Recent Developments in the Korean Peninsula In the Context of the U.S.–ROK Alliance

In remarks given before the World Affairs Council of St. Louis, Ho-Jin Lee discusses recent developments on the Korean Pennisula and the role of the United States going forward.

Good morning to you all. Mr. Rodney Kerner, President of the World Affairs Council of St. Louis, Dr. Ellen Harshman, Dean of the John Cook School of Business, Dr. Seung Kim, Director of the Boeing Institute of International Business, Ambassador George Walker, distinguished members of the Council and the Institute, ladies and gentlemen,

I wish to thank you for your kind invitation to this beautiful city of St. Louis. I am very much honored and pleased to be in such distinguished company and have an opportunity to share my thoughts on the growing U.S.-South Korea alliance.

On my first visit to St. Louis, I made a quick study about the city and got impressed by a couple of historical facts. As we see from the iconic Gateway Arch, I got to know St. Louis had long been a gateway for pioneering the western frontier in American history. Similarly I do hope that St. Louis can be a new gateway for expanding business ties between the United States and Korea, particularly in areas of defense industry and bio-tech engineering.

Secondly, I got to know St. Louis was a business hometown for Robert Brookings who founded the Brookings Institution with which I am currently affiliated with. Robert Brookings moved to St. Louis at his age 17 in late 19th Century and ran a successful business. Later in 1916, based on his entrepreneurship and fortunes, he founded Brookings to help contribute to the government’s working with private sector.

Let me start by quickly asking a question; how much do Americans know about South Korea? According to a report released last September by the Chicago Council on Global Affairs, the level of American awareness on South Korea is not very high.

Nevertheless, I think most of you know the fact that Korea has been divided into two parts, and the one in the South has built a vibrant economy and mature democracy. I also assume many of you know North Korea as well. It is because of lots of news headlines reporting that the North is run by a dangerous regime and has developed nuclear weapons.

Last month when Chinese President Hu Jintao made a state visit to Washington, the North Korean problem was high on the agenda in the Summit talks between President Obama and President Hu. Since it has much to do with the U.S.-South Korea alliance, I would like to discuss this problem first.

Then, another subtopic I am going to talk about will be the Free Trade Agreement between our two nations. As a new development, it has come to life after more than 3 years of hiatus. I imagine most of you do not know exactly how many times President Obama mentioned South Korea in his State of the Union Address last month. Five times, President Obama mentioned South Korea – all in very positive terms including about the free trade agreement between the United States and South Korea. I’ll come back to this later.

Recent North Korean Provocations

Now, let me first to talk about the North Korean problems – unchanged military threats from the North and about how the U.S.-ROK alliance has been shaped and worked to cope with such North Korean threats.

The year 2010 was the worst in terms of security on the Korean peninsula in post-Cold War period, because of none other than North Korean military adventurism. In March, a South Korean naval ship “Cheonan” on a night patrol mission was struck and sunk, which killed 46 sailors.

The South Korean military didn’t take immediate retaliatory action without compelling evidence of who the enemy was. Later, an impartial international investigation confirmed that the ship was torpedoed by North Korea.  The South has referred the case to the UN Security Council, but refrained from taking military counter actions to avoid a further escalation of tension. 

Again in November, two weeks after the G-20 Summit in Seoul, North Korea attacked a small island “Yeonpyeong”of the South by artillery shells. The attack resulted in the deaths of 4 people including 2 civilians.

Somewhat belatedly showing its muscle to the North, the combined forces of the South Korean military and the U.S. military conducted joint military drills involving the aircraft carrier ‘George Washington’ in the Yellow Sea. It was a warning to the North that further provocations will not be tolerated and will be met by formidable retaliation.

Arguably, the South Korean government was blamed by the public for the initial lukewarm and limited response to the deadly North Korean provocations. But I think the restraint was wise, even with the benefit of hindsight.

Here, what is noteworthy is that the North Korean military adventurism didn’t give bad impacts on the robust economy in the South. At a glance, it seems hard to explain. But I would say the main factor behind this was the strong defense posture the U.S.-South Korea alliance had maintained. The alliance has so far carried out the mission to contain numerous skirmishes and prevent the major North Korean aggression.

Nevertheless, the last year’s provocations are obviously showing that North Korean threats have remained unchanged since that regime came into being after World War II. Even under such constant threats from the North, I want to say, South Korea has successfully built an advanced economy and full-fledged democracy. The South Korea’s advancement has been praised as the most successful showcase of the American assistance.

