Tag Archive | "Korus FTA"

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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Seoul, Washington, and Pyongyang: Delicate Diplomatic Triangle for President Moon Jae-in

By Robert R. King

The campaign is over; ballots have been cast; the result is clear—Moon Jae-in will be in the Blue House within a few days.

The most critical foreign affairs issue on the agenda of the new President is the South’s relationship with North Korea, and entwined with that issue is its relationship with the United States.  Though the new American President passed his first 100 days in office just a few days ago, there is still considerable uncertainty about the direction of American foreign policy, and one of the most sensitive issues facing the United States is North Korea and its nuclear ambitions.  The relationship with North Korea is the most critical question for the South and its new president, and because of the military ties with Washington, how to deal with the North will also be the key issue in relations with Washington.

President Moon begins his contacts with the new American president at something of a disadvantage.  When President Trump moved into the White House, South Korea was in the midst of the impeachment of Moon’s elected predecessor Park Geun-hye.  As a result, Trump met with Japan’s Prime Minister during the transition (his first post-election meeting with a foreign leader) and again after his inauguration in Washington and at Mar-a-Lago.  The American President also met in early April with Chinese President Xi Jingping.  The American Secretary of Defense and Secretary of State have both met with counterparts in Seoul in recognition of the importance of Korea in American policy, but the chemistry and content of bond between the two presidents has yet to emerge.

It is also not clear where there may be differences on the North between the two leaders.  During the campaign, Moon has expressed the desire for engagement with the North and better relations.  Trump has expressed serious concern about North Korea’s nuclear and missile programs, but he has also expressed a willingness to meet directly with the North’s leader Kim Jong-un.  His first statement was made early in his tenure, but he repeated it again just last week.  Trump told Bloomberg News just a week ago that he would meet with Kim Jong-un under the right circumstances—“If it would be appropriate for me to meet with him, I would absolutely; I would be honored to do it.  If it’s under the, again, under the right circumstances. But I would do that.”

South Korea’s new president, who was still a candidate ten days ago, cited this statement by America’s President and concluded that Trump is “more reasonable than perceived” and suggested that he and Trump were taking a similar position in favor of bringing the North back to negotiations on the nuclear issue.  It remains to be seen, however, how close the two presidents are on the details of how best to bring the North into denuclearization negotiations.

Another potentially serious issue that could create problems between the two presidents and their countries with regard to policy toward the North is THAAD, the U.S. defensive missile system now deployed in the South as agreed to by Moon’s predecessor.  The U.S. rushed to get the system in place before the election, although Moon expressed concerns about the deployment and the belief that the next government should review the decision, his political and ideological allies were vocally opposed to the deployment throughout the election.  This will likely be a serious point of contention that could create difficulties for relations between the U.S. and South Korea.

It is made more complex by the fact that China has been particularly opposed to THAAD and has taken steps to make the deployment more costly for the South by significantly cutting back Chinese tourism to South Korea—a major source of income and consumer goods sales in the South—as well as boycotting retail outlets in China owned by the South Korean conglomerate which sold land to the South Korean government on which THAAD is based.  THAAD is an issue that has serious security and domestic political implications for President Moon, but one of the most difficult will be the effect the issue has on the American-South Korea relationship.

Making the issue even more awkward and controversial was President Trump’s pronouncement last week that he expected the South to pay the $1 billion cost for the missile defense system.  His comment came less than ten days before the South Korean election, and was certainly not welcomed by pro-U.S. presidential candidates in the South.  Trump’s statement calling for the South to pay for THAAD was linked to his call for a renegotiation of the U.S.-South Korea trade agreement (KORUS).  The U.S. National Security Advisor, General McMasters, however, reassured his counterpart in Seoul that the U.S. would keep its previous commitment on the missile system.

The bottom line is that uncertainty and shifting policy signals from the Oval Office will not make the task of the new South Korean president an easy one.  He will likely have his own learning-curve and unintended missteps, which will make his task harder.  The relationship between Seoul and Washington is critically important for both countries, however.  It will take a great deal of maturity and understanding on the part of both presidents to deal with North Korea.  There is a great deal at stake for all sides.

 

Robert R. King is a Non-Resident Fellow at the Korea Economic Institute of America.   He is former U.S. Special Envoy for North Korea Human Rights.  The views expressed here are his own.

Photo from Morning Calm Weekly Newspaper Installation Management Command, U.S. Army’s photostream on flickr Creative Commons.

