Amid North Korean Threat, Free Trade Agreement Bedevils Moon Jae-in Presidency

Just before the National Assembly was set to vote, a middle-aged man stood at the podium, eyes closed in an apparent meditative state, his navy blue suit covered in fine off-white dust.

The man was leftist lawmaker Kim Seon-dong, and a few moments earlier he had set off a tear gas canister in South Korea’s National Assembly, releasing eye-watering fumes in a last-ditch effort to prevent the ratification of a bilateral free trade agreement with the U.S.

The theatrics illustrated the contentiousness over the vote. Kim and others from the left side of the political spectrum were opposed to the deal on the grounds that it would undermine the South Korean state’s ability to protect its own workers and companies. He was dragged away, and the bill, known as the South Korea-U.S. Free Trade Agreement (KORUS FTA), passed anyway.

That was in November 2011; with KORUS FTA now having been in effect since 2012, South Korean politics is mired in a different kind of rancor over the pact.

Six years ago, with a conservative administration in power, it was the South Korean left attempting to scuttle the FTA’s passage. This time around, the Donald Trump administration has requested renegotiations on the grounds that the deal is disadvantageous to the U.S., and the center-left Moon Jae-in administration is under fire from the conservative opposition, which accuses the government of flip-flopping from its previous opposition to KORUS FTA.

In an Oct. 5 post on his Facebook page, Hong Joon-pyo, leader of the conservative Liberty Korea Party, wrote: “When ratifying KORUS FTA in the National Assembly in October 2011, the Democratic Party and President Moon Jae-in compared me to traitor Lee Wan-yong [for supporting KORUS FTA]…so let’s see how they handle it this time.”

He added, “I will be watching with my both eyes wide open to see if they negotiate in a way that advances the national interest.”

Hong had been the leader of the conservative party in 2011, and Lee Wan-yong is Korea’s most notorious pro-Japanese collaborator, seen by many as having sold the nation out to imperialist aggressors.

As South Korea and the U.S. go back and forth over how to deal with the “Little Rocket Man” in North Korea, this other potentially explosive issue could come to dominate the two countries’ relationship. Contrary to the relative unity Seoul and Washington have shown on the need to stand tough against North Korea’s determination to develop more nuclear weapons, reaching an agreement on how to proceed with renegotiations on KORUS FTA could be a bumpier ride.

Trump made revamping America’s overseas trade relations a key part of his presidential campaign, when he singled out KORUS FTA as a “job-killing,” “horrible” deal. And Trump may be especially motivated to put a dent in KORUS FTA: The Daily Beast reported that Trump was instructed by a close advisor to focus on scrapping KORUS FTA due to the comparative difficulty of pulling out of the North American Free Trade Agreement (NAFTA) with Mexico and Canada. (But now it seems he is still bent on undoing NAFTA.)

South Korean Trade Minister Kim Hyun-chong and U.S. Trade Representative Robert Lighthizer agreed on Oct. 10 to start the process of negotiating an amendment to the deal. The South Korean presidential office has insisted that before the renegotiations begin in earnest, an economic feasibility study, public hearings and reports to the National Assembly will all be carried out. In an Oct. 8 briefing, presidential spokesperson Park Soo-hyun pledged not to “wave the white flag.”

Faced with the possibility of the U.S. pulling out of the deal, it is possible that the Moon government thought it prudent to agree to talks on revising KORUS FTA. Donald Trump is set to visit South Korea next month as part of an Asian tour, and free trade is likely to be be a topic of discussion.

Just how bad, or good, is it?

In an Aug. 17 press conference marking his hundredth day in office, Moon pledged to remain firm in talks with the Americans and attempted to downplay the U.S. initiation of renegotiations, saying, “It’s not very healthy to react to the U.S.’s demand to renegotiate the FTA like it’s some immediate, major crisis.”

But whatever reassurance Moon offers, the impact of any change to the agreement is bound to be significant for the South Korean economy.

Chia Shuhui, a Senior Analyst at BMI Research, told Korea Exposé:

It appears that the main issues for negotiations will be auto and steel regulations, market access in the technology sector, intellectual property issues, and the agricultural sector.”

