Ms. Park’s Dubious Idea

posted by
on February 12, 2013

By Greg Rushford

 During her successful campaign to become South Korea’s first female president, Park Geun-hye projected intelligence and a calm strength under pressure. She’s sure going to need those qualities.

Imagine walking into such a job. Since her December election triumph, the Korean won has appreciated so much vis a vis the Japanese yen that the value of Korea’s exports — which amount to about a third of Korea’s GDP — could fall this year by six percent, or even more. Projections on new Korean domestic job creation this year are pessimistic. Not to mention the continuing threats from a hostile, impoverished North Korea, which announced earlier today that it had successfully tested a “miniaturized atom bomb,” while working on missiles that could reach the U.S. west coast. It’s a good guess that Park, who turned 61 last week, has been way too busy to enjoy a proper birthday party.

Too busy, perhaps, to think everything through properly. Even before the president-elect will be sworn into office on Feb. 25, she has run into several political controversies. The Korean press has criticized her presidential transition committee for being overly secretive. Her first choice for prime minister had to step down when questions were raised about his ethics and finances. And President-elect Park has set off a firestorm in the National Assembly by picking a fight with Korea’s respected Ministry of Foreign Affairs and Trade. This fight with Mofat’s diplomats — which is widely interpreted overseas as both unnecessary and unhelpful — has caused great consternation. Indeed, Park has given worried Korean trading partners good reason to ask whether South Korea’s trade relations under her administration will be headed, well, south.

The concerns stem from a power play that Park sprung last week. Without previous warnings or explanation, she proposed — nay, demanded — that the National Assembly take away responsibility for trade negotiations from Mofat, and putting them into the hands of Korea’s rough equivalent of the U.S. Commerce Department. Only skimpy details of the proposed bureaucratic switch have been made public. Despite the absence of a full public explanation, much less debate, Park pressed the National Assembly hard last week to rubber-stamp the ploy by Feb. 8.  When Mofat officials raised questions about the wisdom of such a bureaucratic shift, they were publicly chastised for “selfishness” by Park’s cronies. But enough of a fuss was raised to cause that caused the legislature’s schedule to slip a bit. There has been speculation that the vote will now be held this Friday. Whether that might be further delayed is not known as this article goes to press. What is known that the president-elect, the daughter of former Korean strongman Park Chung-hee, is a determined woman.

The concerns about Park’s plans are easy to understand. Trade was run — badly — by Korea’s commerce department until 1998. During the 1990s, even as Korea’s economy was propelling the previously dirt-poor country to its present status as an envied wealthy nation, tensions with Korea’s trading partners were high, in large part because the inward-looking commerce bureaucracy was simply not up to the job. (The names of Korea’s government departments can be a tad confusing. In the 1990s commerce used to be the Ministry of Trade, Industry and Energy; these days it is the happy-sounding Ministry of Knowledge Economy. Ms. Park wants to call it the Ministry of Commerce, Industry and Energy.)

In 1997, on assignment for the editorial pages of the Asian Wall Street Journal, I took a close look at Korea’s trade tensions with the United States (for further details, see Trading Insults in Seoul and D.C., AWSJ, October 14, 1997, reprinted in the archives section of these pages). While an all-too familiar American arrogance was certainly part of the problem, Korean insular thinking under then President Kim Young Sam — not widely regarded as the most brilliant South Korean leader ever — was making things worse.

Take the complex politics associated with autos, and the Detroit automakers’ (whiney) complaints that they were discriminated against in Korean markets.  While officials in Seoul rightly complained that the Detroit automakers were not competitive in Korea anyway, there nevertheless was clear evidence that some of Detroit’s gripes were well grounded. Korea, for instance, had an 8 percent tariff on auto imports, compared to America’s 2.5 percent, to name just the most obvious undeniable example of discrimination. But Korean officials made matters worse by denying the obvious. Then there were the intimidating tax audits of Koreans who might be brave enough to buy foreign cars. But Korea’s commerce bureaucrats, even those who obviously knew better, were instructed to claim that there was no discrimination.

The tensions spread far beyond autos, as other American businesses struggled to get fair treatment in Korean markets. Amway’s biodegradable lines of cosmetics, for example, were falsely accused of causing environmental degradation. Amway’s products were even subjected to a consumer boycott. When Amway’s profits plummeted, Kim Young Sam’s commerce department looked the other way, insisting that everything was just fine.

The protectionist disease even spread to Korean hospitals, which were earning sizable profits when they were reimbursed by medical insurance for domestically manufactured drugs. But there was no reimbursement for Koreans who might be treated with foreign medicines. The interests of Koreans who needed the best-available medical treatment were disregarded.

By late 1997, the frustrations between Washington and Seoul over trade had reached the point where friends of Korea started to worry that the vital mutual security relationship might be weakened.

Happily, wiser heads in Seoul were to prevail. When he assumed office in early 1998, President Kim Dae Jung sensibly moved trade to the Ministry of Foreign Affairs, which became the Ministry of Foreign Affairs and Trade. Mofat, with its elite corps of English-speaking diplomats with enlightened worldviews, has long enjoyed a reputation for attracting Korea’s best and brightest. And both the diplomats and top officials in Korea’s Blue House understood that negotiating trade agreements involved a broader geo-strategic vision and sophisticated trade-offs that would make domestic firms more globally competitive — not simply defending domestic protectionist lobbies inflexibly.

