Understanding the Korea-U.S. Free Trade Agreement
A Report to the U.S. Congress
February 9, 2007
Prepared by the Korean Alliance Against KorUS FTA
150-982 Daeyoung Building 3F
139 Youngdeungpo-dong 2-ga
Youngdeungpo-gu, Seoul, Republic of Korea
Tel: 82-2-775-2501 Email: firstname.lastname@example.orgThe Korean Alliance against KorUS FTA (KoA) is made up of over 300 organizations, including trade unions, farmers’ groups, NGOs, and social movement groups. Formed on March 28, 2006, our goal is to bring awareness about the impact of FTAs on society, under the principle that all trade agreements must be democratic in process and respectful of both public interests and international standards on labor, environment, health, and safety.
On February 2, 2006, South Korea and the U.S. announced that they would begin negotiations for a free trade agreement. However, the negotiation process and FTA content have shown troublesome signs from the start. Many labor, agriculture, and civil society sectors in both the U.S. and South Korea believe that, like NAFTA, the Korea-U.S. FTA will make living conditions more difficult for people living in both countries. This report covers seven main concerns and presents three individual cases. Our analysis shows that the proposed agreement will disproportionately hurt working families, widen the income gap, limit public services, and undermine culture and the environment in South Korea.
1. The Undemocratic Nature of the Negotiations Process
The South Korean government’s procedures have been inconsistent with democratic principles and Korean law before and while negotiating the Korea-U.S. FTA. It has withheld relevant information and documents from stakeholders, the National Assembly, and the general public. The government has also closed off public debate through insufficient hearings and media censorship. Furthermore it has stifled freedom of expression through a ban on protests and arrest of protest participants.
2. Limiting Access to Healthcare: Pharmaceuticals
The current FTA calls for a system that will reduce access to pharmaceuticals and place limitations on South Korea’s healthcare system. We have three main concerns: 1) A7 drug pricing on all innovative drugs will increase drug prices and raise insurance costs for the public, 2) application of expensive pricing on all innovative drugs on Korea’s positive list and installation of an independent review board will restrict the government authority to register and determine the price of drugs and 3) extension of patents will burden the insurance system and limit production of generics. The current trade deal is not in line with even the Doha Declaration on TRIPS Agreement and Public Health, which declares that the right to a healthy life is greater than intellectual property rights.
3. The Deterioration of Agricultural Life
The FTA requests the full opening of the South Korea’s agricultural market to American-grown products. This has wide social, cultural, and environmental implications: South Korean agricultural production will decrease by 45%, meaning that roughly half of South Korea’s farmers will lose their livelihoods. The destruction of rural communities will result in the break-up of rural traditions that are the basis of Korean culture, and the deterioration of the rural environment.
4. Public Services: Energy, Water, and Education
Implementation of the Korea-U.S. FTA will diminishthe government’s capacity to ensure equitable access to public services. Our concern is that the FTA will decrease government regulation on energy and water supply as a result of how its provisions interact with the processes of liberalization already underway. Of particular concern is the opening of South Korea’s energy maintenance industry, which will undermine that current existing infrastructure and create dependence of the energy industry as a whole on the private sector. The Korea-U.S. FTA also stands to diminish the validity of public education through the introduction of private U.S.-based testing services which will increase the demand on students to seek private education programs.
5. Meeting International Standards on Cultural Diversity
The Korea-U.S. FTA does not meet international standards set by the UNESCO Convention on the Protection and Promotion of the Diversity Cultural Expressions. The Convention affirms the right of each member nation to formulate and implement regulations aimed at promoting domestic cultural expression, implying the right of members to exclude their cultural industries from international trade agreements. We believe that the reduction of Korea’s screen quota as a preliminary measure to the FTA and the inclusion of South Korea’s audio-visual industry in the agreement are inconsistent with the aforementioned provisions.
6. Meeting International Environmental Standards
Through such mechanisms as the investor-state claim clause, the Korea-U.S. FTA has the potential to lower environmental standards. In fact, the investor-state claim clause goes directly against the ‘precautionary principle’ of international environmental law. With the current FTA, we see the possibility of a tribunal intervention on South Korean environmental policies, particularly concerning genetically modified organisms (GMOs). Our position is that economic development should meet international standards on sustainable environment.
7. The Investor-State Claim (ISC) Clause and the Procurement Policy
The ISC clause in free trade agreements overburden governments and taxpayers with enormous monetary penalty and pressure nations to adopt lower environmental and labor standards. In order to diminish these negative consequences, South Korea has asked for certain revisions to this clause, such as the exclusion of claims on tax and real estate policies, but none have been accepted. The Korea-U.S. FTA also runs against public interests by requiring a reduction in procurement contracts. Procurement policies are necessary to the promotion of fair, domestic economic sustainability.
Table of Contents
- Executive Summary………………………………………………………….
