Tag Archive | "Korus FTA"

Agreement to Renegotiate KORUS FTA Removes Threat of Withdrawal for the Moment

By Troy Stangarone

Shortly after the first summit meeting between Presidents Donald Trump and Moon Jae-in, the United States notified South Korea that it would like to convene a meeting of the Joint Committee under the U.S.-Korea FTA, or KORUS FTA, to discuss amending the agreement. Amending the KORUS FTA has been an objective of President Trump since last year’s presidential campaign and after the most recent meeting of the Joint Committee the United States and South Korea have agreed to renegotiations.

This will be the second time that the United States has pushed to renegotiate the KORUS FTA, which was originally signed in 2007 but not implemented until 2012. Much as was the case after the agreement was originally concluded in 2007, the new talks will likely focus on addressing issues in automotive trade.

Since coming into force, the United States trade deficit with South Korea has grown from $13.2 billion to $27.7 billion, but is down 28.1 percent through August. Over the same period, the United States trade deficit in the automotive sector has grown 77 percent to $24 billion and accounts for nearly 90 percent of the overall U.S. trade deficit with South Korea according to USTR.

While the automotive sector will be one of the key issues in talks, other issues that could potentially be discussed include implementation issues or revisions related to legal services, agricultural tariffs, data localization, digital trade, rules of origin and investment protections. While not all issues will apply, the ongoing talks over NAFTA also provide a good guide to the administration’s potential goals. At the same time, we should also expect South Korea to develop a list of areas where it would like to see changes that would be favorable to it as well.

Before entering into formal talks to amend the FTA, South Korea will need to undergo domestic consultation procedures including conducting an economic feasibility study, public hearings, and making a report to the National Assembly. As long as any South Korean requests do not require changes to U.S. law, the United States will be able to conduct the negotiations without utilizing the procedures under Trade Promotion Authority and already has authority to make any tariff changes agreed to with South Korea.

Additionally, with the agreement to renegotiate the KORUS FTA, the United States threat to withdraw from the agreement should further recede into the background. At today’s Senate Finance Committee confirmation hearing, Jeffrey Gerrish, nominee for Deputy USTR for Asia, and Gregory Doud, nominee for Chief Agriculture Negotiator, both noted that the administration should do no harm to existing FTAs. But the threat could still resurface as in the NAFTA talks where President Trump mused after renegotiations began that he could still decide to withdraw from NAFTA. So, the prospect that the issue of withdrawing from KORUS could return at a future date.

However, the current security situation makes it imperative that the talks proceed smoothly and that the threat of withdraw is removed from the equation. As North Korea moves closer to completing its nuclear and missile programs, it will be increasingly important for the United States and South Korea to maintain close policy coordination and avoid issues that could create tensions in the alliance at a critical stage.

An improved KORUS FTA has the potential to benefit both the United States and South Korea. In the area of digital trade, well-known companies such as Facebook and Youtube were only just establishing themselves and updating the agreement to reflect modern trade patterns should be mutually beneficial. The key is to find ways to enhance the agreement rather and avoid disputes that create tensions in the alliance.

Troy Stangarone is the Senior Director for Congressional Affairs at the Korea Economic Institute of America. The views expressed here are the author’s alone.

Photo from Natig Sharifov’s photostream on flickr Creative Commons.

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Growing Role of FDI from Korea in Providing Opportunity and High-Paying Jobs for America

By Phil Eskeland

Recently, the U.S. Department of Commerce updated their statistics on the role of foreign direct investment (FDI) in the United States.  The United States is still home to the largest amount of FDI in the world.

South Korea continues to demonstrate its confidence in America by once again in 2016 increasing its holdings of $38.8 billion in investments at U.S.-based companies, nearly double the level the year prior to the implementation of the Korea-U.S. Free Trade Agreement (KORUS FTA) in 2011.

These are investments found in many states around America, including struggling communities in rural America that have clamored for economic opportunity and development.  Many investments have come from familiar, well-known Korean nameplates, such as Hyundai, KIA, Samsung, and LG.   But others may not be as well known.  For example, Doosan invested $4.9 billion to purchase Bobcat, a manufacturer of small construction and machinery equipment based in North Dakota, during a downturn in the U.S. home construction sector in 2007.  Last May, Doosan Bobcat North America completed a $9.5 million expansion of its headquarters, reflecting confidence in its future growth as a major manufacturer and employer in the Upper Midwest.

South Korea’s investments are heavily focused on the manufacturing sector, with automobile components and equipment; industrial machinery; and consumer electronics as top sectors, along with software and information technology services.  Many of the software and IT service companies are small firms, such as IriTech in Fairfax, Virginia that creates biometric identification software.

In addition to the growing level of investment, the number of Americans working at U.S.-based firms with investment from Korea has increased by over 50 percent since 2011 to employ 54,800 individuals in 2015.

These worker’s average annual compensation has grown 11 percent in the years since KORUS to approximately $91,100 in 2015.  This is remarkable in light of the average compensation level of workers at all companies with FDI ($79,328) and the U.S. median household income ($57,230).  In other words, a typical U.S. worker employed at a U.S. firm with investment from Korea earns nearly 60 percent more than a worker elsewhere in the U.S. economy and even 15 percent more than his or her counterpart employed at other U.S. firms with FDI.

Lastly, these firms helped to augment U.S. exports by $14.2 billion in 2015 and invested $1 billion in research and development.  Suffice it to say that if there was no investments by Korean firms in the United States, the trade deficit would have been even higher and perhaps some cutting-edge, innovative product would not be in the marketplace producing more economic growth and opportunity for American workers.

Thus, as the discussions on the future of the Korea-U.S. Free Trade Agreement (KORUS FTA) proceed or as other actions on trade or tax policy are contemplated, policymakers should do no harm to cultivating a positive climate for more FDI from South Korea.

Phil Eskeland is Executive Director for Operations and Policy at the Korea Economic Institute of America. The views expressed here are his own.

