Wednesday, March 29, 2006

No Laughlin' Matter

News is percolating on the blogs that Robert Laughlin was booted out of KAIST. For all of you who did not see that coming, there's this bridge in New York I want to sell you.

Oranckay does his little postmortem, but I would like to quibble about one statement of his:

To me, the idea of undergraduate pre-law and pre-med programs at KAIST makes no sense, a good idea only in the eyes of someone who doesn’t know how law and medicine work in Korea.

I do not know about the medical end, but I cannot disagree more about the law statement. Legal reforms in Korea will soon, perhpas, make being a lawyer much easier (basically go to school thats it). Further more Korea really has a shortage of technically adept lawyers, which makes it a bitch to find a decent patent lawyer. From an Intellectual Property standpoint, I could really see where Laughlin was coming from. I wish KIPO gave him some support on that issue, since they are trying to promote a "knowledge economy" I would be the most immediate benefactors of such since they would aquire better patent examiners and not only that would only have to reach literally across the river in Daejeon (where both are located) to get them.

Oh well, its all academic now.

Friday, March 24, 2006

Big Brother

I was going through my web statistics log recently and found something rather funny. I come up rather high on the list for the google search term beaver shot (and likely I will shoot up because of this post). Click the words if you want to see the post it is referring to.

What I am finding amusing the places this search term is typed in from. Here are three currently in my log:

1. A large looking Christian university (I will not disclose it)
2. A Marriott Courtyard in Pennsylvania (again will not be specific)
3. A town in Utah

Incidentally, is it just me or does freaky-deaky stuff always happen at a Marriott? As I recall tennis star Jennifer Capriati was arrested in a Marriott Residence Inn with Marijuana and and Michael Irvin was arrested at a Marriott Courtyard with "self employed models". By all means, correct me if I am wrong.

Anyway in other web statistics news, I say "Hi" back to the person who did so. You know who you are.

