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Trade Matters: The U.S.-Korea Free Trade Agreement and TPP

By Kirsi Goldynia

On Sept. 28, World Policy Institute hosted, “Trade Matters: Lessons from the U.S.-Korea Free Trade Agreement and Prospects for the Trans-Pacific Partnership,” bringing together panelists who were intimately involved in trade issues as negotiators and advisers for the U.S. and Korean governments. The speakers—Wendy Cutler, vice president and managing director of the Asia Society Policy Institute in Washington D.C.; Matthew Goodman, senior adviser for Asian economics and the William E. Simon Chair in Political Economy at the Center for Strategic and International Studies; and Gheewhan Kim, the consul general of the Republic of Korea in New York—spoke about the international trade deals in detail, providing insight into the current status of the agreements in the Asia-Pacific.

KORUS and the TPP

Since its implementation in 2012, the impact of the Korea-U.S. Free Trade Agreement (KORUS) has faced scrutiny, but at the heart of popular skepticism is a basic misunderstanding of its efficacy. “The U.S.-Korea Free Trade Agreement has been subject to a lot of criticism … I think that it’s a really unfair assessment,” said Cutler, who was the chief U.S. negotiator of the deal.

KORUS is held largely responsible for the increase in the trade deficit with Korea that the U.S. has seen since 2012, but Cutler insisted that the blame is misplaced. Instead, she considers macroeconomic factors to be the culprit. “The fact that the Korean economy has slowed down and, as a result, the level of Korean imports has declined, coupled with the U.S.’s demand for imports—that’s a better explanation for a bilateral deficit,” she explained.

While the 2016 election season has piqued Americans’ interest in trade, Donald Trump’s contempt for KORUS has obscured the numerous benefits that have come out of the deal. Kim pointed out that bilateral trade of goods and services rose from $126 billion in 2011, before the agreement was implemented, to $150 billion in 2015, three years after it took effect. Moreover, KORUS has had a tremendous impact on the U.S. job market, contributing to the creation of 41,800 U.S. jobs with annual salaries averaging $80,000.

Additional estimates of KORUS’s economic impact from the 2016 U.S. International Trade Commission report indicate a job well done by Cutler in the negotiation process; however, reaching the agreement was not without its difficulties. Goodman noted that when Cutler entered into negotiations, he wasn’t optimistic that the deal would come to fruition. Neither, it seemed, did the leaders of Korea’s neighboring countries. Notwithstanding this skepticism, Cutler managed to reach a deal replete with mutual advantages including cross-border services, investment opportunities, labor rights, and environmental commitments.

Cutler also played a key role in the negotiation of the TPP, which she considers a “win-win” agreement—one that parallels KORUS and extends its provisions to state-owned enterprises, environmental protection, technical standards, and, to the delight of pharmaceutical companies, biological data protection in 12 Asia-Pacific countries. “It’s really amazing that the U.S. was able to secure so many of our priorities and interests,” she said. “The other 11 countries that were part of the negotiation can go home and be proud of the deal as well. That’s what a win-win deal is all about.”

Kim agreed with her sentiment, calling the TPP  “high-quality” and “comprehensive.” One of the most significant benefits of the TPP, he suggested, is the competitive advantage that its signatories will have over China. For instance, Uniqlo, a Japanese apparel company that currently produces 85 percent of its goods in China, is considering relocating production to a TPP country.

The Pillars of 21st Century Trade Agreements

Trade deals have evolved from addressing frictions at borders to addressing frictions along global value chains—a concern of the 21st century trade structure. According to Goodman, today’s trade agreements must center on three pillars of strategic engagement.

First, the economic pillar seeks to promote open markets, creating more investment opportunities and better economic conditions. Second, the strategic pillar addresses the international relationships that, if properly navigated, complement economic investment. The final pillar, the strategic-economic pillar, combines these concepts to formulate the policies that govern the international economy and trading system. Goodman emphasized how crucial this approach is to the U.S.’s ability to uphold and update the rules that dictate international relations.

The TPP, Goodman affirmed, fits neatly into that framework. “It brings together significant economic trading partners to establish the high-standard next stage of rule making.” But, the panelists reiterated, the benefits of the TPP will only come into effect if Congress ratifies the agreement, and with the current political climate—both presidential hopefuls have stated their opposition to the deal—ratification may prove to be an uphill battle.

Nonetheless, Cutler remains optimistic that Congress will pass the agreement within the year and Goodman, as he puts it, is “not as pessimistic as some people” about its ratification, noting that the platforms of the presidential candidates may be merely a strategy of the political campaign season. “If I were betting I would say that it’s going to get done—just don’t pin me down on a date,” he joked.

Still, with the myriad benefits for TPP signatories, one question stands: Why isn’t Korea one of them? Cutler speculated that this might be due to Korea’s preoccupation with its negotiation of the China-Korea Free Trade Agreement, not to mention a departmental restructuring of the country’s trade functions, in 2013 when the TPP expanded to include more Asia-Pacific countries. It’s also possible that Korea simply viewed joining the partnership as duplicative, as it already has negotiated trade agreements with 10 of the 12 member countries. But whatever the reason, both Cutler and Goodman expressed confidence that Korea will likely join the TPP, should the agreement be ratified by member states.

The panelists agreed that with the prospect of the TPP’s enactment, the future of trade in the Asia-Pacific looks promising, but the impact of the agreement will go far beyond the boundaries of economics, fostering unity among the coalition of countries. “That,” remarked Goodman, “is what’s really at the heart of the TPP.”

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Kirsi Goldynia is an editorial assistant at World Policy Journal.

[Photo by Simone Salvo]

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