Part 1: Main Concerns in the Negotiations Process and Content
- 1. The Undemocratic Nature
of the Negotiations Process……………………....5
2. Limiting Access to Healthcare: Pharmaceuticals…………………………..…8
3. The Deterioration of Agricultural Life………………………………………10
4. Public Services: Energy, Water, and Education……………………………..13
5. Meeting International Standards on Cultural Diversity……………………...15
6. Meeting International Environmental Standards…………………………….17
7. The Investor-State Claim (ISC) Clause and the Procurement Policy………..18
Part 2: Cases
Case 1: The Life and Death of a Farmer………………………………………...20
Case 2: Living with HIV/AIDS………………………………………………....
Case 3: Living with Leukemia……………………………………………….….
Table 1. Number of People Arrested, January 29, 2007…………………….……8
Table 2. Price of Gleevec in South Korea and the U.S.………………...…...…....9
Table 3. Comparison of Agriculture in South Korea and U.S.………………..…11
Table 4. South Korea’s Projected Annual Loss in Agriculture…………………..12
IntroductionOn February 2, 2006, South Korea and the U.S. announced that they would begin negotiations for a free trade agreement. From the start, however, the negotiation process and the content of the FTA have caused great concerns in labor, agriculture, and civil society sectors in both the U.S. and South Korea. Despite provisions in South Korean law, which require the government to consult the general public before pursuing an FTA, only one public hearing was held just a day before the announcement was made. The hearing closed shortly after beginning due to angry responses from the audience. This event was representative of a negotiations process characterized by lack of disclosure and curtailment of public debate, for an agreement opposed by roughly half the South Korean population.
South Korea is U.S.’s 7th largest goods trading partner, and this FTA would be the largest U.S. FTA since NAFTA. The South Korean government has been eager to conclude the deal, claiming that it is the country’s best path to economic growth. However, we believe that, as with NAFTA, the Korea-U.S. FTA will place a heavy burden on ordinary people and increase the income gap. We are keenly aware of NAFTA’s negative impact on the people of Canada, Mexico and the United States despite promises that the agreement would improve lives in all three countries. The proposed Korea-U.S. FTA, meant to be even more comprehensive than NAFTA, can but only point in the same direction.
This report reviews seven major concerns within the Korea-U.S. FTA (Part 1) and presents three cases of individuals whose lives have been injured by global trade (Part 2). The first section covers the undemocratic nature of the negotiations process touched on above. The second and fourth sections treat the FTA’s negative effect on South Korea’s public services: the FTA will result in increased prices and decreased access in the areas of healthcare, energy and water provision, and education. The third section looks at the social and cultural consequences of the deterioration of South Korean rural communities due to opening of the agricultural market. The fifth and sixth sections look at the extent to which the proposed agreement is inconsistent with international standards for the protection of the environment and cultural diversity. The last section treats the danger to public interest posed by the Investor-State Claim clause and the procurement policy. The three cases which demonstrate the FTA’s potentially harmful effects through individual stories make up Part 2 of the report.
Our analysis shows that the proposed agreement will disproportionately hurt working and farming families in both countries by widening the income gap, limiting public services, and undermining international cultural and environmental standards.
Part 1: Main Concerns in the Negotiation Process and Content
1. The Undemocratic Nature of the Negotiations ProcessLike the United States, South Korea is proud of its democratic system, which was fought for and won through its citizens’ efforts to overcome military dictatorship. We are sure that members of Congress agree that all procedures followed in negotiating the Korea-U.S. FTA should be consistent with the democratic principles that both of our countries hold dear. Therefore, we here share our concerns that this has not been the case since even before the start of official negotiations.
Four PreconditionsBefore the opening of negotiations, South Korea committed to four preliminary measures as preconditions for the talks to begin. These included 1) suspension of regulations on pharmaceutical products, 2) easing of government regulations of gas emissions from imported U.S. cars, 3) resumption of U.S. beef imports, and 4) reduction of the quota which requires South Korean cinemas to screen South Korean films from 146 to 73 days per year. The actual implementation of each of these measures is in different stages, with the last two currently in effect. However what concerns us here is that the government has made a commitment to them with out public dialogue, and has reported about them deceitfully to South Korean citizens.
These preliminary measures have an impact not only on related industries but also in the areas of health and safety, the environment, and protection of cultural diversity. Principles of democracy would require that stakeholders and the general public be given adequate advance knowledge and a chance to voice concerns before the measures were agreed to, but this was not the case. In fact, for a long time government authorities denied the possibility that the preliminary measures would become preconditions for negotiations. For example, only two days before the screen quota reduction was announced, Trade Minister Hyun-chong Kim insisted that there was no plan for such a reduction, denying the need for further discussion with representatives of the film industry.
Access to Information and Public DebateLack of disclosure and insufficient public debate has been a trend throughout the negotiations, inconsistent not only with democratic spirit but also with South Korean law. Article 12 of the Stipulations on the Procedures for Concluding a Free Trade Agreement (Presidential Directive 121) requires a public hearing be called before an FTA is pursued. Such hearings are meant to be forums for discussion through which the opinions of Korean civilians are taken into consideration.
Steps taken to meet this directive were a pure formality: only one public hearing was called for February 2, 2006, just hours before the formal announcement was made that a Free Trade Agreement would be pursued. Given that the decision had already been reached, the hearing could not really have been a space for public discussion. The report that the official announcement would be made the following day understandably drew an angry reaction from the audience, resulting in a suspension of the hearing.
