The ICAS Lectures


The US-Korea FTA Negotiation:
Challenges and Outlook

Wendy Cutler

ICAS Spring Symposium
The Korean Peninsula Issues
May 22, 2006 9:00 AM -- 7:30 PM
United States Senate Russell Office Building Caucus Room SR 325
Capitol Hill, Washington D.C. 20510
Institute for Corean-American Studies, Inc.

965 Clover Court, Blue Bell, PA 19422


Biographic Sketch & Links: Wendy Cutler

The US-Korea FTA Negotiation:
Challenges and Outlook

Wendy Cutler

Introduced by

S. Elizabeth Kim

Thank you, Dr. Kim. I am delighted to introduce our next speaker. The Honorable Wendy Cutler is Assistant U.S. Trade Representative for Japan, Korea, and APEC affairs, and the Chief U.S. Negotiator for the US-Korea Free Trade Agreement negotiations which was launched back on February 2, 2006. In this capacity, she is responsible for leading the negotiations with the United States' 7th largest trading partner. She became the Assistant U.S. Trade Representative for Japan, Korea and APEC Affairs at the Office of U.S. Trade Representative back in June 2004. In this capacity, she was responsible for developing and implementing U.S. trade policy towards Japan and Korea, and in addition, she was responsible for developing and implementing trade and investment initiatives in the 21-member Asia-Pacific Economic Cooperation's forum. Since joining USTR in 1988, Miss Cutler has held numerous important positions. She received her Master's Degree in Foreign Services from Georgetown University, and her B.A. from George Washington University. Her full bio is available at the ICAS website. Thank you.


Thank you very much.

I'm really honored to be here today to talk about the US-Korea Free Trade Agreement which we in shorthand are calling now KORUS FTA – KOR standing for Korea, US standing for the United States. So KORUS FTA. Just two weeks from today we will officially launch the negotiations with our first round taking place in Washington, DC. I've noted that you've had a full schedule today and I'm the second from last speaker so I'll try to keep my remarks brief, and hopefully somewhat interesting. I note that many of your previous speakers have focused on the economic and financial issues facing North and South Korea, and I'm sure you're aware that a country's ability and determination to open its markets to trade helps promote the growth of its economy. And comparing the economies of North and South Korea is a perfect example of the relationship between trade and economic growth.

For instance, in the early 1960s, most South Koreans were poverty-stricken, and the country had lower per capita income than North Korea. But over the next four decades, South Korea joined the world economy and hugely expanded its trade while North Korea isolated itself. As a result, the South Korean economy has prospered with per capita income today approximately fourteen times greater than North Korea, and has become the world's 10th largest economy.

And the US-Korea trade relationship has expanded and matured over time. Once characterized by tension and acrimony, it's safe to say that our bilateral trade relationship with South Korea has really turned into one of cooperation and trust. This has led both countries to decide to enter into Tree Trade Agreement, FTA negotiations.

Allow me to explain the 8 key reasons why the United States finds Korea to be such an attractive partner for FTA negotiations.

First, Korea is a major trading partner of the United States and as such, its market presents significant commercial opportunities for U.S. exporters and investors. In fact, Korea is currently our 7th largest trading partner, our 7th largest export market, and our 6th largest agricultural market. Two-way trade now is valued at about $73 billion in 2005, and we expect this only to grow under an FTA. In a recent, the Korea Institute for International Economic Policy, KIIEP, estimates that two-way trade by almost $200 billion under an FTA. This represents a tremendous opportunity for U.S. businesses and workers.

Second, Korea is an advanced economy. As I mentioned earlier, South Korea represents the 10th largest economy in the world, and now its per capita income is approaching $20,000. As a result, its tariffs are lower, its labor and environmental protections are stronger, and its IPR regime is more developed which in some respects should make this FTA negotiation different and easier than recent FTA negotiations we've had with less developed trading partners.

Third, as the United States' first Free Trade Agreement negotiation with a north Asian partner, this agreement will help underscore the U.S. commitment to an engagement in the Asian region. From our FTA with Singapore, to our high level of dedication to furthering the work of APEC, to launching an FTA negotiation with Malaysia, to our new trade policy for and with India, the United States is committed to developing robust trade relationships in Asia. And in addition, we hope that the FTA will further motivate other countries in the region, such as China, to accelerate their market opening and economic policy reform efforts which will help spur growth in the Asia-Pacific region in a global economy, and help advance the WTO negotiations.

