Dr. Victor Cha:
“The US Korean Free Trade Agreement: Where Things Stand and Where They’re Headed”
Dr. Victor Cha is former Director for Asian Affairs in the White House, National Security Council and current Director of the Asian Studies Program at Georgetown University. Dr. Cha is author of Beyond the Final Score: The Politics of Sport in Asia.
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Full Transcript of the Interview
Tom: Hello, and thanks for joining us today at KoreaBusinessCentral.com. My name is Tom Tucker. I’m the host for this interview series that we’re producing here at KoreaBusinessCentral.com. Today, we’ve got a terrific and very accomplished guest. His name is Dr. Victor Cha. He’s a professor and author, as well as former Director for Asian Affairs in the White House’s National Security Council with responsibility for Japan, North and South Korea, and Australia, and New Zealand.
He was President Bush’s top advisor on Korean affairs. And he currently holds the DS Song Korea Foundation Chair in Asian Studies. He is the Director of the Asian Studies program at Georgetown University. Dr. Cha, thanks for joining us today. It’s a real pleasure to have you.
Dr. Cha: Well, it’s great to be on your program.
Tom: Thank you. Let’s start of by talking about the South Korean economy. Provide for us kind of a snapshot or an assessment of where the South Korean economy is right now.
Dr. Cha: Well, probably your listeners know better than I do, but it appears to be on the incline. It is one of the first economies to come out of the global financial crisis, largely due to a very forceful and sustained expansionary fiscal program that the Lee Myung-Bak administration has put into place.
I think it’s been successful in that Korea, I think, is going to register positive growth rates after the previous year, year and a half. Perhaps, more importantly, it looks like this administration is committed to continuing the spending to help boost the economy.
I think there are two reasons for that. One is that they don’t really have to deal with high inflation rates at this point. Inflation is pretty low in Korea. And the other is the interest rates are still fairly low and there’s not a lot of labor unrest.
So, this is a pretty good picture for the administration and it looks to continue for the first six months of 2010. The first six months of 2010, of course, are quite important because in June, they will have the first popular mandate of the year with regard to Lee Myung-Bak’s presidency and that is the June local elections.
So, I think with an economy that’s coming along — low inflation, low interest rates — they would be in pretty good stead through June.
Tom: The picture certainly does look good right now. What are some of the other factors that will also contribute to this continued improvement; this continued growth rate in Korea?
Dr. Cha: Well, I think one of the issues will be the degree of optimism or pessimism on the Free Trade Agreement; clearly, a very important agreement for Korea, a very important agreement for the United States.
This was something that we worked on in the Bush administration and signed in the Bush administration, but as all of your listeners know, it still hasn’t passed.
I think most of the independent studies that have been done of this agreement show that it will lead to a net increase in economic activity for both sides as well as create jobs on both sides which is, of course, very important in the US domestic political context.
So, I think there will be a lot of eyes on the future direction of the FTA over 2010 and that could contribute either positively or negatively to South Korea’s economic forecast.
Tom: In February, President Obama indicated he wants to push for Congressional approval of FTA, even though there’s a couple of sticking points remaining, which I’m sure you’re familiar with, especially with regard to the imbalance of auot trade with this agreement and some of the restrictions on shipments of American beef to Korea.
Where does this agreement stand right now and elaborate on some of these issues that were brought up here.
Dr. Cha: Well, first, in terms of the issues, I think you pointed to them. Beef and autos appear to be the big ones; at least, from the view of the United States Congress. This has moved along a much smoother path on the South Korean side and I think there’re a lot of expectations on the South Korean side that the US side needs to really step up to the plate and get this thing passed.
I think, as you mentioned, after February and the President’s statements about trade, I think the picture looks certainly a lot better today than it did this time last year. In other words, I think after the first year, the administration, which gave virtually no statements or actions on trade… The only actions on trade tended to be punitive ones, whether that was Chinese steel pipes or Chinese tires and, really, nothing at all on the positive side with regards to trade.
