Thursday, December 9, 2010

The US-South Korea free trade agreement affects Asia

The agreement on free trade between the United States and South Korea concluded last Friday is important not only for the two countries. There are wider implications for the US and Asia. New currents in American domestic politics, after the sweeping changes from the midterm elections, can also be felt.

The US-Korea agreement, known as KORUS, has been stalled since mid 2007. Although negotiated by the George W Bush administration under fast-track authority for free-trade pacts, objections arose soon after. US Democrats demanded changes to protect domestic labour interests and better promote beef and auto exports. In Seoul, farmers were a key obstacle.

Prospects for approval worsened after the financial crisis when the soft US economy and massive job losses stoked protectionism. After President Barack Obama took office, there were early concerns he would give in to such sentiments. Pushing KORUS was therefore seen as a test of the administration's free-trade commitment.
President Obama's visit to Seoul in early November, just before the G-20 summit, seemed like a failure. No conclusios were reached, despite face-to-face meetings with South Korean President Lee Myung Bak.

What changed?
For South Korea, the strategic situation has changed dramatically in the past few weeks with the North Korean shelling of Yeonpyeong Island. Coming after the sinking of the Cheonan navy vessel in March, the attack by Pyongyang viscerally reminds an angry Seoul of the importance of the US alliance.

Some South Korean law-makers have been quick to label the new FTA as humiliating. But the US has excluded demands on the sensitive issue of American beef imports, while reductions in car tariffs will be phased in. President Lee and the Grand National Party command a majority and should be able to deliver.

Prospects are less clear in Washington DC. After the midterm elections, President Obama will need bipartisan support. Although Republicans are traditionally pro-trade, the electoral sweep by Tea Party Republicans may bring a different attitude. Stateside politics has also been very divisive so far.

With jobless figures still high, appealing to the US voter to support free trade will be tricky. Many Americans have come to believe that they do not gain from international trade as their jobs are exported to cheaper locations in Asia. To them, globalisation has an ugly face; one that is Asian.

President Obama will need to talk up KORUS as a big win for the US. He argues that annual exports of American goods will go up to US$11 billion and that concessions under agreement can support some 70,000 American jobs. The Korean economy is sizeable and can help Obama step toward his goal of doubling American exports to Asia.

This comes on top of Obama warning Asians that their economic growth cannot be centred on increasing exports to US markets. This explicitly rejects the pre-crisis compact in which Asians produced and saved, while Americans consumed and borrowed. A fundamental change in the economic terms of US-Asian interdependence is being signalled.

Asians will need to consider anew how much they want and need the US, and what price they might be willing to pay. For Seoul, the situation with North Korea has tipped them toward KORUS. Others in Asia must ask similar questions.

India welcomed President Obama in early November and signed off on $10 billion in deals that could create an estimated 50,000 jobs Stateside. For Southeast Asians, an American assurance against possible Chinese assertions over contested areas of the South China Sea shows the continuing relevance to the region's security. The US-Asean Summit, started by Obama in 2009 and hosted by him in 2010, will need to develop an economic agenda to ensure balance and continuing relevance.

What can and should Asians do for the US and President Obama's administration? This may seem a strange and even impertinent question when America remains the world's leading power, despite recent and continuing problems. But the midterm elections and the mood of the American voter show a turn against trade and globalisation, and this can potentially turn against Asians.

If it does, Obama or his successor will turn inward. Otherwise, when they look across the region, Americans will do so only to assert terms to their sole benefit.
Asians will do well to make efforts to counter those negative perceptions. If trade with the US is really a win-win, Asians must not shy from being fair and explicit in ensuring that Americans do - in fact and perception - win.

The South Koreans are tough negotiators who have pushed through trade deals with almost all major economies, including most recently with the European Union. They should do their part to ensure KORUS is now approved by both sides, for mutual and equitable benefit. This would be good not only for the US and South Korea but others in Asia too.

By Simon Tay chairman of the Singapore Institute of International Affairs and author of "Asia Alone: The Dangerous Post Crisis Divide from America." The Nation, Bangkok

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