06/01/16 – Allies in Business: The Future of the U.S.-ROK Economic Relationship

Mark Lippert

Remarks
Ambassador Mark W. Lippert
Institute for Global Economics
June 1, 2016 :

REMARKS AS DELIVERED

Good morning, everybody. (Remarks in Korean)  It’s great to be here this morning.  Thank you, Chairman SaKong, your very kind introduction and you really framed the speech well, in a very concise, short way, and I really appreciate the introduction.  I also really appreciate the kind words. It is great to be back. It was a little over a year ago that I was here, and it is always great to come to this forum. They host so many great speakers from around the world, and I am just honored that you have given us your time here today. I would also just say that I barely made it here today on the subject of Sejun-i-appa [Sejun’s father] in that Sejun likes to bang on my computer over and over again, so printing the paper was actually a challenge this morning. Let’s just say I’m glad I made it.

I would be remiss if I didn’t say that we owe IGE a debt of gratitude.  It has kept its doors open to the U.S. Embassy.  It has helped us all – from former Ambassadors, to entry-level diplomats – to better understand, to better collaborate on the economic issues that shape the present and will shape the future of Korea and the region.

As business leaders, policymakers, economists, journalists, and diplomats, we all benefit from your leadership, from your service. So again, I am deeply honored to be here today.

Let me begin with this point:  the shared prosperity of our two peoples, our two nations, is an incredibly important part of the U.S.-ROK alliance.

It is a critical priority for both of our governments, both of our presidents and both of our peoples.

Our relationship is at its very best when our economies are vibrant, resilient, and growing.

It is at its very best when we are creating more good paying jobs, lowering the costs of goods, giving more choice to consumers, and ensuring a dynamic private sector.

And I am here to report today, a year later, that out bilateral economic relationship is extremely strong –arguably the strongest it’s ever been.

Let me give you just a few numbers to support that claim:

  • Since 2012, the overall trading relationship has grown from nearly 130 billion dollars to almost 150 billion dollars.
  • Korean foreign direct investment in the United States has nearly doubled to 36 billion dollars.
  • The United States is the largest foreign investor in South Korea, investing 5.5 billion dollars last year, up 52 percent from a year ago.
  • Korea is now the 6th largest trading partner with the United States, and the United States is South Korea’s 2nd largest trading partner.

 

With all of that said, both of our countries, as you all well know, face economic challenges.

And accordingly, now more than ever, a key to ensuring our continued, shared prosperity is improving our already strong bilateral economic relationship.

By working together, we can help ensure success and viability for our two nations well into the 21st century.

And to be sure, as was mentioned in the beginning, there is friction. Economic cooperation can be difficult: national interests, commercial competition- other factors can be impediments.

But, in the case of the United States and the Republic of Korea, I am convinced that there are compelling reasons for optimism.

First – in an unprecedented way – our policy and economic goals have come into very close alignment.  In short, our government, our economic leaders, both want the same things.

We want job creation.  We want investment and sustainable, equitable economic growth.  We want openness, innovation, and greater regulatory alignment and coherence.  These will help to drive our shared prosperity to new heights.

The second reason for optimism is that the structure and nature of our commercial and trading relationship has changed over time.  It has now reached a point where there are exciting and new opportunities for mutually beneficial commercial cooperation.

To be sure, our companies will aggressively compete with one another – and with other companies around the world.  We would not want it any other way, competition is good.

But, it is clear that because the structure of competition is changing, and because the nature of our relationship has changed, new business opportunities are arising between American and Korean firms.

From agriculture to technology to retailing to manufacturing to services, our private companies – thanks to the changing nature of our economies – are starting to find new, exciting, and profitable ways to do business with one another – increasingly adding to the non-zero sum nature of our economic relationship.

Let me provide a few examples.

The lifting of the crude oil ban and a change in U.S. policy towards condensates – coupled with the demand for energy here and the composition of the Korean oil and gas sector – presents new opportunities.  Some are short-term; some are perhaps for later on down the road, for deeper energy collaboration.