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Prospects for U.S.-Korea Economic Relations under New Administrations in Seoul and Washington

By Phil Eskeland

In 2017, both the Republic of Korea (ROK) and the United States face various challenges and opportunities in the growing economic relationship.  Korea is now America’s 6th largest trading partner, ahead of the United Kingdom and France.  As a nation that once was a major recipient of U.S. foreign aid, South Korea has rapidly advanced to become the world’s 13th largest economy, ahead of Canada and Spain.  However, these achievements are not locked in forever.  As the new ROK and U.S. administrations interact and deal with each other, both sides must avoid “unforced errors” and cooperate with each other as much as possible to confront domestic and international trends that place impediments on both economies, such as stagnant wage growth, aging population, mismatched workforce, and the siren song of trade protectionism.

The first major challenge is establishing an accurate analysis of the Korea-U.S. Free Trade Agreement (KORUS FTA).  The agreement’s success or failure should not be measured by just a single metric of the merchandise trade deficit, which parenthetically decreased in 2016, but on a comprehensive review of all of its effects.

  1. Total trade volume (imports and exports) between the two countries has increased since pre-KORUS levels (2011).  In fact, the most recent data from the Commerce Department shows that the U.S. exported a record level of manufactured goods and agricultural products to Korea for the month of March 2017 at $4.36 billion, the highest level since March 2014.
  2. The United States continues to break records in the export of services to Korea, producing the highest trade surplus ever for the U.S. in 2016.  This trade surplus reduced the overall goods and services trade deficit between the two countries to $17 billion.  As a result, Korea’s bilateral trade deficit with the U.S. is ranked well below other nations, including China, Germany, Mexico, Japan, and even Italy.
  3. According to the Commerce Department, U.S. exports to Korea have led to an increase of 87,000 jobs in the United States between 2009 and 2015, including 55,000 jobs in the goods sector, which pay 16 percent more on average than other employment.
  4. Korea now represents the 5th fastest-growing source of Foreign Direct Investment (FDI) into the United States, employing over 45,000 workers in the U.S. earning an average compensation package of $92,000 a year.
  5. Because U.S. exports of items covered by KORUS have increased by 18 percent since 2011, the agreement has helped to reduce the merchandise trade deficit by nearly $16 billion.

Thus, the KORUS FTA meets every metric of a successful trade agreement as outlined by the Trump Administration.  In fact, if reducing the trade deficit is the main concern, then the Trump Administration should focus their attention on other countries first before Korea.

Nonetheless, there is always room for improvement.  The KORUS FTA has a binational committee process to iron out differences in implementing the agreement.  This has greatly helped resolve numerous thorny issues without having to go through the difficult process of amending KORUS.  For example, clarifying the rules of origin on orange juice helped to dramatically increase sales to Korea, giving a boost to Florida citrus growers and producers at a critical moment when the U.S. market is declining.  In addition, Donald Trump won the Sunshine State – a key “swing” state with the most Electoral College votes – in the last presidential election.  However, both sides should avoid unforced errors by either scrapping the agreement or refusing to negotiate.  If KORUS is scrapped, hard-won gains for many U.S. exporters, including Florida orange juice producers, would vanish.  While KORUS is relatively new, it could be updated in a few areas, such as in intellectual property and e-commerce, though preferably through supplemental side agreements to avoid re-opening up the entire text.  The Trump Administration could lift the relevant IP and e-commerce sections from the now defunct Trans Pacific Partnership (TPP) agreement and offer to add these provisions to KORUS.

Second, international monetary policy could be another challenge to the U.S.-Korea relationship.  Every six months, the U.S. Treasury produces a report that identifies potential currency manipulators if three conditions are met:  (1) if there is a significant bilateral trade surplus with the United States; (2) if there is a material current account surplus; and (3) if the nation has engaged in persistent one-sided intervention in the foreign exchange market.  While Treasury did not identify any trading partner as a currency manipulator in its most recent report, the department included six countries, including Korea, on its monitoring list.  Some in the U.S. advocate adding provisions to prevent currency manipulation by other nations into trade agreements.  However, this challenge could represent an opportunity for Korea to be pro-active in responding to critics by being fully transparent in any governmental actions in foreign exchange operations.