Tuesday, March 21, 2006

“What took so long?” US-ROK FTA Part 3

My title here could be a bit unfair. The reasons for delays in the talks likely originate from both parties. However I estimate that bulk of the wait had to do with the Korean side. I say this because the US entered in to negotiations right way with a number of countries, and yet the Koreans waited so long. Yet again as I mentioned in my last post it seemed the US was demanding a resultion of the Bilateral Investment Treaty (and with the screen quota issue) before starting FTA talks, so perhaps the ultimate reason for the hang-up was the stubbornness on both sides on this issue.
Like in the US situation, I think the best way to look at this situation is to look at the history of trade, and free trade, in Korea. The most obvious statement about the history of Korean trade is simply there was none. When measurable trade did happen with Korea before this time, it was usually related to either curry favor as under the three kingdoms period, or simply to buy survival or a measure of independence. Regardless, Koreans historically found trade with foreigners as something to be suspicious of or a necessary evil for survival.
To make matters worse, when trade was opened at the end of the 19th Century by the Europeans, it done on unfair terms. So not only was trade seen as a suspicious activity, but also something done when Koreans got the short end of the stick.
Despite all this suspicion, Korea embarked on a very aggressive trade policy at the end of Korean War. However the word “trade” could be seen as a misnomer. Things were sold abroad, but at the same time a number of barriers were erected to keep foreign goods out. One can point at the obvious tariffs and quotas, but I would like to point to the not obvious things to show how deep suspicious is even today to real trade.
A good example can be seen simply flying in and out in Korea. Most, even Koreans, forget the time when Koreans needed a pre-arranged exit visa to leave the country. Thankfully now such restrictions no longer apply today, but you can still see these restrictions live on. Duty Free limits are still lower than in most economies of the same size and stature as Korea. Further, as any foreigner regularly flying in and out can attest to, foreigners rarely are inspected by customs yet Koreans are regularly inspected for violations.
Speaking of flying, you can see it even in the reaction to the choice to fly. Regularly the Korean media decries the amount of Koreans leaving for points afar. One could obfuscate in saying that it promotes “social equity” but I a suspicious of such. Look at the newspaper ads, the cost of a holiday from Seoul to say Bangkok is the same as going to Cheju-do, Koreas most famous vacation spot. The cost of a chain hotel in Seoul or Busan is close to Tokyo or Osaka. At these price points I fail to see why only “the rich” can go to Thailand while “the poor” must pay the same price for Cheju-do. I do however see how such effects another constant morbid worry in Korea, the balance of trade.
Any boy is that worry morbid. It is funny to me that while pundits like to lecture how the US cannot run a trade deficit this size for ever, Korea thinks not only can it maintain its positive balance forever, they worry on how its not increasing fast enough. While I do not want to get into much, this is why I think US trade deficits are more than sustainable short and medium term (and possibly even long term), not only has the US economy found this a stable trade off but the importing economies are more than willing to forego consumption, and some even want to forgone even more consumption.
And this is really what we are talking about here, trade. At the end of the day things need to be traded. What Korea has done for a long time is forgone there rights for share of the US economy. Korea sells say Samsung TV’s for US Dollars. A US Dollar, obviously, can only be spent in the US for goods there. So Korea could buy say a Chevy sedan, however according to Korea’s economic and cultural mindset that’s evil since it would mean one less Hyundai sold. So Korea has all these dollars built up, unspent.
I bring this all up this way in order to point out how hard, a deeply set, socially it is for Korea to accept foreign trade. This is crucial since any trade deal, with Korea being a democracy, needs to be sold to the population as a good thing. Unfortunately one of the problems is how trade deals viewed.
A few years ago, well before the ROK-Chilean Free Trade Agreement, I had a job interview at the Ministry of Foreign Affairs and Trade  (MOFAT). In the interview I had to edit/rewrite a speech to be given by a MOFAT official to some economic conference somewhere. The subject was on how Korea has to change the way it discusses economic agreements. The speech talked about how Korea needs to stop framing the internal debate as trade agreements are something Korea is “forced” into by evil foreign in forces out of Korea’s control.
I thought this was a very positive sign for the future, since the generally accepted major effect of free trade agreements is that such a beneficial to both countries. I was hopeful that Korea would start talking about the benefits of such agreements socially within the country. Things like lower prices, greater availability of goods, and more opportunities for Korean businesses overseas.
Alas, that never came to pass. The agreement with Chile was perhaps not only a model on how not to sell the agreement, but also in my opinion poisoned things by promoting social inequality. As I recall MOFAT’s whole argument for the Chile agreement was as follows “Korea is being forced to make this agreement, and other like it, or else Korea will loose its competitive edge since free trading partners get an advantage”. There are more holes in this than a crotched gravy boat. First nobody has a gun to Korea’s head figuratively or literally, second may thing make up a product’s competitiveness, price being only one, accordingly even if Korean goods were more expensive it does not necessarily mean a precipitous drop in sales. Given the weakness of this argument, one could easily make the argument that MOFAT’s argument could be brusquely put, “shut up and bend over Farmer Kim, Lee Kun-hee of Samsung wants to be number one in mobile phones at any cost!”
Before I get ahead of myself, I should reference some of this dialogue from the Korean government. I found quite a few things that shows the tenor of the debate, however the most interesting thing I found was a paper presented by a unit of MOFAT to Pacific Economic Cooperation Council explaining Korea’s push for FTA amongst countries and what issues they are considering. The most notable thing in the document is there not ONE MENTION of the positive effects FTA’s bring to consumers. Not one mention of the broader range of goods presented, the lower prices, or the benefits to Korean companies as a whole from that resulting competition. They don’t even make mention of the possibilities for greater small and medium size business growth.
Given such these arguments from MOFAT, there was little surprise to me that the debate was so contentious. MOFAT’s ham-handed selling of such agreements can be seen as well as the recent US-ROK Bilateral Investment Treaty (BIT) fight. What fight is that? What Treaty? Well of course nobody in Korea will recognize it since it was debated as simply the US “forcing” Korea to get rid of its screen quota. There was no debate on the merits of what Korea was getting in the BIT, the Korean media was too caught up in the quota issue all the while MOFAT could only whine on how Korea is “forced” to make this agreement without any explainable benefits to Korea (according to MOFAT anyway). Just for the sake of comparison, a Google search of the Korea Times website for “Bilateral Investment Treaty” with out “screen quota” yielded 28 articles, meanwhile just “screen quota” alone was worth 128 articles.
Accordingly, if you ask me the reason Korea waited so long to ask for FTA discussions, or for that matter willing to wrap-up the Bilateral Investment Treaty was the deep entrenched aversion to trade of the Korean populace as well as the way that is translated into the actions by the government in ham-handedly promoting such trade. Needless to say, you can probably guess what I think of the future of these talks.
Since I am at a good mid-point, if anybody out there has not fallen asleep or clicked away, I could write more on this on request. Should I continue?

