The KORUS Catastrophe

President Obama's failure to conclude the Korea-United States Free Trade Agreement (KORUS) is a disaster. It reveals a stunning level of ineptitude and seriously undermines America's leadership in the global economy. The implications extend far beyond selling Buicks in Busan.

Unlike some of the trade agreements the United States has pursued in the last decade, this one is with an economically significant partner. KORUS could bring billions of dollars of new trade opportunities and the Obama administration had cited it as one part of its National Export Initiative, a plan to double U.S. exports in five years.

But there are really two distinct issues in contemplating the significance of the failed talks: the economic merits and questions of diplomatic competence. The latter is really the story of the day.

The debacle in Seoul is a slap in the face of a critical U.S. ally in a critical region, and it will cast doubt on U.S. trade promises in other negotiations elsewhere.

The economic merits and demerits have been in full public view since the agreement was originally concluded in the spring of 2007. The agreement offered substantial market opening, but left some questions regarding access to the South Korean market, especially for U.S. autos and beef. Those products face barriers other than simple border tariffs. Such non-tariff barriers are harder to negotiate away, though the KORUS agreement certainly tried. There was substantial political opposition to the agreement within both countries, though the Koreans managed to overcome theirs. Influential voices such as Ford Motor Co. and organized labor in the United States criticized the agreement as inadequate.

The well-established opposition just brings us to the stunning, perhaps unprecedented diplomatic incompetence just displayed by the White House. The concerns and obstacles that impede a new KORUS agreement were fully apparent in June when Obama announced he would have an agreement in time for the Seoul G-20 meetings (now underway). The announcement was remarkable at the time because so much of the U.S. president's statements on trade have been vague, aspirational, and timeless. This was a promise to have a specific agreement concluded by a specific date.

Reflecting on the health care battle, Obama recently told 60 Minutes, "When you're campaigning, I think you're liberated to say things without thinking about, 'OK, how am I going to actually practically implement this.'" That may be true, but the rules change once a president takes office. Most White Houses are exceedingly careful about making such public commitments. If the president's credibility is to be put on the line, there is an absolute imperative to deliver. This is at least as true in international diplomacy as in domestic affairs. The debacle in Seoul is a slap in the face of a critical U.S. ally in a critical region, and it will cast doubt on U.S. trade promises in other negotiations elsewhere. But if an American president loses his credibility, the damage spreads beyond the narrow confines of economic deals and Northeast Asia.

Of course, Obama did not admit defeat. He spoke of the setback as a mere postponement. "We don't want months to pass before we get this done. We want this to be done in a matter of weeks." If the agreement really is just a few weeks' work away, the administration ought to be deeply embarrassed. After the president made his June commitment, no formal talks were held with the Koreans until the end of September. Even then, the Koreans complained that the U.S. negotiators were not being sufficiently specific in their proposals. If the problems really are just technical ones, the Obama team has played the role of the student who procrastinates on a term paper, counting on the ability to have a really productive all-nighter. Such a work program evokes little sympathy when it doesn't succeed.

More likely, though, the obstacles are not technical but political. The lineup of advocates and opponents for KORUS poses difficult choices for the White House. Traditionally, governments around the world make such tough trade choices when they are right up against a deadline. But if the deal could not be concluded under the pressure of a high-profile bilateral meeting between presidents in Seoul, is it really plausible that it will be wrapped up because negotiators want to be home for Thanksgiving?

The breakdown could not have come at a worse time. The United States has been working to assert its relevance in Asia. Concerns about protectionist pressures amidst economic troubles raise the stakes in bolstering the global trading system. Beyond economic questions, countries around the world are wondering about the strength of a president who just suffered a major political setback.

Though he may not have foreseen all of the difficulties he would be facing at this juncture, last summer Obama named the time and place of his global credibility test. And he just failed it.

Philip I. Levy is a resident scholar at AEI.

Photo credit: iStockphoto/dan_prat

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About the Author

 

Philip I.
Levy
  • Philip I. Levy's work in AEI's Program in International Economics ranges from free trade agreements and trade with China to antidumping policy. Prior to joining AEI, he worked on international economics issues as a member of the secretary of state's Policy Planning Staff. Mr. Levy also served as an economist for trade on the President's Council of Economic Advisers and taught economics at Yale University. He writes for AEI's International Economic Outlook series.

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  • Email: philip.levy@aei.org

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