(July 10, 2007)
American View: The U.S.-Korea FTA that was recently signed has attracted substantial interest in Japan. Why do you think that is?
Assistant U.S. Trade Representative Cutler: There are several reasons. First, Korea and Japan are neighbors, and each naturally watches what the other does, not only regarding trade but also in other areas. Second, while the economies differ in scale, with Japan’s being about three and a half times larger than Korea’s, they have a number of similarities. For example, the two countries are competitive in many of the same sectors, including automobiles and IT, and they also have strongly protected agriculture sectors. Finally, I think the KORUS FTA was greeted with real surprise in Japan. Even though the U.S. and Korea were holding round after round of negotiations and were expressing confidence that an agreement would be successfully concluded, I believe that Japan was genuinely surprised that it happened and was not prepared for that outcome.
American View: Why do you think Japan was not prepared for that?
AUSTR Cutler: One point to remember is that FTA negotiations between Japan and Korea had stalled. I believe that through this experience with Korea, Japan had a hard time envisioning how the United States could conclude a deal. I also think that Japan, looking at its own economy and in particular its own protected agriculture sector, did not believe that Korea could make the bold decision to open up its farming sector to U.S. exports.
American View: What were the factors that made an agreement possible?
The U.S. and Korea concluded an FTA after difficult negotiations. Wendy Cutler (left) with Korean Chief Negotiator Kim Jong-hoon. (Photo courtesy of KORUS House, Korean Information Center, Embassy of the Republic of Korea, Washington, DC.)
AUSTR Cutler: The key factor for both the U.S. and Korea was that each side had concluded ahead of time that this negotiation was in its own national interest. Both sides took part willingly, and each had its own objectives. The fact that both sides wanted a deal set a good tone for the negotiation and allowed us to conclude a balanced, win-win agreement.
American View: What was the biggest obstacle?
AUSTR Cutler: There were a number of them. One was the time factor – under Trade Promotion Authority, we had to notify Congress by the end of March of our intent to sign the agreement. So with the first negotiating session getting underway in June of the previous year, we basically had 10 months to forge an extremely ambitious agreement. Another challenge was that the U.S. and ROK are both very large economies and big trading partners. This makes any FTA negotiation a complex task.
American View: The KORUS FTA appears to have run into some opposition in Congress. Do you expect that Congress will ratify it?
AUSTR Cutler: We just signed the agreement on June 30. Now we’re entering the phase in which both countries seek legislative approval of the accord. That phase will bring with it new challenges. It will be a tough process in both countries. However, I am confident that once understanding of the KORUS FTA deepens and the legislators of both countries have the opportunity to look at the agreement in detail, they will see the overall benefits that each country will derive, not only to their economies but also to their positions in the region and the world. I believe that congressional approval will follow.
American View: Do you think that the KORUS FTA paves the way for a U.S.-Japan FTA in the future?
AUSTR Cutler: Clearly, the KORUS FTA demonstrates that two large trading partners can achieve a very strong and ambitious agreement, so I think that bodes well for the U.S. negotiating FTAs with other large economies. With respect to Japan, I don’t see Japan as ready right now for an FTA negotiation with the U.S., but I do think that both countries over the medium- to long-term may well come to view an FTA as in their interests. I can certainly see the potential merit of concluding a comprehensive FTA with Japan when the time is ripe, although it will be challenging because expectations for what an U.S.-Japan FTA negotiation can accomplish will be high.
American View: Why was Korea ready for an FTA with the United States?