Fourth, Korea on its own initiative has undertaken economic reforms and market opening measures in recent years in response not to the United States, but to its own domestic needs and vision. For example, Korea has taken pro-active steps to ensure that its laws covering intellectual property rights keep up with the changing environment as Korea becomes one of the most sophisticated users of on-line Internet technology. In addition, Korea's economic policy leaders have been bold in pushing forward with financial services reform and deregulation, helping to make the Korean economy stronger and more transparent. This demonstration of the Korean commitment to reform is truly impressive and has served to bring our two countries closer.

Fifth, Korea has become an important advocate for trade liberalization on the regional and multilateral front. Last year, as the host country of APEC, Korea was instrumental in advancing trade liberalization in the region and overseeing the significant contribution that APEC made to the Doha development agenda and negotiations. Korea and the United States are also working closely together in Geneva to achieve ambitious results in the DDA negotiations, particularly with respect to the industrial tariff and services negotiations.

Sixth, U.S. and Korean trade officials have worked successfully to change the tone of our trade talks and adopt what we call a "problem-solving" approach to difficult issues in areas such as telecommunications, automotive issues, pharmaceuticals, and even agriculture. And as a result, both sides have developed a kind of trust and confidence in each other that mark a productive partnership while at the same time resolving a number of long-standing trade irritants that would only have complicated our ability to launch an FTA.

Seventh, FTAs often require countries to make politically unpopular decisions, given that there are parts of the economy that may be adversely affected by an FTA, particularly in the short run. Thus, it is so important that an FTA partner be willing to make these types of decisions even in the face of strong domestic opposition. In recent years and months, Korea has demonstrated its resolve to do so by taking action such as reforming its agricultural sector and reducing restrictions on movie screenings.

Eighth, and my final point, the overall close partnership between the U.S. and Korea will assist us in the economic realm as well. Our 50-year-plus alliance has made Korea a close strategic partner and Korea has shown itself to be a friend of the United States on a variety of fronts. These close alliances combined with the strides made in recent years have certainly set the stage for what I am confident will be a successful negotiation that will create new opportunities for both our countries.

Now, I've explained the reasons why the United States finds Korea an attractive FTA partner, but Korea I think also finds us an attractive partner as well. The benefits of an FTA are not one-sided. Indeed, this will be a win-win agreement. Korea is expected to benefit substantially from this agreement. Reading through just some of the flurry of news reports, op-ed pieces, government statements and studies, and Korean economic analyses, the major gains to Korea appear to fall into four main areas.

An FTA with the United States is predicted to produce significant economic benefits for the Korean economy. By securing unimpeded access to the world's largest economy, the U.S.-Korea FTA is forecasted to increase Korea's real GDP by as much as 2%, establishing a foundation for Korea to achieve a per capita income as high as $30,000, boosting exports to the United States, and creating new jobs in Korea.

Second, Korean consumers should also benefit immensely, enjoying lower prices for daily commodities and special purchases. An FTA will contribute to Korea's goal to become an advanced service economy by contributing to economic reform and deregulation in its central services sectors. In addition, the tariff reductions that will come as part of the agreement will benefit key Korean export products.

And third, as Korea looks ahead toward its own future, an FTA with the United States will help it position itself as a major force in the Asia-Pacific region, the fastest growing region in the 21st Century. The agreement, by more closely linking Korea with the United States, will enhance Korea's competitiveness.

And finally, an FTA will yield real strategic benefits to Korea, helping to strengthen its capacity to serve as an economic hub of activity in the region, and thus making it a more desirable and stronger partner for other countries in the region.

Now let me turn to where we are in the process of the FTA negotiations. As mentioned in the introduction, we launched the FTA negotiations on February 2, actually on Capitol Hill with strong bipartisan support. Ambassador Portman and Trade Minister Kim were joined by many Congressional Representatives expressing support for this important undertaking.

On May 3, we concluded our Congressionally mandated 90-day consultation period, and over this period we've conducted really two important tracks of work. First, we are conducting extensive internal preparations for our negotiations. We've created a first-rate team with strong negotiating leads in a number of areas, and strong participation from many of the agencies around the government. One question I'm always asked is: how many people we have working on the negotiation, and how many people the Koreans have working on the negotiation? And at least what I heard today –the Koreans have a lot more people working on the negotiation, but that seems to change day-to-day.

