Tag Archive | "South Korea"

Korea Regains Spot as Third Largest Sender of Students to the U.S.

By Juni Kim

Despite the number of South Korean students studying in the United States dropping for the sixth year in a row, South Korea regained its spot as the third largest sender of students to America. In a report published today by the Institute of International Education, the previous third place holder, Saudi Arabia, had an even steeper drop in students studying in the U.S. over the past year. Saudi Arabia narrowly eked out South Korea for third place in last year’s report by 280 people.

After a decade of seeing steady increases starting in 1998, the number of South Korean students in the U.S. peaked in the 2008-2009 school year at more than 75,000 students. With only a brief rebound in 2010-2011, the number has consistently decreased since then, and the overall total has dropped by more than 16,000 from the previous high.

The continuing decrease of South Koreans studying in the U.S. reflects current domestic economic troubles for those wishing to study abroad. In addition to the money barrier for an expensive overseas education, a 2015 KEI blog post by Jenna Gibson also mentioned the growing accessibility to Korea-based branch campuses of American universities and the decreasing economic returns of a U.S. education as other factors for the dip in numbers of Koreans studying in America.

International students like those from South Korea have a positive economic impact on the American economy, with an estimated total contribution of $36.9 billion over the 2016-2017 school year. A 2016 Report by the Department of Commerce estimated that South Korean students added $2.3 billion to the economy in 2014.

With the current U.S administration’s focus on bolstering the American economy, it would be in the best interest for the U.S. to attract Korean students and indicate that not only is America open for business, but for education as well.

Juni Kim is the Program Manager and Executive Assistant at the Korea Economic Institute of America (KEI). The views expressed here are the author’s alone.

Image from ehpien’s photostream on flickr Creative Commons.

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Korea’s Ambitious Smart Water Grid Initiative

By Hwan Kang

The word “Smart Grid” became popularized when the energy industry thought applying sensors and having comprehensive control over the whole cycle of generating and consuming electricity was a good idea. Some people thought it would be even better if they could do the same with water, coining the term, “Smart Water Grid (SWG).” South Korea is one of the pioneers in this area as it tries to combat the country’s chronic water shortage stress.

South Korea the “Water-Stressed” Nation

South Korea experiences extreme cases of drought and flood each year, which means that the country has too much water and too little water at the same time. More than half of the total precipitation is concentrated during the summer while it becomes dry rest of the year. The country also experiences wide variance in precipitation by the region as well. Some provinces face water shortages even during the monsoon season because the rain comes down in only concentrated areas. What is worse is that yearly variance in precipitation is also big, ranging from 950 mm per year to 1600 mm per year. Such wide unpredictability forces South Korea to formulate a better water management system.

In terms of consumption, South Korea has been facing an increase in water usage along with economic growth over the years, while the available water source remained pretty much steady. Such a gap in supply and demand of water drove the country to deplete its water sources, with 33 percent of total available water presumed to be depleted according to OECD research. Such a state is represented by high level of water stress, placing Korea 50th out of 167 countries in terms of Water Stress Index, which is just behind severely stressed countries in Middle East and Southeast Asia.

Smart Water Management Initiative by K-water

Instead of staying stressed out about water withdrawal, Korea decided to use internet technology as a solution to build its own SWG. Dubbed as the “Smart Water Management Initiative (SWMI),” the Korean Water Resources Corporation (K-water) revealed its ambitious plan to use the ICT (Information & Communications Technologies) to control the whole cycle of water consumption. Similar to smart electricity grid, the initiative aims to put sensors on every part of the water distribution process to keep track of it on a real-time basis and manage facilities to efficiently recycle the water and re-distribute it.

The purposes of building SWG are to maximize the limited water resources and deal with uncertainties that arise with subsequent draught and flood. K-water expects that the successful operation of the SWG will eventually reduce the need to construct additional dams, leading to much cheaper solutions. The system also plans to communicate with the consumers through an online application by showing them real time information on the quality of water they use and provide assistance if they need it.

