Korea-US Trade Agreement: The Hidden History

Korea-US Trade Agreement: The Hidden History

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Presidents Barack Obama and Lee Myung Bak.

The U.S. Congress last week gave final approval to a South Korean-U.S. trade agreement (KORUS) despite strong opposition from the labor movement and a handful of organizations on the political left. The pact was approved along with treaties with Panama and Columbia — but those agreements pale against KORUS, which is the largest trade deal passed since NAFTA was signed by President Clinton in 1994. It so enthralled South Korean President Lee Myung-bak, a former top executive with Hyundai and the country’s most conservative leader in a decade, that he proclaimed the beginning of a new “economic alliance” during his visit to Washington. An excited President Obama told Korean reporters it was a “win accord” that will create jobs, expand opportunity “and give benefits to both countries.” Yadda yadda yadda – we’ve heard it all before.

In fact, KORUS represents a major victory for U.S. multinational corporations, banks and financial institutions, which have lobbied intensively for the pact for more than half a decade. It’s also a major setback for Korean and American unions. Both (with the exception of the U.S. United Auto Workers) saw that KORUS, like NAFTA, was above and beyond an investment agreement designed to improve conditions and decrease risk for foreign capital while doing nothing to improve labor rights (dismal in both South Korea and the United States, as recognized by the Korean Confederation of Trade Unions) or lift the general conditions of workers and consumers in either country. Now that the AFL-CIO has failed to convince a Democratic president and Senate to oppose it, it remains to be seen if South Korea’s labor-led opposition can muster the strength to defeat the treaty in Seoul. We shall see.

Over the next fews days we’ll be hearing a lot about the potential impact of the Korean agreement on U.S. employment, some of it exaggerated, some of it downright mendacious. At the same time, the opposition to KORUS from elements of the so-called left was — with few exceptions — based on shrill, dogmatic nationalism and filled with terrible caricatures of Korea, North and South. While “leftist” talk show hosts such as MSNBC’s Dylan Ratigan spewed falsehoods about the introduction of North Korean “slaves” into global trade, he and other opponents of the agreement portrayed South Korean workers as enemies of America who are out to steal our jobs. You’d never know from their literature that South Korean workers too opposed KORUS, for many of the same reasons as their American counterparts. That absence of solidarity from the discussion is a very sad commentary on the U.S. left.

But what you won’t hear much about, from either right or left, is how this treaty is the culmination of decades of efforts by the U.S. government and its corporate sector to force open the South Korean market, all the while maintaining an enormous military and security presence in that country. This essay, published in 2007 by Foreign Policy In Focus, seeks to tell that story — which dates back to the earliest days of the Cold War — by focusing on four key moments in recent history (KORUS being the last) when the United States used its enormous political and economic clout to intervene in South Korea on behalf of U.S. corporate and financial interests and their Korean (and sometimes Japanese) allies in business.

It’s the hidden history of KORUS, and will be elaborated upon in greater depth over the next few weeks on this blog. It’s based upon a lifetime of reporting from and writing about Korea, where I lived as a child and visited often as a journalist and as a labor and human rights activist during the 1980s. My conclusion is simple: solidarity, and not crude nationalism, should define our opposition to US-Korea free trade and any other NAFTA-like agreement.

Raw Deal Between Washington and Seoul

The South Korean-U.S. free trade agreement (KORUS) cannot be seen apart from U.S.-South Korean security ties, the presence in South Korea of more than 30,000 U.S. troops and a 50-year economic relationship that has been heavily weighted towards American interests. From this perspective, KORUS is the fourth attempt by the United States to force its economic will on South Korea over the past half-century.

First U.S. Intervention

The first U.S. attempt to alter the Korean economic landscape began in the late 1950s, when three U.S. administrations sought to wean South Korea from US economic aid and push the Korean government back into an economic alliance with Japan. The arrogance of the policy was stunning. Japan had not only colonized Korea, it had rebuilt its own economy by supplying U.S. forces with steel, munitions, and automobiles during the Korean War.

