International trade liberalization has stalled. The World Trade
Organization deadlocked over farm subsidies. The lame duck
Republican Congress failed to approve permanent normal trade
relations with Vietnam before President George W. Bush visited that
nation, instead dropping it into a last minute omnibus bill
destined to pass because of its tax provisions.
Future trade prospects are even less bright. Renewed WTO talks
are problematic. Worse, the president’s expedited trade negotiating
authority expires in mid-2007 and is unlikely to be renewed by the
Democratic Congress. Moreover, any accord faces heightened scrutiny
by the new, more protectionist membership.
Yet America’s interest in global free trade remains
undiminished. Washington’s trade priority today should be Asia,
which is becoming the center of the global economy. An agreement
encompassing the 21 members of the Asia-Pacific Economic
Cooperation forum deserves “serious consideration,” as President
Bush put it.
The Republic of Korea (ROK) should be at the top of the
administration’s bilateral list. The U.S. and South Korea are in
the midst of drafting a Free Trade Agreement (FTA). Negotiators met
for the fifth and what was supposed to be the final time in early
December in Big Sky, Montana, but the talks did not go well.
Disagreement on several issues remain deep and little progress was
achieved.
NEGOTIATORS HAVE RECONVENED in Seoul this week. However, time is
running out. The two governments should speedily finalize the
proposed accord, readying it for consideration before the
president’s fast track authority expires. Although the FTA may be a
tough sell on economics alone, the Bush administration should point
to the accord’s concurrent geopolitical benefits.
The ROK is a significant economic player, and increased trade
would benefit both nations. The South’s GDP was almost $800 billion
in 2005, ranking its economy 12th in the world.
Two-way trade with the U.S. ran more than $72 billion in 2005.
Americans are the biggest investors in the ROK.
The FTA’s economic potential is enhanced by the fact that the
South has not always welcomed international competition. Korean
business professor Moon Hwy-chang admits: “Korea has not been a
very open economy.” Thus, President Roh Moo-hyun deserves credit
for having put his credibility on the line in favor of a trade
accord; if Washington does not respond accordingly, the ROK may not
be so receptive in the future.
Among Washington’s top priorities are reducing agricultural
barriers, improving intellectual property protection, reducing
regulatory barriers to pharmaceutical sales, ensuring that
telecommunication standards don’t discriminate against U.S.
producers, cutting high auto tariffs, and reducing business
subsidies. (Seoul obviously has its own issues, some controversial,
with Washington.)
By some estimates an agreement would increase the ROK’s GDP by
between .5 and two percent and add an extra 100,000 jobs. The
relative boost for America’s much larger economy would be smaller,
perhaps .2 percent of GDP, but on an $11 trillion economy that
isn’t just loose change. The International Trade Commission figures
that a FTA could hike U.S. exports to South Korea by 50
percent.
The longer-term gain could be even greater. After reunification
of the Korean peninsula, which is likely some day, Korea will be an
even more important economic market for U.S. concerns. Washington
should lock in its position before it faces the manifold
uncertainties of that process.
A Korean FTA is particularly important since America’s dominant
position in Asia is eroding. China now trades more with the ROK
than does the United States. Chinese investment lags behind that
from Americans, but as the PRC’s economy grows there will be more
Chinese investment capital, and more of it will end up in South
Korea.
The Rand Corporation reports: “The effect of China’s economic
rise on the Korean economy has been significant. China is now
Korea’s largest trading partner and the largest destination for
Korea’s foreign direct investment.” With Beijing and Seoul
discussing a FTA, economic ties between the two countries are bound
to increase.
Nor is the ROK waiting for the U.S. South Korea already has
implemented FTAs with nine ASEAN (Southeast Asian) states, four
European nations, and Chile. It hopes to add another three dozen
countries to the list next year, negotiating FTAs with the European
Union and MERCOSUR (a Latin America association), as well as
Canada, India, Japan, Mexico, and Russia.
THE ISSUE IS MORE THAN ECONOMIC. For more than a half century the
dominant U.S.-Korean relationship was military. Today, however, the
alliance, which has lost its raison d’etre — a South Korea unable
to defend itself from a North Korea backed by Beijing and Moscow —
is fraying. Washington already has begun a force drawdown and a
full withdrawal is becoming ever more likely.
At the same time, the People’s Republic of China is asserting
itself throughout Asia. Although some analysts worry about growing
Chinese military strength, Beijing’s primary challenge to America
in the near- to mid-term, at least, is economic. Warned the
U.S.-China Economic and Security Review Commission two years ago:
“In the past two years, China has become even more central to
regional and global trade, investment, and production patterns.”
Moreover, added the Commission, “China has linked its growing
economic power with strong diplomatic initiatives throughout
Asia.”
To meet this challenge Washington needs to employ American “soft
power” — access to the world’s most important, advanced, and
productive economy. It will be years before China’s economy
surpasses that of the U.S., and decades before that nation’s per
capita GDP, the best measure of disposable wealth, matches that of
America. Still, Chinese influence will inevitably grow throughout
East Asia. But the U.S. can respond by using its strengths to
engage friendly nations.
Free trade is good economics. It benefits consumers and enlarges
business opportunities. It creates a larger market within which
poorer nations can prosper. It allows U.S. firms and workers, which
remain the most productive on earth, to reach new peoples and
countries.
Free trade also is good politics. Especially in Asia, where
Washington can no longer take its position for granted. The time to
respond is now, before the U.S. finds itself confronting a new
geopolitical equal.