Photo from raymondclarkeimages’ photostream on flickr Creative Commons.

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No Reason to Withdraw from the KORUS FTA

By Phil Eskeland

Rumors flooded Washington over the Labor Day holiday weekend that the U.S. would soon withdraw from the Korea-U.S. Free Trade Agreement (KORUS FTA).  When President Donald Trump visited hurricane-damaged Houston, Texas on Saturday, he was asked by reporters about this development and responded that he would discuss the fate of KORUS with his advisers this week.

The White House may have delayed a decision on withdrawal from the agreement until the publication of the most updated monthly trade statistical information from the Foreign Trade Division of the U.S. Census Bureau at the Department of Commerce.  Earlier this morning, this data was released to reveal two interesting points.

First, while U.S. exports of merchandise goods to the Republic of Korea (ROK) in July fell by a modest 3.7 percent as compared to June, the level was 16 percent higher than July 2016.   As a result, the Year to Date (YTD) merchandise trade deficit between the U.S. and South Korea still remains well below last year’s level.  Thus far, the YTD (January – July) merchandise trade deficit between the U.S. and South Korea is $13.1 billion (vs. $18.8 billion in 2016), representing a 30 percent decrease.  If present trends continue, the trade imbalance in goods alone would drop below $20 billion for 2017.

Second, when adding in trade in services, the latest release illustrates a more complete picture.   As part of this morning’s release, 2017 2nd Quarter services data was also made public.  Once again, it shows a modest, but steady increase in U.S. services exports to Korea during the previous four quarters.  As a result, the YTD (January – June, 2017) bilateral trade imbalance of both goods and services between the U.S. and the ROK showed a decline of 50 percent (or half) when compared against a similar time period in 2016.

For the 1st and 2nd Quarters in 2016, the bilateral U.S.-ROK trade deficit of goods and services was $10.6 billion.  However, for the 1st and 2nd Quarters in 2017, the good and services trade deficit between the U.S. and South Korea dropped to just $5.25 billion, in part, because of the amazingly low goods and services deficit level of $1.5 billion for the 2nd Quarter (April – June) 2017.

For all of 2016, the U.S.-South Korea goods and services trade imbalance was $17.6 billion, representing one of the smaller deficits with any of America’s major trading partners.  If this trend continues, the U.S.-ROK combined goods and services trade deficit could be $9 billion or less for 2017, which represents near balance.

Now is exactly the wrong time to terminate the KORUS FTA.  Various tariff and non-tariff barriers to U.S. products would go up reversing the recent, hard-won progress made to lowering the trade imbalance between the U.S. and South Korea, which is one of the main goals of President Trump.  If improvements can be made to the agreement to further open markets, U.S. and Korean negotiators should take advantage of the opportunity to lock in these revisions irrespective of the possible effect on the trade imbalance.  However, a whole-scale rejection of the agreement would be unwise and counterproductive to advancing the goals of creating more prospects for U.S. exporters to sell in South Korea because tariffs (or import taxes) would snap-back to higher, pre-KORUS FTA levels, making U.S. products more expensive in Korea, particularly in relation to other foreign competitors that have a FTA with the ROK.

Phil Eskeland is Executive Director for Operations and Policy at the Korea Economic Institute of America. The views expressed here are his own.

Photo from Diego Cambiaso’s photostream on flickr Creative Commons.

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Benefits of KORUS FTA Not Eclipsed by the Trade Deficit

By Donald Manzullo

When then-candidate Donald Trump first raised issues with the U.S.-Korea (KORUS) FTA in 2016, the United States had just seen its merchandise trade deficit with South Korea rise to a record $28 billion. As a candidate and president, Trump has placed an emphasis on the creation of U.S. jobs in the manufacturing sector and in reducing the U.S. trade deficit. However, much has changed since President Trump first raised his concerns about the KORUS FTA, which will be key for U.S. and South Korean trade negotiators as they prepare to meet at a session of the KORUS FTA’s Joint Committee.

As the United States and South Korea meet to discuss the free trade agreement, the United States is expected to raise its concern over the merchandise trade deficit and propose that the two countries consider amendments to the KORUS FTA to reduce the United States’ deficit. But while the original agreement was negotiated a decade ago and both sides should consider amendments to modernize the agreement to keep pace with changes in international trade, it is unclear that the FTA itself is responsible for the increase in the U.S. merchandise trade deficit with South Korea.

While the U.S. saw the deficit reach a peak in 2015, when Trump began his push against FTAs, the deficit actually declined slightly in 2016 to $27.7 and is down by nearly a third in 2017. This decrease in the U.S. merchandise deficit can be attributed to a significant growth in U.S. exports to South Korea, which began at the end of 2016, and a strong growth of 18 percent since 2011 in exports of U.S. goods covered by the agreement. Among these are exports of U.S. beef, which have risen to over $1 billion.

Since President Trump was elected, the United States has seen record levels of merchandise exports to South Korea in December, March, April, and May. Since the KORUS FTA was implemented, the majority of the growth in the deficit has come from trade in automobiles, but tariffs on imports of Korean automobiles were not eliminated until 2016. Yet, in the last year there have been fewer Korean automobiles imported into the United States.

Rather than being the cause of the U.S. merchandise deficit with South Korea, the KORUS FTA has helped to prevent the deficit from growing further. The U.S. International Trade Commission has estimated that without the KORUS FTA the U.S. trade deficit with South Korea would be $16 billion higher.

In addition, the FTA has benefited the United States in a variety of ways outside of keeping the trade deficit in check. The United States has seen strong exports of services to South Korea under the KORUS FTA, an area where the United States has a trade surplus. When the U.S. services exports are added to the $27.7 billion goods deficit, the overall deficit with South Korea drops to $17.6 billion. For every Korean who studies in the United States or visits, those are services exports that help to create jobs here. Last year, more than 61,000 Korean students studied in the United States, the 4th largest group behind China and India. Lastly, the United States has seen Korea foreign direct investment double, helping to support 47,000 U.S. jobs that earn an average compensation of $92,000.