Despite South Korean chief negotiator Jong-hoon Kim’s promise that greater effort would be made to seek public opinion, no further hearings have been held. Rather, the government has routinely ignored appeals from stakeholders and citizens who have criticisms of the FTA. Compared to the U.S. government, which has actively sought the advice of concerned groups, including industrial associations and agricultural and labor organizations, South Korea’s efforts are clearly lacking. In addition, the government has been reticent in disclosing relevant information including the draft of the agreement and the specific results of each round of negotiations. Even National Assembly members have had very limited access: the reports they receive are generally only as detailed as those released to the media, and the time allowed to review these English-language documents is restricted to the same length as that usually allocated for Korean-language materials.
On top of this, a good portion of the talks has taken place outside of the official process and removed from public view. Of recent, the senior-level meetings held in Hawaii without warning between the 5th and 6th official rounds have increased Korean citizens’ distrust for the negotiations process as a whole. Indeed, the secretive and undemocratic manner in which the government is moving forward is one of the important reasons behind opposition to the FTA. Needless to say, while we understand it is not possible to make all parts of the negotiations public, it is our position that at minimum, the government should disclose information necessary for adequate debate on matters of public interest.
Restrictions on Freedom of ExpressionGiven the lack of effective channels for dialogue, those dissatisfied with the FTA have turned to media work, street outreach and protests to express their opinions. In clear disrespect of the right to freedom of expression, the government has actively sought to quell these activities. Riot police are routinely dispatched to restrict demonstrations, and it has been announced that access to government subsidies will be cut off for organizations that oppose the FTA.
The extent to which the range of public discourse has been limited was plainly evident earlier this year, when farmers’ and filmmakers’ organizations attempted to run a television advertisement entitled, “A Letter from One’s Hometown” which included images of farmers expressing their opposition to the FTA. Upon reviewing the ad, the Korean Advertising Review Board (KARB) stipulated that the farmers’ comments had to be erased before broadcasting, effectively prohibiting the ad from screening. The KARB made its decision on the basis that the comments gave a “one-sided portrayal of a dispute involving a government agency.” Ironically, while “A Letter from One’s Hometown” was barred, a $3.8 million advertisement made by the President Noh’s Committee to Support the Conclusion of the Korea-U.S. FTA, has been aired. Public sentiment for and against the FTA is roughly split in half, but it is clear that the ad’s main statement—“the Korea-U.S. FTA is a new opportunity for South Korea to leap into the position of a great economic power”—does not capture the full range of perspectives. Further, while the content of “A Letter from One’s Hometown” is taken from the actual experiences and views of South Korean citizens, the government’s ad contains only a narrator’s voice against background imagery. However, as a government production, the latter was not reviewed by the KARB and therefore not required to meet their conditions on objectivity.
The contradiction in the two cases has invoked criticisms from citizens groups and specialists in the field, even those within the national Korean Broadcasting Commission, who see the incident as an undue closure of public debate at a time when more is needed. We echo their opinion that the event exposes a fallacy in South Korean broadcasting law and represents a restriction on freedom of expression inconsistent with the standards of a modern democracy.
Limits on the expression of anti-FTA sentiment have been especially intense since November 22, when clashes occurred between angered farmers and police during a protest. Since then all demonstrations have been outlawed, with tens of thousands of riot police deployed to each demonstration and checkpoints set up on major roads leading to Seoul, to stop regional farmers and workers from entering the capital. The police have issued summons and warrants for over 170 people, raided the local offices of peasant and civil society organizations, made threatening phone calls to demonstration participants, entered their relatives’ houses seeking arrest, and detained 21 leaders of farmers and workers organization in an attempt to stop future opposition.
Table 1. Number of People Arrested, January 29, 2007
The government says that these measures are necessary as a response to the clash on November 22. We agree that the events of that day were unfortunate, and we by no means condone violence as a solution to social dispute. However, it is not difficult to understand how the government’s lack of attention to the situation of the South Korean farmers has evoked in them the frustration which led to the conflict.
Furthermore, the incident on November 22, which was neither wide-spread nor premeditated, does not warrant the extreme measures that have been taken in its wake. In particular, there is simply no way to justify the continued refusal of permits for clearly peaceful demonstrations made by groups other than the sponsors of the November 22 protest, especially after parties involved in the incidents of that day have already been penalized.
The excessive imprisonment of civil society leaders and ban on peaceful protest is inconsistent with the rights to freedom of expression and assembly enshrined in both the South Korean and United States constitutions. This was confirmed by the National Human Rights Commission on December 5, which called for all possible measures to be taken to enable peaceful protests to go forward the following day, including the withdrawal of the demonstration ban. Yet, despite this statement, the government and police have continued their efforts to shut down protests and silence opposition.
We are gravely troubled by the secretive and anti-democratic nature of the FTA negotiations up to this point. We also believe that members of the Congress of a democratic nation would not want their country to be party to such a process, and would be highly suspicious of an agreement that was reached through such means. We ask that you reflect on this as you consider the Korea-U.S. FTA.
