Down to the Wire

  • By Victor Cha, a professor at Georgetown University

    November 09, 2010 13:07

    Victor Cha

    With only a few days left before world leaders descend on Seoul for the G20, U.S. and South Korean negotiators are working overtime to find a suitable compromise that will allow them to move forward with the long-stalled free trade agreement.

    The Republican victory in Congress should work to the benefit of the agreement. Republicans are generally supportive of free trade, more so than Democrats. Academic studies have statistically verified this. In addition, the Obama administration must address its 9.6 percent unemployment problem with new economic initiatives. Another stimulus package, given the new composition of the House of Representatives, is virtually impossible. Instead, the likely economic initiative will be U.S. President Barack Obama's National Export Initiative, which aims to support 2 million jobs by doubling U.S. exports over the next five years. Obama will need to start out relations with the new Congress, moreover, on an issue where he can pull together centrist Democrat and the majority of Republican support. There is no more opportune issue in this regard than the FTA.

    Autos remain a stumbling block in the negotiations. Ford placed full page ads this week in several major U.S. newspapers explaining why it is opposed to the agreement. Ford's concerns about an overprotected Korean car market are important, but the real problem for U.S. automakers is the EU-Korea free trade agreement. This will effectively reduce the average price of a BMW by $17,000 and the average price of a Mercedes-Benz by $7,000 in the Korean market. Are Koreans who can afford it more likely to buy a top-market Ford than a BMW? Probably not -- even less so if the FTA flounders.

    On beef, the U.S. is pushing to export American beef from cattle aged 30 months or older. The argument is that the beef is proven to be scientifically safe from disease and that there are international trade standards at stake, not just the Korean market. This is a reasonable argument. But the White House needs to think hard whether it wants to push Lee Myung-bak government on this issue. The last time Lee made an executive decision on beef, protests in Korea nearly led to a collapse of his government. So he has taken one proverbial bullet for beef, and it is hard to ask him to take another.

    In the broader strategic scheme of things, the U.S. cannot afford another key ally in Asia completely paralyzed by a domestic politics morass, as in Japan. South Korea has proven to be the "lynchpin" ally in Asia at a time when North Korean threats remain high and China grows increasingly assertive in the region. The longer-term strategic costs of a South Korean compromise on beef may not be worth the short-term economic benefits.

    The countries represented at the G20 and APEC meetings in Seoul and Yokohama represent well over 60 percent of the world's global trade. It would be unconscionable for the U.S. president to attend these meetings without a trade policy. The U.S. has been without a trade policy for two years of the Obama administration. If this continues, it will be the most visible manifestation of a decline in American influence in Asia to rising countries like China and India. I do not believe U.S. influence is on the decline in Asia given the political and strategic leadership it still exercises in capitols throughout the region. But if Obama cannot make good on his promise on the FTA, it will be an unfortunate sign of weakness for the administration and cause their mantra in Asia to ring hollow.

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