 2015, how the budget and strategy changes in the U.S. play out could play a role in the future force structure of the alliance.

7.    North Korea’s Interaction with the United States and South Korea:  Despite its current turn inwards, North Korea will likely turn its attention outwards at some point in 2012. North Korea and the United States seemed to be on the verge of a deal over food aid and possibly moving forward on nuclear talks before Kim Jong-il’s death, and there are early indications these may start back up at some point. As for South Korea, Pyongyang has said that it will not deal with the current administration in Seoul, but 2012 will also bring fresh elections for the National Assembly in April and the presidency in December, key points to watch for in North-South relations.

8.    Seoul Nuclear Security Summit: Seoul will be hosting the second Nuclear Security Summit in March with participation from over 50 national leaders. The agenda will consist of mainly three issues: international cooperation against nuclear terrorism, prevention of illicit transaction of nuclear materials, and protection of nuclear materials, nuclear power plants and other nuclear related institutions.

The appointment of Korea as the chair of the second NSS is both practical and symbolic – practical in that Korea is a close ally of the U.S., enabling smooth coordination; and symbolic in that Korea has been an active member of the Nuclear Non-Proliferation Treaty with advanced nuclear energy capabilities, yet facing a serious nuclear threat from North Korea.

Whereas the hosting of the G-20 in 2011 elevated Korea’s status as a world economic power, the Seoul NSS will elevate Korea as a world security leader. The NSS will be even more significant in light of Kim Jong-il’s death. President Lee Myung-bak had previously extended an invitation to Kim Jong-il to attend. It will be interesting to see how the new regime responds to the summit.

9.    The Implementation of the KORUS FTA: Now that the United States and Korea have passed the KORUS FTA the two governments are looking to implement the agreement. The agreement should come into force early in the year, but might slip until after National Assembly elections in Korea for political reasons.

10.  The Politics Around the KORUS FTA and U.S.-Korea Relations: Speaking of the politics of the KORUS FTA, prior to the death of Kim Jong-il, the opposition in Korea was turning the FTA into a major campaign issue, calling on Korea to renegotiate certain provisions such as those relating to investor-state dispute settlement. Some had gone so far as to suggest Korea should withdraw from the agreement. Korea’s relationship with the United States is a complex one, and anti-Americanism has played a role in previous elections. While North Korea is now likely to become the major campaign issue, look for the FTA and Korea’s broader relationship with the United States to remain caught up in domestic politics for the time being.

11.  South Korea-China FTA: China has become South Korea’s largest trading partner by a significant margin, with the two countries doing more than $200 billion in trade in the first eleven months of 2011. With the EU and KORUS FTA now concluded, Korea will look to start negotiations with its biggest trading partner in the next few months.

12.  World Expo 2012 – Yeosu, Korea:From May to August, Korea will host the 2012 Expo in the port city of Yeosu. Under the theme of “The Living Ocean and Coast,” the Yeosu Expo will share knowledge in maritime cooperation, marine science, and the proper use of ocean and coast. Korea is anticipating an international recognition of Korea as a leading maritime nation.

Hosting the Expo can be seen as a completion of Korea’s campaign as a world leader – the 2011 G-20 on economic issues, the 2012 Seoul Nuclear Security Summit on security issues, and the 2012 Expo on cultural and soft power issues.

Nicholas Hamisevicz is the Director of Research and Academic Affairs, Sarah K. Yun is the Director of Public Affairs and Regional Issues, Chad 0Carroll is the Director of Communications, and Troy Stangarone is the Senior Director for Congressional Affairs and Trade for the Korea Economic Institute. The views expressed here are the authors alone.

Photo from Rachael Towne’s photostream on flickr Creative Commons.

By Troy Stangarone

While 2011 will ultimately be remembered for the passing of Kim Jong-il, it was also a year of significant change and new milestones for both South Korea and the U.S.-Korea alliance.

In many ways, 2011 really began in the waning days of 2010 for South Korea. On November 23 last year, North Korea shelled Yeonpyeong Island, killing two civilians and two members of the South Korean military. The attack sealed a chill in relations between North and South Korea that would set the tone for the first half of 2011. By the time both sides began to make progress towards the end of the year that could have led to the resumption of the Six Party Talks, Kim Jong-il had passed away.

At the same time, barely two weeks after the shelling of Yeonpyong Island, the United States and South Korea reached a supplementary agreement on the KORUS FTA that paved the way for the agreement to be passed four years after originally being concluded. Despite political delays over remaining political issues in Washington and in Seoul, the long stalled agreement was passed by Congress on October 12 during President Lee Myung-bak’s summit visit and the National Assembly during a surprise session on November 22.

