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'The Korea-USA Free Trade Agreement is working'

Interview - May 27, 2016

As the main candidates in the 2016 US Presidential election take aim at TPP and other free trade deals, John Schuldt, President of AMCHAM Korea, makes a passionate defense of the KORUS FTA and the positive impact it has had on enhancing the trade and investment relationship between two key allies over the past four years.

 

JOHN SCHULDT, PRESIDENT OF THE AMERICAN CHAMBER OF COMMERCE IN KOREA (AMCHAM KOREA)
JOHN SCHULDT | PRESIDENT OF THE AMERICAN CHAMBER OF COMMERCE IN KOREA (AMCHAM KOREA)

The Republic of Korea has made remarkable progress into becoming one of the world’s most advanced economies over the past six decades. However, the country is currently facing significant challenges in the form of sluggish exports, consumption, and capital investment. What is AMCHAM'S perspective on the current business and investment climate of the country?

I would describe the current business and investment climate as good but challenging. The government is forecasting growth this year of about 2.8%. Private forecasts come in somewhat lower than that, but we will still see growth, albeit at a lower rate than we have seen in the past.

Korean exports are being negatively impacted by the Chinese economic slowdown, and to some extent the global slowdown caused by reduced oil prices and strained budgets for infrastructure projects around the world. When you talk to the ministers and senior officials in the government, they get it. They understand that Korea needs to reform and to deregulate certain areas of the economy to stimulate growth and investment, rather than try to export their way to growth. But it’s going to take some time for that change in mindset to trickle down through the various bureaucracies. Nevertheless, there’s definitely recognition that labor reform and regulatory reform are essential to improve the business climate here.

 

The US-ROK Free Trade Agreement entered into force in 2012 and has been described by the US government as the United States’ most commercially significant free trade agreement in almost two decades. How do you assess the impact of the KORUS FTA on bilateral trade and investment over the past four years?

First of all, it’s working. It’s not working as fast as anyone would like, but it is working.

Next, let me give you some facts. Korea is the sixth largest trading partner with the US and it is the third largest foreign direct investor in the US from Asia, after China and Japan.

There’s been an 84% increase in bilateral trade in the last decade and the current volume of trade stands at $350 billion.

Once a year we travel to Washington DC and we do what is called an “AMCHAM Doorknock”. We meet with senior cabinet members, White House officials and members of Congress who are interested in trade and Asia-Pacific issues. We give them a boots-on-the-ground CEO perspective on what the business environment is like in Korea. We use this opportunity to communicate relevant facts and figures and paint a realistic story of what it’s like to do business in Korea. For example, there is a goods trade deficit between the US and Korea at present. What’s not talked about is the fact that there is also a surplus in terms of services. There’s an $11 billion surplus in services industries between Korea and the USA.

When talking about the trade deficit, it’s important to look at the overall picture because there are more than just manufactured goods to consider. Services exports increased by about 12% in 2015. When we were talking with members of Congress and members of the administration, we pointed out that whilst there is a trade balance deficit between the US and Korea, it’s the smallest deficit of any of our major trading partners.

Our question to political leaders was simple: what if we didn’t have the free trade agreement? Where would we be?

We don’t have any empirical data but you would assume the trade deficit would be much larger. I would also like to point out that exports of automobiles made in the United States, such as Chrysler Jeep, Ford, Lincoln and Chevrolet, have increased by over 200% in four years and exports of US agricultural products are also increasing. Korea’s imports from the rest of the world have fallen by 17%, but from the United States, they fell only 3%. I believe the KORUS FTA has helped to soften the impact of the overall decline in Korea’s imports, which is a result of its slowing economy.

 

South Korea has also expressed a serious interest in joining the TPP and, on a recent research trade mission to Washington, AMCHAM Korea Chairman James Kim said: “AMCHAM is ready and willing to help the Korean government, US policy makers and companies improve the prospects for a successful trading partnership beyond the KORUS FTA.” Could you expand on AMCHAM Korea’s position on South Korea joining the TPP?