The new Microsoft Cyber-Crime Center represents another exciting area of emerging cooperation and commercial activity, which was just visited by a highly successful U.S. cybersecurity trade mission here, just over a week ago. And this mission had more than 81 meetings with Korean counterparts, while they were here, looking for new business opportunities.  And I would be remiss if I didn’t mentions some of the slightly, more mature relationships, such as 3M Korea and LG, which is a truly remarkable, often understated, partnership between two of our biggest and most important corporations.

The third reason for optimism I see is closely related to the last two points I made. It is because there is strong, mutually-reinforcing expertise between our two peoples and industries in priority areas – areas such as science and technology, creative industries, and financial services.

If these natural partnerships, especially among small and medium enterprises, are supported by, and facilitated by appropriate legal, regulatory, and trading structures, there is and will be the opportunity to unlock substantial, additional growth.

Think of some of the opportunities:

  • American venture capital firms working with Korean start-ups;
  • Korean students getting hired by some of America’s best firms with operations right here in Korea;
  • Smaller American start-ups finding partners and employees here in Korea.

 

All of these are really exciting opportunities for the future. In short: policy alignment; convergence of economic interests and structure; deep and mutually-reinforcing expertise.  These are reasons for heady optimism about the future of this relationship.

But let me also be clear: there is a great deal of difficult work ahead to unlock this potential.  But, as I’ve said before, true allies take on tough challenges together.  And, for the sake of our future, for the sake of our shared priorities, we have to act now.  As Dr. Martin Luther King once said, “There is such a thing as being too late.”

So, with that in mind, I would like to take a minute to outline three priority areas where we can move forward on our common economic agenda. Issue one is one you know well:

  • Full implementation of the KORUS FTA trade agreement.
  • Two, moving beyond and building on KORUS, we need to ensure a dynamic and innovative business environment, especially through our common goals of regulatory reform and alignment.
  • Three, increasing collaboration and coordination on economic policy to ensure our shared economic values – that we work on every day bilaterally here in Korea – are spread to other capitals around the world and are advanced proactively in multilateral economic fora, including the Trans-Pacific Partnership.

Let me first turn to KORUS implementation.

Many of the reasons for optimism that I just mentioned, and for the strong and deep economic partnership we already have, are thanks to our mutual commitment to full implementation of KORUS.

KORUS is a key pillar of our economic relationship.  It is a very high standard agreement that is envied and copied by the rest of the world.

To be sure, there has been strong – albeit at times too slow – progress on KORUS implementation, resulting in a number of market-opening achievements.

For example, during my time as Ambassador, our governments and private sector representatives have collaborated to bring transparency and consistency to rules of origin.

We have worked together to promote innovation in the auto sector by providing credits to automakers when they develop and install new technologies that reduce emissions.

And we have worked to improve cross-border data flows for financial services, to name just a few examples.

There is no doubt that KORUS has eliminated tariffs and non-tariff barriers, improved transparency, and strengthened intellectual property protection.

Nevertheless, this can still be a tougher place to do business than it should be.

And, part of the way to remedy this is to work through the outstanding issues to achieve full KORUS implementation.

For example, we need to open up the legal services sector – especially as it relates to the restrictions on areas in which lawyers can practice.  This will improve the quality of legal counsel, create new jobs for Korean lawyers, and expand the employment choices open to them.

It will also reduce legal fees for companies doing business in Korea making firms more competitive and reducing these costs on the balance sheet.  Finally, we offer consumers a wider range of choices.

The second area where we can still make progress on KORUS is that we need to ensure there is no backsliding on the commitments that we made to provide for smooth and efficient clearance of goods through customs.

We must ensure our express delivery companies can operate expeditiously and quickly – which is fundamental to their business.

And there are a few other areas in which we need to work to assure strong implementation.  But, I feel confident that we will achieve our shared objectives.  The United States and the Korea after all have an extremely strong track record of success in this area.

But as we are moving forward with KORUS implementation, we can do better. We can dream bigger.  Even if all of these KORUS implementation issues are resolved, we would still be far from unlocking the full potential of our economic partnership.

In fact, because, in part, of the strong progress we have made in KORUS implementation, increasingly, the issues we face fall technically outside the letter of the KORUS agreement.