Having resolved long-standing concerns over the FTA, it is now set to coming into effect early next year. Representing a significant deepening of U.S.-Korea relations, the FTA signifies an important milestone for both sides in remaking the alliance into a broad based 21^st century partnership that extends beyond mutual concerns about North Korea. However, despite the importance of the agreement politically and economically, the politics surrounding it may seep into 2012 as the opposition in South Korea has continued to call for the agreement’s renegotiation.

Korea also saw success on the Olympic front in 2011. After bidding previously for the 2010 and 2014 Olympic Games, Pyeongchang easily beat out Munich and Annecy for the 2018 Winter Olympic Games.  With the International Olympic Committee awarding Korea the 2018 Winter Games, Korea will join the United States, Italy, Germany, France, Japan, and Russia as the only nations to host both Winter and Summer Olympic Games.

Despite lingering concerns regarding the KORUS FTA, 2011 was an important year for South Korea when it comes to trade. On July 1, the EU FTA came into force, making it the world’s largest bilateral free trade agreement and in early December South Korea overcame the headwinds of uncertainty from the euro zone crisis to pass the $1 trillion threshold in total trade for the first time.  South Korea reached the $1 trillion mark in total trade in a short six years after first crossing the $500 billion threshold and during some of the worst economic times since the Second World War. Barring a meltdown in the euro zone, which remains a real possibility, the EU FTA and newly implemented KORUS FTA will likely help South Korea to continue to expand its trade volume in the coming year.

On the diplomatic front, there were a series of milestones. The summit meeting between Presidents Lee Myung-bak and Barak Obama in October was universally seen as a high water mark in U.S.-Korea relations and representative of a strengthening of ties in recent years.  South Korea continued its efforts to become more of a global player as it hosted the 4^th High-Level Forum on Aid Effectiveness in Busan and is set to host the next Nuclear Security Summit in 2012. On a bilateral level, Ambassador Sung Kim became the first Korean-American to be posted to Seoul, capping a year of deepening ties between Washington and Seoul.

At the same time, the future holds uncertainty for the relationship. Like much of the world, South Korea is beginning to feel the effects of political change. In the November Seoul mayoral election, the Grand National Party (GNP) was unable to hold on to the mayor’s office, but the Democratic Party (DP) was unable to capitalize on the GNP’s difficulties. Instead, social networking and a desire for change from politics as usual led to the surprise victory of the independent Park Won-soon in the mayor’s race and the failure of the DP to gain any traction in the election. The aftershocks have already seen the DP merge with a party of supporters of former President Roh Moo-hyun to form the new Democratic Unity Party and a push for greater change in the GNP.

Despite the prospect for political change in South Korea, the most sweeping changes of 2011 have occurred in North Korea. With the surprise death of Kim Jong-il, the succession process put in place during the September, 2010 Workers Party Conference was unexpectedly pushed forward. In recent days the regime has worked to choreograph a smooth transition to Kim Jong-un as the military has publically referred to Kim-Jong-un as its “supreme commander”  and he has been promoted to top post in the Korean Workers Party Central Committee.  However, it is still unclear if Kim Jong-un will govern with complete authority as his father did, or North Korea will move towards a collective leadership structure where Kim Jong-un serves as a figure head. What does seem clear, despite uncertainty about the future ability of the regime and Kim Jong-un to maintain its hold on power, is that the passing of Kim Jong-il will presage a change in how North Korea is governed.

On a lighter note, South Korea saw the debut of Saturday Night Live Korea (SNLK), a spinoff of the popular U.S. satire. While early indications are that SNLK will be as irreverent as its American counterpart, that might not be a bad thing. Given the uncertainty that lies ahead in North Korea with the death of Kim Jong-il, many Koreans might just need a good laugh in 2012 as many of the events of 2011 linger into next year and they ponder their own future.

Troy Stangarone is the Senior Director of Congressional Affairs and Trade for the Korea Economic Institute. The views expressed here are his own.

Photo from David Hepworth’s photostream in flickr Creative Commons.

by Troy Stangarone

After the United States Congress passed the KORUS FTA, the ruling Grand National Party (GNP) in Korea had hoped to quickly pass the agreement through the National Assembly so that both sides could certify the agreement with the hopes of it coming into effect on January 1 of next year.  However, with the opposition Democratic Party (DP) continuing to oppose the KORUS FTA, that now seems unlikely to happen.

With tensions rising in the National Assembly over passage of the KORUS FTA, it now looks as though the agreement may not see a vote until November 10 at the earliest.  While electoral politics is likely playing a role in the delay, the substance of the dispute seems to have moved beyond the DP’s original “10+2” proposal to center on provisions designed to protect foreign investment.

The DP had originally sought for the KORUS FTA to be renegotiated in ten areas and for additional legislation to protect the agriculture and banking sectors from potential negative impacts from the FTA for its support of the agreement. However, in recent days the biggest obstacle has become the Investor-State Dispute Settlement (ISDS) provisions of the agreement.