The SWG has gone through a trial period in selected regions such as Paju, where it has brought up the percentage of residents who drink tap water to 19.3 percent from 1 percent, improving confidence in the safety of the water, with an 80.7 percent satisfaction rate. In case of Seosan, a region which suffered from water leakage, the system was able to bring up the flow rate up to 90 percent from 60 percent, saving a significant amount of water and money. SWG is widely expanding its area with applications pending for Naju, the Korean Airforce, and Sejong city.

Growing Global Smart Water Management Market and Pioneering Korea

Water management is now considered as a prospective market with water shortages looming as a major problem in the future. According to the OECD, the water management for urban areas will become increasingly important because 86 percent of the OECD population will live in cities, while demand for water will increase by 55 percent by 2050. What is worse is that urban areas are more susceptible to pollution as well as environmental disasters, which calls for preventative water management plans. According to Ecolab, water management is also becoming an important part of corporate strategies by the companies, too. As the cost of acquiring necessary water rises, they are looking for ways to stably supply water for their industries. Such combined demand is becoming more realistic as industries are investing more in the smart water management market, pushing the market to grow on the average of 17.2 percent every year.

Amid all these changes, it is not surprising that Korea is not the only one trying to develop SWG. In fact, United States was the first country to coin the term with the launch of the Smart Water Grid Initiative back in 2009. Germany, France, Israel and Singapore are also developing their own methods of managing water with ICT either from their need to control water related disasters or recycle it for re-use. IBM is leading the management market as a private company by providing software called IBM Intelligent Water for rivers such as the Hudson River and the Amazon River and in countries such as Amsterdam and Ireland.

Korea is striving to acquire a position in the global market and is in fact showing some progress. Along with its future plans to expand its SWG program domestically, it has signed several memorandums of understanding (MOU) with the Asian Development Bank (ADB), Jordan and Vietnam, where they all suffer from severe water shortages. In the case of the ADB, K-water has promised to send its SWG experts to four South Asian countries and provide the necessary education and assistance to fix the developing nations’ inefficient water supply systems. For Jordan, on the other hand, the SWG developed by K-water will consist of desalination plants that will filter the sea water from the Dead Sea. Lastly, the MOU with Vietnam is about managing the drinking water in the country which is a fast growing market in the region. In addition to various forms of SWG cooperation, Korea is planning to hold the 2017 Smart Water Grid International Conference, which has been held annually in Incheon.

Problems

Although the Korean Smart water management initiative looks promising, it is not without its problems. The OECD report on enhancing water use efficiency in Korea lists the problems comprehensively. A major flaw in these endeavors is the funds for these projects. Currently, K-water depends heavily on government funding rather than its own revenue for their operation, which was half of its total spending of 17.9 trillion Korean won (15.9 billion USD) in 2013. The report also points out that the K-water spends less efforts on improving the water distribution efficiency on the demand side by adjusting the fee for the consumers.

K-water also needs to work harder to raise the awareness of its initiative, both with the public and elites. K-water may have announced MOUs with other countries in the media, but it is not enough to demonstrate to the public the potential and how successful SWG development is. Fora project requiring significant investments, there is little information on the progress of the initiative other than from K-water sites and foreign reports written in English. In terms of elites or academics who want to develop the SWG further in Korea, there are academic societies dedicated to researching the SWG in Korea specifically. However, they do not seem to be updating publications or events in a timely manner to support interest. For K-water to really go for the global market it needs to work on how to build domestic support, so it will have a firm footing from which to pursue the initiative with stable funding and acknowledgement.

Hwan Kang is currently an Intern at the Korea Economic Institute of America as part of the Asan Academy Fellowship Program. He is also a student of Seoul National University in South Korea. The views expressed here are the author’s alone.

Image from Changjin Lee’s photostream on flickr Creative Commons.

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Borkers at the São Paulo Stock Exchange (Bovespa).

Provoking the Market: Investors More Worried about Washington’s Response than Pyongyang’s Provocations

By Kyle Ferrier

Analysts have attributed recent market downturns to North Korean provocations, but investors seem to be reacting more negatively to responses from the Trump administration.

