The Korea-U.S. FTA and the Trans-Pacific Partnership

      May 17, 2010 13:08

      Kim Suk-han

      While the Korea-U.S. Free Trade Agreement continues to languish, U.S. President Barack Obama is energetically pursuing a new U.S. trade agreement with Asia -- the Trans-Pacific Partnership. The Obama administration sees the TPP as part of a long-term plan to anchor the U.S. economy in a super-FTA spanning the Pacific Ocean. This vision has important implications for Korea and the bilateral FTA.

      The TPP began in 2005 as an obscure agreement among four relatively small trading partners: Brunei, Chile, New Zealand, and Singapore. While these countries account for a very small percentage of total world trade, they hoped that TPP could serve as the starting point for a pan-Pacific trading bloc. After taking nearly a year to decide whether to join TPP talks, the U.S. administration announced in late 2009 that it would do so. Australia, Peru, and Vietnam have since joined the talks, and other Pacific Rim countries, including Canada, Japan, and Korea, are now also considering whether to participate.

      Experts in Washington debate whether the TPP has any real chance, in the foreseeable future, of becoming a new trade deal joining it with major trading partners along the Pacific Rim. Skeptics point to a number of factors, including the fact that the Obama administration has not secured a “fast-track” authority from Congress, without which other countries will be reluctant to negotiate. With such an authority, Congress agrees in advance to an up-or-down vote on the ratification of any final trade deal. Skeptics also note that the Obama administration has been generally reluctant to show any real leadership on new trade initiatives. From this point of view, the TPP talks are best seen as a symbol without much substance of U.S. engagement in Asia.

      On the other hand, there is growing evidence of momentum for the TPP. Obama’s trade policy has recently started to come into focus, and at its core is the new National Export Initiative, intended to double U.S. exports over the next five years. Recognizing that this goal cannot be reached without opening foreign markets to U.S. goods and services, the administration recently described the TPP as “the strongest vehicle for achieving economic integration across the Asia-Pacific region and advancing U.S. economic interests with the fastest-growing economies in the world." At least as a matter of formal trade policy, Obama has made the TPP a key component of his new paradigm for economic engagement with Asia.

      While it is too soon to know which camp is right, Korea needs to evaluate the impact of the TPP talks on Korea-U.S. relations, including the impact on the bilateral FTA. First, Korea should consider what it may lose by declining to join TPP negotiations, as well as what it stands to gain if it does. As an early entrant, Korea may be able to shape the structure and direction of the talks, and secure advantages for its export-oriented industries -- including emerging green energy technologies, where Korean firms are at the cutting edge. However, Korea already enjoys preferential trading relations with many countries involved in the current TPP negotiations such as Chile and Singapore, and TPP membership may bring only minor, incremental benefits. There are no easy answers here, but Korea should undertake the analysis so that, in the event the TPP does advance quickly, it is not left excluded and at a disadvantage.

      More immediately, Korea needs to evaluate the impact of TPP talks on prospects for the FTA.  Unfortunately, the FTA has long been idle, with Obama promising only that he will present the FTA to Congress when the political context permits, but no sooner -- i.e., after the Congressional mid-term election in November. Further, while the FTA has been orphaned as an unfinished project inherited from the Bush administration, it represents for Obama a fresh start on trade and a potential feature of his own foreign relations legacy. In fact, the Obama administration has already suggested that the TPP can be used to “fix” problems in other bilateral trade deals, such as the U.S.-Australia FTA. Indeed, the TPP now enjoys considerable momentum and may come to be seen as overtaking FTAs including the one with Korea. Korea must ensure that the Obama Administration does not lose sight of the need to pass the FTA at the earliest date possible.

      TPP membership may be of appreciable benefit to Korea, and no doubt Korea is assessing its options with respect to this emerging trade bloc. In the interim, it must ensure that the U.S. does not use the TPP as an excuse for continued inaction on the FTA. Seoul and Washington are cooperating closely on a range of global issues, including nuclear non-proliferation, recovery from the global financial crisis, climate change, and the security of South Asia -- all of which are very important to the U.S. Washington should recognize that quick passage of the FTA would only help to consolidate this important relationship.

      By Kim Suk-han, senior partner at the law firm of Akin Gump Strauss Hauer & Feld LLP in Washington, D.C.

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