As the United States and South Korea begin the process of reviewing the KORUS FTA, they should look for ways to expand access for producers of both countries. If there are still regulatory issues that are inhibiting the sale of U.S. autos, for example, the two sides should look for creative ways to ease those burdens so that the trading relationship remains a productive one for both parties. But they should also be leery of only judging the agreement’s success by the trade deficit. If the deficit were the only metric by which both parties judged the FTA only one would ever be able to see the agreement as a success. Instead, they should also keep in mind that the agreement has been a success for both countries and that market forces are already at work in reducing the trade deficit.

Donald Manzullo is President and CEO of Korea Economic Institute and former Member of U.S. Congress (1993-2013). The views expressed here are the author’s alone.

Photo from Saik Kim’s photostream on flickr Creative Commons.

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What Do the Trump Administration’s NAFTA Objectives Mean for the KORUS FTA?

By Kyle Ferrier

Last week, the Office of the U.S. Trade Representative (USTR) released its Summary of Objectives for the NAFTA Renegotiation, providing a window into how the administration may pursue updating the U.S.-Korea Free Trade Agreement (KORUS FTA). Because USTR is taking a different approach on the North American Free Trade Agreement (NAFTA) than on KORUS, calling a special Joint Committee meeting under KORUS rules rather than formally triggering the renegotiation process, it is not required to release a similar document outlining negotiation objectives with Korea. Yet, the administration’s regular singling out of both trade deals and characterization of each set of new talks suggests USTR may have similar objectives on both. What then does the summary of objectives for NAFTA portend for KORUS?

The biggest takeaway is that the proposed changes are not as extensive as the administration’s rhetoric on trade would suggest. Although Donald Trump lambasted the Trans-Pacific Partnership (TPP) on the campaign trail and withdrew the U.S. from the deal on his third day in office, most of what USTR is looking to include in an updated NAFTA is either drawn directly from the TPP or generally congruent with the agreement. As such, Seoul should view renewed talks as an opportunity to update KORUS.

Apart from newer amendments on automobiles and beef, KORUS is 10 years old. Some chapters may be in more need of an update than others, particularly e-commerce, though both countries could benefit from revisiting all chapters to reflect more advanced rules. Mexico and Canada essentially went through this process with the U.S. for the TPP negotiations and will have to run the gamut again through the much older NAFTA, turning 23 this year. While Korea may not have been party to the TPP, in many ways KORUS was the foundation for the TPP and it has long been an observer of the deal. Seoul is well-acquainted with TPP rules and the domestic adjustments required to meet their stipulations, which should greatly facilitate discussions on KORUS.

In addition to upgrading the existing chapters, renewed talks could bring new chapters from the TPP to KORUS. The USTR document on NAFTA has separate sections on state-owned and controlled enterprises (SOEs), small- and medium-sized enterprises (SMEs), and good regulatory practices, all of which appeared as individual chapters for the first time in an FTA in the TPP. All three have potential benefits for the Korean economy, especially the SME chapter which seeks to make exporting easier for small companies, a perennial government priority. However, a currency chapter as suggested in the USTR document could be a sticking point.

Although the possible inclusion of currency manipulation provisions may be of concern to Seoul, the Trump administration is not likely to entirely give up on the issue. Addressing Washington’s concerns bilaterally through KORUS may even be a more acceptable venue. Korea is on the U.S. Treasury’s Monitoring List for currency manipulation, meeting two of the three thresholds of a manipulator. Trump’s threats to name China a currency manipulator earlier this year raised concerns that Treasury would alter its criteria, possibly naming Korea a manipulator in the process. Yet in its April report, Treasury largely followed the same methodology as was in previous reports and did not name any manipulators. Nevertheless, there is no guarantee that the next report due out in October would maintain the same criteria, particularly as Trump publicly tied not naming China a manipulator to its help with North Korea, which he seemingly no longer views as a viable policy option.

The USTR objective on currency in the NAFTA document does not offer any specifics, only suggesting that exchange rate manipulation would be avoided “through an appropriate mechanism.” However, if this section were to also follow the precedent set by TPP, USTR will likely ask Seoul to be more transparent in its official currency market interventions, an issue that has been repeatedly raised in Treasury’s international currency reports to Congress. In a 2015 Joint Declaration, TPP countries committed to avoiding currency manipulation as well as publicly reporting their foreign-exchange interventions. As public reporting of foreign-exchange interventions relates to the only Treasury criteria that Korea does not meet (i.e. repeated net purchases of foreign currency more than 2 percent of GDP over the previous 12 months), it may be in Korea’s best interest to be more transparent regardless of this issue arising in trade talks with the United States. Additionally, through KORUS talks, addressing currency manipulation and other contentious issues that might have made Korea hesitant to join the TPP could even help facilitate its accession to the agreement, for which there are convincing arguments.

Although USTR’s objectives for NAFTA largely suggest that the Joint Committee meeting will be used as an opportunity to update KORUS based on free trade principles, Korea should be cautious as well.  Of high concern for Canada and Mexico is USTR’s objective to eliminate the Chapter 19 dispute settlement mechanism for trade remedies as well as eliminate the global safeguard exclusion for NAFTA countries outlined in Article 802. This would make it easier for the U.S. to apply more anti-dumping and countervailing duty measures against both countries and simultaneously more difficult for them to contest these measures. While there is no global safeguard exclusion in KORUS (Article 10.5 says imports “may” be excluded rather than “shall” in Article 802) nor does it go as far as NAFTA on dispute settlement (Article 10.7 does not create binational panels to resolve disputes as does Chapter 19), some are worried these specific objectives are how the Trump administration plans to advance protectionism. Others also expressed concern over the first objective, which states “Improve the U.S. trade balance and reduce the trade deficit with the NAFTA countries,” as a possible avenue to implement managed trade rather than free trade.