They are often confused with KORUS implementation because they affect many of the same sectors and industries we were trying to enhance and streamline through KORUS processes.

But these “post-KORUS” issues, if you will, are more about the spirit of KORUS, and they are among the most important bilateral issues we face today.

And progress on these issues is key to taking our economic relationship towards the next level of shared prosperity.

This brings me to the second topic: improving the general business environment.

Because the strength of our relationship is based on the strong KORUS foundation; because our two governments are aligned on economic policy goals; and because both American and Korean business communities are on the same page on many issues, we now have a historically unique opportunity to work together.

We have the opportunity – like never before – to work together to deepen and further add to the dynamic and innovative commercial environment here in South Korea.

An environment that creates jobs, spurs growth, and ensures prosperity for the 21st century.

To be sure, this environment requires a multifaceted approach that incorporates domestic reform, bilateral engagement, and multilateral fora.  Much of this involves domestic issues, the contours of which are for the Korean people and the Korean government to decide.

For those reasons, I won’t go into detail, only to say that it is reassuring to see that the recent OECD Economic Survey for Korea noted that the structural reforms the government has presented to the G20 have great potential and could reignite export growth and reverse the decline in exports.

That being said, I do want to focus on one set of issues that people in Korea from all walks of life have mentioned to me repeatedly.

And as was said at the outset, in my travels, in my engagement with the private sector both here in Korea and with private sector entities in the United States and when I travel back to the United States, I hear this over and over, from small business owners to government officials to executives leading large companies, I have heard these same issues raised by Americans and Koreans alike concerning a wide range of commercial activities here in Korea.

The common refrain that I hear is the greater need for regulatory reform, alignment, and coherence.

In our military alliance, our armed forces strive for deeper interoperability in order to work together and enhance their fighting efficacy.  Akin to that relationship, we need common regulatory language between our two nations – as well as with the rest of the world.

This will help our economies work better together, will help our companies find more opportunities in our respective countries, and will remove market inefficiencies and distortions that would otherwise hold us back.

To come back to the comparison above: it would improve our economic interoperability.

President Park described this issue well when she told economic ministers in May that “deregulation is the most effective way of maximizing the private sector’s creativeness and investment to build new growth sectors.”

Deputy Prime Minister Yoo amplified President Park’s very welcome statement when he declared, “The South Korean government will improve transparency and consistency in its economic and financial policies to remove any discriminatory measures against foreign investors.”

The United States strongly shares this goal, and we will reciprocate.

During the October 2015 summit meeting in Washington, President Obama said: “President Park [and I] discussed the regulatory reforms she is pursuing.  Those are reforms we welcome.”

President Obama also spoke passionately about one of his signature initiatives, SelectUSA, which is designed to improve the commercial climate in the United States for foreign companies.

He said: “[This] team (the SelectUSA Team) wakes up every morning with one mission – bringing job-creating investment to the United States.…The idea behind SelectUSA is to make it easier…for our international partners to find the best opportunities [in the United States].”  It’s clear.  We share the goals of a fair, transparent, and predictable regulatory environment based on global standards.

And let’s unpack that statement just a little bit further.  Why is this so important?  Why do we need this regime? Why do we need a fair, predictable, transparent regulatory environment based on global standards?

Let me give you three reasons:

One: There is widespread recognition that there are too many business regulations that are unique to Korea – regulations that do not follow international norms.  From cloud computing to the automobile sector, I frequently hear statements like: “Korea is the only country with these specific requirements for vehicle seat width,” or “Korea is the only country that requires us to have a separate server for data.”  Korea-unique regulations continue to force companies to speak two regulatory languages: one here, and at least one other language in overseas markets.

This obviously creates inefficiencies, and it does so not just for U.S firms, but also for Korean firms, particularly those that are trying to compete abroad.

Two: Regulations are often instituted with short-time horizons, and often without sufficient consultation with Korean and foreign stakeholders – those most directly affected by the regulations.

Three: Regulations often lack a common, clearly-defined standard for interpretation.  And, when officials change jobs or circumstances change, the interpretation and application of these regulations can rapidly change.

And even when officials or circumstances don’t change, the variance of interpretations can be wide and varied – causing distortion and uncertainty in the market.