The war left the two Koreas divided roughly where they had been when the country was split in 1945, with heavy industry in the North and agriculture in the South. The North, however, quickly recovered, and under the Stalinist policies of Kim Il Sung, rebuilt an industrial economy that remained ahead of the South’s until the early 1970s. In South Korea, under the autocratic rule of the U.S.-backed Syngman Rhee, the economy stagnated. Unwilling to accept permanent division, Rhee continually called for a “march north” to unify Korea under his rule and refused to consider any economic plan that would solidify the division. By the late 1950s, having tired of Rhee, the U.S. government began to apply strong pressures on his government to cut U.S. aid and accept foreign — particularly Japanese — investment.

In 1961, Park Chung Hee, a general who had been trained by the Japanese Imperial Army, seized power in Seoul. Over the next few years, as the United States escalated the war in Vietnam, the pressure on Park to liberalize the economy increased. The pivotal move came in 1965, when Park’s government, under immense pressure from Washington, signed a normalization treaty with Japan. Washington saw the treaty as a way for Japan to support South Korea — and the U.S. strategic position in Asia — at a time when the United States was pouring aid and military forces into Vietnam. But Koreans were outraged, and Park had to declare martial law and keep the opposition out of parliament to get it passed.

The normalization treaty became the cornerstone for South Korea’s entry into the world market. As part of the deal, Japan pledged over $800 million in reparation payments to Seoul. Most of that money came in the form of direct Japanese investments and loans, which financed the first phase of the South Korean export-led economy. Japanese corporations invested heavily in South Korean electronics, textiles and steel, thus transferring many of their labor-intensive production to Korea while keeping the high-tech industries in Japan.

The Korean companies that entered these industries grew rapidly into conglomerates, called chaebol (like their Japanese counterparts, they too profited from U.S. military orders – this time in Southeast Asia). By the mid-1980s, seven chaebol controlled nearly 80% of the value of the country’s exports. The Korean economy was also a very profitable market for U.S. multinationals. U.S. electronics, clothing, and plywood companies established plants in Korean export-processing zones. And during the period of rapid growth, South Korea became a bonanza for U.S. corporations selling oil, nuclear technology, weapons, and farm products. Companies such as Bechtel, Westinghouse, General Motors, and Gulf Oil created lucrative joint ventures with Hyundai, Samsung, and other chaebol. The so-called Korean “export miracle” was born.

But the miracle had a significant weak spot: repression. To keep wages low and Korean exports competitive, the Park government imposed draconian controls on unions and labor organizing. Workers who protested conditions were physically abused and often jailed. Students and intellectuals who criticized the government were subjected to harsh treatment, including torture and long prison sentences. By the late 1970s, political unrest reached a peak.

In 1979, hundreds of garment workers occupied the headquarters of the opposition party to protest working conditions and the suppression of union rights. The protests soon spread to other cities, and were joined by students, intellectuals and ordinary citizens sick of dictatorship. That triggered a political crisis for the ruling elite. In October 1979, believing that Park’s death would head off violent revolution, the head of the Korean intelligence service assassinated the Korean president. The Carter administration, fearful that South Korea was in danger of becoming “another Iran,” tried to broker a compromise between the dissident movement and the Korean military. But that attempt failed, and in May 1980, another general, Chun Doo Hwan, seized power in a violent military coup. That set the stage for America’s second intervention in the Korean economy.

Second Intervention: The NICs

Under Chun’s iron rule, South Korea’s industries were reorganized to improve their competitiveness, and chaebol were forced to concentrate on only one or two industries. Hyundai, for example, focused on automobiles and ships, while Samsung put its energies into electronics. Labor unions were placed under even tighter control, and industrial unions were banned altogether. By the mid-1980s, Korean exports were growing rapidly again. But with U.S. manufacturing in deep decline and textile and steel mills closing throughout the industrial heartland, Asian imports became a serious political problem in Washington.

Democrats in Congress were especially angry over the trade imbalance with the four newly industrialized countries (NICs) in Asia that had embraced export-led development: South Korea, Taiwan, Hong Kong, and Singapore. By 1986, nearly 25% of the US trade deficit was with those four economies. To force the NICs to open their doors to American imports, the Democrats threatened protectionist measures, such as a 25% surcharge on imports championed by Rep. Richard Gephardt (D-MO). Fearing that a working class backlash could help Democrats win the White House in 1988, the Reagan administration, led by Treasury Secretary James Baker, stepped in. “I will not stand by and watch American businesses fail because of unfair trading practices abroad,” declared Reagan.