Third, U.S. “fair trade” laws could also represent a challenge and opportunity in U.S.-Korea economic relations.  As with most U.S. administrations, the emphasis on trade during the first year in office usually focuses on enforcing existing agreements, not enacting new ones.  The Trump Administration is no different, but the prominence of trade enforcement has been amplified, particularly with the announcements of a series of reviews and investigations.  Both sides should take a step back to insure that enforcement actions do not lead misperceptions and unforced errors.  Korean companies should be extremely vigilant to make sure that they do not sell their product in the U.S. at a loss.  On the flip side, the Commerce Department should also be diligent to make sure it is not biased towards U.S. industry regarding allegations of unfair trade.  For example, the U.S. should implement the World Trade Organization (WTO) decision that disallows the use of “zeroing” (i.e., disregarding allegedly “non-dumped” sales in order to inflate dumping margins) to estimate higher tariff penalties.  Commerce should also consider the ramifications of a trade case for the entire U.S. economy because, ultimately, increased tariffs are another form of taxation that gets passed along to consumers in terms of higher prices.  As learned during the 2002/2003 steel tariff debate, many more American jobs at manufacturing facilities that used steel were at risk than in the steel industry as their final products were priced out of the marketplace.

Fourth, the two new administrations should give an opportunity for Korea to shine by highlighting and publicizing more of its FDI into the United States.  As stated above, Korea is now the 5th fastest growing source of FDI into the United States, which has accelerated since the implementation of the KORUS FTA.  If new investments are forthcoming, Korean companies would do well to let the American people and the Trump Administration know of this news to generate good will.

Finally, both countries would do well to continue its global partnership on numerous fronts:  cybersecurity, space, science, energy, environment, health security, Arctic cooperation, among others, that have enormous economic ramifications for both countries.  These important issues unfortunately do not receive the attention that they deserve because they are non-contentious, apolitical concerns.  Just because these initiatives were started by previous administrations should not mean that they are put to the wayside.  If anything, these issues, such as continuing the work of the U.S.-Korea Joint Committee on Science and Technology, should form the foundation for building further cooperation on economic and trade issues between the U.S. and the Republic of 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 Saik Kim’s photostream on flickr Creative Commons.        

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Why This May Be South Korea’s Most Consequential Presidential Election

By Troy Stangarone

After months of protests across South Korea that culminated in the impeachment of President Park Geun-hye, South Koreans will go to the polls on May 9 to select her successor. Regardless of which candidate wins the election, the upcoming presidency may be the most significant for South Korea since the transition to the opposition with Kim Dae-jung cemented the democratic ideal of the transition of power and he was thrust into managing what is known in South Korea as the IMF crisis. The next administration will come into office at time when South Korea faces a wide array of economic, political, social, and security challenges.

The next president will need to begin by restoring confidence in government. The impeachment of President Park has divided society and exposed the continuing ties between government and business that have left a legacy of scandal trailing each administration. Prior scandals have not always directly involved the president, but the impeachment indicates a growing intolerance in South Korean society for ever too close of relations between the government and business. Addressing this issue will mean the next administration will need to consider reforms in both government and the chaebol.

If restoring confidence in government were not challenging enough, the next president will come into office at a time when South Korea faces critical domestic and international challenges that will need to be addressed. The South Korean economy in many ways is at a crossroads. After years of success as an exporting powerhouse, exports have been largely stagnant in recent years and South Korea faces increasing competition from lower wage countries such as China which have cut into key sectors for South Korea’s economy such as steel and shipbuilding, while becoming increasingly competitive in consumer electronics as well.

The challenges from international economic competition are coupled with domestic economic challenges. South Korea’s rate of economic growth has continued to decline and is expected to only by 2 percent in 2018. As the economy slows, income inequality has risen and will likely only continue to do so the economy becomes more oriented around services industries.

To begin addressing slowing economic growth and income inequality, the next administration will need to focus on structural reforms and labor market reform. South Korea needs structural reforms to address overcapacity in troubled areas such as steel, shipping, and ship building. At the same time, reforms are needed in the labor market as well. South Korea’s current two-tiered system made of a well-protected class of permanent workers and temporary workers who have few protections has created rigidities in the labor market that have limited job growth, especially for the young.

South Korea’s economic challenges have also created social challenges. As South Korean society rapidly ages, young South Koreans have seen their opportunities narrow even with one of the highest rates of college graduates in the world. While facing decade long highs in unemployment, young South Koreans face concerns about their future in a slowing economy and in a society that they see as constraining their opportunities.