Taken together, these issues present needless obstacles to both Korean and foreign companies, and they are a hindrance to the free-trade environment for which we are both striving – especially Korea with its multitude of FTAs with nations all around the world.

They can dissuade U.S. companies from entering South Korea – depriving Korean companies of potentially valuable partnerships and depriving Korean citizens of potential job opportunities since U.S. firms here in Korea overwhelmingly hire Koreans to fill most of their positions, from entry-level to country CEO.

They also cause Korean companies to spend valuable time and effort on complying with unnecessary domestic regulations, when these same companies could be using these resources to pursue purposeful market activities.

This is a room filled with leading economic minds.  So, I am saying something you already know well: fair, predictable, and transparent environments are good for growth and good for jobs.  We make it harder than it should to deliver those results when we adopt unnecessary, or unique, regulations.

Fewer people are hired — at a time when youth unemployment is a serious issue.  There is less FDI.  There is also less spending on R&D, infrastructure, and technology.  Capital improvements are delayed or forgone, and there are fewer resources devoted to export opportunities.

The good news is that these are not deep structural issues with the economy – they are issues that can be readily solved through policy-making.

And, as I mentioned earlier, there is strong commitment and political will on both sides – going all the way up to both Presidents – to engage on these issues.

More good news: We have already seen several success stories – tangible results where the United States and the Republic of Korea have worked together to resolve issues to make significant progress.

Let me give you just a few examples:

  • The Financial Services Commission has demonstrated a profound openness to stakeholder input.  Moreover, we are hopeful that we will build on this success to achieve coherent regulations that enable multinational companies to manage and move their data across borders in a secure but cost-efficient way.
  • The foreign investment ombudsman has established a regulatory information portal to improve transparency and solicit stakeholder input.  Not only that, the portal gladly accepts comments in English.
  • The Korea Fair Trade Commission has shown a willingness to sit down and gather stakeholder input.  Just yesterday, KFTC announced the revision of a regulation that would have required all airlines – domestic and foreign – to publish detailed maintenance records for each aircraft that lands in South Korea.  Such a regulation exists nowhere else in the world and could have undermined airlines’ competitiveness and, possibly, security.
  • And Deputy Prime Minister Yoo recently offered to convene a series of meetings with member companies of the American Chamber of Commerce to solicit feedback on the business environment.

 

These are just a few of many success stories we have already had in this area.

All of these helpful actions — actions that the ROK government has taken – are in line with recommendations by the American Chamber of Commerce and the U.S. Embassy that we both believe would be helpful:

  • Further increasing the scale and scope of stakeholder consultations, including with appropriate notification and comment for periods of proposed regulations, with Korean and foreign firms.
  • Transforming policies and initiatives into tangible reforms – which I do recognize is easier said than done.
  • And ensuring that reforms are consistently applied by working-level regulators, and that interpretations are broadly shared within government ministries.

 

So, I am proud of our collective progress but also mindful that more work needs to be done.

We look forward to working together with our great partners here in the Republic of Korea.

Let me wrap up this section by saying that we know that regulatory reform, alignment, and coherence is only one part of the puzzle.  There are other tough issues – labor and currency to name just two – that also need to be addressed.  But, as I mentioned earlier, the government here in Seoul has put forward a plan, highly rated by the OECD, to address these issues.

But, if we can make substantial progress on this shared goal of regulatory reform, alignment, and coherence, it will go a long, long way toward helping facilitate the dynamic commercial environment we all want here in South Korea and we all want in the United States.

I should also say this:  we know that many government regulations are both necessary and important – they are important for consumer protection, important for product safety, important for the public good.

So don’t get me wrong.  I am not saying, let’s get rid of all regulations.

What I am saying is let’s work together in the spirit of the Alliance to find the right balance.  Let’s work together to ensure our markets are open, competitive, and governed by the same rules.  Let’s work together to ensure our shared prosperity.  We are great nations capable of doing just that.

This brings me to my third and final topic: increasing our collaboration and coordination so that our shared economic values are spread to other capitals and promoted in multilateral economic fora.

