By Susan Krause
Washington File Staff Writer

Washington - Confidence among public officials about prospects for a free-trade agreement (FTA) between the United States and South Korea is at a high point, says Karan Bhatia, deputy U.S. trade representative.

Bhatia spoke at a September 26 conference on "The United States and Korea in 2006," sponsored by the Center for Strategic and International Studies, a bipartisan, nonprofit research institution in Washington. 

"This is an auspicious time to discuss the KORUS FTA [Korea-U.S. Free Trade Agreement]," he said, noting that President Bush and South Korean President Roh Moo-hyun reaffirmed the importance of the negotiations when they met in Washington September 14.  (See related article.)

Preparations are under way for a fourth round of negotiations on the agreement, scheduled to begin in Jeju Island, South Korea, during the week of October 23. 

"There is no doubt that there is sufficient political will and momentum" to ensure that an agreement can be successfully negotiated, Bhatia said. 

Nonetheless, he cautioned, "we've got a lot of work to do - both in negotiating the agreement and in winning over the people of the United States and Korea to believe that this endeavor is a good thing and worth supporting."   (See related article.)

AGREEMENT WILL HAVE SIGNIFICANT BENEFITS

With economic nationalism and protectionist pressures on the rise worldwide, Bhatia said, trade has become a polarizing issue.  Neither the United States nor South Korea has been exempt from this trend, he said.

He acknowledged that public support in South Korea for a bilateral free-trade agreement with the United States has dropped sharply in recent months.  But this is to be expected, he said, because enthusiasm at the start of negotiations is inevitably undermined by special interests in both countries that face the prospect of greater competition under an FTA.

Questioning the justification for the FTA is appropriate, Bhatia said, and the answer is simple. "We are doing this because free trade agreements are truly win-win situations, creating significant new economic opportunities for both sides."

The U.S. economy could gain 0.25 percent to 0.33 percent of gross domestic product (GDP, the total value of goods and services produced by a nation) from the agreement, according to Bhatia.  South Korea could see even greater benefit, he said, with an estimated GDP increase of about 2 percent, the creation of up to 100,000 new jobs and increased per capita income.

"[T]here would be untold additional benefits to Korea," he said, "including increased foreign direct investment, improvement in Korea's sovereign credit ratings, and support in achieving its goal of becoming an economic and financial hub in Northeast Asia."  (See related article.)

South Korea is a good potential partner for an FTA with the United States because it has "shown its commitment to pursuing trade and investment liberalization of its domestic economy," Bhatia said.

On its own initiative, he said, Seoul has implemented economic reform measures including financial services deregulation and intellectual property rights protection, leading to annual growth rates averaging 5 percent per year for the last 10 years, low rates of inflation and unemployment, and rapid growth in exports.

DEBUNKING MYTHS

Despite these incentives, Bhatia said, "myths abound" about the potential impact of an FTA, including a fear that the United States will gain disproportionate benefit.

"The history of our FTAs is that bilateral trade surpluses of our trading partners go up," he said, citing Chile, Singapore, and Mexico as examples.   "Relative benefits to GDPs of this FTA clearly will favor Korea."

The FTA will pose no threat to Korean sovereignty, Bhatia said. "The U.S. is not going to be able to force Korea into doing anything it doesn't want to do."

The agreement will be a "two-way street," he added, with South Korea seeking concessions from the United States, and will not result in the destruction of Korea's agriculture sector by U.S. imports. (See related article.)

"Studies suggest that potential gains of a KORUS FTA would be at least cut in half for both economies if agricultural trade were somehow to be excluded," he said.  In preparation, he added, the South Korean government plans to invest 119 trillion won (about $125 billion) in agriculture and income support for farmers over a 10-year period to "manage adjustment pressures" and increase productivity in the country's agricultural sector. 

Bhatia dismissed concerns that the scheduled expiration in May 2007 of a legislative provision granting the U.S. president "trade promotion authority" (TPA) - under which international trade agreements negotiated by the executive branch are subject to a yes-or-no vote but not amendment in the Congress - will set an arbitrary deadline for the completion of FTA negotiations.   

"[O]n the U.S. side the expiration of TPA is a fact that does shape our timeline," he said.  "But we will not let it dictate the content of the agreement."

Bhatia rejected the view that the FTA will benefit only large corporations.  "It is our experience that the opposite is true," he said, noting that survey research in South Korea showed strong support for an FTA among small and medium enterprises.   (See related article.)

"[T]hese are not negotiations between adversaries," he said.  "They are discussions between trading partners who are looking for better ways to do business with one another, and who have both voluntarily come to the conclusion that an FTA will help foster economic growth and prosperity for both our nations."  

For more on U.S. policy, see The U.S. and the Korean Peninsula and Trade and Economics.

The full text (PDF, 17 pages) of Bhatia's remarks, as prepared for delivery, can be found at the USTR Web site.