Hyun Zu (Yonni) Kim

[GlobalAtlanta interview that was conducted by Phil Bolton.]

GlobalAtlanta: Do you think that the agreement will be ratified in both the U.S. and Korea?  What are the main political issues that will be faced?

Ms. Kim: The U.S. business community at large has expressed strong support. However, the Automotive Trade Policy Council, Ford and Chrysler all issued statements expressing disappointment in the results of the negotiations. Organized labor (including the United Auto Workers) opposes the results of the negotiations.  Protectionist sentiment is on the rise in the Democrat controlled Congress.  Seoul’s concessions on automobiles may help, but the Democrats may want to make life difficult for President Bush.

The Democrat controlled Congress demanded inclusion of the new labor and environmental provisions with a stringent clause for penalties in the event either side failed to pass the standards.  Under the clause, no labor or environmental standards set in the accord should be compromised to the extent of undercutting prices.  But what is worrisome is the penalty of up to $15 million stipulated in the U.S. draft, which Seoul regards as thinly disguised attempt by the U.S. to hit Korean exports.  In Seoul’s eyes, the U.S. draft makes it too “simple” to use this clause against them.

Reactions in South Korea appeared to have been more widespread and intense than in the U.S. 

Some polls show public support for the agreement in the 50-60 percent range. The two leading candidates for the presidency according to most polls strongly favor the agreement.  Many observers predict that the Korean National Assembly will pass the agreement because it is supported by the leaders of Korea’s two largest parties, the opposition Grand National Party (GNP), and the pro-government Uri Party, which was founded by President Roh.  Between them, the GNP and Uri parties control 235 of 296 seats (127 for the GNP and 108 for the Uri Party). 

The exclusion of rice from the Korean/U.S. (KORUS) FTA removes what could have been a major political stumbling block. But the passage is not a certainty.  By law, President Roh cannot run for re-election in December 2007 and the fact that parliamentary elections are scheduled for April 2008 is likely to exacerbate the volatility of South Korean politics this year. Regardless of party affiliation, many legislators representing rural constituencies – by one estimate numbering 80 lawmakers – are likely to oppose the deal, as they did in the case of Korea-Chile FTA, which took nearly a year to be ratified after it was signed in 2003.

Opposition to the agreement remains relatively strong (in the 35-45 percent range in several polls) and intense, particularly among rural residents (farmers) and politicians, unions, and left-leaning individuals and organizations.  And President Roh’s political standing is low, even though his public approval ratings rose significantly after the KORUS FTA completion was announced, they remain in the 30 percent range (up from 10-20 percent range), and it is unclear how many Uri Party votes he can “deliver” for the FTA.

Under the TPA (Trade promotion authority) of President Bush, the implementing legislation for trade agreements can receive expedited (fast-track) congressional consideration, that is time-limited committee consideration, no amendments, and time-limited floor debate. 

On the Korean side, where the FTA must be ratified by a majority vote in the unicameral National Assembly to take effect, trade agreements are not subject to any fast-track time lines. With presidential elections in December 2007 and parliamentary elections in April 2008, some political observers are suggesting that the KORUS FTA may not be voted upon until after a new president and a new assembly are elected.  Even before the two legislatures are formally asked to debate the FTA, Korea’s actions on its ban on imported U.S. beef are likely to be scrutinized carefully. 

It is widely expected that the FTA would run into great difficulties in Congress if Korea’s ban is not lifted.  Observers will be watching Korea’s reaction to the World Organization for Animal Health (OIE)’ report on the risks associated with U.S. beef, a decision that is supposed be made by May 20, 2007. Seoul has pledged to uphold the OIE’s recommendations.

GlobalAtlanta: It is said that this is the largest free trade agreement since NAFTA.  What is the scope of the agreement?

Ms. Kim: South Korea is the U.S.’ seventh largest and the U.S. is the South Korea’s third largest trade partner and it is predicted that the FTA will boost bilateral trade by $20 billion from what was already a staggering $79 billion in 2006. 

The FTA will cover a broad range of areas.  According to the Office of the USTR, 95 percent of U.S.-South Korean trade in consumer and industrial products would become duty-free within three years after the agreement enters into force, and virtually all remaining tariffs would be lifted within 10 years.

