USA/ South Korea Free Trade (FTA), Parliament Brawls, Protests, and the Power of the Consumer

Bombarding us with news of North Korea’s paranoid antics, U.S. media channels tend to downplay the consequences of such trifles as economic treaties. Yet while many Americans noticed nothing more than a favorable decrease in the prices of their phones and cars over the past few years, the controversial U.S.-Korea Free Trade Agreement ignited enough animosity among factions in South Korea to stir up a cacophony of Seoul-wide protests and fierce parliament brawls that went viral, one even involving tear gas.

Originally signed during the Roh Moo-hyun administration in June of 2007, the FTA gained support from the then-standing liberal Uri Party (“Our Party”), which posited that the treaty would enhance national security (more than 25,000 US troops are stationed in South Korea) and thus deter nuclear bullying from North Korea. The idea of the treaty alone prompted conflict within the Uri party from the get-go after a group of legislators from the party itself accused the Roh administration of hasty negotiations and failure to remain transparent during FTA talks. Political squabbling and national unrest ensued until December 2010, when certain “toxic clauses” in the treaty were renegotiated and the agreement then feebly ratified by Lee Myung-bak’s Grand National Party after a “snap vote” in 2011.

The treaty’s primary opposition lies in the vehemence of the Democratic United Party, Lee’s longtime rival with a somewhat ambiguous stance on the agreement that at some times merely sought renegotiation and at others demanded that the treaty be completely scrapped. Many argue that the DUP’s motivation lay only in its desire to rally support for the upcoming election. It’s noteworthy that the treaty came about during an intense political transition in South Korea: the Uri party fused with the DUP, Lee took office despite a storm of condemnation, and Roh Moo-hyun unexpectedly committed suicide less than a year before the 2010 renegotiations began. Meanwhile, Seoul’s Blue House bustled with protests against U.S. beef imports and the country witnessed a sharp 50/50-split in response to the agreement via national surveys. While the United States cites an extensive list of advantages to both countries, more than 300 translation errors were discovered in the documents, further obfuscating the FTA’s proposed effectiveness.

The South Korean economic trend

Recently, both politicians and previously-agitated citizens alike are coming to terms with the fact that the FTA is here to stay, and that brainstorming ways to deal with its presence is more effective than trying to eliminate it entirely. What has the treaty achieved so far, and what does it hold for the future of U.S.-Korea relations?

South Korea parliament brawls

Advantages of the FTA

According to the U.S. Trade Representative, Korean tariffs and tariff-quotes will be reduced and then eliminated, and most products will be duty-free within the next decade, including two-thirds of Korea’s agricultural imports. There will be wider access to international delivery services and Korea will open to foreign legal consulting services. It will also provide U.S. suppliers with extensive access to Korean procurement markets and essentially lead to big gains for chief Korean export companies like Samsung, LG, Hyundai, etc., not to mention increase GDP for the United States at a time when anything to bolster the U.S. economy is greatly warranted. Washington is most thrilled about increased market access in all industrial sectors because Korea enforces strict laws against outsourcing and has, in the past, thwarted most attempts at the intrusion of foreign products that could pose steep competition to Korean giants (it took Apple years to break down the barrier established to protect Korean phone companies from the now booming profits generated by iPhones).

For Korea, this translates to greater U.S. market access for Chaebol, the aforementioned global conglomerates, to tune of a more than $1 billion increase in revenue each year. The ever-growing success of these companies will lead to the prospect of more jobs for college graduates, for whom unemployment rose to a ten-year high in 2010. Fashionable Seoulites will appreciate cheaper prices on U.S. goods and many hope that more imports will lead to price stabilization. The presence of the agreement establishes Korea’s credibility in the eyes of foreign investors and closer ties to the United States could also foster a diplomatic display of fortitude to counteract North Korean browbeating, the effect of which may already be seen in the DPRK’s sudden appeal to re-open nuclear talks and suspend weapons tests.

Disadvantages of the FTA

The disadvantages the treaty poses for the United States are few and far between. Most of them appeal to a “have your cake and eat it too” sort of crowd; for example, rice was excluded from the tariff cuts to protect Korean farmers in exchange for a reduction on Korea’s U.S. beef tariff, a stipulation U.S. farm exporters still have beef with (pun intended). Aside from this minor threat, most of the renegotiations that took place worked in complete favor for the United States, particularly its automakers, who insisted that measures to offset the trade imbalance (Korea imports far more automobiles to the United States than the United States imports to Korea) be included in the deal.

The impact of the FTA on Korea is much more complex. Small business owners and farmers fear the most due to the $1 billion worth of U.S. agricultural exports that will be duty-free immediately upon arrival in Korea. In a nation where farmers have always thrived on government subsidies, direct sales from their own trucks in major cities, and a cultural distaste for processed and genetically-modified foods, the agreement forecasts a major black cloud. Many Koreans blame the treaty of favoring the rich and robbing the poor, a judgment that may not be far from the truth as such policies have no doubt helped to foster an increase in the earnings gap plaguing America and could threaten the otherwise smaller gap that exists in Korea.

Particularly suspect is the new Investor-State Disputes settlement system, which allows U.S. investors to seek arbitration for disputes in the courts of a third-party body such as the United Nations Commission on International Trade Law, a potential loophole the DUP indentified as a cleverly-concealed edge for the United States due to its influence in the international judicial system. Opposition parties – mostly farmers and the DUP – fear that this clause will give the United States leverage over Korea to incapacitate welfare and environmental policies should they encroach upon U.S. competitiveness in the Korean market, but such talk has been dismissed as doomsday rhetoric by Korean lawmakers.

Free Trade, Free Market

Ultimately, the real consequences of the FTA will depend upon the volatility of the market. While the risk of U.S. dominance in every product market from cars to prescription drugs is a genuine concern, U.S. imports will not continue to feed a dead sector. Korean manufacturers already have a cultural stronghold on their output: despite the existence of foreign brands, many Koreans remain staunchly loyal to domestic products. With the exception of Apple (and Starbucks, of course), U.S. companies do not have much clout among consumers in Seoul unless their products are exclusively unique or unavailable domestically. The majority of basic household goods, food, textiles, and cars in Korea are “made in Korea” and their producers have already instilled brand loyalty among consumers. This offers some breathing room for Korean manufacturers but may be a nuance not yet realized by American companies seeking to capitalize on the treaty’s provisions.

With the agreement also comes an increased level of global dependency. Korea has already signed free trade agreements with Chile, Singapore, ASEAN, and the EU, all of which have thus far worked to promote Korea’s economic development and turn it into the trading hub of Asia. However, none of those regions put Korea at as much risk as the United States, which has in comparison suffered more economic stability in the past decade than Europe as a whole; the treaty makes Korea vulnerable to the vicarious effects of any economic crises the United States might incur in the future. In other words, if the U.S. boat rocks, Seoul will feel the tremors.

After fighting through years of invasions, occupations, corrupt dictatorships and unsatisfactory impositions, Korean citizens to this day remain vigilant in preserving national autonomy in the true spirit of a modern democracy. Opponents of the FTA can focus their efforts on keeping their funds concentrated in domestic markets, allowing those with an affinity for foreign products – of any kind – to spend their dollars where they please; this will maintain a sort of equilibrium in the new Korea-U.S. economic playground by putting the ball in neither court. Luxury imports from Europe – BMW, Louis Vuitton, and a glut of women’s cosmetics brands – have already made an impact on Korea’s elite, but it will take the United States time and carefully-calculated marketing tactics to sow comparable seeds of influence. Despite half a decade of contention, the FTA is malleable, and the tools to shape it are in consumers’ hands.