AMCHAM Korea News Clipping

[Roundtable] 'Trump wants to get fair deal from Korea'

AMCHAM aims to host presidential debate

Question: Does Korea need to make concessions to the U.S.?

James Kim (JK): A $23 billion deficit took place last year. And this year, the number is expected to go a bit higher than that. An 80 percent deficit is coming from the auto industry. We should be careful when we talk about big numbers. Sometimes when you look at the whole thing, it looks really bad. 
If you take one industry out of the equation ― the auto industry ―, there are a number of actors as well. So we really need to tell the real story behind it. The numbers are really important. Anytime you go over $20 billion in a trade deficit with the U.S., currency manipulation also kicks in. That is why $20 billion is the magic number. I had many meetings with Korean government officials, for them, they know math. They are trying to bring the deficit down to $20 billion.

Jeffrey Jones (JJ): It is a political sound bite. Whether the deficit is $30 billion, $20 billion, $10 billion, any of these would be difficult numbers for President Trump because he promised the American people that he would improve the economy and create jobs in America. With trade deficits, it looks like we are losing jobs, manufacturing jobs. That is why he needs to fix things. The fact is that KORUS prevented the deficit from getting larger, permitted the U.S. to expand its share of imports coming into Korea. What happened was from 2011, the U.S. imports have dramatically increased; Korean imports have declined. A huge increase in U.S. imports, relative large decrease in Korean imports means there is an economic imbalance. 
Since 2011 when the FTA was implemented, the U.S. started to import more but Korea did not import as much as the U.S. did. Korea has nothing so it has to import to eat, manufacture, whereas in the U.S. we have certain raw materials. Korea has to import in order to survive. The difficulty we have in solving that political dilemma of that sound bite that the U.S. has deficits with Korea. Our deficit with Japan is five times, deficit with China is 10 times. Korea's is smaller. 
When you look at EU imports into Korea, they have lost more market share than the U.S. China's imports into Korea have also declined. But the U.S. has maintained a bigger share of the import market than these countries. So KORUS has actually helped the U.S. tremendously but the political sound bite is also a reality. 

Question: Is bringing down the deficit to $20 billion enough?

JK: If we can make noticeable improvements on the deficit, I think they would say, "Wow, Korea is doing something about it." Together with it are things the Korean government and companies are doing today ― jobs Korean companies are creating. Companies like CJ ― 200 jobs in a small town in Iowa. And Alabama and Tennessee. Jobs they are creating are meaningful. 

JJ: The thing the Korean government should do is cooperate with the Trump administration to create a new type of sound bite ― which is Korea has agreed to try to fix it. What we should not do is say we will reduce the deficit to $10 billion or eliminate deficits. That is not economically possible and would put nonmarket strains on both economies. We have to maintain market principles and we have to be a fair and free market. We have to work to find a solution. 

JK: Trump wants to spend trillions of dollars on U.S. infrastructure. He wants foreign companies to invest in manufacturing in the U.S. Korean companies are investing in the U.S. manufacturing base.

JJ: Direct investments Korean companies have made in the United State since KORUS have exceeded trade deficits with Korea. Total Korean investments wipe out the deficits. The latest figures show Korean investments have resulted in 45,000 jobs in America. There exclude those created by small companies following them, like a ripple effect. 

Question: Don't we need something positive for Trump to tweet about?

JJ: It's important for Trump to post favorable tweets about Korea, like Samsung. But we also have to worry about the Korea public, politicians and how they feel. We need to tell them a story that is believable and credible. The U.S. would come and tell Korea, "You should do this." That is not credible. Korean leadership and the National Assembly should get involved in finding solutions. The challenge for Korea is that the new administration and the National Assembly must work together to help the public to appreciate what sound bite we are creating for President Trump. 

JK: They need to get more businesspeople involved. There are a lot of businesspeople that have joined the Trump administration. Sometimes, it needs more businesspeople-to-businesspeople contact. 

Q: Do we have big changes coming to the FTA?

JJ: KORUS is already five years old. For those five years, the way we use computers, the way I talk to my wife have changed. FTA was agreed to in 2007 and took five years for confirmation. In many ways, it is already outdated. We need to update it. Trump has been accused of being protectionist but he is not. He is an open and free trader. He wants to get a fair deal. That is not a bad thing for Korea. A fair deal for America is a fair deal for Korea as well. 

Q: How would the auto industry be affected?

JK: From the U.S. government standpoint, knowing that the biggest contributor to the trade deficit is the auto industry, it would be asking the U.S. auto industry what they want to see as the result of negotiations, what they are occurring and what are the challenges. 

Q: What are AMCHAM's grievances or areas that need improving?

