South Korea’s Trade Protests: Lessons for President Lee and Korea’s Role in the Global Economy

Leonardo Martinez-Diaz
Leonardo Martinez-Diaz Global Director - Sustainable Finance Center, World Resources Institute

June 3, 2008

The past week has been one of intense political turbulence in Korean politics. Tens of thousands of people have taken to the streets in Seoul, held candle-lit vigils, and clashed with anti-riot police to protest the policies of President Lee Myung-bak’s government. The trigger for the protests was opposition to President Lee’s decision to resume beef imports from the United States. U.S. beef has been banned in Korea since 2003, after “mad cow” disease was identified in American cattle. Korean protestors claim that if the ban is lifted, U.S. exporters will send to Korea the beef that Americans will not eat—that with the highest risk for unleashing the rare, brain-destroying illness.

Regardless of the factual basis for this claim, the protests have so grown in scale and anger in recent weeks—and have come to encompass people from such diverse ages and backgrounds—that today nobody can credibly argue that they are a “rent-a-protest” orchestrated by the Korean agricultural lobby or the work of marginal leftists groups. Clearly, there are larger forces at work here. I want to highlight two, in particular.

First is a generalized opposition to President Lee’s governing style. A former mayor of Seoul and executive in one of country’s largest conglomerates (Hyundai), the conservative tycoon was elected last December by a 22-point margin over his left-wing rival. Lee’s main message was not unlike Mitt Romney’s in the U.S. presidential primaries—“I have run a major company, and therefore I can steer the country down a path of economic success”. In Lee’s case, the pledge was summarized by the phrase “Republic of Korea 7-4-7”—seven percent growth per year for ten years, which would give Korea a per capita GDP of $40,000 and would make Korea the 7th largest economy in the world within a decade. While unrealistic, Lee’s pledge resonated with the public, and he was elected with a mandate to serve as chairman of Korea, Inc.

Yet, Lee has behaved too much like a chairman of the board, acting imperiously and with little regard for public opinion on a number of issues, the most prominent of which has been the U.S. beef-import decision. Another has been his controversial proposal to build a major cross-country canal system without due regard to the environmental consequences. A third has been his proposal to privatize the healthcare system. Lee’s conservative party, the Grand National Party, controls the national assembly by a narrow margin, which must add to the president’s sense that he is running a corporate board, not a government. Meanwhile, the major party of the left, the United Democratic Party, is in chaos after its defeat last December. Without an organized opposition party to fight Lee’s controversial policies, it is not surprising that the left has preferred to take its cause directly to the streets.

The second driver behind the protests will remain long after President Lee has left office—this is a clash of different visions over Korea’s place in a changing world economy. Korea is above all a trading nation. Foreign trade represents a remarkable 70 percent of its GDP. Since the 1960s, the country has been singularly adept at taking advantage of economic openness, and it has grown rich by moving up the value chain and exporting increasingly higher value-added goods. But today, those favoring opening the Korean economy further are encountering growing public opposition. The discussion is no longer about how but whether Korea should open its economy further.

Skepticism is growing for several reasons. The two bilateral trade agreements currently on the table—one with the United States and one with China—are big undertakings, and they are both likely to have major economic consequences. The Korea-U.S. trade agreement, inked and dried last year but not yet ratified by either country’s legislature, would be the biggest bilateral trade deal ever for both Korea and the United States. The China-Korea FTA is only a proposal at this stage, but one the current government seems determined to pursue. (In 2003, China surpassed the United States as Korea’s biggest trading partner.)

Both of these agreements are riddled with difficult trade-offs for Korean agriculture and industry. Korea’s giant conglomerates, the chaebols, will be big winners, particularly if they can gain access to China’s booming market for consumer durables and make further inroads into the U.S. market. However, the agreements will likely deal a blow to thousands of small- and medium-sized enterprises that produce low-tech manufactures for the domestic market, and which the government has nurtured for years through preferential credit arrangements and trade protection. Given the large work force employed by the SMEs, building a free-trade coalition will be a major political challenge.

For now, President Lee has been forced by the protests to back down. He has announced a delay in U.S. beef imports and is shelving his canal-building plans. A cabinet reshuffle will likely follow. After this chastening, President Lee will start behaving more a as a politician than as chairman of the board, checking his polls and consulting with the opposition and his own party before making policy pronouncements. However, the larger dilemma of Korea’s role in the world economy will come back to haunt him again, only next time, it will not only be in the guise of mad cows with American flags.