We are now finalizing our negotiating text and proposals, taking into account all the detailed advice we've received from our stakeholders. For any FTA, this is an intensive process, but for the Korea FTA, it's probably more intensive than with other FTA partners, and this is for two main reasons. First, we've received more comments and submissions on this FTA than any FTA in recent years. We put out a Federal Register notice in February and in response, for example, we've received over about 100 submissions with advice and recommendations for us. This has been complemented by a lot of other meetings around town, and comments and submissions by the private sector. And second, we are undertaking concerted efforts and in some cases developing entirely new provisions to address Korea-specific barriers that have been raised by our constituents. In addition to working internally, we have also spent the past 90 days working with our Korean counterparts on laying the groundwork for the negotiations.

In a typical FTA we would address many of these issues when we actually started the negotiating rounds. However, we've made a concerted effort to take care of these matters, so when we start out first round the week of June 5 in Washington, DC, we can hit the ground running. We've had a number of sessions with our Korean counterparts where we've agreed on a structure of 17 negotiating groups, and two working groups for our talks. We've agreed on a lot of other procedural issues as well, and as I mentioned earlier, we're now exchanging actual negotiating text with the Koreans.

Looking ahead, it's safe to say while there's a lot of benefits that can be accrued by both the United States and Korea from a successful FTA negotiation, important challenges face us as well. Moving forward, we recognize that in many respects, the KORUS negotiation will be quite a different and tougher FTA negotiation than our previous negotiations for a few reasons.

First, Korea is a large trading partner with tough and experienced trade negotiators, and in fact, I think many of their trade negotiators were actually trained at U.S.T.R. through tough negotiations in the ‘80s and ‘90s.

Second, on contrast to previous FTAs, the nature and extent of the non-tariff barriers that our companies face in Korea will demand us to be creative and thoughtful and draft new cutting edge trade rules.

Third, we are under serious time constraints, and many of these constraints are laid out in Trade Promotion Authority (TPA) which expires on July 1, 2007. In order to submit legislation that meets this deadline, the optimal time for concluding our talks would be at the end of this year so that we will have the following months to do our detailed legal review and be able to notify Congress by the end of March that we have concluded our negotiations. While Korea has had experience concluding their FTAs in similar time frames, and we have as well, this constraint will prove to be a challenge.

And finally, the attention that the FTA is being given in the Korean press and public may also be a potential hurdle and may potentially complicate our ability to make progress on several key issues. From reading the press in Korea day-to-day, one might think that the overriding sentiment in Korea is against the FTA. However, the media coverage does not seem to represent the sentiments of the majority of the people in businesses in Korea toward an FTA with the United States. It's no surprise that there is strong opposition to an FTA from certain sectors in Korea, such as agricultural, services, and the movie industry – all of which have benefited from a relatively closed market and trade restrictions to date. However, it's important to note that the Roh administration, a majority of the Korean people, and the Korean business community support the FTA. Polls taken in Korean estimate support for the FTA to be in the range of 60% to 80%. Positive press reports also highlight how an FTA with the United States will likely spur the necessary changes in Korea, such as helping it further advance its economy to that of an advanced industrial nation. The Korean business community is also working to get the word out in support of the FTA. In fact, the President or chairman of the Korea International Trade Association, KITA, is in town today and this week basically for a series of meetings including meeting with his U.S. business counterparts to discuss how they can work together to build support for this undertaking.

It's also important to mention that small and medium sized companies in Korea also realize the benefits of a US-Korea FTA. A recent survey of small and medium sized businesses in Korea indicates that more than half believe that the KORUS FTA will have a positive impact in their businesses. There is also growing support in Korea's National Assembly for the FTA. A bipartisan committee comprised of approximately 50 members from both the ruling URI party as well as the opposition party, the GNP, are working together to foster the momentum supporting the FTA between our two nations. Moreover, President Roh has been very public and clear about his support for the FTA identifying the FTA as one of his two big priorities during the remainder of his tenure.