Though it is too early to definitively gauge how Joint Committee talks will proceed, there is reason enough for Korea to be cautiously optimistic about U.S. negotiating goals. Yet, Seoul would be wise to closely follow the NAFTA renegotiation, giving special attention to areas with the potential to promote protectionism and managed trade.

Kyle Ferrier is the Director of Academic Affairs and Research at the Korea Economic Institute of America. The views expressed here are the author’s alone. 

Image from Michael Vadon’s photostream on flickr Creative Commons.

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Since Trump’s Election, the U.S.-Korea Trade Deficit Has Been Reduced by One-Third

By Phil Eskeland 

Last March, President Donald Trump directed the Department of Commerce and the Office of the U.S. Trade Representative (USTR) to prepare an Omnibus Report on Significant Trade Deficits within 90 days.  South Korea has been identified as a country that would be included in this report based on 2016 data that shows U.S. goods exports to Korea declined and the trade deficit has grown since the implementation of the Korea-U.S. Free Trade Agreement (KORUS FTA).  While awaiting completion of the report, USTR also issued a letter to Korea asking for a special meeting of the Joint Committee to discuss possible amendments and modifications to the KORUS FTA to address the “significant trade imbalance” between the U.S. and the Republic of Korea.   However, both efforts use outdated statistics with respect to the latest data in the U.S.-Korea trade relationship.

Since President Trump was elected in November, the monthly bilateral merchandise trade imbalance between the U.S. and South Korea has been less that the previous year.  Thus, the six month (December through May) cumulative goods deficit has been cut by more than one-third (or 34 percent) as compared to same six-month time period from the previous year.  One reason for this reduction is that for the months of December, March, April, and May, the U.S. has hit repeated record levels of merchandise exports to Korea – $4.27 billion in December, $4.36 billion in March, $4.43 billion in April, and $4.5 billion in May.  While trade statistics are not available from the U.S. government yet for the month of June, the Korea International Trade Association (KITA) reported that South Korea imported a record $4.8 billion in goods from the United States in June, resulting in yet another month in which the bilateral merchandise trade deficit was significantly less than last year’s level.

Trade Data 7.2017-02

This trend is even more pronounced when you include services trade.   Comparing the combined trade imbalance statistic of the 4th Quarter 2015 and 1st Quarter 2016 with the 4th Quarter 2016 and 1st Quarter 2017[1] (in other words, since Trump’s nomination for president), the trade deficit in both goods and services between the U.S. and the ROK dropped by 37 percent.

Trade Data 7.2017-01

This updated information should be incorporated in any analysis of the bilateral trade deficit and as part of any administration strategy to reduce the trade imbalance between the U.S. and South Korea.  It appears that the free market and the KORUS FTA is already working to accomplish the Trump Administration’s goal with respect to lowering the trade deficit between the two countries.

[1] 2nd Quarter 2017 data on trade in services will not be made available until early September.

Phil Eskeland is Executive Director for Operations and Policy at the Korea Economic Institute of America. The views expressed here are his own.
Image from Tom Driggers’ photostream on flickr Creative Commons.      

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What Does the Call for a KORUS FTA Special Meeting Mean for Korea?

By Phil Eskeland

On July 12, 2017, Ambassador Robert Lighthizer of the Office of the U.S. Trade Representative (USTR) sent a letter to Minister Joo Huynghwan of the Ministry of Trade, Industry and Energy of the Republic of Korea (ROK) requesting the convening of a special session of the Joint Committee as provided for in the Korea-U.S. Free Trade Agreement (KORUS FTA) to discuss possible revisions to the agreement.  Specifically, the letter conveys the desire on behalf of the Trump Administration to “review progress on the implementation of the Agreement, resolve several problems regarding market access in Korea for U.S. exports, and, most importantly, address our significant trade imbalance.”

First, it is important to note that this request is a far cry from threats to terminate the KORUS FTA.  Nonetheless, this action should not be unexpected in light of past campaign rhetoric by President Donald Trump, but represents a prospect to possibly make amendments and modifications to the base text of the agreement.

This meeting can be an opportunity for both South Korea and the United States to update and modernize this 10-year old agreement.  There have been many changes in the global economy since KORUS FTA negotiations concluded in 2007, particularly in the field of digital trade.  Korea could offer specific changes to policies that have hindered full and open access to U.S. exporters, such as recognition of U.S. automobile safety standards.  On the flip-side, Korea should not be reticent in asking for changes in U.S. policies that have hampered Korean exports to the United States.

However, it is disappointing to see the use of just one set of trade statistics by the Trump Administration without incorporating other factors, such as trade in services data that continues to produce record surpluses for the U.S., that form a more complete and accurate economic picture as it relates to Korea.  The merchandise trade deficit issue serves as an unfortunate scapegoat for economic stagnation in many parts of the United States that has other causes.

Nevertheless, when examining the totality of trade between the U.S. and Korea in both goods and services, the KORUS FTA has been a success because:

  1. Total U.S. exports to Korea grew (not declined) by $2 billion between 2011 and 2016; and
  2. The total U.S. trade deficit in goods and services with Korea is ranked well below other nations, including Italy (see chart below).  Far from being a significant contributor to America’s trade imbalance, Korea’s portion is only 2.9 percent of the total U.S. trade deficit with countries of the world that export more to the U.S. than they import from us.

2017 KORUS Pie Chart

In addition, the independent U.S. International Trade Commission (USITC) concluded last year that the KORUS FTA improved the U.S.-Korea merchandise trade imbalance in America’s favor by $15.8 billion.  In other words, the bilateral trade imbalance between the U.S. and Korea would have been much higher absent the KORUS FTA because U.S. exports of items that were covered by the agreement have dramatically increased since implementation.  Just ask the U.S. agricultural community about the growth of U.S. exports of beef, cherries, blueberries, lobsters, almonds, and a host of other American agrarian products to Korea regarding the positive impact of the KORUS FTA.  Many of these rural farming and ranching communities are located in counties and states that voted for Donald Trump.