Prior to North Korea’s sixth nuclear test on Sunday, Kim Jong-un was cited as a key contributor to recent developments in global markets. The fall in the value of the dollar and the strengthening of the euro and gold this summer have at least been somewhat linked to North Korean provocations. For the dollar and the euro, North Korea is at most exacerbating these trends, not causing them. Since the end of last year, the dollar has been in general decline and the value of the euro has steadily grown. This is primarily driven by looser monetary and fiscal policy in Europe as the Federal Reserve plans to unwind its balance sheet and the White House faces hurdles in its tax reform and infrastructure initiatives. It is harder, however, to argue Pyongyang has played an equally minor role in higher gold prices. Yet, movements in the price of gold and South Korea’s KOSPI stock index this year suggests investors are more concerned with uncertainty stemming from the Trump administration’s approach to North Korea.

Graph of the price of gold, March to September 2017

Graph of the price of gold, March to September 2017

The conventional wisdom has been that the financial impact of North Korean provocations in South Korea decreases over time. My analysis of North Korea’s nuclear tests, long-range rocket launches, and military provocations along the DMZ through February 2016 (after its second “satellite launch” attempt) found this line of thinking applied to nuclear tests, but could not fully explain the other two categories. It is more accurate to state that the impact of North Korean provocations on markets in Seoul depends on whether a given event is viewed to be outside the context of normal geopolitical developments. That the financial impact of North Korean provocations generally diminished merely illustrated investors had been through similar events and their bottom line was minimally affected. It was not necessarily an indicator of future reactions, particularly as circumstances surrounding each provocation can change dramatically.

KOSPI stock index, March to September 2017

KOSPI stock index, March to September 2017

Significant drops in the KOSPI corresponding with North Korean provocations in January and February last year raised concerns that markets were reacting to Pyongyang at levels not seen since the shelling of Yeonpyeong island in 2010, but these can be chalked up to coincidence rather than cause. These concerns were renewed later last year in the aftermath of North Korea’s fifth nuclear test on September 9. Many news outlets linked the 1.25 percent drop in the KOSPI that day to the test, but this was also coincidence and not cause. Of the 1.25 percent drop, only around 0.07 percent occurred after news first broke of the nuclear test at 9:45am. The fall in the KOSPI as well as the won was much more likely linked to Samsung’s Galaxy Note 7 woes as well as a slowdown in global markets. Thus, from 2010 through the end of 2016, North Korean provocations had a negligible impact on markets in Seoul.

The KOSPI’s reaction to the North’s latest nuclear test is the clearest indication that this trend has ended in 2017. On September 4, the first trading day after the test, the KOSPI opened 1.73 percent lower. Though some of these losses were gained back, it was down 1.19 percent by the end of trading. Unlike the previous test last year, the sixth nuclear test is most likely to blame for this drop. The only other instance of a notable drop in the KOSPI caused by a provocation was in response to the July 4 ICBM, though its impact was minimal: The KOSPI closed 0.58 percent lower that day and took five days to recover. The ICBM launch on July 28 saw almost no change in the KOSPI or the value of the won. And, the August 29 ballistic missile that flew over Japan was only met with a 0.23 drop, which was made back the next day.

Timeline of North Korea's rocket launches and their impact on the South Korean KOSPI stock index

Timeline of North Korea’s rocket launches and their impact on the South Korean KOSPI stock index.

That markets would react to the earlier ICBM launch and the nuclear test makes a degree of sense, considering that both added a new component of geopolitical risk on the Korean Peninsula. The July 4 missile launch was the first time Pyongyang demonstrated its capability of hitting a U.S. state and the nuclear test also possibly revealed its ability to miniaturize a nuclear weapon.

However, from stronger market responses to the Trump administration’s approach towards Kim Jong-un, it is highly likely that Washington is playing a greater role in the negative market reactions to Pyongyang this year. From April 4 to 11, the height of confusion over the whereabouts of the USS Carl Vinson, the KOSPI fell six straight days, totaling to a 2 percent loss. From August 8 to 11, after Trump’s “fire and fury” comments, it fell four consecutive days, amounting to more than a 3 percent loss. “Fire and fury” was also a retort to the July 28 ICBM launch, which ironically had no discernible financial impact in Seoul.

Table of North Korea's nuclear tests and their impact on South Korea's KOSPI stock index

Table of North Korea’s nuclear tests and their impact on South Korea’s KOSPI stock index.