When President Park met with President Obama last October, she publicly stated that Korea wants to join the TPP. One of the things that the KORUS FTA does is provide a template for the TPP. When issues arise in terms of regulations or in terms of unintended consequences of laws that are passed, you can raise them under the banner of the free trade agreement and that creates a high level of visibility. We’ve been able to resolve certain issues that we’ve faced using the KORUS FTA as a framework, and that same thing will happen with the TPP when Korea joins the partnership.

 

It can be argued that anti-free trade sentiment is on the rise in the USA, with all the leading presidential hopefuls expressing opposition to the Trans-Pacific Partnership. Is AMCHAM Korea concerned about a regressive attitude towards global trade deals manifesting itself in American presidential policy from next year onwards?

Well, it’s an interesting political season in both the US and Korea. You had one of the political parties here publicly stating that they wanted to give greater power to the Korea Fair Trade Commission, which is a very active regulatory agency here in Korea. But AMCHAM has been here for 63 years. We have worked with all kinds of administrations, whether it’s in Korea or in the United States, and we’ll be able to work with whatever administration comes into play in either country, because ultimately trade is good for both the US and Korea. It enhances not only the economic relationship but also the strategic relationship between the US and the Republic of Korea.

 

The US is South Korea’s second largest trading partner and second largest source of FDI inflows. As South Korea looks to diversify its economy away from the traditional heavy industries, in which economic sectors do you see the greatest potential for further American investment?

One of the areas that have great potential is what I call ‘elderly health care’. Korea has one of the fastest aging populations in the OECD, so products that promote healthy living have a lot of potential. I’m referring to products such as health foods, supplements, vitamins, medical devices, and insurance policies to take care of people as they get older. All of these are really good opportunities for American businesses in Korea and there’s a need for such business here.

But let’s be clear, free trade does not mean one-to-one trade. Korea has 50 million people; the United States has 300 million people. The scale of business is very different. For example, the United States’ automobile industry had an all-time sales record of over 17 million units last year, while the Korean industry was essentially flat at 1.8 million units. You’re never going to get the same volume of sales that you would get in the US simply because the scale isn’t there.

In the imported automobile segment, all the major manufacturers have a presence here in Korea except for the Chinese. You have the Europeans, you have the Americans, and you have the Japanese. The top 4 are German: BMW, Mercedes-Benz, Audi and Volkswagen. In 2012, prior to the ratification of two free trade agreements, number 5 was Toyota, number 6 was Honda, and Ford was number 7. By 2016, Ford had moved up to number 5 and had passed Toyota and Honda. In large part, that was due to the benefits of the free trade agreement and Ford recognizing there was an opportunity in this market. In addition, Chevrolet is having tremendous success in importing the Impala to Korea, with nearly 6,000 units sold in the first quarter of 2016.

Finally, Korea is a net importer of food products, so that’s also a very good opportunity for American businesses. In fact, one of the biggest increases in American exports to Korea since the free trade agreement entered into force has been in lobsters. So food products, both finished and raw products, are another good source of future business.

 

AMCHAM Korea has a broad mandate to encourage the development of investment and trade between Korea and the US. What have you identified as your key priorities to fulfill this mandate in 2016?

AMCHAM is one team of people working together to deliver results for all American businesses operating in Korea. Regardless of size, and regardless of the industry, we need to deliver results for our members. We’re a member-based organization and our role is to enhance our members’ business opportunities in Korea. It’s really that simple. We all work together to break down barriers and regulations and find new opportunities for companies.

 

AMCHAM launched the Innovation for the Future (ACIF) Council in October 2012 with the aim of promoting innovation and new business partnerships in Korea. Can I invite you to expand on AMCHAM'S role and recent successes in promoting economic innovation and helping to foster this transition towards a ‘creative economy’ in South Korea?

Firstly, we go out and talk to university students. We bring CEOs from our member companies and we do a forum for about 200-300 students in an auditorium. The CEOs do a brief presentation about their career experience and their philosophy, and then we do a very interactive Q&A session. Then we break out into what we call individual mentoring sessions. Usually we have three CEOs on the stage for the CEO lecture session and then we’ll have another six or seven for the smaller mentoring classes. They basically take off their jackets and share their experiences about what it’s like working at a multinational corporation.