South Korea currently is the 13th largest economy and the 7th largest trading country in the world. How was it made possible? I must say that it is largely attributable to the credible U.S.-South Korea alliance relationship.

U.S.-Korea Relations since 1882

At this point, I think it would be helpful to briefly explain how the U.S.-South Korea relations have been established and evolved into today’s rock-solid alliance.

Until the late 19th Century, Korea—which was then known as the Chosun Kingdom—had maintained a strict closed-door policy. Yet, it was the U.S. that opened this hermit kingdom for the first time to Western countries. At the American persistent knocking the door, a “Treaty of Amity and Commerce,” better known as “Chemulpo Treaty,” was concluded in 1882 to establish official relations between Korea and the U.S.

At that time, Korea was one unified country on the Korean peninsula bordering China and Russia. Unfortunately, however, the Treaty failed to help defend a weakened Korea against the Japanese territorial ambition. And a tragedy began with the Japanese occupation of the country in 1910 that lasted for 35 years and ended up with its division.

In 1941, Japan attacked Pearl Harbor and this marked the beginning of the Pacific war against the U.S., as you know well. Defeated by the U.S. in August 1945, Japan was forced to end its occupation of Korea. But the problem was that in the course of ending the war on the Korean peninsula, the Soviet Union as a part of the Allied Forces sent troops into the northern part of the peninsula, obviously with the strategic interest in its mind to expand the sphere of influence further south to the Pacific.

The Soviet Union insisted on the temporary but divided administration of Korea. The communist Soviet insistence prevailed in the 1945 Yalta conference among the allied nations of the war, and it was decided that the 38th Parallel would be the dividing line. The decision took only 30 minutes, after Koreans struggled for 35 years to achieve independence from Japanese rule. Sixty-six years later, the line drawn at Yalta is still there.

Korean War and U.S.-ROK Alliance

In June 1950, in 5 years of merely half independence for South Koreans, the Soviet-installed Kim Il-sung regime of the North launched a massive attack onto the South so as to communize the free democratic half. The Korean War lasted brutal 3 years.

The Communists would have succeeded if not for the American intervention. The United States came to save the Republic of Korea by sending troops under the UN flag. About 36,000 Americans sacrificed their lives. I must say all Korean people are very grateful for the courage and sacrifice that so many young American soldiers made for a country half-way around the world.

The war ended with an armistice in 1953, but the division of Korea remained unchanged. The armistice led to the U.S.–ROK Mutual Defense Treaty concluded in 1954, under which our strategic alliance has persevered to this day.

Korean Growth under the Alliance

Last year Koreans commemorated the 60th anniversary of the Korean War. Even if I say that the social, political, and economic evolution of South Korea has been miraculous, I don’t think I am bragging. Really, Korea emerged from the shambles of war. It was one of the poorest nations on earth until the early 1960s, with a per capita income of less than $100 in the year of 1960. Today, Korea is a prosperous, developed democracy with the13th largest economy in the world. Korea’s per capita income rose to $20,000 in 2010.

Formerly a recipient of economic assistance from other countries, Korea is now a donor country. It is a member of the OECD, a club of 33 advanced countries. Last year, Korea hosted the G-20 Summit, as Chair of the world-leading economies in Seoul. As you know, the G-20 Summit was initiated by the United States earlier in 2009 to address the global economic recession sparked in 2008.

Throughout the Cold War period and even after the end of the Cold War, the U.S.-South Korean alliance has worked as a linchpin to deter North Korean military adventurism and build the peace on the Korean peninsula. Under the secured national defense, Korea was able to make a remarkable economic progress. In this way, Korea’s modern alliance with the United States – forged and shaped from after the Korean War – has helped make the Korean miracle happen.

New Vision of the Alliance

After the turn into the 21st Century, the horrible 9/11 terrorist attack against the United States brought about sea-change in the global security environment. The world has begun to wage war against terrorism and weapons of mass destruction (WMDs). The new challenges have made the U.S.-South Korean alliance much more important. Now capable and competent, Korea has made substantive contributions to American efforts to win the wars in Iraq and Afghanistan.

The U.S. and Korea agreed to redefine and expand the mission of the alliance beyond the Korean Peninsula, by adopting a document, “Joint Vision for the Korea-U.S. Alliance Relations” in June 2009.

Even long before the adoption of the vision document, the U.S. and Korea have been working together on a host of global issues, including disarmament and non-proliferation of WMDs, nuclear security, climate change and poverty.

Korea has sent troops to join in the UN peacekeeping efforts in many intra-national conflicts, such as East Timor, Lebanon and Haiti. A Korean destroyer is in the Gulf of Aden, contributing to the multi-national anti-piracy operation off the Somali coast.