In fact, the most recent trade statistics from the U.S. Department of Commerce continue to show the U.S. exporting a record level of goods across-the-board to Korea since the beginning of the year.  During May, 2017, (the latest data available), the U.S. sold nearly $4.5 billion worth of goods to Korea – the highest monthly level in the history of U.S.-Korea trade relations.  This has helped to produce a 33 percent reduction in the bilateral trade imbalance thus far this year, in comparison to 2016 levels, continuing a declining trend in the U.S.-Korea trade deficit that started mid-last year, well before the U.S. presidential election.

In short, the free market and the KORUS FTA is working on its own accord to resolve the Trump Administration’s concern about the merchandise trade imbalance with Korea.   If present trends continue, the U.S. may experience a lower bilateral merchandise trade deficit with Korea in 2017 than we have seen for the past several years – all without any action by USTR.

Phil Eskeland is Executive Director for Operations and Policy at the Korea Economic Institute of America. The views expressed here are his own.

Photo from National Ocean Service’s photostream on flickr Creative Commons.      

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Is Trump Impacting How South Koreans View the United States?

By Kyle Ferrier

Claiming “Korea actually used to be a part of China” and stating “it would be appropriate” if South Korea paid for THAAD are just some of Donald Trump’s comments since his inauguration that have not been well received by the South Korean public. As President Moon Jae-in meets with President Trump this week to discuss new issues as well as longstanding ones such as the North Korea nuclear problem, his flexibility both in Washington and after his return to Seoul depends on public opinion at home. Against this backdrop, the release of two major survey-based reports in the past few days are rather fortunately timed and help to shed light on how South Koreans perceive U.S. political leadership.

The first is the Pew Research Center’s U.S. Image Suffers as Publics Around World Question Trump’s Leadership: America still wins praise for its people, culture and civil liberties, released on June 26. The second is the Asan Institute’s A New Beginning for ROK-U.S. Relations: South Koreans’ View of the United States and Its Implications, released on June 27. While the Pew report looks at a broader scope of countries and the Asan report focuses solely on the South Korean public, both ultimately provide similar conclusions: South Koreans continue to view the U.S. favorably despite negative views on Trump. However, the two provide conflicting analyses as to whether Trump has already impacted U.S. favorability and how South Koreans view the future of relations with the U.S.

From polls conducted in 37 countries, the Pew study finds that international confidence in the U.S. president has dropped from 64 percent at the end of the Obama presidency to 22 percent at the beginning of Trump’s. South Koreans do not buck the trend. When asked if they have confidence in the U.S. president to do the right thing regarding world affairs, 88 percent of South Koreans responded positively during the end of the Obama years while only 17 percent expressed the same confidence in Trump — below the global median of 22 percent. Of the 37 countries polled, this 71 percentage point swing was the fourth largest, behind Sweden, the Netherlands, and Germany. The 78 percent of South Koreans who definitively answered they had no confidence in Trump is the highest among the countries polled in Asia (the others are Japan, Australia, Indonesia, Vietnam, Philippines, and India) and is above the global median of 74 percent. Further, when asked about Trump’s major policy shifts, 78 percent disapproved of withdrawing from international climate change agreements and 80 percent disapproved of U.S. withdrawal of support for major trade agreements.

Asan presents complementary findings. It shows Trump’s favorability during the campaign was low: on their 0 to 10 ratings scale, where 0 is the least favorable and 10 is the most, Trump was below a 2 up through Election Day.  This is similar to the favorability of Japanese Prime Minister Shinzo Abe, not much higher than that of Kim Jong-un — who hovered around 1 — and dwarfed by Barack Obama — who consistently scored in the low to mid-6 range from at least the beginning of 2014 through 2016. Trump’s election boosted him from a 1.69 in November to a 3.25 in December and a 3.49 in January, but dropped to 2.93 in March before going up slightly to 2.96 in June. This jump in favorability since becoming president has given him a steady lead over Abe, but Trump remains below Chinese President Xi Jinping, who is punishing South Korea economically over the deployment of THAAD.

When asked only about the United States, Pew shows 75 percent of South Koreans view the U.S. favorably, above both the regional and global median. In addition, 86 percent view Americans favorably and 78 percent like American democratic values, both of which are also above the regional and global medians.  Further, those on the political right are more inclined to have a favorable view of the U.S., with 86 percent of respondents who self-identified as politically right favoring the U.S. compared to 64 of those on the left.

Korea Surveys

The favorability rating of the U.S. in the Asan study largely follows the trend of the Obama years, remaining around a 6 out of 10. “This suggests that the United States’ favorability is not determined solely by the favorability of its leader and that American soft power has had a positive impact on South Korean public opinion,” the Asan report states. “It appears that South Koreans have learned to distinguish between the United States, the country, and Donald Trump, the individual.”

Both reports seem to indicate that American soft power has a positive influence on South Koreans, who view the U.S. and its president separately. However, the two present contradictory findings on how Trump has impacted perceptions of the U.S.

While Asan shows only a very minor dip in U.S. favorability since Trump’s election — a drop from 5.92 in November to 5.81 in June, which is termed as “relatively stable” favorability scores — Pew finds a larger drop. The 75 percent of South Koreans who viewed the U.S. favorably in 2017 is down from 84 percent in 2015, the last year Pew data is available, and is at its lowest level since 2008. Pew suggests this follows a larger global trend. Of the 37 countries polled, 30 showed a drop in favorable views of the U.S. in 2017. Other countries experienced a steeper fall though, as South Korea’s drop in positive views of the U.S. is tied for 23rd of the 30.

The two reports are also at odds on how South Koreans perceive relations with the U.S. moving forward. Only 8 percent of Pew respondents thought relations with the U.S. would get better, 45 percent thought they would stay about the same, and 43 percent stated they would get worse. In contrast, 67 percent of respondents in the Asan study thought relations with the U.S. would improve and only 20 percent thought relations would deteriorate.