AUSTR Cutler: Korea was willing to make the tough decisions that are required to be made in any FTA negotiation. An FTA, particularly with the U.S., is a comprehensive agreement that requires market-opening and reform in all areas of the economy, including services and agriculture. I think it’s critical in pursuing an FTA that the respective governments are prepared to make those tough political decisions. Additionally, Korea was willing to put its agriculture sector on the table. The Korean government has faced pockets of domestic opposition to doing that, but as the Korean people look to their own future and their position in the Asia-Pacific economy, they’ve concluded that they need to boost competitiveness and update their economy so that it can continue to thrive and grow in the 21st century. I believe everyone was surprised when the final FTA agreement was announced. The public support level for the FTA in Korea went above 60 percent, a very high figure for a trade agreement. Finally, it’s worth noting that there was top-level political leadership and sustained commitment and attention in Korea throughout the negotiation. Several of the tough decisions had to be taken all the way to the president. He was prepared to make those tough decisions from the perspective of Korea’s national interest and future.
American View: Why does an FTA needs to be comprehensive? Why not conclude an FTA that only covers the sectors that the two negotiating partners can agree upon?
AUSTR Cutler: First of all, that goes against WTO rules. The WTO requires that “substantially all trade” needs to be covered under an FTA. An agreement that just covers the products each side wants to cover and excludes other products diverts trade rather than creates it. It’s very important that FTAs don’t just establish trading blocs between partners but also contribute to broader trade liberalization.
American View: Nippon Keidanren has issued their own proposal that Japan begin negotiations with the U.S. on concluding an EPA. How do you view their proposal?
AUSTR Cutler: Generally speaking, the Keidanren has become very supportive of an FTA with the U.S. The U.S. business community is also supportive. While it’s encouraging that the business communities in both countries are showing interest in the possibility, support from the business community alone is not enough. Also needed is a government that is committed to making the tough decisions that will not only affect the manufacturing sectors of each country but will also open up new trade in services and agriculture.
American View: How does the U.S. go about choosing a potential FTA partner?
The FTA is expected to increase trade for both sides. (Photo courtesy of FreeFoto.com)
AUSTR Cutler: First, it’s not just a matter of us choosing an FTA partner; that partner also has to choose us. It’s a two-way street. Factors we take into consideration include the chance of success in the negotiation, as we don’t want to embark on a long negotiation when there are indications that our partner might not be ready for a successful conclusion. In addition, we look at a country’s track record and commitment to opening and reforming its economy. We also want to make sure that our trading partner understands in detail what U.S. FTAs entail, and that means having a comprehensive agreement that covers everything from IPR and investment to labor, the environment, tariffs, and non-tariff measures. Finally, we also assess whether there is senior level political commitment in the partner country.
American View: Japan is currently pursuing FTA negotiations with several countries, including Australia. How do you view Japan’s FTA negotiations?
AUSTR Cutler: We’ve examined a number of Japan’s FTAs to date, and while we see areas of interest and success, we remain concerned that Japan’s FTAs are not as comprehensive and don’t cover as much trade as we would expect from a trading partner as large as Japan. That said, we welcome Japan’s FTA efforts as long as Japan pursues ambitious agreements that truly lead to free trade in all areas. Japan has embarked on difficult negotiations with Australia, and this will be a major test of whether Japan is ready to open its agriculture sector under an FTA. We’re watching very closely and believe a successful agreement that liberalizes substantially all trade, including in agriculture, would bode well for the international trading system, not to mention potentially for a U.S.-Japan FTA at some point.
American View: More generally, do you think that bilateral FTAs interfere with the development of multilateral trade, including the WTO Doha Round?
AUSTR Cutler: We believe this concern is ill-founded as long as FTAs are comprehensive and high-standard. In fact, when you look at America’s recent FTA partners – whether it be Singapore, Australia, Chile, Costa Rica, Peru, or Korea – these are some of our strongest allies in the Doha Development Agenda negotiations pushing for an ambitious outcome. This is not a coincidence. Negotiating comprehensive FTAs fosters a culture of openness in governments around the world.
American View: How does the KORUS FTA fit into the emerging trade and economic architecture of the Asia-Pacific region?
