The KORUS catastrophe

Posted By Phil Levy Friday, November 12, 2010 - 7:04 AM Share

President Obama’s failure to conclude the Korea-United States Free Trade Agreement (KORUS) is a disaster. It reveals a stunning level of ineptitude and seriously undermines America’s leadership in the global economy. The implications extend far beyond selling Buicks in Busan.

Unlike some of the trade agreements the United States has pursued in the last decade, this one is with an economically significant partner. KORUS could bring billions of dollars of new trade opportunities and the Obama administration had cited it as one part of its National Export Initiative, a plan to double U.S. exports in five years.

But there are really two distinct issues in contemplating the significance of the failed talks: the economic merits and questions of diplomatic competence. The latter is really the story of the day.

The economic merits and demerits have been in full public view since the agreement was originally concluded in the spring of 2007. The agreement offered substantial market opening, but left some questions regarding access to the South Korean market, especially for U.S. autos and beef. Those products face barriers other than simple border tariffs. Such non-tariff barriers are harder to negotiate away, though the KORUS agreement certainly tried. There was substantial political opposition to the agreement within both countries, though the Koreans managed to overcome theirs. Influential voices such as Ford Motor Co. and organized labor in the United States criticized the agreement as inadequate.

The well-established opposition just brings us to the stunning, perhaps unprecedented diplomatic incompetence just displayed by the White House. The concerns and obstacles that impede a new KORUS agreement were fully apparent in June when Obama announced he would have an agreement in time for the Seoul G-20 meetings (now underway). The announcement was remarkable at the time because so much of the U.S. president’s statements on trade have been vague, aspirational, and timeless. This was a promise to have a specific agreement concluded by a specific date.

Reflecting on the health care battle, Obama recently told 60 Minutes, "When you're campaigning, I think you're liberated to say things without thinking about, ‘OK, how am I going to actually practically implement this.'" That may be true, but the rules change once a president takes office. Most White Houses are exceedingly careful about making such public commitments. If the president’s credibility is to be put on the line, there is an absolute imperative to deliver. This is at least as true in international diplomacy as in domestic affairs. The debacle in Seoul is a slap in the face of a critical U.S. ally in a critical region, and it will cast doubt on U.S. trade promises in other negotiations elsewhere. But if an American president loses his credibility, the damage spreads beyond the narrow confines of economic deals and Northeast Asia.

Of course, Obama did not admit defeat. He spoke of the setback as a mere postponement. "We don’t want months to pass before we get this done. We want this to be done in a matter of weeks." If the agreement really is just a few weeks' work away, the administration ought to be deeply embarrassed. After the president made his June commitment, no formal talks were held with the Koreans until the end of September. Even then, the Koreans complained that the U.S. negotiators were not being sufficiently specific in their proposals. If the problems really are just technical ones, the Obama team has played the role of the student who procrastinates on a term paper, counting on the ability to have a really productive all-nighter. Such a work program evokes little sympathy when it doesn’t succeed.

More likely, though, the obstacles are not technical but political. The lineup of advocates and opponents for KORUS poses difficult choices for the White House. Traditionally, governments around the world make such tough trade choices when they are right up against a deadline. But if the deal could not be concluded under the pressure of a high-profile bilateral meeting between presidents in Seoul, is it really plausible that it will be wrapped up because negotiators want to be home for Thanksgiving?

The breakdown could not have come at a worse time. The United States has been working to assert its relevance in Asia. Concerns about protectionist pressures amidst economic troubles raise the stakes in bolstering the global trading system. Beyond economic questions, countries around the world are wondering about the strength of a president who just suffered a major political setback.

Though he may not have foreseen all of the difficulties he would be facing at this juncture, last summer Obama named the time and place of his global credibility test. And he just failed it.

Photo by South Korean Presidential House via Getty Images

EXPLORE:EAST ASIA, OBAMA ADMINISTRATION, TRADE
 

JBROCKLE

1:43 PM ET

November 12, 2010

Controversy on FP!

http://blog.foreignpolicy.com/posts/2010/11/11/guest_blog_good_outcome_for_a_bad_deal

I do love our ability to look and the same thing and make totally different conclusions. No idea who is right here, as I don't really have a clue about this issue. Still made me chuckle though.

 

WILLIAM R. HAWKINS

3:32 PM ET

November 12, 2010

Drop the contentious trade talks, save the strategic alliance

President Obama showed strength, not weakness when he refused to agree to a "free trade" agreement (a misnomer if there ever was one) with South Korea that did not open new markets for U.S.-made exports. The sticking points involved both manufacturing (autos) and agriculture (beef). Ford Motor Co. had started a new ad campaign against the agreement unless fixed. The agreement has been stalled since 2007. The real problem is Seoul does not want to open its markets. It only wants an agreement that locks in its current advantage.

The problem for the U.S. is that the status quo without a agreement also favors the ROK, which ran a $10.6 billion trade surplus in the American market last year and will do the same this year. It may be that the volume of two-way trade is so small---only $67.8 billion last year, that there is no need to upset the larger, more important alliance relationship by the U.S. taking unilateral action to change the status quo (as it needs to do with China where the numbers are over an order of magnitude larger and the relationship is one of strategic rivalry). It is better to just drop this disputed agreement rather than waste more time and risk bad feelings by pursuing it any further.

 

ZATHRAS

9:17 PM ET

November 12, 2010

KORUS

I actually agree that the Obama administration erred badly in slow-rolling the trade agreement with South Korea (and two others) until earlier this year. I also think the administration has left itself significantly underpowered in trade negotiations by placing Ron Kirk at the head of the USTR's office.