2. Limiting Access to Healthcare: PharmaceuticalsFor both U.S. and South Korea, healthcare is a key area of political and economic debate. After much controversy, Massachusetts launched a comprehensive healthcare plan in 2006, and other states such as Oregon and Ohio are pursuing a similar system. On the whole, peoples standpoints on the healthcare issue remain somewhat divided.
In South Korea, a universal healthcare system (which began in 1987) provides relatively affordable healthcare to the public. But we are still in the process of making the system more comprehensive and efficient.
With the Korea-U.S. FTA, however, we fear that South Korea’s healthcare system will become drastically limited. The current FTA unfortunately calls for a system that will seriously reduce the access to pharmaceuticals for a majority of people. It is of grave concern to us that the current trade deal poses to restrict South Korea’s healthcare system and may have adverse effects on the U.S. healthcare system as well. .
On November 4, 2001, the 4th WTO Ministerial Conference at Doha adopted the “Declaration on TRIPS Agreement and Public Health.” The Doha Declaration states that “the TRIPS Agreement does not and should not prevent Members from taking measures to protect public health.” The Doha Declaration makes it clear that on the occasion of a clash, the right to a healthy life is greater than intellectual property rights. It sets minimum criteria on global trade that public health must be protected from the often irresponsible effects of economic pursuit. The current trade deal promises to go directly against the Doha Declaration, and is contrary to U.S.’s principle objective to respect the Doha Declaration.
There are three main concerns related to pharmaceuticals in the Korea-U.S. FTA negotiations. First is drug pricing policy. Innovative new drug prices in South Korea are already in accordance with average factory prices in the 7 wealthiest countries (A7 countries: U.S., UK, Germany, France, Italy, Japan, and Switzerland). In some cases, average prices are much higher in South Korea: for instance, the price of leukemia treatment drug Gleevec is $23 in South Korea while $19 in the U.S. Moreover, the current FTA demands that all patented drugs be innovative drugs and all innovative drugs have A7 average prices. These conditions will inevitably raise the price of medicine to an unaffordable level for the public. Our ordinary people are still not ready to meet the drug cost of the wealthiest nations. We are concerned that the current FTA does not fully consider the different economic positions of people in the U.S. and South Korea.
Table 2. Price of Gleevec in South Korea and the U.S.
A second concern is the implementation of a positive drug list system, which contains drugs that are proven to be efficacious, price-competitive, and covered by health insurance.
The USTR Office has partially accepted the introduction of South Korea’s positive list policy, but is requesting the inclusion of expensive pricing for innovative drugs and, furthermore, the installation of an independent review board, thereby restricting government authority to register drugs and determine its affordable price. The independent review board is likely to be unfamiliar with actual economic and social conditions of South Korea. We feel that such a review board will compromise the health of a population in the interest of corporate market access.
A third concern is the sensitive issue of drug patents. If the trade agreement is signed, it extends the current intellectual protection term on medicines by at least 5 years. In dollar amount, this would translate to 6 billion dollars of financial burden to the insurance system. The stronger protection of intellectual property would prevent fair competition of domestic generic drug industries. Moreover, the current agreement calls for a pharmaceutical company’s exclusive rights to drug data, on which drug companies all over the world depend for the production of generic drugs. The percentage of generic drugs under national insurance is increasing every year; generic drugs, needless to say, are crucial in providing affordable to medicine to the populations in the U.S. and South Korea. We cannot welcome measures that prevent public access to affordable medicine.
The current FTA’s demands on South Korea’s healthcare system indicate that this trade agreement does not uphold the public interest. It is clear that health policies that are beneficial to the people can be challenged by pharmaceutical companies through the investor-state claim clause. Moreover, we see the ‘Big Deal’ process—which demands the exchange between South Korea’s pharmaceuticals and automobiles, and U.S.’s trade remedies—as an unjust method of conducting trade negotiations. Pharmaceuticals, which provide an essential public service, should not be treated as a commodity similar to automobiles. Under the current FTA, we anticipate not only a rise in drug prices and treatment cost, but also a breakdown in South Korea’s healthcare system itself. We believe that access to affordable and comprehensive healthcare is a public right that must be protected, and has priority over commercial interests. We cannot accept a trade deal that restricts this right.
3. The Deterioration of Agricultural Life
Along with pharmaceuticals and automobiles, agriculture has been one of the most contentious areas in the FTA negotiations. Since the beginning of the talks, the United States has consistently requested full opening of the South Korean market to American-grown products. This would require liberalization of trade in 235 sensitive items for which South Korea seeks to maintain some degree of protection. For Korean farmers, however, the issue at stake is much more than a mere loss in profits; it is a matter of the very survival of their livelihood and communities. Furthermore, the severe weakening of Korean agriculture has wide social, culture and environmental implications, which we believe must be taken into consideration.
While most American agriculture is controlled by large corporations, all farming in South Korea is done by individual farmers with small to medium-size holdings. A brief look at statistics makes the inequity readily apparent: the total acreage of land under cultivation in the United States is 105 times as great as that in Korea (176 million ha to 1.7 million ha), the average farm-size 58 times greater (29ha to 0.48ha) and the average income of individual in agricultural business four times greater ($7,200 to $1,400). Like small farmers in the United States, South Korea’s farmers cannot compete with large agro-business, which mass produce cheaply-priced goods with the aid of heavy government subsidies. Due to this inequality in size and means of production, and because American agricultural subsidies will not be affected through the FTA, domestic agricultural products stand to loose their markets almost completely once the FTA is implemented.