Friday, March 17, 2006

"What's the Rush?" US-ROK FTA Part 2

I mentioned one of the fundamental reasons why trade negotiations are contentious in my last post, basically somebody somewhere has to get a new job. In addition to this, the conflict over trade deals is exacerbated by the setup of the American system of government. In one way or another, the problems can be traced back to the US Constitution. It has been argued that the US Constitution is set up so as the government can do nothing, in my mind nothing supports this argument better than free trade agreements.
As general law, a free trade agreement is a treaty. Treaties, you may recall, are signed by the president, and then ratified by the Senate. In the ratification process the treaty is treated like any other bill under consideration. The Senate is made up of two representatives from every state in the Union. Sounds rather simple but lets break it down.
The last part is perhaps the most fundamental part, “the Senate is made up of two representatives from every state”. The Senate is NOT a proportional representational body. Accordingly somebody from a small state can wield great power. And in a small state, as this former resident of South Dakota can tell you, it does not take that many people to successfully sway a vote.
To illustrate this, lets us say that we have a farm state of 300,000 people. That state has two Senators representing 2% of the vote in the Senate, yet those senators only represent .1% of the population of the United States as a whole (about 300 million).
Now this farm state happens to be the biggest supplier of canadian bacon in the US. It has meatpacking plant that employs 15,000 people. The plant is in a town of 60,000 and in that town the plant is the major employer.
The US was to sign a Free Trade Agreement with Canada (yes, I know we already have in the real world), how do you think that town would feel? They would of course not be happy and would petition its Senators. The Senators would be a bit worried. The plant alone is 5% of his possible votes, but the impact may expand to 20% of the votes in his state. So we now have 2% of the votes in the senate being decided by the .005% of the population of the US directly affected by the trade agreement. This is a huge magnification of power exerted by rather small group of people.
So how is this power wielded? Well as I said, the treaty is ratified as if it were just any other bill submitted to the Senate. This means its is subject to all the usual skullduggery the US Congress, in general, is known for. The most substantial is committees. Just like any other bill, a treaty must pass through all the relevant Senate Committees, and with free trade agreements being so vast in scope, that’s a lot of committee votes. Not to mention that every committee has numerous sub-committees.
In these committees they can add, subtract, and mutilate the free trade agreement as much as they want. Further to actually pass out of committee, you need a majority of the vote. Remember our Senator from the example? What if he was on 20-member committee reviewing the bill? Now he is 5% of the vote on the treaty, yet is being held sway by the direct fate of only .005% of the US population.  Further if he is chairman of the committee, he decides the agenda of the committee, guess how high on the agenda he is going to place voting on the treaty?
Assuming that Senator was unsuccessful, there are still more fun Senate rules to kill the treaty. Most notably, and again in the constitution, is the filibuster (unprecedented, but possible). If this Senator can get just 31 people to agree, he can block the vote by the Senate. Considering both Senators, this is about 6% of the power for .005% of the population.
In addition to all this numbers fun, is the reminder of logrolling, or more commonly referred to as vote trading. At any one of these voting stages, the effected Senator can either remind others of, or promise future, votes that affect others. One Senator likes the promise of cheap bacon? Ask him what he likes more, bacon or the Navy base in his state remaining open. Another indifferent to breakfast meat? Remind him of your vote on his pet project for a multi-million dollar federal grant to study shaved cats at his state’s university.
Despite these hurdles, for the longest time trade agreements passed through the Senate with few problems for about 30 years after World War II.  This was likely because US tariffs were general low all ready, so GATT brought others down closer to US levels. The numbers of Senators affected by the agreements were either few, or even few constituents ever cared to even say something. However, the danger of trade agreements being gutted was a real fear among free traders. In responce, in 1974 with the lead up to the Tokyo-round of GATT talks the US Congress passed a new tool "Fast Track" Authority.

Fast Track was a novel ideal. It gave the president to sign any trade agreement, and then the agreement would be put to a Senate vote without amendments (I would quibble in the definitions given the current debate over the use of the filibuster, it is unclear if the Senate waved that constitutional right as well). While this authority languished for a while, enough people cared enough to get it renewed multple times. The Reagan and Bush Sr. administrations later seized the opportunity and negotiated some sweeping agreements. The (Canadian) Free Trade Agreement passed without too much controversy (in the US at least). Smaller, and perhaps more political, was the Israeli Free Trade Agreement. 