AUSTR Cutler: The U.S. continues to place a strong focus on the Asia-Pacific region, particularly with respect to our economic engagement and trade policy. The KORUS FTA is a clear demonstration of our commitment to deepening our relationships in the region. It’s our first FTA in Northeast Asia, and Korea is our seventh-largest trading partner, as well as a critical U.S. ally. We hope that following this FTA we’ll be able to embark on high-quality FTAs with other partners in the region. Including Australia and Singapore, we already have FTAs with some of our other trading partners in the region. We are currently involved in talks with Malaysia, as well. Short of FTAs, we also have trade and investment framework agreements (TIFAs) with a number of partners in Asia. We’re using those to strengthen and deepen our economic engagement in the region. With Japan, we’re looking to strengthen and deepen our relationship through continuing work in our bilateral Regulatory Reform Initiative, through the discussions we’re having on financial reforms, and through other mechanisms.
Chief Negotiators Cutler and Kim shake hands. (Photo courtesy of KORUS House, Korean Information Center, Embassy of the Republic of Korea, Washington, DC.)
American View: The Regulatory Reform Initiative has been criticized by some in Japan for serving as an annual opportunity for the USG to force Japan to meet a list of demands that purely serve U.S. interests. How would you respond to that?
AUSTR Cutler: I strongly disagree with that assessment, and I think there have been some misunderstandings of the initiative. Simply put, this initiative is about further deregulating both the U.S. and Japanese economies. Every year, the U.S. puts forward suggestions with respect to areas where Japan could further open and deregulate. Japan, meanwhile, provides us with its own suggestions with respect to our economy. It’s a two-way dialogue that focuses on steps countries would be taking in any event and tries to shape them in a way that will lead to greater competition and foster an environment for new entrants into the market, which we believe will help grow both economies.
American View: What has the U.S. done for Japan through this?
AUSTR Cutler: One recent example is that in response to one of Japan’s recommendations, our consulates in Sapporo and Fukuoka have begun visa service for Japanese citizens in these areas. Japan brought this request to us as an area where they wanted to see progress, and we responded positively.
American View: Why would deregulation in general benefit Japanese consumers?
AUSTR Cutler: Deregulation and regulatory reform allow for more competition in the market and give the private sector a greater role while getting the government out of the economy. Based on our own experience, we believe that this will not only help Japan grow its economy but will also help it to become more competitive, particularly at a time when Japan’s trading partners in Asia are boosting their own competitiveness. Japan has made some important strides to date, but continuing to deregulate, to open, and to reform is the key to growing the economy and remaining competitive.
American View: One contentious issue has been the import of U.S. beef. Japan has its own standards for U.S. beef, while the U.S. would prefer that Japan rely on international standards. Why do you believe that international standards are important for something like food?
AUSTR Cutler: We think it’s very important that the regulations affecting food imports are based on science. With respect to what “science” means, there’s no better authority than an international body – such as the OIE in the case of beef – to dictate what makes a product safe. We’re asking all of our trading partners to follow the OIE standards, not just Japan. Given the OIE’s reclassification of U.S. beef status as “controlled risk last May, we believe that countries like Japan should respect this decision and treat our beef exports accordingly, which means fully reopening their market to our beef exports. We’ve taken the measures necessary to ensure our beef is safe, and the OIE has blessed those measures.
American View: Do you have anything you’d like to say to the readers of “American View?
AUSTR Cutler: There’s a lot of focus on FTAs right now, and I would just emphasize that an FTA is simply one mechanism to bring two economies closer together. With Korea, that was the path we followed, and we’re very grateful we were successful. Even though we’re not pursuing FTA negotiations with Japan, we have a very strong, vibrant, and multifaceted economic relationship, and we’re always searching for areas where we can cooperate. We’re always looking to deepen and strengthen our economic relationship, whether in IPR, transparency, or secure trade, and we’re presently working together in all of those areas. We plan to continue to work closely together, as we see Japan as a close ally and the country with the second-largest economy in the world.