Table 3. Comparison of Agriculture in South Korea and U.S.
|Land under Cultivation||1.7 Million ha||176 Million ha|
|Average Farm Size||.48 ha||29.0 ha|
|Average Income per Month||$1,400||$7,200|
The effect is predicted to be devastating for South Korean farmers. Take for instance, the primarily citrus-producing population of Jeju Island: the opening of South Korea’s fruit market to powerful companies such as Sunkist and Dole is projected to cause a 59% drop in the price of Korean tangerines, Jeju’s primary product, and will result in an annual loss of over $200 million dollars. This, along with reductions in the sale of potato ($72 million), garlic (no statistics available), fish ($5 to $10 million) and meat and dairy ($23-$28 million) makes bankruptcy almost inevitable for farmers on Jeju. The yearly loss for South Korean agriculture nationwide is projected to be close to $9.3 billion. This translates to an average decrease in annual salary of nearly $8000 for farmers, the majority of whom now only make only a little over $10,000 a year. U.S. statistics shows that on the whole, South Korean agricultural production will decrease by 45% after the Korea-U.S. FTA has been implemented. This means that roughly half of Korea’s farmers will loose their livelihood and have no option but to give up their farms and join the ranks of the urban poor. It was the prospect of a similar situation brought on by the WTO’s impact on South Korean agriculture that prompted farmer Lee Kyung Hae to take his own life in protest at the Cancun Ministerial in 2003, crying “WTO kills farmers!”
Table 4. South Korea’s Projected Annual Loss in Agriculture
|Jeju Region||-$200 Million|
|South Korea||-$9.8 Billion|
|South Korea's Decrease in Production||-45%|
|Decrease in Annual Salary||-$8,000|
The vitality of South Korea’s domestic agrarian economy has significance well beyond the individual lives of Korean farmers. Its significance is social, cultural and environmental. Traditionally an agricultural society, Korean culture as a whole is based on customs that have developed around the cycle of cultivation kept alive today in farm villages. Unfortunately, the dissipation of these communities is rapidly underway. Due to rapid industrialization, the Korean farming population has dropped from 50% to less than 10% over the last thirty years. This decrease has occurred more than twice the pace of similar declines took place in the United States and Western Europe. This process has been accelerated in the last decade as a result of trade liberalization policies, forcing hundreds of thousands of farmers to migrate to already overcrowded cities where underemployment is a growing social problem. The flip-side of this over-urbanization is a breakdown of rural ways of life and destruction of the rural environment. In order to preserve South Korea’s countryside, local communities, and culture, it is necessary to have measures to support agriculture and maintain farming as a feasible occupation; the comprehensive opening of South Korea’s agricultural market is neither wise nor necessary at this time.
Protective measures are not without precedent. The Swiss government, for example, has, since the first half of the 1990s, officially recognized that the importance of local agriculture goes beyond simple economics, to include preservation of the countryside and long-term sustainability of natural eco-systems. It has thus implemented a subsidy-system to protect and revitalize Swiss farming communities, now only 4% of the population. This goal was also one of the main reasons behind Switzerland’s decision to suspend FTA negotiations with the United States.
We believe that the principles embodied in the Swiss case have important meaning for South Korea, especially now as it faces the deterioration of its rural villages and ways of life. Thus we feel these principles should be considered in relation to the Korea-U.S. FTA. Failure to do so will have grave negative impact on Korea socially, culturally and environmentally.
4. Public Services: Energy, Water, and Education
Public services such as the provision of energy, education and healthcare, are necessary to survival in modern society. As such, even when these sectors are liberalized, some measure of government involvement is necessary to assure that they are equally available irrespective of difference in class, income and neighborhood. We are concerned that implementation of the Korea-U.S. FTA will harmfully diminish the government’s capacity to protect public interest through ensuring equitable access to these vital services. While section 2 looked at this problem in relationship to healthcare, this section will deal with access to energy, water and education.
Energy and Water
For the past decade, South Korea has moved towards liberalization of energy supply through privatization of energy generation and distribution, as well as the opening of gas distribution to private corporations, increasingly relinquishing control of these services to market forces. Water supply is also on its way to becoming privatized through public-private partnerships. While both the United States and South Korea have stated that the public service sector will not be included in the Korea-U.S. FTA, our concern is that the FTA will further decrease government regulation on energy and water supply because of the way its provisions interact with the processes of liberalization already underway.
The services negotiations within the FTA follow the negative list rule, which enables the two governments to exclude those services which they want to protect. The Korean government has asked for the exclusion of sensitive public services such as electricity, water, education and healthcare, which should mean that these services will not be committed to liberalization rules. However, the problem is that liberalization and deregulation come through other means—such as investment clauses that enforces elimination of any kind of ‘discrimination’ against foreign investors particularly in relation to state-owned enterprises, competition rules that outlaw state monopoly and requirement of the reduction of government procurement contracts and the opening of this market to foreign investment, which will effectively lead to private control of contracted services. In short, by further relinquishing energy and water supply to market forces, implementation of the FTA will see the removal of government responsibility for these, as well as other services.