What changed everything were the North American Free Trade Agreement (NAFTA) and the Uruguay-round of GATT that set up the WTO. The NAFTA debate could perhaps best be summed up by Presidential Candidate Ross Perot’s “Giant Sucking Sound” of US jobs going to Mexico. The fear expressed by many was that US companies would simply move everything to Mexico where labor was cheaper and poorly organized, environmental rules were more lax, and businesses in general was argued as less regulated. Meanwhile the debate of the Uruguay-round was two fold, one a general backbeat off the NAFTA jobs debate, and the other that the dispute resolution mechanism of the WTO would supersede US law.
Regardless of the merits of these cases, and the merits of those supporting free trade, there is no doubt that the fight to pass both of these was messy. In fact I feel that a paradox was the only reason NAFTA and WTO were ratified. Both agreements were negotiated by a Republican (George Bush Sr.)  but were shepherded through the Senate by a Democrat (Bill Clinton). If were not for enough ideologues voting for, and the arm twisting done by the opposite party I doubt at least NAFTA would have been ratified. (Perhaps one of the finest moments of the US democratic system actually coming to consensus most of the country wanted.
When the hubris after NAFTA died down, the Clinton administration tried a different tact, make trade agreements which would encompass by the free trade aspects, but also bring up the labor and environmental laws of other countries to US standards (a key argument made by the detractors of NAFTA). Needless to say idea of the US not only dictating trade terms (remember in most cases it’s the US that was asking for the removal of barriers) but also a countries labor and environmental laws went over like a lead balloon. The only agreement I can remember being negotiated in this manner was the FTA with Jordan, the "success" of which may had something to do with the fact that it was and is an autocratic nation. Some may remember this time as the buzz word "fair trade" was used.
Clinton eventual let "fast track" authority die a quiet death, or perhaps he just did not have the political capital to pass it with him entering the lame duck phase of his presidentcy and was already working form a policial capital deficit because of a "staff" problem. A related issue was perhaps the riots in Seattle during the WTO summit which put in stark relief for US politicos popularity and increasing moxie of the anti-globalization advocates. 

When George W. Bush took the office over he had a new vigor for the subject and in the first half of his term successfully argued for the re-enactment of "fast track" for an ambitious trade agreement offesnive. Few people connect the dots in my view, but my guess is the passage of the agreement had to do the fact that Bush adminstration around the same time signed a large farm subsidy act and also imposed quotas on imported steel. Many called this hypocrisy, and in my mind there is a bit of truth to that. 

However Bush has pretty much shot his load in more ways than one. Not only is the "fast-track" authority set to expire soon so are the plums he passed out, such as the steel quotas. Additionaly the President has drained most of his energy on a war on terror. This is not to say that the authority was wasted, the US has successfully concluded agreements, or has agrements pending, with countries from Australia to Morocco. Nevertheless, "fast track" is due to expire next year, and this creates the deadline and the rush to do it now or else face the horrors of the Senatorial political sausage factory.

"Not so fast!" you may say, "Why start now in 2006 when 'fast track' was renewed in 2002?" Good question. No doubt it had some things to do with US government policies. Personally I guess that the negotiations on the Bilateral Investment Treaty with Korea was in some why a US set precondition. Also given the sheer volume of agreements being negotiated something must be said for the staff of the US Trade Representatives Office being stretched too thin. However South Korea had some of its own hang-ups that lead for the delays as well.