These are all very positive signs and I'm optimistic regarding our ability to conclude a successful deal that meets the interests and concerns of both sides. This is because we've had an extensive preparatory process so both sides are entering the negotiation with their eyes wide open. Second, political will at the senior levels is there, and when you combine this with strong negotiating teams, the recipe for success is there.

I would be remiss to say that I'm under no illusions that these negotiations will have their difficult moments. That's par for the course in any trade negotiation. In the end, though, I believe that the key to our success will be the commitment on both sides to be efficient, dedicated, and focused on the benefits that such an FTA will bring to both our countries, to the Asia-Pacific region, and to the global economy. And with such a focus, in conclusion, I'm confident that we will be able to conclude an historic agreement that will solidify our partnership and create new opportunities for peace and prosperity between the people and countries of the United States and Korea.

Thank you.

Q & A

QUESTION: This is a question actually I wanted to ask you when you had your teleconference, but I couldn’t figure out how to dial in. How important is Kaesung as a positive feature of the FTA from the Korean side? And do you think that this is potentially a deal-breaker if the Koreans wouldn’t want to compromise on excluding Kaesung production from an FTA?

CUTLER: Thanks for opening up with a real “soft ball” question!!! Let me just be really brief here, and that is that this is going to be a sensitive issue for the negotiations. I think the Koreans have made it clear that they would like Kaesung to be covered under the agreement. My boss, Ambassador Portman, has made it clear that the agreement should cover the Republic of Korea and the United States. So I’ll leave it there.

MARK MOHR: From the Wilson Center. This reveals that I have no economic background. I have talked to people at the Korean Embassy and one of the things they’re concerned about – this is not the negotiations per se – but I am told, and if you know anything about it for clarification – that there are hundreds of NGOs from Korea who are coming to the United States to protest in the streets. Is this true, and what effect do you think it will have? Or what are we doing to kind of explain to them that in the post-9/11 era, this is not downtown Seoul? Thank you.

CUTLER: We’re aware from press reports and through our discussions that there is the prospect of a number of protesters from Korea coming to Washington during our first negotiating round, the week of June 5. I’m focusing on the substance of those negotiations that week. Other people are concentrating and focusing on the security. And I would just say, we all need to be mindful that in every democracy there are protesters, and there are some people on both sides of this agreement that are concerned that they may lose under an FTA, and they have the right to protest. So – but what I want to make clear is that I think we need to keep in mind that based on the polls in Korea, based on press reports, and other information, the overall sentiment in Korea seems to be in strong support for the FTA.

DENNIS HALPIN: I work on international relations. You mentioned growing support in the South Korean National Assembly for this. I wanted to ask you, though, about support in the U.S. Congress based on some factors. As you know, CAFTA, the Central American Free Trade Agreement, passed by two votes, I believe. Only 15 Democrats voted for it. We have elections in the U.S. before the new Congress will receive the FTA, and I don’t think there’s anyone who would question there won’t be Democratic gains. I also saw on either the Hill or the Roll Call, the headline about Miss Bean was having a fundraiser last week and the Teamsters showed up. Melissa Bean is a freshman from Illinois and is one of the 15 Democrats who did vote for CAFTA, and the unions are as unhappy with her as they were with Marjorie Margolies-Mezvinski – MMM who voted for NAFTA during Bill Clinton’s administration. She was a freshman Democrat like Miss Bean and she lost her seat in the subsequent election. Also the fact that Tom DeLay, the hammr, is no longer there to hammer this through the House. So my question is – do you see – and then I haven’t even mentioned Mr. Levin and others from Michigan who brought up the whole automobile question. So with a new Congress, with likely a more Democratic Congress, what about growing or diminishing support in the U.S. Congress for FTAs in general, and the Korean FTA in particular?

CUTLER: Okay, let me try and respond. As I mentioned, when this FTA was launched on February 2, it was launched by strong bipartisan support and in follow-up meetings that my boss has had on the Hill, and reports I’ve received from the Door Knock (??), from our Chamber of Commerce in Seoul – they were meeting with Congressional Representatives and staffs over the past few weeks, and based on the meetings I’ve had with staff last week in intensive mode, I think there is support in Congress for this agreement, but I think it’s clear that in order for us to move forward with this agreement in Congress, we’re going to have to come back with a really good deal and that’s what I’m determined to achieve.