Basic public services in any country are managed through state and/or public corporations precisely because this makes it possible to provide them in a safe, healthy and affordable manner. Subjecting them to market and trade rules undermines this goal. Without government regulation, the principle of supply will become based on profit rather than on public interest. The foreseeable result is greater inequality in access, heavier burdens on working families due to price increases, and decreased policy space for the government.
Of further concern is the request made by the United States during the 5th round, for the opening of the design and maintenance of public services to U.S. corporations. South Korea has strived for the past thirty years to develop its power-plant and energy maintenance industry, investing several hundred millions of dollars and prioritizing it as the centerpiece of South Korea’s energy production. Due to this support and a constant focus on public interest, South Korea’s industry has reached world renowned levels of operation and efficiency. This groundwork will be compromised if the industry liberalized through the FTA. Although in the short run, energy production costs may fall due to the introduction of already developed products and technology, this opening of the maintenance industry will undermine that current existing infrastructure and create dependence of the energy industry as a whole on the private sector. With energy production and delivery still formally in the public sector and development and maintenance in the private sector, confusion and irrationality are likely to ensue. Maintenance systems and related technology will be updated frequently, and active plants relocated, in keeping with profitability. The resulting instability will mean an increased burden on the South Korean public.
In the early years of its founding, South Korea sought to provide equal access to elementary, middle and high-school education through the implementation of extensive public school legislation, revolutionizing an education system traditionally based on social hierarchy. However, like other public services, South Korean education has been increasingly subjected to privatization in the last decade. The introduction of wide-spread private after-school and tutoring programs geared towards college admissions has created a growing inequality in access to higher education between students from families who can afford these services and those who cannot. This, in turn, has widened the discrepancy in job opportunity based on income and education level, completing a vicious cycle, which is helping to solidify the gap between rich and poor.
By leading to the reduction of government regulation over gas and water supply and the weakening of public education, the Korea-U.S. FTA stands to exacerbate current trends in South Korea which are placing increased burdens on low and middle-class families and widening the gap between rich and poor. Checking these trends requires greater, not less regulation and protection of public services, measures sincerely needed at this point in time. We hope that Congress members will respect this need as you consider the Korea-U.S. FTA.
On 20 October 2005, the UNESCO General Conference adopted the Convention on the Protection and Promotion of the Diversity of Cultural Expressions, with 148 countries, including South Korea in support, two in opposition and four abstentions. The main objective of this agreement, which goes into effect on March 18, 2007, is to create, amidst the challenges presented by an increasingly interconnected world, an international environment in which all cultural expression is affirmed, given a chance to thrive and made accessible to all for the benefit of humanity.
The convention defines cultural diversity as, “the manifold ways in which the cultures of groups and societies find expression… made manifest not only through the varied ways in which cultural heritage and humanity is expressed… but also through diverse modes of artistic creation, production, dissemination, distribution and enjoyment,” and recognizes that “cultural diversity, flourishing within a framework of democracy, tolerance, social justice and mutual respect between peoples and cultures, is indispensable for peace and security at the local, national and international levels.” Further, it states that, “since culture is one of the mainsprings of development, the cultural aspects of development are as important as its economic aspects… (and) protection, promotion and maintenance of cultural diversity are essential requirements for sustainable development for the benefit of present and future generations.
We believe the Convention marks an important milestone in international law by recognizing cultural diversity as the collective heritage of humanity and setting common rules and guidelines for its protection at a global level. Further, its principles are of particular significance to South Korea, a country which has, by necessity, struggled to revive its national culture after years of colonization in the beginning of the 20th century. In particular, the Convention affirms the right of each member nation to formulate and implement cultural policy and protects their rights to enforce regulations aimed at promoting domestic cultural activities, goods and services, implying the right of members to exclude their cultural industries from international trade agreements. We are concerned that the Korea-U.S. FTA is inconsistent with these international standards.
Firstly, we feel the negotiation process itself has been inconsistent with Convention principles widely upheld in the international community. We believe that the Convention, by affirming the distinction between ordinary commodities and those with cultural value and requiring that other international agreements be harmonized with protections for cultural diversity, implies the right of members to exclude their cultural industries from international trade agreements. This has, in fact, been the practice in many free trade negotiations, including those conducted between Canada and Israel, Canada and Chile, Canada and Costa Rica, the EU and Chile, the EU and Mexico and Australia and Singapore. The cultural industry was also exempted from the U.S.’s FTA negotiations with Canada in 1989, and in the negotiation of NAFTA. We, therefore, cannot but see a failure to exempt the cultural industry in the Korea-U.S. FTA negotiations as a step backwards in adherence to international standards.