Both incidents also had a bigger impact on the price of gold than did North Korean provocations.  Between April 3 to 13 the price of gold shot up 2.75 percent. It rose again by 2.5 percent from August 8 to 11. Market responses to the provocations in July were mere blips by comparison. Gold rose a quarter percent on July 4, but was back to its previous price within two days, and the price actually fell after the subsequent ICBM launch. Though the August 29 and September 3 provocations were met with steep price increases – 2 percent and 0.68 percent, respectively – these reactions seem to be heavily influenced by Trump’s “fire and fury” comments, evidenced by the current increase in gold prices starting around the time of his remarks.

While harder to judge from the KOPSI alone, the comparison with gold prices implies that this week’s drop in the KOSPI was a product of market nervousness about how the U.S. might reply to the test, not North Korea. Further, if geopolitical concerns did play a role in the KOSPI in early July, they were likely caused by anxieties about a U.S. response, fueled by the USS Carl Vinson incident and Trump’s “disruptive” foreign policy.

Although these reactions are relatively minor and fleeting in the grand scheme of markets, they provide a window into how investors view geopolitical developments on the Korean Peninsula. They may only reflect temporary sentiments, but present the strongest case there has been in recent years that Washington is perceived as the primary driver of risk on the peninsula, not Pyongyang.

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. 

Photo from the Rafael Matsunaga’s photostream on flickr Creative Commons.

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Korea Unveils Ambitious Plans for “Mooncare”

By Jenna Gibson

While the United States is locked in a fierce debate over Obamacare, South Korea is going through its own deliberations about healthcare reform. On August 9, right before hitting his 100th day in office, Korean President Moon Jae-In unveiled his plan to expand Korea’s already extensive healthcare system, a proposal quickly dubbed “Mooncare.”

Korea currently provides universal healthcare through its National Health Insurance Service. All citizens are required to pay into the fund via taxes, and they are all covered for general medical costs. Private insurance does exist, and people usually purchase those additional policies to cover large medical expenses, such as a major accident or cancer treatment.

One of President Moon Jae-In’s major pledges has been to reform this system, with the particular goal of decreasing costs for low-income patients. Moon’s plan focuses on three major changes: first, he wants to expand the types of procedures covered by the state insurance to eventually encompass all medical treatment except purely optional operations such as non-medically indicated cosmetic surgery. In addition, he plans to lower the cap for out-of-pocket expenses so that low-income Koreans would only have to pay up to 1 million won ($883) per year for their medical care. Finally, he plans to increase emergency financial support for those in the lower half of the income bracket, providing them access to up to 20 million won ($17,663) in case of a major health crisis.

“We will continue to move toward building a fair and just Republic of Korea that will ache when the people ache and will only smile when the people smile,” Moon said at the plan’s unveiling. “We will build a country where every person is free of concern over medical costs and can receive treatment for any disorder without having to worry about expenses.”

However, not everyone is enthusiastic about these sweeping changes. Korea will need 122,164 more nurses, 1,613 pharmacists, and 785 doctors to implement the president’s plan, according to a report from the Ministry of Health and Welfare. And critics have balked at the 30.6 trillion won ($26.9 billion) pricetag for the plan, saying that even if the government covers the increase for now, those costs may eventually be passed back down to taxpayers. This plan fits in with accusations that Moon is becoming a “Santa Claus President” – along with this healthcare plan, Moon has already promised several major welfare reforms including a minimum wage increase and a boost for both pension and child care funding.

Supporters, on the other hand, praise the program’s ambition and its focus on helping low-income Koreans. They also noted that this increased coverage could lead to a boom in the medical and biotech industry.

Moon’s approval rating has remained high, increasing slightly to hit 78 percent in the days following his healthcare announcement. According to a poll conducted on August 18-19, 85.3 percent of Koreans surveys said Moon was doing a good job managing state affairs. According to the Korea Herald, “When asked about having a ‘medium burden, medium welfare’ system in South Korean society, 81.6 percent supported the idea, with more than 75 percent of the respondents saying they are willing to pay more taxes to expand welfare and solve bipolarization issues.”

While Moon will have to carefully manage the significant funding necessary to conduct this and other major upgrades to Korea’s social safety net, it seems he has widespread support among the Korean public to begin moving forward with his ambitious reform agenda.