RICHARD SHIN: With LECG. I have two questions. One is that you – I appreciate the fact that you made a very clear presentation of the benefits to both Korea and the United States, but if you look at some of those benefits, I think Japan-U.S. FTA would also benefit similarly, and obviously Japan is a much bigger trading partner. The question is – why is it that Korea was chosen? Is this a strategic move by the U.S. and Korea to put pressure on Japan? You mentioned China already, but I’m just wondering about Japan. That’s the first question. The second question is: obviously with an FTA, ultimately as an economist I know that it’s going to benefit both countries. The problem here is there’s always going to be losers and winners, and the losers are the ones who are coming to protest from Korea, and we’re going to have the same situation here with the Teamsters, etc. So is there any provision in these agreements that’s going to talk about how we’re going to kind of ameliorate some of those concerns?

CUTLER: First, with respect to your first question, let me just make it very clear that the United States did not choose Korea. In some ways it kind of happened at the same time and some could argue that Korea chose the United States. That said, I think it was our assessment that Korea was very interested in pursuing an FTA with us. They made it clear to us that they were interested in seeking a comprehensive FTA, that they were striving to reform their agricultural sector, and that they were willing basically to put the sensitive issues on the table for negotiation. And I think that is in contrast to Japan.

Your second question had to do with – oh, just in very general terms. Yes, so our provisions in an FTA that deal with maybe one could call “short term pain” or things you can do to kind of ease the transition, and that would include provisions – safeguards – safeguard actions that economies can take and both the United States and Korea have had safeguard provisions in their respective FTAs. Another tool that is used is longer transition periods to phase in the elimination of restrictions over time and not do it all at once. And also, frankly, and I think Korea has been in the forefront in doing this, looking at their own trade adjustment assistance program, and I think just about a month ago or two months ago passed through the National Assembly an adjustment program to help their workers and companies that might be adversely affected or impacted as a result of a trade negotiation.

JHOON RHEE: I lived here for the last 50 years. I was born in Korea. Now I love true democracy practiced in this country, and I was visiting Korea for the last 4-5 years frequently, and one concern that I have in Korea is that media exposure – that government controlling the television, that they can really control the people with television, and one thing that I understand in this country, government cannot own television; government cannot own the newspaper, and I just hope that through this negotiation, I think the FTA is mutually very positive if everything is done really properly. But one thing, one concern that I have is that I hope America will really stand strong so that pretty soon they will have a little tough competition with American television going in there so that we can practice true democracy in Korea, and in fact produce a candidate that I’d really urge it when he becomes the President, and I hope that he will really let government-owned stocks of the KBS and MBC to private ownership so that really we can practice true democracy in Korea.

CUTLER: Thank you.

S____ KIM: I am with the S…….. System. As you have just mentioned in the opening address, the negotiation is under very serious time constraints and a lot of people are worried that negotiations cannot be able to conclude by the end of this year. If that turns out to be true, do you – is there any possibility that TPA can become renewed or do you have any plan to ask the Congress to renew the TPA?

CUTLER: With respect to TPA, I would just refer you to recent statements Ambassador Portman has made. But let me make it clear. We have a deadline out there. We have TPA constraints. But I think it’s safe to say for the United States, and I think I can speak on behalf of my Korean colleagues – it’s not in either of our interests to bring home a bad deal, because both of us need the public support, the Congressional-National Assembly support in our respective countries to get the agreement passed and implemented. So we’re going to do our best to meet these time constraints and I think, as I mentioned earlier, we’ve been doing a lot to try and ensure that we can settle the non-controversial issues as quickly as possible, and accelerate the talks to focus on the tougher issues. But that said, I think both sides – we’re committed to trying to reach the time frame, but we’re also both committed to reaching a good deal that’s supported by our respective countries, and I think it’s safe to say that neither side is going to sacrifice substance in an effort to meet a deadline.

_____: Good to see you again, Wendy. Many U.S. officials have numerously stated that there is no exception – that the FTA should be comprehensive and so on. But in previous U.S. FTA negotiations, you have left out certain commodities: sugar or some other areas. So can you comment on how rigorously you’re going to follow through with that “no exception” rule in the upcoming US-Korea FTA?

CUTLER: Yeah, I can answer that in one sentence. We will be seeking no exclusions for any products in the FTA.

This page last updated 11/10/2006 jdb

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