Even if we do not admit the full exclusion of the cultural industry from international agreements, the Convention clearly protects the right of nations to implement policy for the protection of their domestic cultural activities, goods and services. We believe the compulsory reduction of South Korea’s screen quota as a precondition to FTA talks is inconsistent with this right and harmful to the development of Korean cultural expression. The screen quota, which requires theaters to show Korean films for a certain number of days per year, was introduced in 1966 as a means to assist the development of South Korea’s nascent film industry. While, thanks to the quota and other supportive measures, South Korean film can now claim notable advancement, its progress, and South Korea’s film-culture with it, are likely to be damaged by a weakening of these protections. Other sectors of the cultural industry, particularly broadcasting, face the removal of similar protections with the implementation of the FTA. This will endanger the public function of the broadcasting industry and the uniqueness of South Korea’s audio-video language. While we are in full support of cross-cultural exchange between Korea and the U.S. (and other countries) in the case that it promotes mutual innovation and development, we fear that the provisions of the Korea-U.S. FTA represent an infringement on the independent development of Korea’s audio-video industry that would compromise it as distinctive form of national cultural expression.
It is impossible to deny the important contribution the diversity of its people makes to the richness of American society. We trust that members of Congress are aware of and support the promotion of multi-culturalism within the Untied States and the free expression of cultures in all their variety internationally. We appeal to these sentiments in asking Congress to pay due attention to the points of concern laid out above, and to make a commitment to the protection of cultural diversity as it considers the Korea-U.S. FTA.
6. Meeting International Environmental Standards
One area of concern that crosses all sectors in South Korea is the environment. Through such mechanisms as the investor-state claim clause, the current model of free trade has the grave potential to lower the environmental standards of signatory countries. As seen in the NAFTA case, national and provincial environmental laws can be challenged under investor rights rules. In fact, the investor-state claim clause goes directly against the ‘precautionary principle’ of international environmental law. The free trade agreement between the U.S. and South Korea thus undermines the growing environmental concerns faced by the international community, for example, the search for alternative fuel in the face of global warming.
In South Korea, decades of economic development brought with them a vast number of environmental problems related to industrialization and urbanization. Recently, a great effort has been carried out in order to meet the international environmental standards of developed nations. (South Korea signed the Kyoto Protocol in 1998 and ratified it in 2002.) Our position is that economic development should meet international standards set to achieve a sustainable environment, but we fear that with the passing of the Korea-U.S. FTA, the public’s environmental interest will be overlooked and the environments in both countries will likely deteriorate. In December 2006, the USTR Office released the Interim Environmental Review, stating that harmful environmental effects in both countries due to the Korea-U.S. FTA will be small. This is a limited view, because through such mechanism as the investor-state claim clause, environmental policies in both nations can be adjusted by a foreign tribunal.
In particular, an environmental issue that generates much debate is food safety in relation to genetically modified organisms (GMOs). Potential negative effects of GMOs on the environment, according to GMO-Free Europe, include gene mutation with harmful effects, interaction with native populations, and impact on birds, insects, and soil biota. In the Swiss-U.S. FTA negotiations, the difficulty of allowing GMOs into Switzerland became a crucial factor that led to the suspension of talks. In South Korea, GMO labeling is a requirement, but the U.S. is currently reluctant to make labeling mandatory for U.S. products. With the current FTA, we see the unfortunate possibility of a tribunal intervention on environmental policies under the investor-state claim clause. We know that many provisions related to GMOs come into conflict with market access, but the global community should move toward measures that can guarantee agricultural and food safety appropriate for different environments.
We are aware that the environment is an important issue in the U.S. Congress. The current trade model pursued by USTR, however, undermines its importance. We ask the members of the U.S. Congress to re-evaluate this trade agreement, under the principle that any trade agreement between democratic and developed nations can no longer ignore environmental issues in conjunction with the creation of a healthy market. We believe that the public has the right to a safe and clean environment and the food produced from it. We cannot agree with a trade agreement that hinders the environmental sustainability of signatory nations, as the current FTA is poised to do.
7. The Investor-State Claim (ISC) Clause and the Procurement Policy
The Investor-State Dispute Settlement
As one of the most intensely debated issues in current free trade negotiations, the investor-state dispute settlement (ISDS) rules are meant to only provide a protection of rights and privileges to foreign investors. However, in most cases, especially in relation to NAFTA, the investor-state claim clause has shown an unbalanced effect on signatory governments: ISDS overburden governments and taxpayers with enormous monetary penalties and pressure nations to adopt lower environmental and labor standards in order to prevent further claims. The undemocratic and closed character of tribunals, to which domestic courts have little say, further undermines the fairness of trade agreements. In almost all cases, foreign investors hold greater privileges than those defined by domestic law, including the U.S. Constitution.
At the 3rd round of Korea-U.S. FTA negotiations, the South Korean government requested that the provision of expropriation be excluded from international tribunals, but this request was denied. At the 5th round of talks, a minimal request of excluding claims on tax and real estate policies was made, but this request is unlikely to be met. Recently, South Korea’s real estate market has seen highly vulnerable speculations and an uncontrolled rise in price. The housing speculation crisis is a national issue, and the real estate market is now undergoing policy changes that should make it more stable and safe. The request to exclude real estate policies from ISDS reflects the South Korean government’s effort to make housing more accessible, affordable, and environmentally conscious. Under the ISDS clause, however, investors can challenge such policies, inevitably restricting protective social measures set by the government on behalf of public interest.