However, I agree neither with Levy's presumption that failure to reach agreement in time for the G-20 is by definition the fault of the American side, or with his overwrought assessment of that failure's importance. The major obstacles to the agreement, after all, are unreasonable South Korean positions on automobile and beef imports at a time when South Korea enjoys a sizable trade surplus with the United States. "Hurry up and surrender" is not the advice Phil Levy would be giving to a Republican administration in this situation. Nor is it advice a President concerned about appearances after domestic political setbacks would be well served to take.

Finally, while I am happy to observe that each of the three USTRs confirmed under former President Bush was far superior in the job to Ron Kirk, it ill becomes anyone who worked for an administration that became a byword for incompetence in so many areas to start throwing that charge around in this context. I don't agree with how the Obama administration approaches trade issues. But I've never worked for anyone who screwed up as many things as the President under whom Phil Levy served.

 

SAM FROM CALIFORNIA

8:28 AM ET

November 13, 2010

Everything is Obama's fault!!!!

Didn't people complain about a knee-jerk tendency on America's "Left" to blame all failings on Bush?

It sounds like South Korean intransigence played a big role here too. Perhaps both sides are to blame. But it seems to be a fantasy to say Obama alone is to blame.

 

GOEDEL

2:13 PM ET

November 14, 2010

Maybe just mostly everything!

Pres. Obama may not be to blame for everthing, but there are not many areas of his decision-making that have been successful - from foreign policy to the credit collapse. He is just the sort of president American voters deserve, an affable communicator (like Reagan and WJ Clinton) and an incompetent in policy-making.

 

KUSHIBO

7:05 PM ET

November 13, 2010

Obama should man up against Ford, Chrysler, and Senator Baucus

Some here have blamed the South Korean position on cars, but what's at stake for Seoul is environmentally sound disincentives aimed at discouraging the purchase of heavily polluting larger automobiles. ALL cars sold in South Korea — South Korean, Japanese, European, American, etc. — must follow them. It's actually quite unreasonable for the US side to demand exceptions be made so they can compete better when Toyota, Honda, Volkswagen, BMW, etc., have blown Chrysler and Ford out of the water in the South Korean market.

As for the beef thing, anyone who followed in 2008 will know why President Lee cannot give in on the older beef issue. Though many in the South Korean public have a hysterical phobia of American beef thanks to the Mad Cow issue, the fact is that Lee did give into American demands on re-opening the South Korean market to American beef (South Korea had been the third largest market, but they and other countries like Japan stopped importing beef after the Mad Cow scare in 2003).

They did so with the understanding that there would be some quid pro quo on getting the FTA pushed through, but the US side reneged.

So here we have the US side RE-negotiating a trade deal that has already been signed, and the holdups are American car companies that refuse to compete by following the same environmental rules and a beef industry that is hellbent on scaring the Korean public that the older-than-30-month beef they are worried about could become mixed in with the younger American beef that South Koreans actually have high demand for.

And for that, tens of billions of dollars of added trade over the next few years could be lost. Thanks, Ford, Chrysler, and Senator Baucus. Obama should man up and just move past them.

 

GOEDEL

2:01 PM ET

November 14, 2010

I don't like US beef, either!

From what I have seen at the meat counter as well as the feedlots, I would not eat US beef if I could avoid it. At the meat counter, almost all US meats are laced with fat - even the leaner cuts. That is a result of the steers' being kept in feedlots and fed corn rather than grass on the open range.

I believe the Koreans are concerned about sanitary conditions, and I am too. Imagine animals kept in crowded pens for long periods of nothing but feeding and defecating! Then, after slaughter, there is the handling in slaughter houses that have inadequate inspections, as must be assumed because the Dept of Agriculture is notoriously in the pockets of the industry and inadequately staffed with inspectors.

If we cannot sell our beef abroad, I am hopeful for changes in our industry that would please me as well as the Koreans.

 

MARCPOR

2:22 PM ET

November 15, 2010

Koreans Racists

I am just waiting for the White House to call the Koreans racists - all the other excuses have been just as lame!

 

PELYAS

10:44 PM ET

November 16, 2010

Are you kidding?

Are you kidding? You are calling this visit a disaster? The so-called free trade agreement with the Koreans was anything but. I'm glad he didn't bow to pressure to come up with an agreement that was bad news for the American economy just to have something "tangible" to show from a trip. I'm sorry but the Koreans have been one of the most flagrant abusers of free trade laws in the last few decades. If the agreement wouldn't open up two of our biggest sectors to the Korean market--automobiles and meat exports (admittedly autos are much bigger, but still)--then what exactly is the point? Allow more Korean exports to come into America for even cheaper? How is that supposed to help American manufacturers and exporters? To criticize Obama this handily for not wanting to rush through a highly questionable deal is really just low. Thank god we have President and a high-level staff that are willing to take their time to address important issues, not score quick, superficial political points.

 

KWILLETS

11:18 PM ET

November 16, 2010

The main way GM can import

The main way GM can import more cars into Korea is to stop building them there. They already have 13% of the Korean market via their Daewoo subsidiary, which focuses on economy cars. I've never heard of GM having a problem selling these cars in Korea.

The only way GM and the Sander Levin crowd can export to Korea is by making Koreans buy low-mileage US-made SUV's, a coals-to-Newcastle situation which has led to the US insisting on increasingly extreme modifications to Korean gas-guzzler taxes and environmental laws.

Perhaps Obama should try this with Europe as well. I'm sure everyone will love tossing out their greenhouse gas targets so that Obama can keep his friends in Detroit. The US press will call these "non-tariff barriers" so he'll have no problem.

 

Shadow Government is a blog about U.S. foreign policy under the Obama administration, written by experienced policy makers from the loyal opposition and curated by Peter D. Feaver and William Inboden.

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