I think a very important factor that changed that was the President’s trip to Asia in November where he was the first American President in recent history to go to the APEC meetings — APEC countries make up some 44% of total global trade — went to these meetings without a trade policy.
And I think when he sat down and talked with each of the Asian leaders at APEC and got the same question every time which is, “What is your trade policy, Mr. President?” I think he realized that he didn’t have one.
And while it may have been domestically a useful thing to be a little bit quiet on trade, it clearly didn’t help him in the broader international arena.
So, I think that trip in addition to coming into a second year — and, historically, most American Presidents in their second year, tack more to the middle; take more of a centric view — we saw much more positive statements on trade.
The target of trying to double exports and, most importantly, I think for the Korea FTA, the connection that the President drew between trade and the creation of jobs in the United States. So, I think that concatenation of forces led to a much more positive outlook on the trade picture.
Now, some people look at what’s happening on Capitol Hill and they think, “Oh, my, gosh. This thing is never going to get passed.” But my own view is if you just focus on what is happening in Congress, that is not going to be where the Free Trade Agreement gets passed. The place where that agreement is going to get passed is in the White House.
In other words, it’s going to take, regardless of what Congressional opposition might be to certain aspects of this agreement, it’s going to take a big push and decision by the White House to make this a front burner issue.
Once the White House starts to do that, that’s the only way you really start getting movement in Congress, momentum among private sector groups and business to really push this agreement forward.
Free Trade Agreements don’t get passed into Congress by themselves. They are always pushed by the administration whether that was NAFTA, CAFTA — whatever it was. And that will certainly be the case with the KORUS FTA.
So, I think the focus — the thing that I watch in terms of this is not so much what Congress is saying, but really, what the White House is saying on trade.
Tom: So, it sounds like you’re optimistic that, eventually, that this is going to get passed. Is that the case and when do you see this happening?
Dr. Cha: I think it will. It will, eventually, get passed. I think there was some talk early on when the administration also started talking about the TPP, the Trans Pacific Partnership, of possibly folding the KORUS FTA into that.
I think people realize that that’s just not possible. The agreement is too big. It’s too important. It represents too much of a prototype for other future free trade agreements, that they understood it has to stand on its own.
And again, I think this agreement is too important not to pass. It’s the second largest free trade agreement ever negotiated by the United States. It’s the largest bilateral free trade agreement. The only one that’s larger in terms of volume of economic activity is NAFTA and, again, it is important.
Experts have noted this is, commercially, the most significant FTA between the United States and another country.
So, if this were not to be passed, it would not only be a blow to US/Korea trade, it would say a lot about what direction the United States was heading overall in trade, so I think there’s a lot riding on this.
In terms of timing, it’s difficult for me to see this actually moving forward before the elections here in November — the midterm elections — just because there are so many other things on the agenda right now including healthcare, and other issues.
Rightly or wrongly, many Congressional politicians believe that their constituencies either punish or reward them on positions they take on trade issues.
I say that conditionally because I think much of the academic literature on political economy and on voting actually finds there isn’t a significant statistical correlation between how constituencies reward or punish their politicians for their positions on free trade agreements.
Nevertheless, that is the perception. And for that reason, it’s hard to see this thing happening before November and I think there would be a strong push for it after November.
Tom: A couple other sticking points that I brought up a moment ago; an imbalance with regard to the auto trade and these concerns with regard to restrictions on shipments of American beef to Korea. Can you elaborate on those two points a little bit and talk about those issues there?
Dr. Cha: Well, I think on the auto trade side, there are still concerns about non-tariff barriers that many in the US believe that the free trade agreement does not adequately address. Quite simply, that’s the issue. Ford, in particular, has a very strong opinion on this.
And on the beef side, this has been a longstanding dispute between the United States and Korea, and the United States and Japan, and other countries in Asia all stemming from the problem of mad cow