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

Image from Republic of Korea Armed Forces’ photostream on flickr Creative Commons.

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Ten Useful Korean Dating Terms

By Sang Kim and Jenna Gibson

If you’ve ever been in Korea around Valentine’s Day (or Peppero Day, or Christmas), you know that Korean dating culture is no joke. To help you navigate the world of relationships in Korea, we’ve compiled a list of 10 useful Korean words to describe different aspects of dating and relationships.

Relationship Words Individual Graphics-02

금사빠 – geum sah bbah

금방 사랑에 빠지다  / 금방 사랑에 빠지는 사람 (falling in love right away)

Similar to the phrase “love at first sight,” this abbreviated word is used to describe someone who falls in love very easily and quickly, but this phrase is different in a way a person falls in love too quickly and it does not last very long.

Relationship Words Individual Graphics-01

품절남/품절녀 – pum jeol nam/pum jeol nyuh (sold out man/woman)

The literal translation is a male or female that is “sold out” and no longer available. This word is used when someone you find charming or popular is getting married or is already married.

Relationship Words Individual Graphics-06

모쏠 – mo ssol

모태쏠로 (“solo from birth”)

Someone who was never in a romantic relationship in their entire life.

Relationship Words Individual Graphics-07

초식남 – choshiknam (“herbivore man”) / 건어물녀 – gunomullyuh (“dried fish woman”)

Originated from a Japanese word 草食系, this word literally means “herbivore man.” It was initially used to describe men who are more sensitive and gentle/docile like herbivores, but now it is mostly used to describe guys who are not interested in dating or marriage. They would rather spend time and money on their self-improvement, fashion, and hobbies.

There many debatable theories behind why guys become 초식남. Some of the reasons include concerns for lack of personal life/hobbies when in relationships or once married, fatigue from relationships, financial affordability, or they simply just have no interest in dating.

Also originated from a Japanese word, 乾魚物女 from a 2003 comic, “Dried fish woman” is a female version of 초식남. This word refers to women who focus more on their career and have no desire to do anything else after work. Typical characteristics of 건어물녀 include, changing into a comfortable sweatpants/shirts after a long day at work, relaxing, watching TV and being a couch potato at home. They have no interest or desire in socializing (including dating) and would rather stay home alone.

Relationship Words Individual Graphics-08

볼매 – bol mae

볼수록 매력있다 (the more you look, more charm)

This abbreviated word is used to describe when someone who has hidden charms. They might not be the most attractive person, but once you get to know them they are more attractive and charming.

Relationship Words Individual Graphics-09

돌싱 – dol sing

돌아온 싱글 (returned single)

Someone who has gotten divorced and has “came back” to being single.

Relationship Words Individual Graphics-04

밀당 – mil dang

밀고 당기다 (push and pull)

Every relationship needs a little push and pull. In the context of relationships, 밀당often means “playing hard to get.”

Relationship Words Individual Graphics-03

썸 – ssum

Taken from the English word “something,” this describes the special something between two people who seem to have feelings for each other but haven’t taken the plunge and started dating.

Relationship Words Individual Graphics-05

뇌섹남/뇌섹녀 – nwae saek nam/nwae saek nyeo

뇌가 섹시한 남자/여자 (“sexy brain man/woman”)

Someone who is attractive because of their smarts can be described as a뇌섹남 (male) or뇌섹녀 (female). This means a man or woman whose brain is sexy.

Relationship Words Individual Graphics-10

남사친/여사친 – nam sa chin/yeo sa chin

남자 사람 친구/ 여자 사람 친구 (“male/female person friend”)

Literally translated, these two words mean “male person friend” and “female person friend.” You can use this to emphasize that the person is just a friend who happens to be a man or a woman, as opposed to a boyfriend or girlfriend.

If you liked this list, check out the other posts in our series of useful Korean words: 10 Useful Korean Slang Terms and Ten Korean Words that Don’t Exist in English.

Sang Kim is the Director of Public Affairs & Intern Coordinator. Jenna Gibson is the Director of Communications at the Korea Economic Institute of America. The views expressed here are the authors’ alone.

Image from 김문규’s photostream on flickr Creative Commons. Graphics by KEI’s Jenna Gibson.