China Factor

With regard to the vision of the U.S.-ROK alliance, let me talk a little bit about China or a China factor, because it has a potential to affect the future of the alliance.

We frequently say we are living in the post-Cold War era, but the Korean peninsula remains under the Cold War confrontation as we saw last year. North Korea has refused to open and reform, digging in isolation while developing nuclear weapons. North Korea has remained the main source of threats to peace and prosperity in the region.

In contrast, China has emerged to be a major stakeholder in North Korea’s neighbor. As China has become assertive, it has projected its interests in Korean peninsula, and has enhanced its leverage to influence North Korea. As the sole ally of North Korea and supplier of food and energy for many years, China has become the lifeline for the precarious Kim Jong-Il regime.

From the South Korean perspective, the Chinese attitude and stance toward North Korea are very important. When it comes to the North’s dangerous behavior and its uncertain future in particular, China will be a crucial factor that the U.S.-ROK alliance should take into account.

The big question will be how and to what extent our alliance should accommodate the Chinese strategic interest. I think the bottom line is that the Chinese strategic interests can be considered in so far as it behaves in a responsible manner vis-à-vis North Korea.

By and large, the U.S.-South Korea alliance will gain more importance, as it would evolve into a new security framework beyond the Korean peninsula in the 21st Century. So, I would argue that our bilateral alliance should be further strengthened in view of the shifting security environment in general and shifting Chinese role in particular, regionally as well as globally.

Korea-U.S. Free Trade Agreement

Now as a new development in the context of our bilateral alliance relationship, I want to take some minutes to share my thoughts on the U.S.-Korea Free Trade Agreement. Certainly the Agreement is economically important, but it involves our bilateral alliance dimension beyond the economic dimension.

As you know, the KORUS FTA, as we have called it, was negotiated during the Bush administration and signed in 2007, but languished for more than 3 years without ratification by Congress. It was almost dead when President Obama took office in early 2009. But especially last year, it began to pick up the momentum to survive on the path for final ratification. I argue for mainly 3 rationales that helped sustain fundamental value of the Agreement and prompted two governments to finalize the text as quickly as possible, perhaps through minimum renegotiation.

Economic Benefits from KOURS FTA

Obviously, the No. 1 rationale behind this KORUS FTA must be the enormous economic benefits the Agreement would bring to both of countries. No one can deny the importance of export expansion, particularly as we have been making every effort to recover from the economic recession since 2009.

In a sense, today’s globalization has been driven largely by the new American economic liberalism. Under this daunting process of globalization, international trade has become extremely important to not only to the Korean economy but also the U.S. economy. Exports are a major contributor to GDP growth, and GDP growth preserves and creates jobs.

The United States is the world’s largest exporter of goods and services, shipping about $1.7 trillion worldwide in 2008. About 10 million American jobs are known to be directly tied to those exports, which account for about 13 percent of GDP, according to the Department of Commerce.

The U.S. International Trade Commission estimates that every billion-dollar increase of American exports in industrial goods would support more than 6,000 manufacturing jobs, and that every billion-dollar increase of exports in agricultural products supports 9,000 farm jobs. Based on this analysis, it is estimated that the implementation of KORUS FTA will increase U.S. exports to Korea by roughly $11 billion and thus create about 70,000 jobs in the United States.

As for Korea, it is clear that international trade has been a key factor behind its economic growth. Korea’s 87 percent trade-to-GDP ratio proves this importance. Currently, Korea is the 7th largest trading country in the world, with $468 billion of exports in 2010.

In terms of bilateral relations between the U.S. and South Korea, trade has become increasingly important, on par with the security relations. Until the 1970s, Korea remained one of the poor developing countries, receiving the economic assistance largely from the U.S.

Only after the Korean government boldly began to institute an open economy since the early 1980s, its external trade has rapidly increased and served as an engine of economic growth. Accordingly, the trade between our two countries grew from $0.9 billion in 1970 to $9.6 billion in 1980 and to $90.2 billion in 2010. It has increased 100-fold in just 4 decades.

The U.S. used to be Korea’s biggest trading partner. But since 2003, America has gradually fallen to the 4th place – now behind China, Japan and the European Union. In just over a decade, the U.S. share of Korea’s import market for goods has fallen from 21 percent to just 9 percent.

Some may say this is a sign of America’s diminishing economic clout. But I don’t see it that way. Structurally, the evolving pattern of the growth of U.S. service exports to Korea exceeding manufactured exports growth is very positive. From 1999 to 2008, the U.S. service exports to Korea grew by 123 percent, while those of manufactured goods increased by 52 percent. In 2008, the United States exported $7.1 billion more in services to Korea than the U.S. imported from Korea.