In 1986, just a few years after the Reagan administration was hailing South Korea as a model Third World nation, Baker led an aggressive campaign against South Korea and the Asian NICs. At one point, David Mulford, one of Baker’s top aides, launched a blistering attack on the NICs as wild “tigers” who were upsetting the peace and stability of the global economy. “Tigers live in the jungle and by the law of the jungle,” he said.

To “tame” the voracious NICs, the Reagan administration imposed quotas on South Korean steel exports and cancelled tariff-free entry for many of its products. In another unilateral move, Baker also began using Section 301 trade powers, which gave the president discretionary authority to investigate foreign trade practices, against Korean imports. By 1987, the Reagan administration was negotiating with South Korea to lift its barriers to US telecommunications, pharmaceuticals, agricultural goods, tobacco, and services. Within a few years, South Korea had diverted many of its exports toward Europe and other Asian countries.

Inside South Korea, where anti-American feeling was high because of Reagan’s support for the dictatorial Chun regime, these actions smacked of arrogance and hypocrisy. For one thing, they seemed to violate the Cold War agreement between the U.S. and its Asian allies, which allowed the United States to retain troops on their territory in return for unimpeded access to the U.S. market. For decades, U.S. exporters of chemicals, nuclear power, oil and grain had enjoyed monopoly access to the Korean market. The United States had used its military leverage to keep those markets open and looked aside at human rights violations to keep trade flowing.

The most egregious incident occurred in 1980, after hundreds of Koreans were killed during an uprising against Chun’s military rule in the southwestern city of Kwangju. Within a month of this massacre, the Carter administration, fearing that the unrest could upset the flow of U.S. exports, agreed to provide $600 million in export credits to the Chun government so it could buy a set of reactors from Bechtel and Westinghouse. And during the summer of 1980, as Chun intensified his police state, U.S. diplomats scurried around New York literally begging U.S. banks to continue lending to South Korea. By the end of the 1980s, the Reagan administration’s pressures on South Korea had deepened Korean anger at the United States. But this time, government officials and businessmen shared the sentiment.

The 1997 Financial Crisis

In 1988, after weeks of pro-democracy demonstrations that brought millions of people into the streets, Chun agreed to step down from the presidency and allow direct elections for the first time in nearly 20 years. With the military now on the sidelines, South Korea finally became a democracy. Unions, repressed for decades, began organizing like wildfire, and soon South Korea had one of the most dynamic labor movements in the world. In 1997, the democratic movement reached its pinnacle of success when Kim Dae Jung, the longtime leader of its opposition movement, was elected president. But Kim soon faced another economic crisis that sparked the third U.S. intervention in the Korean economy.

Starting in the early 1990s, the United States and the World Bank embarked on a global campaign to urge developing countries, particularly the fast-growing economies of Asia, to quicken the opening of their capital markets and scrap rules that had previously closed their financial sectors to full participation by U.S. and European banks. During the Clinton administration, Treasury Secretary Robert Rubin, the former CEO of Goldman Sachs, pushed for freer movements of capital while simultaneously pressing to win opportunities to U.S. banks, investment funds, and insurance companies. Encouraged by the U.S. Treasury and the IMF, Asian governments enticed foreign investors with high interest rates and a fixed rate of exchange, which protected investors against the risk of devaluations that could erode the value of their investments. By the late 1990s, billions of dollars from overseas investors and mutual funds were pouring into the region.

The Asian countries, however, weren’t prepared to regulate the flow of foreign capital. In Southeast Asia, much of the money went into badly planned real estate projects; in South Korea it was directed into automobile, steel, and semiconductor factories built just as global markets were contracting. In 1996, prices for key Asian exports began to fall precipitously. In Korea, the price for semiconductor chips, which were responsible at one point for half of the country’s exports, dropped by 50%. The bubble was about to burst. The Asian financial crisis began in Thailand when the government devalued its currency to protect the economy against speculators. Panicked foreign investors began to convert their investments into dollars, precipitating a crash in the stock market. Global confidence in the region plummeted as investors fled the entire region. Both Thailand and South Korea ran out of cash to pay interest owed to foreign banks.

