Prepared Remarks of Franklin L. Lavin
Under Secretary of Commerce for International Trade
To The Korean American Chamber of Commerce
Seoul, South Korea Noon, July 24, 2006
As Prepared
Introduction
Let me begin by thanking Tami and the AmCham leadership for the invitation to speak to you today. It is great to be here. This is my first time to Korea in my current job, although I’ve come here quite recently in other capacities. It is terrific to be back.
I want to compliment the AmCham members and the board members for their visit to Washington two months ago. It is very important that, as we go through this FTA process, your voice continues to be heard in Washington, and that you remain part of the decision-making process. I encourage repeat visits and door-knocks as you come through.
Let me just also say on a note of personal pride, if I may. I always take special joy in speaking with an AmCham group because I have been a member of the AmCham’s in Hong Kong and Singapore, and served on the board in Hong Kong. I am acutely conscious of the very constructive role that AmCham’s play in connecting the U.S. government with the host country government, and with leadership on both sides. It’s in that spirit I wanted to share a few thoughts with you today.
What I Want to Talk About
Let me talk to you today about the nature of our bilateral relationship and about how a U.S. –Korea Free Trade Agreement fits into that. I would also like to discuss some of the challenges we have ahead, particularly from a U.S. perspective.
Overview of Facts- Good News
Let me begin on a positive note, because in my view, we’ve got a lot going for us. When I say “we”, I mean the United States and Korea. We start with a large reservoir of goodwill in the U.S.-Korean relationship that has served both our countries well for more than 50 years. It is a key bilateral relationship for the U.S. I believe our relationship has a lot going for it and that our economic, trade and political ties continue to move us in the right direction. For that we owe thanks to many people, including our U.S. Ambassador Sandy Vershbow who is here. Thank you for your good work, Sandy.
I’d also like to acknowledge the incredible accomplishments of the Korean people. Korea has been transformed from a low cost, underdeveloped economy with a GDP of about $500 per person 30 years ago to $14,000 today, an increase of nearly 30-fold in less than 30 years. Some call this achievement the Korean miracle, but it is really 50 years of industriousness, hard work and some very sound policy choices.
Today, the U.S. is Korea’s second largest trading partner and Korea is the seventh largest trading partner of the U.S., with nearly $72 billion in bilateral trade. Korea exported nearly $44 billion to the U.S. and imported from the U.S. almost $28 billion last year.
That is larger than the U.S. trading relationship with France and Spain combined.
Our relationship with Korea is multifaceted. Something like 53,000 Korean students are in the U.S. right now. That’s the highest per capital student relationship we have with any country in the world. And there is something like 1.5 million Korean-Americans who enrich the lives of all Americans everyday across a variety of economic, cultural and social fields. We want to do everything possible to expand the relationship between the U.S. and Korea because it benefits us both.
Challenges/Issues
All of this good news is not without its challenges… no relationship as significant as ours ever is.
Perhaps the overarching challenge for Korea is how it will take its economy to the next stage of development. The dynamics of the Korean economy are rapidly changing, as Korea has traditionally relied upon export-driven growth based on inexpensive labor rates and a somewhat mercantilist trade policy to propel its economy.
This model, however, will not be enough to take Korea forward, as the benefits of this approach continue to fade. Experience shows that higher wage rates and increased competition will require a different approach.
Korea needs to create a better value proposition in order to remain competitive. There are many possible solutions to this challenge, including becoming more technology-intensive, capital-intensive and higher-value-added-intensive. Through opening up its economy on its own terms and attracting the necessary talent and capital, Korea will be able to create a model that will work. I believe that a Free Trade Agreement with the United States will help provide answers to all of these questions.
There are important structural advantages for choosing the U.S. as a free trade partner:
We start a FTA with a strong bilateral friendship already in place. This goodwill will serve as an important foundation for our trading partnership in the future. A FTA locks Korea in with the world’s largest economy, an economy that has the resources Korea needs to move forward. A FTA provides Korea enhanced and preferential access to U.S. technology, markets, skills and resources.
A FTA helps Korea become a more attractive investment platform. It sends a very strong signal to multinationals that they now have an economic base in Northeast Asia for regional activity.
Finally, one of the advantages of a FTA with the U.S. is that it allows Korea to open up internationally without being overly reliant on its immediate region.
Free trade agreements historically have resulted in increased trade flows and enhanced economic growth for both partners. For Korea, economists estimate that a free trade agreement with the United States will increase Korea’s GDP by 2.27 percent, increase Korea’s manufacturing exports to the U.S. by 4.4 percent, and increase U.S. manufacturing exports to Korea by 4.8 percent. *
A KORUSFTA is a win-win for both our countries.
What do we mean by win-win? The objective of a Free Trade Agreement is to allow every Korean company to have access to the U.S. market, and for every U.S. company to have access to the Korean market.
There are some challenges to this that we see now. We need to create the kind of trading conditions that allow business and consumers to benefit.
We believe there are substantial barriers in the Korean market in areas such as autos, pharmaceuticals, agriculture and services. There are many day-to-day issues. A good frame of reference is Blackberries and blackberries. First, Blackberries the PDA… Americans who come to Korea can’t use their Blackberries as the software is different than the software used elsewhere.
Then there are blackberries, the fruit. Koreans pay a premium for imported blackberries …and for citrus fruit, for rice and for dozens of other agricultural products. Many of these restrictions do not make sense because they don’t even protect Korean farmers. And, all of these restrictions hurt Korean consumers, who have a fewer food choices and pay more for food than they should. So whether it is Blackberries or blackberries, there is much work to be done.
Many of these issues are being successfully discussed through negotiations. Progress has been made in the two rounds of negotiations that have occurred so far, but many issues remain ahead of us. I am confident we can resolve our differences. Reducing these barriers will benefit the Korean consumer.
In both countries we’ve got to admit there can be a level of anxiety about free trade agreements. In some sectors there is uncertainty about the future, while for others there is sometimes a fear of dislocation. Sometimes politicians play on these fears and sometimes the media inflames these fears. One of the ironies, however, is that amidst this uncertainty both countries’ economies are performing very strongly.
Call to Action/ Conclusion
Those who will lose the most from not passing a FTA are Korean businesses. Right behind them are U.S. businesses. These businesses are your members. Your member companies have the most at stake and the most to lose.
Unfortunately, there isn’t an endless amount of time to make the progress needed to reach a conclusion to negotiations… the president’s trade promotion authority expires in less than a year.
This is an ambitious and important free trade agreement. Progress is important for us and we hope that those who will benefit most from a successful agreement feel the same way.
Korean-U.S. relations have a bright future. Korea’s best days are ahead of it. America’s best days are ahead of us. A FTA helps us reach our potential, together, creating tangible benefits for people and businesses in both of our countries. With your help, we will make that successful.
I will be happy to take your questions. Thank you.
*All data in this set from The Korea Institute for Economic Policy