If the young have seen increasing challenges, South Korea itself faces impending problems from its rapidly aging population. In the years ahead, over the next administration the working age population is expected to decline to just under 36 million and continue declining in the years after while the overall population will continue to grow until 2030. This means an increasing percentage of South Korea’s population will be in retirement with fewer workers to support them. This challenge is compounded by South Korea having the highest level of old age poverty in the OECD despite President Park having worked to improve the social safety net.

South Korea’s international relations may not be any less complex than its domestic challenges. On top of the agenda will be North Korea. While that will not have changed from prior administrations, Pyongyang has significantly advanced its nuclear weapon and missile programs under Kim Jong-un. As a result, the strategic situation could significantly change under the next administration should North Korea successfully deploy not only a nuclear deterrent but a viable second strike capability.

As a result, the administration may find its options for dealing with North Korea constrained, both by North Korea’s progress on its weapons programs and the policies of regional states. Relations with China have soured over the decision to deploy THAAD to defend against North Korean missiles, and China’s use of economic pressure may leave the next administration with a Scylla and Charybdis type dilemma of accepting significant economic harm or weakening South Korea’s defenses against North Korea.

Managing this situation will require close relations with the United States and Japan, both of which could be problematic if divisions over how to handle North Korea develop, or in the case of Japan historical issues complicate relations. While the Trump administration so far has been more conventional in its approach to North Korea than many foreign policy issues, Seoul and Washington will need to ensure that they do not diverge on how to handle North Korea. At the same time, there could be tension in the relationship, as the Trump administration is taking a harder position on trade and has indicated that it may review the KORUS FTA.

Whoever South Korea elects as president in May will face a more fluid domestic and international environment than prior South Korean presidents, one shaped by the impeachment and the need to enact reforms. While South Korea has gone through difficult economic times, such as the Asian Financial Crisis, or faced challenging relations with the United States or China, it is the degree and the number of challenges that South Korea may face over the next five years that make this election so consequential.

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 sinano1000’s photostream on flickr Creative Commons.

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Trade in Services Data Contributes to More Accurate Picture of the U.S.-Korea Trade Relationship

By Phil Eskeland

Yesterday, we looked at the possibility of renegotiation of the Korea-U.S. Free Trade Agreement (KORUS FTA) in light of the recent release of the President’s National Trade Policy Agenda for 2017.  The President’s trade agenda included two primary points of reference to rest its case that KORUS agreement did not produce the outcome that the American people expected from the agreement:  the value of U.S. goods exported to South Korea fell by $1.2 billion and the total value of U.S. imports of goods from Korea grew by $13 billion, resulting in a “dramatic increase in our trade deficit with that country.”

As mentioned in the previous blog post, the U.S. merchandise trade deficit with Korea actually declined in 2016, as compared to the previous 2015 level.  Nonetheless, earlier this morning, the Foreign Trade Division at the U.S. Census Bureau revealed a more complete picture of the U.S.-South Korea trade relationship because services trade data for the 4th Quarter of 2016 was included in their monthly release.  U.S. services exports to Korea hit a record level of $21.55 billion in 2016, which contributed to producing the highest trade surplus in services ($10.7 billion) for the United States in the history of U.S.-South Korea trade relations.

KORUS Graph 2

Thus, instead of a decline of U.S. exports to Korea, the latest trade statistics shows that total exports of both goods and services to Korea from the U.S. increased by $2.05 billion from 2011 and 2016.  As a result, the total trade deficit between the U.S. and Korea in 2016 was $17.46 billion, not $27.6 billion.  This combined goods and services trade deficit was a decline from the 2015 level.  U.S. imports of both goods and services from Korea also dropped from 2015 levels.

Though manufacturing is important to the nation’s economy, this should not mean the service sector’s contribution to the GDP should be downplayed or ignored.   Whereas the effect of the trade balance on the economy is debatable, it is also critical to include the full panoply of statistics and information in order to have an informed discussion on the future of the KORUS FTA.

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 CosmicDust’s photostream on flickr Creative Commons.

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Is Renegotiation of the Korea-U.S. Free Trade Agreement on the Horizon?

By Phil Eskeland

Last week, the Office of the U.S. Trade Representative (USTR) released the President’s National Trade Policy Agenda for 2017.  It should not be unexpected that the Trump Administration seeks a new approach on U.S. trade policy because it was a top tier issue on the presidential campaign trail, particularly for businessman Donald Trump.  This reflects his long-held beliefs on this subject and the policy positions of his key trade aides.