In services, the two countries agreed to use the negative list approach to making their commitments.  All sectors are considered targets for trade liberalization unless identified exempt in the relevant annexes. 

Rice was the most sensitive area for the South Koreans, and it was an issue that negotiators did not resolve until the end of the negotiations.  The U.S. agreed to let South Korea exclude rice from FTA coverage.  South Korean restrictions on imports of U.S. beef was and continues to be a critical issue that could impede congressional consideration of implementing legislation for the KORUS FTA. (Before the ban was imposed, South Korea was the third-largest foreign buyer of U.S. beef.)  In addition to rice and beef, trade in citrus products was also sensitive and was not resolved until the final days of the negotiations.

Trade in autos proved to be another highly contentious issue that was not resolved until the final hours of the negotiations. The U.S. agreed to eliminate its 2.5 percent tariff on imports of Korean cars with engines up to 3,000 ccs, and to phase out the tariff on larger South Korean vehicles over three years.  The U.S. also would phase out its 25 percent tariff on imports of South Korean light trucks over 10 years.  South Korea agreed to eliminate its 8 percent tariff on auto imports.  In addition, South Korea agreed to revise its engine displacement tax regime so that there would be fewer tax categories and that the tax would be applied to most cars that are made in the United States in the same manner as it is applied to South Korean-made cars.  South Korea would also reduce over three years the excise tax on cars from 10 percent to 5 percent and reduce the number cars that would be subject to the tax.  South Korea and the United States agreed to create a special dispute settlement mechanism for the commitments in the FTA pertaining to passenger cars.

Regarding textiles and apparel, the FTA, with some exceptions, would use the yarn-forward rule of origin: that is, in order for products to be considered FTA-eligible, they must be produced from components made in either the U.S. or South Korea.  About 61 percent of U.S.-South Korea trade in textiles and apparel would become duty-free immediately.

GlobalAtlanta: Why were the Hyundai workers so upset about it?  Would this affect the presence of Hyundai in the Southeast?

Ms. Kim: An effort by the giant Metal Workers Union to stage a general strike to protest the deal this week seems to be fizzling out, with barely 12 percent of the union’s members joining the action on Monday. Workers at the union’s largest affiliate, which represents the huge Hyundai car company, have scaled back their participation to a token effort, perhaps in recognition of the fact that the deal will likely allow the company to sell even more Hyundais in the U.S, which is not a bad thing for the well-paid workers.  Restrictions on the auto sector have been considerably eased, which could lead to Hyundai’s solid domestic market lead facing a future shake up as well.

GlobalAtlanta: How do you see U.S.-Korea relations in the future?

Ms. Kim: The U.S.-South Korean alliance remains very strong.  However, the alliance also has shown signs of fraying.  Some observers argue that the FTA would help to strengthen the alliance.  Strategically, some in South Korea and the United States also see the FTA as a means for boosting the U.S.-South Korean alliance.  Some feel a need to boost the relationship because of bilateral strains over major alliance issues, primarily brought about by different views about how to handle North Korea and China. Additionally, South Korea’s (“Sunshine policy”) policy of emphasizing bilateral reconciliation with North Korea generally has meant that South Korea has not supported U.S. efforts to pressure North Korea.  Many argue that an FTA will provide a counterweight to help balance areas of difference and help provide a “new basis” for the alliance with something to “stand for” rather than “stand against”.

GlobalAtlanta: Would the FTA be helpful to the economic development of both countries, specifically related to the development of wireless tech in the U.S.?

Ms. Kim: South Korea lifted some restrictions on trade and investment in various sectors.   U.S. companies would be able to control up to 100 percent of domestic Korean telecommunications companies, although they would still only be able to directly own up to 49 percent with remaining ownership held by a Korea-based holding company.

GlobalAtlanta: Will the FTA have an effect on the Korean presidential race?

Ms. Kim: President Roh’s term expires in February 2008. if Korea’s past presidential elections are any guide, the coming months will see a whirlwind of defections, alliances, splits, and mergers as would-be presidents and ruling parties jockey for positions.