There is clearly a wide gap between the sentiments expressed in both polls, but this is likely because of how the questions were worded.  Pew framed their question around Donald Trump (“Now that Donald Trump is the U.S. president, over the next few years do you think that relations between our country and the U.S. will ___?”) and Asan framed theirs around Moon Jae-in (“ROK-U.S. Relations under President Moon Jae-in will___”.) Considering the negative views on Trump expressed in both polls and Moon Jae-In’s high domestic popularity, this disparity makes a certain amount of sense. Additionally, as no exact date is provided for when the Pew poll was conducted — the report only states spring 2017 — their findings may not reflect changes based on Moon’s election and thus may leave out any boost in confidence it might have engendered for relations with the U.S.

It may still be too early to definitively claim that Trump is impacting South Korean perceptions of the United States. But this does not mean Trump’s controversial statements, should they continue, will not influence how South Koreans view the U.S. in the future. If the outcome of the U.S.-ROK summit this week does not meet expectations or Trump makes controversial remarks in the future, South Korean public opinion of the U.S. could be pushed lower.

Kyle Ferrier is the Director of Academic Affairs and Research at the Korea Economic Institute of America. The views expressed here are the author’s alone. 

Images from Gage Skidmore’s photostream on flickr Creative Commons.

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“Teaching To Fish”: How Training Koreans to Repair U.S. Cars May Boost Sales in South Korea

By Daniel P. Malone & Jin-Sung Park

On March 1, 2017, the United States Trade Representative (USTR) released President Trump’s Trade Policy Agenda. It discloses an apparent intent “to seriously review . . .” several trade agreements including the Korea/U.S. Free Trade Agreement (KORUS FTA), which took effect on March 15, 2012. Whether this will lead to formal renegotiation remains to be seen. The report simply states that, since the U.S. trade deficit with South Korea essentially doubled between 2011 and 2016, the overall agreement is “not working as anticipated”. The KORUS FTA is a comprehensive bilateral trade agreement that covers numerous industries. Naturally, not all industries have had the same experiences under KORUS.

Perhaps no industry reflects the trade imbalance that the USTR report alludes to more than automotive. The report’s suggestion seems to be that, if the trade imbalance has doubled in five or so years, then tariffs and, in particular, non-tariff barriers (NTBs) — the guts of trade agreements – must be the culprit. Under that scenario, renegotiating the agreement then emerges as the likely “solution”. Whether and to what extent, if any, the KORUS FTA should be revisited is far beyond the scope of this piece. Indeed, this article takes no position on that issue.

Currently, even though the market share of import vehicles in South Korea has grown significantly, particularly among German and Japanese offerings, products of the Detroit Three have lagged behind. This may involve customer choice as much, or more so, than trade agreements. Generally, the former consideration involves what makes a consumer buy one brand over others. The latter involves ensuring the proverbial “level playing field.” Both matter. Neither provides a complete solution.

Notwithstanding whether the KORUS FTA is eventually renegotiated, the former issue warrants attention. When exploring how U.S. manufactured vehicles can be more desirable to South Korea’s consumers, part of the answer may involve eliminating impediments to customer choice.

This article briefly examines one possible contributing factor to the current imbalance of vehicles sold, which has little, if anything, to do with trade agreements. It then offers an innovative, promising solution that may well result in more sales of U.S. vehicles in the South Korean market than a renegotiated agreement will.

Factors to Consider in Relation to U.S. Car Sales in South Korea

In any competitive market, some products sell better than others for a variety of reasons. Some involve marketing, quality, and differentiating features. Others involve practical impediments. There are practical impediments as well as potential opportunities, passed unnoticed so far, to selling U.S. vehicles in the South Korean market.

Impediments to Enhancing convenient, reliable post-sale service 

A major consideration among South Korean purchasers of import vehicles relates to post-sales maintenance & service. Generally speaking, it has been poor, slow, complicated, especially expensive, and most of all, limited and concentrated only to a small number of auto-repair shops throughout the Republic of Korea (ROK). For example, there are only eight “official” repair shops to service all Chrysler products in Gyeonggi Province with its population of over 26 million. Neither Ford nor General Motors is substantially better in regard to its vehicles sold in South Korea, but made in the United States.[i]

Potential Opportunities: Skilled Repair Engineers

At the same time, however, an abundance of excellent repair and maintenance mechanics exist throughout the ROK. But the vast majority are trained and experienced to repair Korean made vehicles only. These automotive repair/maintenance experts in Korea refrain from touching import cars because they don’t want “messy” aftermaths from the repairs. In addition, they don’t have experience in dealing with the unfamiliar import cars. For example, what if a Korean mechanic fixed an import car, and subsequently, the car experiences a mechanical “glitch” soon thereafter? The customer (i.e. the owner of this import car), might blame the Korean mechanic who dared to go under the hood, having no previous experience with this foreign model.

Of particular importance, absent affirmative concerted effort, the fast approaching automated and connected vehicle technology will further exacerbate this situation. Indeed, the industry transformation straight ahead will require training in, for example, software, sensors, and electronics, among many other things. What is worse, the “official” dealers proclaim or threaten consumers that any of their own brands may not be repaired at their shops if it has any unofficial repair history.

On-Line & Mobile Transactions Are Both International and Personal

These days, international trade is rapidly going on-line, mobile, and personal. Korean customers, even housewives are ordering baby diapers, clothes, hand-bags, shoes, baby-carriage, and what not, on-line at Amazon.com, E-Bay, and other like sources abroad directly and without depending on ‘professional importers or sophisticated lines of credit (e.g. LC’ s via international banks). Instead, they use Paypal, credit cards, etc.; and “voila”, an international transaction is completed. Indeed, Koreans are ordering Samsung TVs on-line from U.S. sources and shipping them back to South Korea. The only procedure left, therefore, is physical logistics (i.e. international delivery – the convergence of international trade and logistics). The potential catalyst herein may be the globally well-advanced information & communication technology of South Korea.