KORUS FTA was designed to gradually dismantle nearly all duties on trade between the two countries. According to the U.S. Department of Commerce, “Under the KORUS Agreement, over 95 percent of bilateral trade in consumer and industrial products would become duty-free within five years of the date the agreement enters into force, and most remaining tariffs would be eliminated within 10 years.”

The idea of free trade agreements is that both sides expect to benefit, that removing duties will pave the way for a natural intermingling of the ways two economies can make up for what the other lacks. According to at least one analysis, that has, thus far, been the outcome of KORUS FTA. “KORUS has helped generate win-win outcomes through the robust exchange of goods, services and investment, providing substantial opportunities for Korea and the U.S., despite having been in effect for only five years,” concludes a report by the Korea International Trade Association.

According to KITA, between 2011 and 2016, bilateral trade increased by 1.7 percent per year, and both South Korea and the U.S. have seen their import market shares grow in the other country.

But other data bolster the impression that South Korean businesses are coming out ahead of their American counterparts. Between 2011 and 2016, South Korea’s trade surplus in goods grew by $11.6 billion to $27.7 billion, though at the same time, the U.S. had a services trade surplus of more than $10 billion in 2016, up from the previous year. Factoring South Korea’s advantage in goods and the U.S. surplus in services, the U.S. trade deficit with South Korea stands at more than $17 billion, a larger than two-fold increase from 2012.

The Economic Policy Institute, a left-leaning U.S. think tank, echoed Trump’s description of KORUS FTA as a “job-killing” deal, writing, “Far from supporting jobs, growing goods trade deficits with Korea have eliminated more than 95,000 jobs between 2011 and 2015.” (The EPI analysis doesn’t demonstrate a definitive causal link between changes in trade with South Korea and job losses in the U.S.)

Yang Jun-seok, an economics professor at Catholic University in Seoul, says it isn’t clear to what extent these numbers are attributable to KORUS FTA. “What FTAs tend to do is, when trade barriers are removed, the underlying forces become stronger. Korea had a relative advantage in areas such as autos that has been emphasized, while the U.S. side has increased agricultural and service exports. This is due to underlying fundamentals that reflect comparative advantage,” Yang told Korea Exposé.

Renegotiations could cause $17 billion in losses for South Korean exporters over a period of five years, a report by the Korea Economic Research Institute concluded in May. The report analyzed two scenarios, the first where tariffs are raised on cars, machinery and steel (areas where South Korea’s surplus has grown significantly under KORUS FTA), and the second simulating raised tariffs on seven major export areas, the three already mentioned along with electronics, ICT, textiles and petrochemicals.

What makes a progressive?

KORUS FTA has been a constant presence in South Korean politics as the progressive and conservative sides of the political spectrum have traded power over the last decade, and the deal is a prism through which to view some apparently contradictory positions by the ostensibly progressive Minjoo Party (formerly known as the Democratic Party), which has supported and opposed the deal at different times.

While it didn’t take effect until 2012, negotiations on KORUS FTA began in 2006, between the administrations of President Roh Moo-hyun and George W. Bush. Roh, despite taking office as a progressive, was accused of yielding to the global neoliberal agenda on trade.

The agreement was signed in 2010 by Barack Obama and Lee Myung-bak after the two leaders were able to iron out enough of the two sides’ lingering differences in 2010.

Now it’s up to president Moon Jae-in, who served Roh as chief of staff, to defend KORUS FTA.  So in South Korean politics, both sides tread carefully when dealing with the U.S.: Progressives aren’t really progressive (at least not in the sense as understood in the West) and conservatives aren’t always unequivocally pro-free trade. Professor Yang says that the outcome of the negotiations, and how South Korean politicians position themselves, will depend on “what groups get attacked” — if it is farmers, automakers or electronics manufacturers that stand to lose leverage if the terms of KORUS FTA are changed.

“Conservatives will be likely to seek to protect the agricultural sector, and some progressives may be sensitive, as some of them genuinely dislike the KORUS FTA,” Yang said. “But most Korean politicians are just interested in not rocking the boat, in maintaining the status quo.”

That will prove to be a difficult task in the turbulent age of Donald Trump.

Cover image: South Koreans protested KORUS-FTA in Seoul on Nov. 9, 2011. (Source: Mi-jin Lee via flickr – CC BY-NC-SA 2.0)