A recent poll finds that 55 percent of legislators support the FTA.  However in an election year, those with rural constituencies will hesitate to back a measure that is seen as a certain vote-loser.  There is a risk that it will fuel a nationalist backlash among those who regard foreign business as predatory and who are skeptical about globalization.

GlobalAtlanta:

-What’s the impact of the FTA on South Korea’s relations with North Korea?

-How does the agreement affect the manufacturing facilities in Kaesong?

-Is there a possibility that under the agreement new arrangements similar to those in Kaesong could be established in North Korea?

Ms. Kim: Kaesong/Gaesong Industrial Complex (KIC), one year after the KORUS FTA enters into force, a bi-national committee would be formed to study the possibility of eventually including products from “Outward Processing Zones” using North Korean labor sometime in the future. U.S. officials have emphasized that the word “Kaesong” does not appear in the FTA text nor does the inclusion of this provision imply that products from Kaesong will eventually be included.

A pilot site at Kaesong, housing the factories of over fifteen South Korean firms, opened in 2004, and as of late 2006 employed over 11,000 North Korean workers and produced nearly $75 million in manufactured goods, mostly light industrial products such as textiles and electronic goods.  There are plans to expand the zone dramatically, though South Korean officials say the pace and scope of the expansion is contingent upon the status of negotiations over North Korea’s nuclear programs.  In early 2006, some KIC officials expressed their desire to expand the complex to 300 tenant South Korean companies employing about 70,000 North Koreans by the end of 2007.  Following North Korea’s missile tests in July 2007, however, the South Korean government suspended taking new applications from South Korean firms to invest in the second phase of the KIC.  In January 2007, the South Korean Unification Minister announced that an additional 40 firms, which had been selected prior to the suspension, would open operations in Kaesong in 2007.  The United States officially supports the KIC.  In 2004 and 2005, the U.S. approved several export controls clearance that were required by U.S. law for South Korean firms to bring items – such as computer and telecommunications equipment– to Kaesong.

Since the KIC opened, it has been South Korean policy to request that its FTA partners allow exports from Kaesong to be considered as “Made in Korea” (meaning South Korea), thereby enabling these products to receive the preferential status conferred by the FTA.  When questioned about this policy during the February 2, 2006 launch of the FTA, USTR Portman stated that the FTA would cover only products made in South Korea.  The U.S. maintained this position until the final stage of the negotiations.  Several members of Congress publicly stated that including Kaesong-origin products in an FTA could sink the agreement’s chances in Congress.  Two important issues for the United States in considering South Korea’s demand are the conditions for the North Korean workers and the income the KIC provides for the North Korean government.  Some U.S. labor and human rights advocates have argued that North Korean workers in Kaesong are being exploited.  South Korean officials, as well as other analysts, counter by saying that conditions – including wage conditions – at Kaesong are far better than those in the rest of North Korea.

The KIC arguably has become the centerpiece for South Korea’s “sunshine policy” of engaging North Korea.  The South Korean government envisions the complex, which has broad support inside South Korea, as a way to ensure stability on the Korean Peninsula and ease the presumed costs of an eventual North-South reunification by introducing global economic standards to North Korea and linking North Korea to the global economy.  The controversy became highly public and political in both countries.  Many South Korean officials appeared to view the U.S. position on including Kaesong in the KORUS FTA as a litmus test for the U.S. approach toward Seoul’s entire sunshine policy of engaging North Korea.  To some in the United States, however, the South Korean push to include Kaesong in the FTA appeared to be an attempt to move U.S. policy from not opposing the KIC to promoting it.  In the final compromise – to set up a committee to establish criteria for including “outward processing zones” on the Korean Peninsula in the future – represents a middle ground between the two positions.  It appears the U.S. backed away from the principle of not ever expanding the KORUS FTA to North Korea-made products, a significant achievement for South Korea.  At the same time, the United States appeared to give up little in substance in the near-to-middle term.  The FTA does not specify the committee’s membership, the committee will not meet until at least a year after the agreement takes effect, and according to Wendy Cutler (Ambassador USTR) both countries’ legislatures would have to approve decisions made by the committee.