Since the U.S. is a global leader in the export of services including financial, express delivery, legal consulting and accounting services, the KORUS FTA will give American companies most competitive access to Korea’s $560 billion market in these major services.

What is more, I would argue that expanding trade with Korea can be seen as an economic stimulus package, with no cost to taxpayers. The ITC estimates that the implementation of the KORUS FTA will annually reduce the U.S. trade deficit by $4 billion, gradually contributing to the balance of trade between our two countries. This will be spurred by tariff-elimination for the American duty-free exports to Korea, which is envisioned by the free trade agreement.

Potential Loss – Without KORUS FTA

The No. 2 rationale seems easy to ignore, but we need to think through the KORUS FTA in relation to the EU-Korea FTA. The European Union is preparing to secure more of the Korean market by implementing its own free trade agreement from July this year, as the European Parliament ratified the EU-Korea FTA just last week.

Let me remind you that in fact the EU-Korea FTA was proposed by the EU side, not the Korean government, just one month after the concluded negotiations of the KORUS FTA in April 2007. I think the EU seemed impressed by the Korean government’s bold and confident approach to free trade. The EU seemed mindful of the risk of consolidation of U.S. dominance in Northeast Asian business. So the EU may have felt that it had to make a fast move to counter the effects of trade diversion.

Ironically, President Obama found himself in the position of European leaders of the early 2007, when they were worried about trade diversion because of the soon-to-be KORUS FTA. With this in mind, President Obama said last year; “If America sits on the sidelines while other nations sign trade deals, we will lose the chance to create jobs on our shores.”

The economic logic is simple and clear, and there is also an element of “first come, first served” in the calculus. The benefits the U.S. could gain from implementing its FTA with Korea will diminish rapidly if the Europeans “get there first.” If U.S. companies fail to increase their market shares, they will soon be overwhelmed by more competitive European goods and services. According to the estimates of the U.S. Chamber of Commerce, the failure to implement the KORUS FTA could lead to the loss of more than 345,000 U.S. jobs.

Strategic Dimension

The third rationale in my mind is the strategic dimension that the KORUS FTA could hold. Especially South Korea might have wanted to demonstrate the strengthened alliance with the U.S. by sealing the Agreement amid the continued North Korean provocations last year.

Throughout the process, the U.S. has also maintained the view that the KORUS FTA’s successful implementation will bolster the enduring strength of its strategic partnership with South Korea in a rapidly growing region.

At last in early December last year, trade officials from both countries timely met to solve the lingering issues of the Agreement. Whether coincidental or not, it was in the middle of rising tension after the North Korean artillery shelling on “Yeonpyeong” island. The negotiations over the last few issues went through rather smoothly and the final deal was struck in only a few days. Sticking points mainly on issues of automobile and beef were compromised in exchange of making concessions. Obviously they kept in mind the enormous economic benefits and strategic value of the Agreement two countries may lose otherwise. Therefore, they were determined to produce the final text.

In January, President Obama said in his State of the Union Address, “The more we export, the more jobs we create at home. And last month we finalized a trade agreement with South Korea that will support at least 70,000 American jobs. This agreement has unprecedented support from business and labor; Democrats and Republicans, and I ask this Congress to pass it as soon as possible.”

This statement absolutely makes us optimistic about the prospect for the ratification of the Agreement, perhaps in the first half of this year.

Conclusion

My final points are again about the nexus between the KORUS FTA and the U.S.-South Korea alliance. We are prone to simply think that the FTA is about the trade numbers or economic figures. I would, however, like to argue the KORUS FTA has intrinsically a strategic underpinning to bolster the alliance and demonstrate the shared value between our two countries.

Here we see the KORUS FTA as the glue that will hold that alliance together and make it stronger, at a time when the balance of power is shifting in the security landscape of Northeast Asia. From the American perspective, I can imagine it would anchor the U.S. position in East Asia and cement its leadership in the most dynamic and rapidly-growing region in the world.

In a bigger picture, I think the KORUS FTA and the U.S.-ROK alliance will be mutually reinforcing to serve economic and security interests of our two countries. At the same time, I am confident that both of instruments will be a twin-bulwark to counter the China’s rising clout in the region. And by doing so, both of instruments will safeguard and uphold free democracy, peace, security and market economy on the Korean peninsula and beyond.

Thank you very much for the attention. I’ll be happy to take your questions.