As soon as Korea’s foreign-ministry took over, the tensions with Korea’s trading partners began to lessen. Fifteen years later, MOFAT has negotiated a series of preferential trade deals with a host of important trading partners including the United States, the European Union, and Singapore. Currently, MOFAT is negotiating closer economic ties with China, Canada, Australia and New Zealand, and is also considering joining the Trans-Pacific Partnership talks. In Geneva, Korean diplomats — by contrast with their counterparts from Tokyo to Delhi — have been generally credited with trying to be helpful during the World Trade Organization’s Doha Round of multilateral trade-liberalizing negotiations. Korea’s trade minister, Taeho Bark, is regarded as a strong candidate in the race to succeed WTO Director-General Pascal Lamy. In sum, Korea, under Mofat’s guidance combined with the necessary political support from President Lee Myung-Bak in the Blue House, has become a respected trading nation.

Of course, trade tensions between even the best of trading partners never go away completely. Indeed, these days, some of the same controversies that dogged U.S.-Korean trade relations a generation ago are still alive — beef, rice, and autos, to mention just the first three that come to mind.  On rice, it’s high tariffs. On beef, the Korean government has never really explained to a suspicious public why foreign beef is as safe as it is tasty. But the easiest way to explain now why trade is better handled in Mofat than it would be at the commerce department is to understand why the never-ending auto politics remain so difficult.

If only pure economic merits were weighed, the U.S. auto lobby — which is making better cars these days, but is still struggling to compete globally — might not deserve much sympathy. Detroit, which has been eclipsed by foreign auto transplants in the non-unionized American south, still remains in the grip of economic nationalist attitudes. But regardless of one’s views of the merits, the US auto guys can’t be ignored. They had the political power to hold up ratification of the U.S.-Korea preferential trade accord for more than three years, until Washington and Seoul finally accommodated them. So their concerns must be understood in Seoul. While sophisticated diplomats at Mofat appreciate this, not everyone in Korea’s government does.

Recalcitrant Korean officials at the transport ministry, for instance, have been accused by Detroit of dragging their feet in implementing key provisions of the Korea-U.S. trade deal. (For further details, see The WTO’s “Dangerous” Election, www.rushfordreport.com, Jan.21, 2013). Taeho Bark, Korea’s trade minister, has been caught in the middle. Fortunately, the politically astute Bark has had the political clout to go around the narrowly focused transportation bureaucrats by taking the big-picture issues to President Lee. The point here is that Mofat’s more broadly focused officials, unlike those in lesser ministries, have the vision and stature to make such difficult trade politics workable at the presidential level.

During his 2011 public appearances before American audiences to drum up public support for ratification of the then-stalled U.S.-Korea trade deal, Ambassador Han Duck Soo was often asked why the Koreans had made more “concessions” to open their markets than had the American side. The ambassador patiently explained that those “concessions” would someday turn into Korea’s competitive advantages, as Korean industries would become stronger by having to compete globally. (Alas, top lawmakers and government officials in Washington, D.C., who remain trapped in mercantilist logic when it comes to trade, generally lack such wisdom!)

Speaking of inward thinking in today’s Washington, Ms. Park’s current idea is similar to Pres. Obama’s stated desire to downgrade America’s elite corps of U.S. trade negotiators by moving the Office of the U.S. Trade Representative out of the White House and into the Commerce Department. When Obama floated this idea last year, it was greeted almost universally in Washington as another sign of the president’s inexperience in trade. The White House these days declines comment on whether the president intends to take up his proposed bureaucratic shuffle this year. But Jeff Zients, the White House budget official who is generally credited with coming up with the idea, is now reportedly on the short list to replace Ron Kirk at USTR. Zients is a management-efficiency guru — such people are always coming up with ideas to increase government efficiencies by consolidating and streamlining government bureaucracies. If only the real world of trade politics could be stuck in such clean boxes.

Last week, opponents of Park’s proposed bureaucratic shuffle managed to buy some time, after some enlightened present and former Mofat officials including Foreign Minister Kim Sung-hwan and Trade Minister Taeho Bark (one of the qualified candidates to replace Pascal Lamy at the World Trade Organization) bravely went public with their concerns. Still, the president-elect’s power play was expected to pick up steam again as the National Assembly returns from last weekend’s break in observance of the lunar New Year period. But as talks between Park’s ruling Saenuri Party and the opposition Democratic United Party were reportedly contentious, it was unclear whether Korean lawmakers would dispose of the matter by this Friday.

One possible compromise that would place trade directly in Korea’s Blue House was, however, being floated. The idea would be to create a Korean counterpart to America’s Office of the U.S. Trade Representative. USTR, with its talented corps of White House trade negotiators, has served the United States very well over the years. Again, as this article went to press, it was not clear how much support for this idea might have been generated. (Readers can speculate on what the Obama White House might think, should Seoul decide to follow the successful USTR model that the American president would like to jettison.)

For outside observers who wish Korea well, it’s difficult to assess the first impressions that Park and her presidential transition team have created. The criticisms in the Korean press of her being overly secretive could also be interpreted as a sign of savvy political operators who know how to hold their cards close. And when her first choice as prime minister stood down after questions about his ethics were raised, Park quickly tapped a respected former prosecutor, Chung Hong-won, for the job. But her ploy to downgrade trade with a bureaucratic shuffle that would take her country back to the bad old days when tensions with Korea’s trading partners were high cannot be explained away so easily. Park has raised serious concerns that — like her counterpart in the White House — she won’t get trade policies right. If so, there will be consequences.