Tuesday, March 07, 2006

Looking at US-ROK Free Trade - Part 1

Considering I have been away for a while, I deiced to take up a request made by a friend. He wanted a better breakdown of the upcoming US/ROK free trade agreement talks. Specifically he wonders why the timing, and why rush. Most papers talk about why it needs to get done before the Spring of 2007, yet really fails to bring out why. They also do not really mention reasons on why the process was not started long before this. Finally the big question is unanswered, will the rush make things easier or harder. Now while I do not know all the answers, I will bring up some of the answers I have come up with.
Before the big questions, I think a primer is needed. In the ideal world of textbook economics Free Trade is sold as a sort of nirvana. The idea reaches back all the way to the observations of Adam Smith, a man considered the father of economics. He noted two theories relating to free trade the division of labor and the subsequent competitive advantage.
To put this concept simply, first consider village of cave people. By themselves they would have a very short life, say 30 years. You would also occasionally have the birth of a caveman who is no good for hunting (bad eyesight, slow, crippled, etc.). Now if all these cavemen kept to themselves, most would live well and die at 30, while the weak would have a hard life until 30 or even die well before that.
The division of labor now comes to the rescue. What if the weak one does not hunt, but becomes the village witch doctor. He will treat cavemen for a portion of the hunt. As a result of this specialization, cavemen now live 40 years, and the weaker man now makes a comfortable living. See the nirvana? Longer lives, and some of the less fortunate in caveman society live a better life.
Now the further leap Mr. Smith made was, what if countries were to do the same thing? Every country specializes in either what it does best, or simply avoids doing they do the worst. The conclusion is like the caveman example, a better life for everyone. When applied to countries this is specialization called comparative advantage (I am simplifying this somewhat here).
“Not so fast”, you may say “We are not cavemen”. This is true. Countries are complex economic entities that serve up a wide variety of goods. It would be impossible, not to mention impractical, to have only one country be all doctors. Smith therefore adroitly relied on “the invisible hand” of market forces that would make countries adapt there production accordingly.
For example the US is much more efficient in producing corn than Korea. However, US corn take awhile to come here, which would spoil fresh corn. The answer is the US would produce dried corn, while a smaller set of Korean farmers then exists now would make corn for corn on the cob consumption.
We are now faced with the main dilemma of free trade, what if your one of the Korean corn farmers? As a country specializes a small segment of the economy is forced to give up his current role, and in some cases this can be devastating to that segment. This creates one of the main hurdles to free trade agreements. The problem is further magnified in democratic governments where by not only does this segment (rightly so I hasten to add) protests to ask for relief, but the general uncertainty of the plans for the “invisible hand” of the market makes many others express there worries about this risk.
Despite this groundwork done over 300 years ago there was little action on the subject. Unfortunately what it took for the idea to be seriously considered was a global financial crisis and a world war. The protective tariffs enacted worlds wide after World War I are seen as one of the causes, or exacerbations, of the Great Depression (note, this link is a bit US-centric, internationally as well there were high tariffs and barriers). From that depression sprang World War II. If anybody wants to do more reading on this I highly recommend Keynes’s The Economic Consequences of the Peace, a treatise published shortly after WWI.
One of the little known efforts at the end of World War II was the effort to globalize the world’s economy. Many thinkers, including the aforementioned Keynes himself, thought one of the best ways to avoid wars was to tie everyone together into a stable economic system. This somewhat mirrored the political ties that made the United Nations. While there were many aspects to these economic agreements and understandings, one of the key features was the need to generally liberalize international trade.
From this came the General Agreement on Trade and Tariffs, or GATT. These were a series of agreements starting in 1947 regarding trade. However as time passed the global economy got more complicated, and GATT was revised in the early 1990’s to the now famed World Trade Organization (WTO) that most critically provided a trade dispute resolution body.
In addition to such global efforts, there were multiple free trade agreements between nations. Perhaps the most successful has been the BENELUX economic agreements, which eventually became the kernel of the European Union. Other success stories are the customs unions and other agreements made in the wake of decolonization after the war (the British CommonwealthCFA monetary union, etc.) However in the fight of free trade, everyone looks to the actions of the USA, the largest single economy in the world.
Objectively speaking, considering the cards delt the US after WWII they have played their hand with respect to free trade to the fullest. A major handicap was the aforementioned economic agreements after the war. For example the US spent an enormous amount of resources to keep gold a certain price which arguably played havoc on its monetary supply planning (Nixon, for better or worse, pulled out of this agreement in 1972). Most notably in my mind however was the US from the outset lowered its tariffs substantial from pre-WWII levels, this made negotiations difficult since there was nothing to take off the table (no carrot if you will), this made sticks of tariffs and quotas the only tactic available (more on this later). However the US did maintain certain tariffs and quotas then and now and these became the few bargaining chips the US had for negotiations.

Monday, March 06, 2006

There is joke in here somewhere

"How to penetrate the male barrier without becoming a male in the process?" - Title of a seminar put on by the American Chamber of Commerce Professional Women's Committee

Friday, March 03, 2006

F-ing Unions

I have time to write this quick message since the Korean railroad
workers union went on strike and thereby made me take a pricey KTX
express train.

First were/are the almost daily protests at the stations. Seoul
station for about three months last year was filled with some sleep-
in protest that only got in peoples way. Also to make matters worse
on this score, from what I hear the protesters are not even workers,
they are people literally hired to protest since the actual workers
are working (I wonder if protesters have a union). Then came the
"sticker" protests. Ignorant-ass protesters thought the best way to
drum up support with the public was to sneak into the yard at night
and plaster protest slogans on the trains that are difficult to peel
off. Finally is a personal problem with the union so to speak. I work
the government complex in Daejeon, which also happens to be home to
the management of the Korean National Railroad. Not only do they make
a nuisance of themselves by forcing the police to close the most
convenient entrances for me, but the insist on blasting protest music
at 5000 decibels which literally reverberates through the entire 20
story four building complex.

Now they insist on actually costing me money. You know I would be
more sympathetic to the Union in this strike if they did not
routinely engage in tactics such as above. Moreover I am actually
seriously debating doing a protest of my own. Who is with me? Who
wants to join me in a protest in front of the Railroad worker's HQ? I
will bring beer.