Ed Royce: Future of United States - Republic of Korea Economic Relations

Remarks of Representative Ed Royce
Korean American Economic Development Center (KAEDC)
March 7, 2008

Opening

Thank you for asking me to speak with you this evening. It’s an honor to be with such a key group. In particular, I’d like to thank Dr. Mike Hong, Dr. Jin Chul Jhung and John Suh of the KAEDC. Your organization has done excellent work in the community, and beyond.

I am told that you had very productive presentations by leading experts this afternoon, discussing the new challenges and business opportunities under the new administration in South Korea. I’m delighted to share my thoughts from the congressional perspective.

Now is an exciting time to be focused on U.S.-South Korea economic relations. Needless to say, it’s a time of great challenge. It’s also a time of great opportunity. My mission in Congress is seeing that we meet the challenges by seizing the opportunities. Unfortunately, when it comes to the Korea-U.S. Free Trade Agreement –which would be the world’s largest bilateral trade agreement if it passes– Congress is falling down.

U.S.-South Korea economic relations

All of you in this room know the importance of the U.S.-South Korea economic relationship:

$75 billion in trade between the two countries (2006)
• Korea is the U.S.’s seventh largest trading partner; the U.S. is Korea’s third largest
• The U.S. is the second largest foreign direct investor in Korea
• California alone exports $7 billion in goods to Korea (2006)

Many of you are involved in this trade. It’s your business. Unfortunately though, the importance of the South Korean economy –despite being Asia’s third largest– isn’t recognized as it should in the U.S. Congress. This is shown by the lack of congressional support for the crucial free trade agreement the Bush Administration reached with South Korea. After speaking a bit about the South Korean economy, I’ll get back to KORUS, because it’s so important –and it’s in jeopardy.

South Korea’s economic anxiety

The South Korean economy has done well the last several years.

We all remember the moving photos of Korean women selling off gold wedding rings they’d worn for forty years during the 1997 financial crisis. Those were gut wrenching times.

But South Korea made substantial reforms and rebounded nicely. Economic growth has been at an impressive five percent over each of the last five years. Its stock market has been on a five-year tear. [The benchmark has risen from 633 in January of 2003 to 1625 in February of 2008, a 159% increase.]

Yet Korea faces tough challenges. For one, its neighbors, China and Japan, are increasingly competitive. South Korea is a trading country, as you know, and the degree of competition in selling goods and services abroad has never been tougher. China now outsells Korea in several of their largest export categories, including semiconductors, machinery and steel.

South Korea faces other headwinds. Like other countries, it must contend with U.S. economic troubles. The spike in world oil prices hurts Korea too, and economic growth is slowing.

The Korean people’s economic concern played out in Lee Myung-bak’s election as president in December. Candidate Lee argued that “economic revival” was his country’s most urgent task, and as a successful businessman, South Koreans saw him as a more credible steward of the economy. I think they were right.

Good start: Lee’s high flying rhetoric.

President Lee, from my perspective, appears to be off to a good start.

Some of his inauguration speech remarks were truly exceptional.

He warned that “developing countries are fast catching up” to South Korea, whose competitiveness has fallen, he claimed. In fact, foreign direct investment in South Korea –a driver of competitiveness– has fallen, … dramatically over the last four years. This, in large part, is because of over-regulation.

What are the President’s prescriptions to improve his country’s competitiveness?

A heavy dose of the market; a lighter touch by the state.

President Lee advocated more privatization, lower taxes and reduced regulation. Or, in his words, the “small government, big-market principle.”

His speech was a gentle yet forceful lecture on economics. He was teaching. Lee said, “Corporations are the source of national wealth and the prime creator of jobs.” Now that may not sound so profound –the idea that it is the market that creates wealth– but obviously it was something he felt Koreans needed to hear … and I think he was right.

In my opinion, Koreans have been far too cautious about market reform, many choosing to cling to the statist past. Their caution, in some part, is stoked by the chaebols that stand to lose. It’s not unlike in our country, when established businesses try to regulate potential competitors out of the game.

I’ve seen this Korean resistance to market reforms up close in the many years I’ve chaired the congressional exchange with South Korea. Every year we’ve talked about allowing for more American cars, beef and financial services to enter South Korea. American beef is a better deal for Korean consumers. And American financial services would improve the economy’s efficiency.

Progress however has been slow. There has been some, but it was mainly prodded by the 1997 financial crisis. Reform progress stalled under President Roh. President Lee is looking to get back on the reform track. And I applaud him for that.

But the most impressive thing about President Lee’s speech, for me, was his frankness. He didn’t tell his fellow countrymen how good and great they are. Instead he challenged Koreans to be better, much better. Essentially he told the Korean people –yes, we pulled ourselves out of the ashes of the Korean War, built a world-class economy, and survived the 1997 financial collapse –but the world doesn’t stop. The race isn’t over, because China and India and even Vietnam are eager to jump ahead.