A Practical Solution to the Impediments Which Have Been Crippling Sales of U.S. Vehicles in South Korea

This article sets forth a concept. If it gains appeal, numerous details can be discussed and fleshed out later.

“Post-sale Auto-repair Mechanics Exchange Program”[1] 

Suppose trained and certified Korean automotive repair mechanics went to the U.S. temporarily pursuant to a prescribed training program. Each of the Detroit Three could hire a prescribed number for temporary assignment at one of its plethora of (post-sale) service centers. Korean mechanics would work there while getting training and practical experience with all model lines. After orientation in the United States, (e.g. when VISA expires), the mechanics would return to Korea.

Armed with this training and experience, the Korean mechanics would then ambitiously and confidently re-enter the ROK repair market of import cars independently and order all the necessary auto-parts on-line directly from the United States (i.e. mobile transactions arranged through the Detroit Three). Doing so would promote robust competition.

Potential Impact of This Program

Pursuant to this “program”, the import car repair cost in South Korea would likely drop, perhaps dramatically, to a similar level to that of Kia and Hyundai cars. In time, more robust competition could result in a more efficient, affordable repair/maintenance market for imported cars in South Korea. This could likely be realized only after hundreds of Korean auto mechanics are “cured” of their “import-car-phobia.” Practically speaking, this grass-roots democratic market approach might be significantly more impactful than yet another top-down bureaucratic approach of renegotiation of a trade agreement. Indeed, it could make the import car, especially U.S. imports, friendly and favorable among Korean customers and Korean mechanics who have experienced various American automotive vehicles in the United States. They will discover by first-hand, personal experience that American cars are reliable and affordable, even compared with German cars.

Project Logistics

So what steps should be considered to make this miracle happen, or, more realistically, to get this project underway? The best, perhaps only, way for this exciting, promising project to work is via a well-organized, highly motivated and funded Public Private Partnership.

Simply stated, in the United States, the project would involve recruiting and orientating both Federal and State officials as well as Detroit Three executives to work collaboratively with the U.S. Immigration & Naturalization Services. The project would determine a special quota for certified Korean automotive mechanics willing to relocate for the requisite training period in the United States. That trained, focused, and motivated group could then partner with the Korea International Trade Association (KITA), which operates its World Trade Academy. It has the capability to assemble hundreds (or even thousands) of certified Korean automotive mechanics. It can also educate them in colloquial English and “automotive jargon” that is necessary for them to survive and work prominently in the US automotive repair market.

Once in operation, KITA’s Trade Academy can collaborate to arrange for VISA procedures as well as job interviews by one of the aforementioned American employers of these select KITA World Trade Academy graduates.

The successful and sustained commitment to this practical program would effectively address a current major impediment to U.S. import sales in South Korea. In time, American cars will gradually catch up and sell very successfully in South Korea. Those veteran mechanics with U.S. market experiences will open their own shop anywhere that can easily fix any problems with any — mostly US – import cars. That, in turn, should lower the significantly expensive auto insurance costs in South Korea, which, in turn, will bolster demand for import cars.

Conclusion

Big challenges call for innovative measures. If the Detroit Three want to sell more U.S. built cars in the ROK, then it should do so by bringing in certified Korean mechanics in mega-multitudes, training them, and providing practical repair experience on American cars in its post-sale, maintenance market. Then, let those trained mechanics return to Korea. They are already highly skilled in auto mechanics before entering this program. As the saying goes:

“Give a man a fish and you feed him for a day; teach a man to fish and you feed him for a lifetime.”

Doing so will empower these trained mechanics to serve as the cornerstone for and the voluntary spokespeople in favor of far more U.S. automotive sales in a most important market.

If there is a “will” to explore this project, then herein lies a vision and basic plan to address an impediment to increased sales of U.S. imported cars in South Korea. The Germans — Mercedes-Benz and BMW – have undertaken such a program a couple of months ago. Practically speaking, in the long run, this may be the only practical and promising way to increase the market share of American made cars in South Korea.

Daniel P. Malone is an attorney with the Detroit-based firm, Butzel Long, malone@butzel.com. He serves as the firm’s Director of Korean Client Relations and has extensive experience with South Korea. Jin-Sung Park serves as Head for the Korea International Trade Association (KITA)’s Northern Gyeonggi Province Center. He can be reached at iouakiss@kita.net. The views expressed here are the authors’ alone. Photo from RICO Lee’s photostream on flickr Creative Commons.


[1] If renegotiation occurs, this proposal could be part of an “amended” KORUS FTA.

 


[i] See generally Chrysler has eight repair, not showroom, facilities in Seoul’s Capital City Zone; FORD has 17 repair shops in the entirety of Korea; General Motors has 20 repair facilities for the entirety of Korea for U.S. imports. As for Chevrolet, like Hyundai-KIA, GM-Korea lists 445 repair shops on its website albeit primarily for Korean made cars. This is inadequate.

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Challenges in Relations with the U.S. under the Moon Administration

This is the seventh in a series of blogs looking at South Korea’s foreign relations for the new Korean administration. The series also includes blogs on relations with North KoreaChina, Japan, Russia, the European Union, ASEANAfrica, the Middle East, and Latin America

By Kyle Ferrier

The United States is a crucial security and economic partner for South Korea. Not only is the U.S. treaty obligated to defend South Korea, but 28,500 American troops are stationed below the DMZ. Should an armed conflict arise on the peninsula Washington would assume operational control (OPCON) of South Korean forces. Since its implementation in March 2012, the KORUS FTA has helped to secure the U.S. as South Korea’s second largest trading partner, making it the cornerstone of the bilateral economic relationship. While the strength of these ties is built on a foundation of shared values transcending leadership transitions over the years, U.S. President Donald Trump has openly disputed fundamental aspects of the relationship. For the newly elected South Korean President Moon Jae-in, just as central to resolving the issues raised by Trump will be understanding his approach to foreign affairs.

