The number one joint concern for the U.S. and South Korea is how best to deal with North Korea and its menacing "testing" of nuclear weapons and ballistic missile technology. President Trump's U.N. speech highlighted the dangers that North Korea's recklessness cause.
As such, the economic relationship between the U.S. and South Korea is more important than ever. The better our economic relationship is, the better our strategic relationship will be. That is why South Korean trade teams have been visiting states such as Ohio for the past few months. Accordingly, the South Korean government would be wise to work with Trump and his administration in improving the Korea-U.S. Free Trade Agreement ("KORUS").
For readers unfamiliar with KORUS's history, on June 30, 2007 the Bush Administration and South Korea signed KORUS, but that was only one of many steps. The Democratic Congress shelved KORUS. President Obama produced a renegotiated version in December 2010, with key changes including tariff phase-out schedules, new transparency rules, and rule-making procedures and protections to appease Democrats on Capitol Hill as well as Democrat labor union allies such as the United Auto Workers. The agreement took effect in 2012 after approval in the United States and South Korea.
KORUS, like NAFTA and other trade agreements, is a Congressional-Executive Agreement, not a treaty, and therefore not subject to Article II, § 2 of the U.S. Constitution.
This year marks another review period to renegotiate and improve KORUS. Both Republicans and Democrats have criticized KORUS throughout its existence. For example, during the 2008 campaign, both Hillary Clinton and Barack Obama sharply criticized KORUS; then-Senator Obama called it "badly flawed." During the 2016 campaign, Trump sharply criticized the Obama Administration's ineffective renegotiation of KORUS. He has been consistent on this issue; as far back as 2011 Trump presciently criticized the Obama Administration on KORUS.
One important area where KORUS sorely needs improvement is intellectual property protections vis-à-vis administrative agency action. For example, under South Korean President Moon's predecessor, President Park Geun-hye, the Park Administration apparently abused its administrative agency and financial penalty powers in the form of the Korea Fair Trade Commission ("KFTC"), which is roughly equivalent to our U.S. Federal Trade Commission's Bureau of Competition. The KFTC took a number of aggressive actions against U.S. companies. In fact, Senate Finance Committee Chairman Orrin Hatch, a KORUS supporter, raised concern about the KFTC's caseload, noting that it "appears to have shown a concerted effort to prioritize antitrust actions against U.S. companies."
The KFTC's most conspicuous anti-American case is the one against Qualcomm, for which it levied an approximately $870 million fine. Anyone who has ever used a cellphone almost certainly benefitted from Qualcomm's technology. The KFTC, however, failed to provide Qualcomm with basic rights such as full access to the case files and evidence (including exculpatory evidence), and full cross-examination of all witnesses, rights which KORUS guaranteed.
The KFTC essentially seeks to force Qualcomm to license patents to Qualcomm's competitors, which is extremely unusual, to say the least. Such forced licensing would cause a significant transfer of U.S. patented technology to Korean companies, and accordingly would reduce the incentive for American companies to invest in R&D. Moreover, the KFTC's actions would apply not only in Korea domestically, but also globally; it is inappropriate to allow the KFTC to unilaterally set global patent licensing terms.
KORUS is useless if an administrative agency can just ignore it. The KFTC's behavior is protectionist and violated the whole point of KORUS because it directly benefitted Korean domestic companies (called "chaebols"), such as LG Electronics and Samsung, who compete against Qualcomm.
This is even more concerning because of the recent criminal corruption cases in South Korea. In 2016, President Park was impeached, and is currently awaiting trial along with other members of her administration, because of corruption charges in relation to Samsung. Her political ally, Kim Hak-hyun, happened to be Vice-Chairman of the KFTC who approved Qualcomm's record fine, but subsequently was forced to leave office.
In August, a South Korean court sentenced Samsung heir Jay Y. Lee to five years in prison after finding him guilty of offering bribes to President Park and her administration, along with other crimes. Sadly,chaebols and corruption historically have gone hand-in-hand. In fact, in the antitrust context, the South Korean government previously has not meaningfully enforced its competition laws against the chaebols and acted non-transparently to the chaebols' benefit.
Other industry areas of KORUS need improving too, such as rice (Arkansas alone produces more rice than Korea), beef, dairy, automobiles, and currency manipulation. But the KFTC's actions against Qualcomm are unique in that they have adverse extraterritorial consequences. For example, Korea's protectionist demands to help its own rice farmers does not significantly affect America's ability to sell rice to other countries, whereas the KFTC harms Qualcomm's business everywhere.
As the U.S. and South Korean officials work to address the issues surrounding KORUS, particularly with a new South Korean leader pledging to end the corruption of his predecessor, they must take steps to uphold the spirit of KORUS. In order to reach its full potential, the agreement must ensure due process and regulatory transparency while forbidding protectionist regulatory action.
John Shu is an attorney in Newport Beach, CA with extensive experience in litigation, constitutional, and antitrust law. He served under Presidents George H.W. Bush and George W. Bush.
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