JJ: When we are going to the U.S., we cite all good things that happened under the FTA. There will be a list of things that can be improved. 

JK: Some of them are big issues. Everybody knows of the problems of the labor market, the rigidity of the system. For instance, doing labor negotiations every year is a very difficult thing to do. Some of labor's inflexibility is also a challenge for foreign investors because business is good sometimes and bad other times so you need flexibility. 

JJ: One of the biggest domestic political problems is the issue of temporary workers. If we have labor flexibility, they would work full-time on regular jobs. Unions fear massive layoffs but that fear is unfounded. When you look at every country that has labor flexibility, their unemployment is lower. 

JK: There is a mandatory retirement at age of 60. Now people live to be 80 and 90. So forcing them to retire at 60 is a problem. In some modern countries, there is no such limit. If you are willing and strong, you can work until you are 75 years old. 

Q: What would be an immediate fix Korea can give the U.S.?

JJ: Government procurement or public sector procurement. If they simply make bidding more open and transparent, fair to domestic and foreign bidders, that will help eliminate deficits. 

Q: What areas should be addressed?

JJ: When you look at the auto sector, where the biggest deficits occur, relaxing some environmental regulations such as CO2 emissions can be considered. Korea has very strict C02 emissions standards, the highest standards in the world. Relaxing some of those regulations in the FTA can help. Making cars imported and inspected at a lower cost would help. Recognizing U.S. inspections would also help. That would make cars cheaper for Koreans, and that is a good thing. 

JK: For the U.S. automotive companies to bring cars here requires a lot of investment just to meet the world's highest CO2 standards, which are higher than California standards. By 2020, 97 grams would be the rule. That requires a lot of investment. 

JJ: Koreans love baloney (Spam) but we can't bring baloney today due to regulations on testing on mixed meat. There is a justification for that but it is also an example of Korea's unique standards. Three hundred million Americans eat baloney without health problems. Few millions of Koreans wouldn't get sick for eating it. Now, it has become such an emotional issue as if the U.S. is trying to force Koreans to eat unhealthy food. 

JK: Procter & Gamble and 3M also face regulatory problems that prevent them from investing and hiring more here. 
This year, we will invite a couple of Korean companies with huge presences in the U.S. for "door knock" for the first time. Currently, we have five on the short list. 

Q: If Korea rejects renegotiations, what would happen?

JJ: It would make Trump very unhappy. We should call it renegotiations. The points we agree upon are fine but things that are missing in the FTA should be included so as to make the FTA better serve us. Therefore, it would be an upgrade or renewal. 

JK: If there is a rejection, there would be a very negative situation in the U.S. It will affect US. companies' confidence in Korea and make it reconsider its investment decisions in Korea. 

JJ: Trump often talks about sharing burdens, having U.S. forces in various locations. If we reject any notion of FTA discussions, it will have a spillover effect on that cost of the burden of keeping U.S. troops. 

Q: Would Moon as president cause problems with U.S.? 

JJ: I heard his statement about Korea learning to say no was taken out of context. Korea is an independent sovereign country. Korea is not subservient or a puppet of the U.S. We believe that it is Korea's public interest to have a strong relationship with the United States. We know Moon as President Roh Moo-hyun's chief of staff learned politics from Roh. Although in 2002, Roh ran for president as part of an anti-American platform, Roh was the one who signed the FTA. Moon sometimes is labeled a leftist but I think he is a capitalist advocating for a free market and wants to help those who need help in that system. 

JK: AMCHAM is planning a presidential debate with the top three candidates strictly about the issues about Korea and the United States. When I was at Yahoo, we were the first to interview President Lee Myung-bak during the beef crisis ― it was globally carried out by Yahoo.com. From AMCHAM, we can give the candidates a global reach.


What's on Trump's mind
 

The United States under President Donald Trump wants to fix the global trade order so as to make it serve the U.S. better. The first priority is to fix trade deficits with China, Japan, India and, well, Korea. Some expect a trade war of global scale, while others hope for a modest overhaul. With Trump having a summit with Xi Jinping this week, the world is holding its breath to see how Trump will deal with China, which has reaped the biggest trade surpluses with the U.S. The outcome will allow Korea and other countries a peek into Trump's trade thinking. Influencing the Trump government on its thinking over Korea, a perennial surplus country, is input from U.S. businessmen in Korea and their lobby, the American Chamber of Commerce Korea (AMCHAM) in Korea. The Korea Times met two prominent members, AMCHAM Chairman James Kim, CEO of GM Korea, and Jeffrey Jones, chairman of the affiliated Partners for the Future Foundation, on the issue in its roundtable discussion at its Yeouido office last week. This is an edited version. Business reporter Jhoo Dong-chan transcribed the discussion. ? ED. 

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