However, while there are a few disparaging comments in the USTR document about the Korea-U.S. Free Trade Agreement that cherry-picks certain statistics to portray the deal in the most negative light, there is no mandate for a renegotiation or even a review of the agreement.  All that is required in this new agenda is a request for “a major review of how we [the U.S. government] approach trade agreements.”  This is more of a forward-looking document as to how “future trade agreements can work for all Americans more effectively than they have in the past.”  This not to say that KORUS or any other FTA is exempt from a review or renegotiation in the future.  The document reveals a future intention to submit a more detailed report on the President’s trade policy agenda once the U.S. Senate confirms a new USTR, so no one should rest at ease.

Nonetheless, the Trump’s Administration trade policy agenda document rests its entire criticism of the KORUS FTA on the decline of U.S. exports of goods to Korea from 2011 to 2016 and the increase of U.S. imports of goods from Korea over this same time period that resulted in more than doubling the trade deficit in goods.  This approach does not include several nuances in U.S.-Korea trade relations.

First, the agreement is not fully implemented yet; it is at its half-way point.  While it is debatable to think of trade as a competition with winners and losers, using the trade balance as the sole metric of success, all agree that no one decides who wins a game at half-time.  If that was the case, then the Atlanta Falcons would have won the Super Bowl.

Second, by including the total value of all goods traded between the U.S. and Korea in the trade policy agenda document, there is a misleading supposition that every product grown or made in America is covered by the KORUS FTA.  In reality, there are still some items that comprise a significant value of total U.S. exports to Korea which did not benefit from the agreement upon implementation.  Some trade benefits for U.S. producers and providers are phased-in over time.  There are some items not covered by the agreement at all and some goods that already traded duty free.  Nonetheless, according to the Korea Customs Service, U.S. exports of FTA beneficiary goods increased by 18 percent between 2011 and 2015.  In contrast, U.S. exports of items not covered by the KORUS FTA decreased by 20 percent over that same time period (see chart).  Thus, any decline in total U.S. exports of goods to Korea cannot be attributed to KORUS.  As the independent U.S. International Trade Commission concluded, the KORUS FTA is estimated to have improved the bilateral merchandise trade balance by nearly $16 billion in favor of the United States.  In other words, if the KORUS agreement was not in place, the U.S. merchandise trade deficit would be $44 billion in 2015 instead of $28.3 billion.

KORUS Graph

When looking more closely at the U.S. trade deficit, the statistic overlooks the 2.3 percent decline in the annual bilateral merchandise trade imbalance between the U.S. and Korea in 2016 plus the decline of Korean imports into the United States.  It also disregards the $4.27 billion in U.S. merchandise exports to Korea in December 2016 (second highest monthly level in the history of U.S.-Korea trade) despite the challenge of the stronger U.S. dollar.  While it is premature to conclude that this trend will continue, Korea recognizes the need to purchase more American products, as evidenced by their desire to access more energy supplies from the United States.

Finally, the Trump Administration should also take into consideration the growing role of foreign direct investment from Korea.  According to SelectUSA, Korea’s investment in the U.S. has nearly doubled since 2011 to reach $38.2 billion in 2015, employing 45,100 workers in almost every state of the union.  These workers earn an average compensation package of salary and benefits of over $92,000.  More Korean investment may be on the way with recent announcements by Hyundai, Samsung, and LG.  Any re-examination of KORUS should also factor in the possible effect on investment flows from the Republic of Korea into the United States.

While it is the prerogative of every new administration to review past policies, the KORUS FTA has demonstrated its effectiveness in addressing the main concern expressed by the proposed trade policy agenda – mitigating the bilateral merchandise trade deficit between the U.S. and 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 the Port of Tacoma’s photostream on flickr Creative Commons.

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What Does New Trade Data Portend for U.S.-Korea Trade Relations?

By Phil Eskeland

Earlier today, the Foreign Trade Division of the U.S. Census Bureau released the latest statistics on U.S. international trade data.  While the overall U.S. trade deficit in merchandise goods with the world increased by $1.9 billion or 0.4 percent, the bilateral trade deficit between the U.S. and South Korea declined by $647 million or 2.3 percent.  This decline was a result of a disproportional decline of the value of Korean imports into the United States.  For the United States, American exports to Korea surged in December, reaching a record level of $4.3 billion for 2016, despite the rising value of the U.S. dollar, while Korean imports into the U.S. declined to $5.47 billion in December, a decrease from the $5.8 billion value in November.

