Next leap forward for US-Korea economic partnership
By James Kim
This year marks the 70th anniversary of the U.S.-Korea alliance, representing a significant milestone in the bilateral relationship between the two countries.
Under the leadership of President Joe Biden and President Yoon Seok Yeol, the economic partnerships between the two countries have both diversified and deepened. The first Biden-Yoon summit, which took place last year, served as a symbolic occasion that highlighted the importance of the partnership in managing global challenges.
While we celebrate this milestone, it is still crucial to promote greater cooperation amidst the various global challenges and uncertainties that exist. These challenges range from public health and a global recession to supply chain issues and climate change.
Nonetheless, the U.S.-Korea alliance has grown stronger since the summit, with ongoing strategic dialogue taking place on various global issues.
Against the backdrop of rising geopolitical tension in the region, President Biden and President Yoon issued a significant mandate to the business communities of their respective countries to enhance bilateral trade and investments and collaborate in critical sectors such as semiconductors and advanced technology. Given the importance of this mandate, President Yoon's state visit to the U.S. this week comes at a critical juncture.
In this regard, I would like to offer some key considerations that should guide the agenda of the summit, particularly from the perspective of the foreign business community in Korea.
The Indo-Pacific Economic Framework (IPEF), which launched May of last year, offers a unique opportunity for the U.S. and Korea to shape the regulatory environment in the region. Korea, an early participant in the IPEF, has set out its vision to become a Global Pivotal State, with a commitment to assume leadership on important global issues.
As the IPEF negotiations continue, it is crucial for both countries to reach an agreement on key regulatory standards, particularly in the digital economy. Free-flowing cross-border data transfer is an important enabler for digital trade, which is one of the key pillars of the IPEF and global economy. Establishing global standards among the 14 IPEF participants would facilitate greater trade and investment through the IPEF network, which currently accounts for 40 percent of global GDP.
Regarding global supply chain resiliency, it is essential for the U.S. government to collaborate with its allies to establish regulatory certainty and predictability by promoting “friendshoring.”
The U.S. Treasury's recent guidance on the Inflation Reduction Act's (IRA) subsidies has been received positively in Korea, as it relaxed the requirements on critical minerals and battery components and allowed free trade agreement (FTA) partners, including Korean battery makers, to be eligible for federal tax credits in the U.S.
However, the guidance does not offer exemptions to waive the domestic electric vehicle (EV) manufacturing requirement for some FTA partners, such as Korea, which is not consistent with the spirit of “friendshoring.” Providing a grace period for EV makers would allow businesses to adapt to new regulations and alleviate potential trade disruptions.
Given the growing strategic importance of the U.S.-Korea alliance, the American Chamber of Commerce in Korea (AMCHAM) recognizes the significance of establishing Korea as a regional headquarters in the Asia Pacific.
According to the 2023 AMCHAM Business Survey, Korea has maintained its position as the second most appealing location for regional headquarters for two consecutive years, after Singapore.
To further enhance Korea's competitiveness, it is crucial to establish Korea's leadership in ESG (environmental, social, and corporate governance). RE100, which aims to accelerate the transition to net-zero emissions by 2050, is now a vital indicator of a country's business environment. Women's economic participation and opportunity are also key factors in ESG.
By making significant progress in clean energy transitions and women's economic empowerment, Korea can enhance its global standing on ESG on par with its leadership in the global trade system.
Last year marked a surge in foreign direct investments (FDI) for the U.S. and Korea, with record-breaking numbers. Korea recorded its largest FDI to date, while the U.S. led the way with an investment of $8.69 billion in key technologies. Additionally, Korean investments in the U.S. continued to gain momentum, exceeding $27 billion.
These developments highlight the importance of the upcoming summit as trade and investment have become critical elements of the alliance. The summit provides an excellent opportunity for both countries to reinforce their shared values and goals through meaningful and productive dialogue, taking the U.S.-Korea economic partnership to the next level.
Despite the challenges posed by the pandemic and geopolitical dynamics in the region, we are confident that Korea is poised to emerge as the leading destination for regional business headquarters going forward. Korea has grown stronger as the world's 10th-largest economy.
As the leading voice of the global business community in Korea, AMCHAM remains committed to serving as a true partner to both the U.S. and Korean governments in creating a strong, fair, and globally competitive economy.
We look forward to deepening the vital bilateral trade and investment ties between the U.S. and Korea through a more powerful, mutually beneficial partnership.
The writer is the chairman and CEO of AMCHAM.