Innovation is not just some tech startup creating a new product. Innovation also deals with the way people think. This is still a very Confucian-oriented society that is very traditional in certain ways when it comes to business. So we share different thoughts with these kids to get them to think differently.

We have done eight of these Innovation Camps so far.

We mostly focus on the universities outside of Seoul because their students don’t normally get the opportunities to meet 1 to 1 with international business people.

The reaction is fantastic and it makes me very proud. At the most recent camp, one of the students asked a question about female CEOs in Korea and I took the microphone and I said, “The Korea Country Managers of Procter & Gamble, FedEx and Korn Ferry are all women. All of them are Korean women who have risen up through the ranks of their companies to become CEOs.” So, I think Innovation Camps are a great opportunity for us to clear up misconceptions among students and broaden their horizons.

One of the things we stress at Innovation Camps is the need for young Koreans to sell themselves when trying to find a job. You have to be creative and you have to make a difference. One student stood up and he said, “Can you give me an example? What do you mean about being different?” I responded with, “You just did it. You just asked me a question in perfect English. You stood up and you were poised and you were professional. That’s a differentiating factor.”

Then we have our Partners for the Future Foundation. That’s our charitable arm that provides scholarships to Korean students who would otherwise not be able to afford to go to college. We’ve raised over $14.5 million for scholarships for Korean students since 2000 and that also contributes to innovation and the creative economy in the long term. Giving 2,450 students a chance to go to school and get an education who otherwise might not be able to do that will contribute to the economy.

So we are taking a slightly different approach to innovation, although we still support startups, of course. There are several Korean-Americans who have been to the US for their studies and returned to open very successful SMEs that are creating jobs for Koreans. They are members of AMCHAM and we support them and other businesses, but we are also focused on fostering grassroots innovation.

One final point to make is that we have been working very closely with the Ministry of Science, ICT and Future Planning (MSIP) on an initiative to help SMEs. The government really wants to grow the small and medium-sized enterprises, and we have many resources from US businesses worldwide that can help them.

Some of our member companies have volunteered to provide professional mentoring to SMEs in need. These are selected and matched up by MSIP and we’re planning to have the kickoff meeting for this program in June 2016.

 

You were elected as AMCHAM Korea’s president in December 2015 after a long career with the Ford Motor Company. What personal qualities do you think you bring to this role and how would you sum up your personal vision for AMCHAM Korea as its new president?

The vision is really quite simple and it’s focused on our members. There are lots of places where our members can spend their money and we need to provide a return on their investment in AMCHAM. We do that by advancing their agenda with both the Korean and US governments, whether it’s addressing regulatory issues or just helping them connect with other businesses to help them grow.

I come from a background in the automobile business and I had a wonderful career for a wonderful company. I learned that you’re not successful if you’re not paying attention to your customer. Our members are our customers, so we really want to focus on our members and try to help them. If we do that, we’ll be successful with the long-term vision of AMCHAM, which is to continue to promote the expansion of the vital trade and investment partnership between Korea and the United States.

 

On a final note, you told us earlier that you have been living here in Korea for four years. How do you feel about Korea as a place to live and do business?

If somebody would have said to me 30 years ago, “You’re retiring from Ford Motor Company. Oh, and by the way, you’re going to live in Korea,” I would have said, “Are you out of your mind?” But here I am.

It’s a wonderful country. You can be successful here but it’s a challenging place to do business. From a lifestyle standpoint, Seoul is a global city and yet if you travel an hour-and-a-half outside of Seoul, you will find yourself in rural North Asia, so you really get a good diversity of culture. In Seoul, you can get whatever you want, but outside of Seoul, you will find a very traditional Korean culture.

My family loves it here. My wife and I are celebrating our 25th wedding anniversary this year.

Our 14-year-old daughter is with us and she’s going to be a freshman in high school. We have a 21-year-old daughter who’s a junior in college in the United States, but she is actually here at the moment doing her junior year abroad semester program. Our family has really embraced the country and we are very happy here.

 

 

For the latest news and information about events, partnerships and networking opportunities available through AMCHAM Korea, or to become a member, visit: www.amchamkorea.org

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