As a result, the U.S. may be turning a corner with respect to the rising bilateral trade deficit between the U.S. and the Republic of Korea (ROK).  The chart below shows the trend in goods trade between the U.S. and Korea since the year before the Korea-U.S. Free Trade Agreement (KORUS FTA) was implemented.  More data will be made available next month when the 2016 4th Quarter statistics on services trade will be released.  Historically, the U.S. has always generated a trade surplus in services trade with Korea, and therefore the overall bilateral trade deficit for 2016 between the U.S. and Korea may be even less.  Only time will tell if this is just a one year respite from the trend in recent years or if this is a foreshadowing of a new development in U.S.-Korea trade relations.

U.S.-Korea Trade 2016

Source:  Foreign Trade Division, U.S. Census Bureau

Thus, while there is good news with respect to the merchandise trade deficit between the U.S. and Korea, the economic relationship between the U.S. and Korea is more than just the value of imports and exports with the trade balance figure as the sole determinant as a measure success or failure.  As mentioned in previous blog posts, there are now over 350,000 U.S. workers dependent upon exports to Korea (a 24 percent increase or 87,000 new jobs since 2009); Korea has more than doubled its investment in the United States since 2011 and is now the fifth fastest-growing source of Foreign Direct Investment (FDI) into America, employing 45,100 U.S. workers, (up 22 percent or 10,000 new jobs since 2011); and the average annual compensation of U.S. workers employed in firms with investment from Korea have increased 11 percent from 2011 to reach $92,000.  Thus, as the Trump Administration deals with trade, it is critical to remember that nearly 400,000 U.S. workers directly owe their employment to Korea trade and investment in America.

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 Wilson Hui’s photostream on flickr Creative Commons.

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President Trump Praises Samsung for Plan to Manufacture in the U.S.

By Jenna Gibson

“Thank you, @Samsung! We would love to have you!” Donald Trump wrote on his personal Twitter account, linking to a story about a possible plan for the tech company to build a factory for home appliances in the United States.

The article called the announcement by Samsung “A win-win,” saying that “Companies can grab headlines with news of even considering bringing production to the U.S., and the Trump White House benefits from the ability to take credit. These moves may not add up to significant job growth, but it’s hard to beat the PR.”

Trump’s tweet, which was sent only half an hour after the article was posted, may lend credence to their theory.

Post-inauguration, Trump hasn’t yet turned his attention toward Korea, focusing mainly on domestic issues and trade with neighboring Mexico. But trade with the ROK was a regular component of his campaign addresses.

“We spend a fortune on defending South Korea. Now I order thousands and — thousands of television sets here, they come from South Korea. They make so much.  They’re making a fortune.  They’re a behemoth,” Trump said during the CNN-Telemundo Republican debate last February.

Samsung – which makes some of the televisions Trump may be referring to – already manufactures semiconductors at a plant in Austin, Texas in addition to its facilities in South Korea. Samsung has the largest Korean investment in the United States, and Korea as a whole is the 5th fastest growing source of Foreign Direct Investment into the country.

Trump Tweet

The electronics giant is hardly the only Korean company to consider moving more production to the United States in an effort to head off criticism from the new President – last week, Hyundai Motor Group announced that they plan to increase U.S. investment by 50 percent over the next five years, and may build a new plant to supplement the factory they currently have in Montgomery, Alabama. The company also applied for membership with the American Chamber of Commerce in Korea this year for the first time since 2008.

LG is also considering building a new plant in Tennessee for its TV and home appliances. “This is something that has been under consideration for years at LG, but the current political situation is simply accelerating that timeline for a decision,” according to a source close to the company told Reuters.

On a larger scale, the Korean government has indicated that they will encourage more imports from the United States to balance some of Seoul’s trade surplus. As part of this plan, the finance ministry announced that they will begin importing more U.S. shale gas to meet the country’s energy needs.

Whether Samsung goes through with plans to begin manufacturing appliances in the United States or just wants to stave off the ire of the White House remains to be seen. But the 60,000+ likes Trump’s one tweet got within hours of posting certainly can’t hurt either way.

Jenna Gibson is the Director of Communications at the Korea Economic Institute of America. The views expressed here are the author’s alone.

Photo from Michael Newman’s photostream on flickr Creative Commons.

 

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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.