Hae-jin Chun has been South Korea's consul general in the Southeast since August 2008. This commentary is adapted from a speech he gave Sept. 10 during a Korea-Southeast U.S. Chamber of Commerce board meeting held at the Kia auto plant in West Point.
Since the days of the Korean War, the U.S. and South Korea have maintained a strong alliance both politically and economically. Korea is a rare case of a country that has gone from complete ruins to an advanced nation in just half a century. The strong alliance between our two countries has contributed greatly to the economic development of Korea. Our nations have been partners in the efforts to secure peace and stability in the Northeast Asian region as well as globally.
Korea is now the 15th largest economy in the world, and the 7th largest trading partner of the U.S. Two-way trade between Korea and the U.S. reached an estimated $82 billion in 2008. With the proposed Korea-U.S. Free Trade Agreement, this amount will only increase.
Historically, the U.S. has always ranked as Korea’s number one trading partner. However, this trend reversed a few years ago, and now China, the European Union and Japan export more goods to Korea than the U.S. The Korea-U.S. FTA will provide the market access, incentives and mechanisms necessary for U.S. products to reclaim lost market share in the Korean economy.
Despite a slight decline of U.S. market share in Korea over the last several years, direct investment between Korea and the U.S. has been increasing rapidly. Korean investment in the U.S. has totaled $31 billion. The U.S. is the largest foreign investor in Korea with a total amount of $40 billion.
Once approved by Congress, the FTA will create the third largest free trade area in the world, behind only the EU and NAFTA. It will greatly expand market access in Korea for U.S.farmers, manufacturers, service providers, and financial services firms. Consumers in both countries stand to gain from the broad benefits of this agreement.
It will also eliminate tariffs and other barriers to trade, promote economic growth, and enhance trade between the two countries. As we all know, trade plays an important role in economic stability. With the FTA, the playing field is leveled and it will enhance competition as it moves the Korea-U.S. commercial relationship to a full partnership with shared commitments.
As you can imagine, this FTA will provide new momentum for economic growth in Korea by securing access to the world’s largest markets as well as upgrading the economy through opening the domestic market to fair competition. For the U.S., the FTA will make Korea an even more attractive place to do business, expanding economic opportunities for U.S. manufacturers, workers, and farmers.
A Boon for the Southeast
In the Southeast U.S. also, the economy depends much on these world markets. Exports support jobs for local workers as well as sustain thousands of local businesses. This FTA will open new markets in Korea for key local exports such as computers and electronic products, machinery, transportation equipment, and agricultural products. These categories alone account for over half of Georgia’s exports to Korea, which amounted to $413 million last year.
Agricultural products in Georgia such as poultry, cotton and peanuts will immediately have all tariffs and other barriers eliminated. With this immediate removal of such barriers, the Korea-U.S. FTA gives U.S. exporters improved access to the Korean market for many of the products that have been protected.
The Korea-U.S. FTA also includes provisions for increased transparency of regulatory procedures in investments and services. This transparency promotes both domestic and foreign investment opportunities in Korea. This will ensure U.S. investors in Korea the same rights as Korean investors. New business opportunities in financial, legal, accounting and insurance services, in which U.S. companies have considerable competitive edge around the world, will also be created. This includes the establishment of bank branches, insurance companies, and asset management opportunities in Korea.
I’m sure that the Korea-U.S. FTA will further boost Korean investment in the U.S. and provide more jobs to American workers. In Georgia specifically, there are at least 16 Korean companies that have operations, and the total investment in the area is estimated to be over $3.2 billion. The Kia plant is an excellent example. The Korean company is investing $1.2 billion and creating 2,500 jobs to produce 300,000 vehicles each year. I still gladly remember the New York Times report last year with a photo of a woman in Georgia who put a sign on her front lawn reading, “Thank you Jesus for bringing Kia to our town”.
This type of investment is happening over and over again in the Southeast. The Hyundai plant in Alabama is turning out 300,000 cars each year. Also, the new Hanjin Shipping Co. facilities that are under construction in Jacksonville, Fla., will allow over 7.5 million tons of cargo to pass through each year. SKC, a high quality polyester film producer in Covington, Ga., has decided to increase its production capacity, and an expansion ceremony will take place in just two weeks time. Samsung has established earlier this year its North American Customer Care Center in Maulin, S.C., potentially employing 1,000 people. The expanding influence and impact of Korea is evident and will only continue to increase.
Hurdles: Cars and Beef
There is no doubt that the passage of this trade deal will mark a milestone in the bilateral relationship, but we face an uphill battle in Congress. The road ahead is going to require some hard work and creativity to resolve some tough, outstanding issues before the Congress will ratify the agreement.
The two largest hurdles regarding the ratification of the FTA in Congress pertain to the U.S. beef and automobile issues. In 2003, U.S. beef was banned from Korea amid concerns over a case of mad cow disease. In June 2008, Korea announced that the import of U.S. beef would resume and that all issues have been resolved. To ease public tension and concern, restrictions as to which parts of a cow from the U.S. can be imported have been put in place. U.S. beef is now flowing into Korean marketplaces without difficulty so that it no longer poses a serious problem to the FTA.
As to the second hurdle, the U.S. automobile sector stands to gain immensely from the Korea-U.S. FTA, although many auto labor union leaders oppose the passage. The debate around the auto deal is mostly surrounded by misunderstanding and misinformation. The American auto labor union leaders argue that the details of the FTA fail to open Korea’s auto market. On the contrary, Korea’s auto market is open for imports and the foreign share of that market has increased about 40 percent each year for the past decade.
Another misunderstanding is the thought that there is not sufficient reciprocity with respect to cars. While Korea exports about 700,000 cars it only imports 7,000 U.S. cars. Korean car companies have about 5 percent of the U.S. auto market share. Of the Korean market share, 30 percent of those cars are manufactured by Hyundai in Montgomery, Ala. One must also understand that the Korean market for cars is about 1.2 million cars per year. The U.S. market for cars is about 15 million cars per year. The numbers are vastly different, and this must be considered when discussing reciprocity.
The terms of tariff elimination for automobiles are more favorable to the U.S. than to Korea. Korea will eliminate the 8 percent automotive tariff immediately. The U.S. will eliminate only 2.5 percent immediately. In addition, the 25 percent U.S. tariff on pick-up trucks will be phased out over 10 years.
Along with the future benefits of the Korea-U.S. FTA, it is important to recognize the immediate benefits of direct investment by Korean manufactures as they continue to operate state-of-the-art automobile manufacturing plants in the U.S. Hyundai and Kia have invested around $2.6 billion and together have created nearly 6,000 jobs in the Southeast region alone.
A Win-Win Blueprint for Asian Trade
All in all, the Korea-U.S. FTA is a rare opportunity and a win-win situation for both of our countries. Many experts further believe that the FTA will also provide U.S. businesses with a strategic springboard to the other dynamic economies of Northeast Asia, and possibly bring stability to that region of the world. As the first U.S. FTA with a Northeast Asian partner, the Korea-U.S. FTA could be a model for trade agreements in the rest of the region as well as underscore the U.S. commitment to, and engagement in, the Asian-Pacific region.
President Obama has said that he is committed to moving forward on a path that will increase commercial ties that are already very strong between our two countries. The two governments will make the utmost efforts to chart a way forward on the issues. It is my hope that the two sides will navigate successfully through political minefields to achieve their goals for congressional approval so that businesses and consumers of our two countries could reap the benefits from this FTA as soon as possible.
By boosting economic ties and broadening the longstanding alliance between Korea and the U.S., the FTA promises to become the pillar of the bilateral alliance for many years to come.
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