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Presidential Puppies in the Blue House

By Juni Kim

South Korean President Moon Jae-in garnered attention last week with the announcement of the newest presidential resident, a rescue dog named Tory. President Moon adopted the four year old dog from the group Coexistence of Animal Rights on Earth (CARE), an activist organization which campaigns against the consumption of dog meat in Asia. In addition to Tory, President Moon already has two other pets, a rescue cat named “Jjing-jjing” and a Poongsan dog named “Maru.”

In a post on the Blue House’s Facebook page, President Moon encouraged other Koreans to adopt rescue animals, stating, “About one million animals find new owners, but 300,000 are abandoned each year. We need to pay more attention to abandoned animals and care for them as a society.”

The Blue House has a long tradition of presidential pets, with many past presidents showing a preference for Korean dog breeds. The graphic below shows some of the previous pet tenants that have provided company and friendship for South Korean presidents.

Puppies

 

Juni Kim is the Program Manager and Executive Assistant at the Korea Economic Institute of America. Hwan Kang, an intern at KEI, made contributions to this article. The views expressed here are the author’s alone.  

Graphic created by Juni Kim. Image from Korea.net. 

 

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As Chinese Tourists Continue to Drop, Korea Turns to the Middle East

By Jenna Gibson

As several KEI analyses have shown, South Korea’s tourism industry  has been one of the main casualties of China’s economic retaliation over deployment of the THAAD missile defense system. New estimates from the Korea Tourism Organization show that China’s retaliation could cost Korea up to 5 million tourists this year, five times as many as when the MERS outbreak significantly dampened tourism in early 2015.

In June 2017, Korea saw a 36 percent drop in tourist entries, due in large part to a 66.4 percent decrease in Chinese visitors compared to June 2016. At that time, Chinese tourists made up 48.8 percent of all entries into Korea – a figure that’s now down to 25.7 percent.

But the numbers also reveal some good news that illuminate an important avenue for future growth in Korea’s tourism industry. While Chinese visitors continued to drop, the number of tourists from the Middle East have jumped significantly, recording a 71 percent increase from June 2016 to June 2017.

And, perhaps more importantly, tourists from the Middle East spend significantly more during their time in Korea than those from other areas, according to a study by the Korea Culture and Tourism Institute. Their recent survey of tourists in Korea showed that Middle Eastern visitors spent an average of $2,593 each during their trip, followed by Chinese tourists at $2,059 each. The average for all visitors to Korea is significantly lower, at $1,625.

In order to cash in on this growing market, the Korean government and the tourism industry are focusing on providing more services for Middle Eastern tourists, including a push to increase the number of halal certified restaurants around the country. Just this month, 117 more restaurants received their halal certification, bringing the total to 252. In addition, many popular tourist attractions have added prayer rooms for their Muslim visitors, including Nami Island, Lotte World, and Coex Mall, as well as Incheon International Airport and Busan’s Gimhae International Airport.

MENA tourism graphic-01

Part of the drive for more tourists from the Middle East choosing to visit Korea is the explosive popularity of Hallyu across the region. Take Iran, for example. There, fascination with Korean culture started back in the mid-2000s, when the historical drama ‘Dae Jang Geum’ was broadcast on state TV and garnered 86 percent ratings nationwide. In a 2017 report of the most popular shows on Netflix around the world, Iran was only one of two non-Asian countries to put a Korean drama (2012’s Love Rain) on the top of their queues.

In June, CJ E&M, Korea’s largest media company, said it will be opening a Turkish unit to increase its presence in Turkey, where locals can’t seem to get enough Korean cultural content. Considering that the filming sites of many popular Korean dramas have become popular tourist destinations, this increase in the popularity of Korean TV shows could lead to overseas fans travelling to Korea to see the spot where their favorite drama couple fell in love.

With the Korean tourism industry continuing to focus on enticing Middle Eastern visitors as well as tourists from all parts of the world, there is certainly an opening to offset some of the losses from the drop in Chinese tourism over the last year or so. But there is still a long way to go – even with the huge increase in visitors, Middle Eastern tourists still only make up around 1 percent of entries into Korea.

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

Image from yadem.hayseed’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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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.