Trump won the U.S. presidential election last November on a platform of radical change. In contrast to the mood of Obama’s campaign in 2008 which employed slogans such as “Hope” and “Yes We Can,” Trump’s “Make America Great Again” complemented his bleak portrayal of a broken American system abused by elites and foreign countries alike. Trump often put South Korea in his crosshairs, claiming they did not pay enough for U.S. troops stationed there—going so far as to suggest withdrawing military personnel in exchange for allowing Seoul to have nuclear weapons as a cost saving measure—and criticizing the KORUS FTA for destroying U.S. jobs.

Once elected, Trump was quick to reverse course on the alliance, assuring President Park of U.S. commitment just one day later. Since then South Korea has hosted a steady stream of senior U.S. officials, including Defense Secretary Jim Matthis, Secretary of State Rex Tillerson, Vice President Mike Pence, and most recently CIA Director Mike Pompeo. Although these visits are an extension of initial efforts to reassure Seoul, they are contrasted by Trump’s “disruptive” approach to foreign policy, which draws on his campaign rhetoric, prioritizes his interpretation of American interests, and is underwritten by unpredictability. The disruptive approach is seemingly being applied to adversary and ally alike, which directly impacts South Korea through U.S. policy on North Korea as well as issues of alliance management and bilateral trade.

The Trump administration has repeatedly stated Obama’s second term policy of “strategic patience” towards North Korea is dead, yet it may just be going by a different name. At the onset of his presidency, Trump was relatively quiet on North Korea, with some hoping this might be interpreted as a willingness to talk with Kim Jong-un. However, since mid-March the administration has taken a more forceful stance. Secretary Matthis first announced the end of “strategic patience” on his trip to Seoul. Soon after, multiple senior officials and even Trump himself claimed military options were back on the table, particularly a pre-emptive strike against North Korea. Then, after a two-month policy review, the administration released its agenda of “maximum pressure and engagement,” which some have noted is remarkably similar to “strategic patience.” Both are centered on pressuring Beijing to influence Pyongyang and waiting for credible indications from the North that they are willing to reduce their illicit weapons programs. Despite posturing otherwise, security realities in Northeast Asia look to be constraining Trump to largely continuing Obama’s approach, at least for the time being, which is more than can be said for alliance management and trade relations.

Although Trump seemed to be shying away from campaign calls for Seoul to pay more for U.S. military presence on the peninsula, recent comments raise new questions, particularly for an upcoming milestone in the alliance. Trump’s call for South Korea to pay $1 billion for the THAAD missile defense system in an April 28 interview was refuted by National Security Advisor H.R. McMaster only a few days later. However, it was not enough to erase the negative impact on the public discourse in South Korea, unnecessarily complicating Moon’s promised domestic review of THAAD’s deployment. The president’s comments also raise questions over how he may attempt to shape the renewal of the Special Measures Agreement (SMA) that is set to expire at the end of this year, which governs the burden sharing arrangement. It is certainly conceivable that Trump may influence SMA negotiations by similarly calling for Seoul to contribute more to the alliance, including the potential to leverage OPCON.

The last major challenge for the Moon administration will be addressing Trump’s criticism of the KORUS FTA. Trump has repeatedly attacked the trade deal, citing the U.S. bilateral trade deficit with South Korea, though it is still unclear if he will pursue the actions he has espoused. KORUS was one of only two trade agreements singled out for not meeting expectations in The President’s Trade Policy Agenda released by USTR, the other being NAFTA. Trump recently suggested that he might terminate the agreement if South Korea was not open to renegotiations, similar to the approach he has taken with NAFTA.

Whereas the relevant senior U.S. officials have attempted to counter Trump’s disruptive approach to North Korea and the alliance, competing coalitions within the administration on trade further obscures how U.S. policy might be carried out. On the one hand, there are those who favor policies more traditionally associated with protectionism: Secretary of Commerce Wilbur Ross, Director of the new Office of Trade and Manufacturing Policy Peter Navarro, and USTR nominee Robert Lighthizer. And on the other are those who support greater global engagement: Director of the National Trade Council Gary Cohn and Senior Advisor to the President Jared Kushner. Although it is not yet clear how the U.S. will seek to pursue new concerns over KORUS—despite generally favorable reports by USTR and the US International Trade Commission released in the past year—the first major hurdle will come at the end of June when Commerce and USTR are expected to release their findings from a major review of all bilateral trading relationships.

How soon the Moon administration attempts to address these challenges with the United States will significantly dictate their potential impact on U.S.-South Korea relations. Whether it is growing pains or a more structural issue, the Trump administration’s implementation of foreign policy so far has negatively influenced South Korean public opinion. While the newly adopted policy of “maximum pressure and engagement” is remarkably similar to “strategic patience,” the process of getting there raised serious questions about U.S. credibility through concerns such as the location of the USS Carl Vinson and the perception that Washington would pre-emptively strike North Korea without consent from Seoul. Efforts by senior U.S. officials to smooth over some of Trump’s more controversial remarks have helped to stabilize relations, but the U.S. loses face each time. Even so, there are still contentious remarks that have not been sufficiently addressed.

Recent polling shows Trump’s popularity in Korea has sharply declined—falling below China’s Xi Jinping who is punishing South Koreans over THAAD. Koreans still view the U.S. favorably, yet it is unclear how long this duality can be sustained. A poor public opinion of the United States would severely constrain Moon’s ability to successfully coordinate the issues Trump has raised, which should make early and direct dialogue with his counterpart in Washington a high priority.

Kyle Ferrier is the Director of Academic Affairs and Research at the Korea Economic Institute of America. The views expressed here are the author’s alone.

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About The Peninsula

The Peninsula blog is a project of the Korea Economic Institute. It is designed to provide a wide ranging forum for discussion of the foreign policy, economic, and social issues that impact the Korean peninsula. The views expressed on The Peninsula are those of the authors alone, and should not be taken to represent the views of either the editors or the Korea Economic Institute. For questions, comments, or to submit a post to The Peninsula, please contact us at ts@keia.org.