ISDS provisions have long been both standard and controversial in international trade and investment agreements. They provide foreign investors direct access to international arbitration and are designed to help protect foreign direct investment abroad, especially in developing countries where rule of law might be questionable and the court systems inadequate to protect investors.  Since 1967, Korea has included ISDS provisions in 81 bilateral investment treaties.

Generally, ISDS provisions in bilateral investment treaties and FTAs prohibit exportation unless it is done for a public purpose and in a non-discriminatory manner. They also require that compensation is prompt, adequate, and effective, while done in accordance with due process of the law. These are the same standards within the KORUS FTA.

Because ISDS provides companies the ability to directly challenge a government’s policies if they lead to expropriation of an investment; their inclusion in trade agreements has been controversial with public policy groups in the United States and abroad. The concerns have largely rested on the potential for companies to challenge local laws that are deemed to be in the public interest. In the case of Korea, the concern has rested on how potential disputes could impact government policy towards local industries.

However, the most recent report by the United Nations on dispute settlement indicates that the system is used relatively infrequently. According to the report, there were at least new 25 cases filed by the end of 2010. Since the first case was filed in 1987, there have been a total of 390 cases filed and 197cases concluded. Out of the concluded cases, the state won 78 cases, while the investor was successful in 59 cases. There were 60 cases that were settled, and an additional 29 case for which the result or status is not known. There are also 164 cases still pending.

While dispute settlement provisions have been controversial, they are unlikely to prevent the passage of the KORUS FTA in the long run. The GNP still holds a significant majority in the National Assembly and recent poling indicates that the agreement is supported by 58 percent of Koreans.  Perhaps after years of delays in the United States Congress, it is not surprising that the process may take additional time in Korea.

Troy Stangarone is the Senior Director for Congressional Affairs and Trade at the Korea Economic Institute. The views expressed here are his own.

By Sarah K. Yun

During the Joint Session of Congress on October 13, President Lee Myung-bak told the epic tale of Korea’s journey from war to peace, and poverty to prosperity; a tale in which he has very much shared in his own personal life. While thanking Congress for the ratification of the KORUS FTA, President Lee talked about the need for continued U.S. leadership and Korea’s growing role on the world stage.

With China’s rise and the global financial crisis, many have begun to question the United States’ leadership and its ability to lead. Contrary to this, President Lee focused on the need for the United States to continue to play a leadership role in the challenges faced by the global community, especially if Northeast Asia is to play a constructive role in the global community. He stated that:

“Northeast Asia today is a more dynamic region than ever. And economic change in this region brings geopolitical change. It brings shifts in the balance of power that has long prevailed. The United States, as a key player of the Asia Pacific region and as a global leader, has vital interests in Northeast Asia… And your leadership that has ensured peace and stability of Northeast Asia and beyond the 20th century must remain supreme in the 21st century.”

This explicit statement in front of the Joint Session of Congress is significant in declaring that its staunchest and most important partner remains the U.S., not China as many believe will be in the future.

President Lee may have had two reasons for declaring support for U.S. leadership in the region. First, he wanted to send a clear and strong signal to the North Koreans and the Chinese, especially in light of North Korea’s changing attitude towards dialogue and engagement, as well as its growing political and economic ties with China. Second, he wanted to send a clear signal of strength to Americans and his domestic constituents in South Korea as both countries enter an election year in 2012. Highlighting the accomplishments from the alliance and reaffirming Korea’s support for U.S. leadership sends a strong message that, while the balance of power may change in Asia, the values and principals under which peace and security have be maintained should remain.

While the alliance has been imperative to both nations and the KORUS FTA will bring new economic benefits, President Lee also alluded to Korea’s unique path to leadership. To effect, he stressed Korea’s commitment to low carbon, green growth, and international development. He also emphasized the unique role education has played in Korea’s success. This allowed President Lee to show Korea as more than a faithful ally of the United States, but as a leader in its own right with a vision for a “Global Korea.”

Indeed, the relationship and friendship of the United States and the Republic of Korea is intricately and critically interwoven. As President Lee stated, the “alliance will grow and evolve… and it will prevail.” While saluting U.S. leadership and the U.S.-ROK alliance, President Lee’s speech also indicated South Korea’s desire to pave its own style of leadership. In recent years, Korea has emerged on the global stage and shown a willingness to act as a responsible stakeholder. From its own experience, Korea is able to be empathetic to poverty and need. Therefore, it now has a moral responsibility to give back to developing parts of the world. Perhaps this is the new and unique Korean leadership that President Lee Myung-bak is paving the way for.

Sarah K. Yun is the Director of Public Affairs and Regional Issues. The views expressed here are her own.

Photo: Official Speaker of the House Photo