In short, while we are working to forge the best practices here in South Korea between our nations and with other like-minded states, it is essential that we also bring these best practices to the rest of the world.

Because our two countries share many of the most important values – such as a commitment to democracy, free and open commerce, and protection of human rights – our diplomatic relationship has “gone global,” so to speak. We are now working around the globe to tackle some of the world’s toughest issues.

Our economic relationship should be no exception.  We welcome opportunities for our respective governments and companies to collaborate and make rules of the road that are fair, consistent, and transparent in the region and around the world.

This includes best practices in regulatory design, stakeholder consultation, and cost-benefit analysis.

Here, once again, Seoul has demonstrated a proactive, forward-leaning approach.  The Park administration has consulted with regulatory offices in the United Kingdom, and has participated in workshops in regulatory best practices with the OECD and with Australian officials and experts.

Our respective governments also have established channels for exchanging regulatory information and approaches.

So I look forward to opportunities to expand this very important collaboration which has implications for our global trading environment.

Working together is not only to get our trade and regulatory languages in sync.  Our collaboration also can help establish rules of the road for the region.

As reflected in President Obama’s last State of the Union speech, if like-minded countries such as the United States and South Korea do not set the rules of economic engagement for the world’s fastest-growing region, then others, including China, will.  And they will not meet our high standards – especially those that we worked so hard to negotiate in the KORUS FTA.

We should write those rules.  And that means not just in multilateral fora.

The United States and Korea – together with other like-minded partners – also need to engage on shared issues of interest in capitals.  We need to ensure that the rules and regulations for doing business there meet our collective standards and address our stakeholders’ concerns.

We should also ensure a level playing field that enhances fair and open competition.

Talking about rules of the road for the region also requires us – and that brings me to my final topic – to talk about the Trans-Pacific Partnership.

TPP is the most prominent means for the Pacific economy to help establish rules of the road in the broader region.  That includes moving toward a common regulatory language.

TPP recognizes the importance of consistent and sound regulation, and that is why there is a regulatory coherence chapter in the agreement.  TPP emphasizes the importance of centralized, interagency coordination in developing smart regulations, written in plain language, and based on an analysis of the costs, benefits, risks, and consequences of free trade for small and medium sized enterprises.

President Park has said that South Korea is a “natural partner” to join TPP, and we very much welcome South Korea’s expression of interest.  President Obama and President Park pledged last October that both of our nations would “accelerate consultations” on TPP.  The good news is that South Korea has already signed on to many of TPP’s obligations and has FTAs with 10 of the 12 TPP members.

In short, Korea is well positioned for TPP, but joining TPP will not be automatic.  It would require South Korea to make new commitments in a number of areas:  trade, labor, and the environment.

Beyond those commitments, there are other issues that will need to be addressed and, while those issues are not pre-conditions, it is important for Korea and the United States to move quickly to readily solve them as fast as possible.

Meanwhile, the United States also has its own work to do to ensure TPP is given the consideration it deserves at home.  President Obama is very focused on the passage of TPP, and the near-term goal in Washington is to continue to focus on completing our domestic procedures.

We do recognize the benefits and the importance of TPP and look forward to working with Congress, TPP members, and other “friends of TPP” in the coming weeks and months.

Let me conclude by saying I am extremely optimistic.

I am optimistic because our governments and companies largely share the same view on many of the challenges and potential remedies for the issues that confront our bilateral relationship.

I am optimistic because our two nations, working with great partners in industry, have a long, long track record of success.

I am optimistic because the things that we bring together to the table are remarkable: the world’s largest energy supply, a history of innovation, deeply educated people, the greatest development success story in history right here in the Republic of Korea, shared values, some of the world’s best companies, strong political leadership, the highest standard FTA, and our enduring alliance that has been through thick and thin for 63 years.

It is on that foundation that the next chapter of prosperity will be written.  It is on that foundation that the shared economic and commercial interests will be advanced, and it is on that shared foundation that our two nations will become even stronger – helping make the world a better place for generations to come.

In short, we have a storied past, we are working in unprecedented ways in the present day, and we have an extremely bright future ahead.

Thank you very much, and I look forward to your questions.