Fearing that the “contagion” would spread to Brazil and other countries and seriously erode U.S. exports, the U.S. Treasury and the IMF intervened in Asia with the largest bailouts in world history — more than $100 billion. In Korea, the U.S. Treasury used the bailout as leverage to press for an end to all barriers on foreign banks and investment funds. For the first time in Korean history, foreign banks were allowed to buy 100% control of Korean financial institutions.

The IMF intervention thus allowed the United States to force changes that it had been unable to complete in four decades of trade negotiations. Bankrupt Korean companies were forced to sell assets at fire-sale prices to foreign, mostly U.S., banks and investment funds. Under the new policies, large U.S. banks and investment funds, such as Texas Pacific and the Carlyle Group, became major investors in the Korean economy. As hundreds of thousands of Korean workers lost their jobs in mass layoffs, US banks and investment funds counted their profits. Among the funds making a killing were several union-controlled pension funds.

The Latest Intervention

Now, under KORUS, U.S. corporations backed by the U.S. government want to launch their fourth intervention in South Korea’s economy. Currently, U.S.-Korean trade, which totaled $78.3 billion in 2006, runs heavily in Seoul’s favor, with the United States running a $14 billion deficit with its partner, mostly in automobiles, auto parts and electronics. U.S. proponents of the FTA say the pact will rectify that imbalance by expanding auto, beef, and film exports to South Korea and creating a “stable” legal framework for U.S. investors operating in Korea.

Free-traders also argue that, with China beginning to dominate East Asia, an FTA with South Korea will help the United States maintain US influence in the region. Charlene Barshefsky, Clinton’s former trade representative, wrote recently that the US-Korean FTA is “one of the steps necessary to respond to a transformed landscape” in Asia. “Robust engagement with Asia is critical if we are to retain unencumbered economic access to the region and if we are to reinvigorate our central role in the Pacific, our network of relationships and American influence there,” she said.

South Korean economists who favor the treaty believe an FTA will solidify a security alliance weakened by recent disputes between Bush and Roh over North Korea’s nuclear program and the future of U.S. troops in Korea. “I am very sure that the enhancement of the economic partnership and the deepening of economic integration between the two countries will contribute towards strengthening their security alliance,” Il Sakong, the CEO of the Institute for Global Economics and a former adviser to the Chun government, said recently. Mickey Kantor, who preceded Barshefsky as trade representative and is himself an investor in South Korea, believes that U.S.-Korean strategic ties guarantee that the FTA will be approved. “The idea that we would turn down a trade agreement with Korea on any basis, given the sensitive political arrangements in that area, and their neighbors to the north, is somewhat daunting,” he told The New York Times. “There’ll be legitimate pressure to try and get something done here, regardless of the provisions of the agreement.”

The security relationship between Seoul and Washington, as well as the sheer size of the proposed FTA, has placed the deal at the top of the U.S. trade agenda. The leadership in South Korea, too, has placed a high priority on the FTA, despite what had been strong links between the ruling party and civil movements, including unions. In this fourth attempt by the United States to reshape the South Korean economy, however, Seoul is in a much stronger position. It was able to extract important concessions such as keeping rice and educational services out of the agreement. This relative strength gives the leadership in Seoul the illusion that it is getting a good deal.

Despite these push factors, the FTA faces considerable obstacles, not least the skepticism of the U.S. Congress, which has passed free trade agreements over the years by ever-narrowing margins. Congressional opponents are worried about insufficient labor and environmental provisions in the pact. Free-trade opponents, both in Korea and the United States, realize that the pact is not so much between two countries as between two sets of multinational corporations. It would also deepen South Korea’s dependence on the United States at a time when it is just beginning to find its own way in East Asia. After 50 years of U.S. intervention in Korean affairs, it’s time for the citizens of both countries to reject the policies of corporate globalization by creating a new relationship based on a mutual interest in global justice, democracy, economic stability, and human rights. To make that happen, let’s let our leaders know that U.S. national security interests can no longer be the dominant factor in U.S.-Korean relations.

*Tim Shorrock is a KPI Advisor and an investigative journalist based in Washington DC.

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