In challenging Koreans, the President said that “opening the market to the foreign sector is an unavoidable mega-trend.” Unavoidable. So the choice for South Korea, as I understand the President to be explaining it, is to:

• not reform –try to shelter the South Korean economy– and be sure to fall behind; or
• reform, compete and give Korea the best chance to move ahead

I think South Koreans, with their strong work ethic and educated workforce, can win. But they have to reform. That was President Lee’s message, which wasn’t sugar-coated. With his rhetoric, he seems to be setting the stage for his reform agenda.

Americans can’t opt out of the competition and win either. Unfortunately though, our national leadership doesn’t often challenge the American people –like President Lee did– telling them the truth that we have competitors who can be very, very good and that, in order to compete, we must:

• improve our schools
• balance our books
• improve our dismal savings rate and
• get done the 101 other things that will make us a stronger global competitor.

Yes, the U.S. is still competitive. Some rankings have us placed as the most competitive in the world. But we don’t have the luxury of wasting time, and we certainly can’t afford to spend time pointing fingers, making excuses, or playing politics. Unfortunately, that’s exactly what we’re doing with the Korea-US FTA, needlessly harming our economic prospects.

KORUS

By all measures, the trade agreement negotiated by the Bush Administration and the previous South Korean government helps both countries. The U.S. gets better access to South Korean markets. South Korea gets assurances that its favorable U.S. market access will continue. Many in this room, I’m sure, stand to benefit from KORUS. By one estimate, the KORUS FTA will increase trade by $20 billion. That’s a 25 percent increase, and it represents many new and good American jobs. While I’ve stressed competition, trade is not a zero sum game. Greater market access will allow the U.S. and Korean economies to grow together. In some sectors, we’d see collaboration between U.S. and Korean companies —in the financial sector, for one.

Of course the deal could be better, as critics point out. It’s unfortunate that the U.S. couldn’t dent South Korea’s protection of its rice farmers, for example. Korean consumers will continue paying four times the world market price for rice. The Korean side has its complaints. But there is no such thing as a perfect deal, and we have to decide: do we move ahead and approve this, helping each other, or sink KORUS?

Politics

Unfortunately, many in Congress are working very hard to do just that. The auto unions have rejected it. They’ve proposed an odd “managed trade” fix that would deny Koreans better access to the U.S. market unless Korean consumers buy a certain number of American cars. There’s a fundamental difference between demanding fair access, which we should do, and demanding market share, which America has never done, and shouldn’t start.

In large part because of this union opposition, the Democratic leadership and its rank and file in Congress strongly opposes KORUS. It’s very possible that the Democratic leadership won’t even allow a vote on this agreement. But with Senators Clinton and Obama in strong opposition, we can’t afford to wait, though I should add that Senator McCain is a strong KORUS supporter. Some of this opposition, frankly, is a partisan resistance to “giving” President Bush any “victory.” That’s unacceptable.

I know that many Democrats in this room back KORUS. You carry weight, and I urge you to continue weighing-in, contacting your representatives and Senators, making the voice of two million Korean-Americans heard, making the economic interests of our region and state heard, and making opposition to this agreement very difficult for them.

As you know, my office is working hard to build momentum and support from the community. I am encouraged to hear that the Korean American Elected Officials are also leading the efforts to lobby the Members of Congress to take immediate action on KORUS. Please know that my office stands ready to provide any assistance you need in that regard. 4
With this kind of support from the community and from the local elected officials, I’m hoping President Lee’s visit to Washington next month will further build some KORUS momentum, which would be helped if we can get the beef safety issue off the table, which will require South Korea to act. I hope he addresses Congress, which I’m pushing for, and that representatives hear his powerful words.

Conclusion

Former President Roh was ambivalent about tackling globalization. President Lee isn’t. He has challenged South Koreans, and is gearing up to meet its challenges. Korea is poised to move ahead, with or without KORUS. The EU wants a trade agreement with Korea. European companies want the benefits American companies gain through KORUS. So do others.

The world is changing. China, not the U.S., is now South Korea’s largest export market. So we better get moving with KORUS, or the economic relationship we have come to celebrate will soon be on the decline.

I’ve spoken about KORUS’s economic importance. But as you know, our relationship with South Korea is about so much more. It’s a security relationship, based on a common commitment to stability in North Asia. It’s a political relationship, based upon a common commitment to democracy. And it’s a relationship strengthened by you, with your deep attachment to Korea. The U.S.-South Korea relationship is both deep and broad.

Yet there can be no denying that a failure to pass KORUS will be a setback to this relationship. It is too important to South Korea, and too many South Korean leaders have invested political capital in it for there not to be fallout should it fail. At our congressional exchange, KORUS is all the National Assembly members wanted to discuss. I wish it were important to members of Congress. KORUS’ defeat also would be seen as a sign of U.S. retreat from northeast Asia. We can’t afford to fail. So let’s get to work, defy the many who say KORUS can’t pass, and make 2008 a very special year for the U.S.-South Korea relationship.

Thank you.