The negative financial impact of ISDS and international tribunals is large. Since the passing of NAFTA, 42 claims have been filed against the U.S., Canada, and Mexico in the amount of $28 billion, of which $35 million has already been claimed from the governments of Canada and Mexico. The U.S.-Australia FTA did not include the kind of ISC and tribunal mechanism proposed for the Korea-U.S. FTA. This demonstrates that the two governments see the problematic and unfair nature of the ISDS clause.
Our assessment is that, first, the privilege given to investors and tribunals under the ISDS clause is outside the boundary of the South Korean and U.S. constitutions and therefore undemocratic in nature; second, the ISC clause and tribunals put enormous pressure on both governments to lower public standards in order to prevent future claims; and third, large claims against governments inevitably burden taxpayers and constrain their ability to participate in a healthy market.
We believe that a fair and just trade deal must reflect public interests and respect domestic policies that uphold public standards. The ISDS clause, as one of the most problematic parts of the Korea-U.S. FTA, makes the entire trade framework unacceptable for the people in both countries.
The Procurement Policy
For any democratic government, procurement policy is a necessity for the promotion of domestic economic development. In the U.S., procurement policy helps to prevent the offshoring of state jobs, promotes locally made products, prohibits products made by compromising human rights and labor standards, and gives preference for recycled content, renewable energy, and alternative fuel. However, procurement provisions have come under restraint by bilateral trade agreements as will NAFTA and CAFTA. Normally, procurement provisions are set by federal and state legislatures, but under bilateral trade agreements, they are determined by foreign tribunal rulings, which oblige the federal government to force state and local government compliance.
In South Korea, procurement policy promotes the growth of thousands of small businesses in various regions, providing entrepreneurial opportunities to businesses that are conscious about environmental and labor issues. Such a policy, in turn, keeps public interest alive and maintains community-government cooperation. With the Korea-U.S. FTA, however, the USTR is requesting that procurement contracts be reduced from $25 million a year to $8 million a year. Furthermore, although procurement policy regarding electricity and gas were originally exempted from the FTA negotiations, the USTR has been demanding their inclusion since the 5th round of talks.
Procurement policies, both governments need to recognize, are an important mechanism through which governments protect public rights. We believe that decisions regarding procurement belong to the U.S. and South Korean legislatures and not to a tribunal that can easily dismiss environmental, labor, and human rights issues. The governments of both countries have a responsibility to promote sustainable economic development while resolving these issues. Therefore we believe that a free trade agreement that jeopardizes procurement measures is not only undemocratic for undermines nations’ legislative systems, but also a disservice to the hard-working people of both countries.
Part II: Cases
Case 1: The Life and Death of a FarmerOn September 10, 2003, the opening day of the Fifth WTO Ministerial in Cancun, a South Korean farmer, Lee Kyung Hae, climbed the fence which surrounded the negotiations site and plunged a knife into his heart in protest against the indiscriminant opening of Korea’s agriculture market. Below is an excerpt from a letter he wrote before he took his life.
I am a 56-year old Korean farmer. As a young man, after graduating from an agricultural college, I worked with my own hands to turn rough mountainous lands into a small dairy farm. While working on my farm, I also cultivated rice in fields in the valley below, which I had inherited from my father. This is how I lived—by farming. While doing this precious work I came together with others like me to found an organization through which we could contribute to our local community and our country.
After the WTO, our worst fears were realized as cheap imported products flooded our agricultural markets. We knew that no matter how hard we worked we could not match the prices of these imports. We also came to feel how very small we are: our farms (average size 1.3ha) are not even as big as 1/100 the size of those in large exporting countries. As cheap agricultural imports poured in all around us, my friends and I switched from growing one crop to another, trying to survive in the cracks between them. But, of course, there were those who got tired of living in these cracks and gave up farming altogether.
After the Uruguay Rounds and South Korea’s agricultural structural readjustment, it is true that there were some individual cases of farmers whose productivity increased. However, you must understand that it was also then that overproduced agricultural products flooded our markets at the lowest prices ever. Because of this there were times when the price of our goods would suddenly plunge to just 1/4 of their normal price. Think about it: if your salary was suddenly cut in half without you knowing why, how would you feel?
Those who gave up early went to the city only to fall into urban poverty, and those who fought until the end trying to break this vicious cycle were thrown into bankruptcy by unimaginable debt. Of course, among them, those with good luck have been able to go on a bit longer, but we can only wonder how long it will be before they too meet a similar fate.
As for me, I could not help but stay up at night looking around the faded and empty homes of friends who left, wishing for their return. Once I rushed to the house of a man who, despairing at his uncontrollable debt, took his own life by drinking a toxic chemical; I could do nothing but listen to the sound of his wife weeping.
Today if you go to farming villages in Korea you will come across worn-out vacant houses and old people with bent backs and walking canes. The only way you can experience what was once called the “beauty of Korea’s countryside” is in a car flying by on the highway. In fact, those highways are attracting large buildings, apartments and factories.
This land was once rice fields made by our ancestors and cultivated for hundreds of years; in the past it gave forth our daily food. In the modern society of today the healthy land and water maintained by our fields are even more important. Is there anyone who will protect our farmland, our traditional culture, our beautify scenery and our environment?
Case 2: Living with HIV/AIDSMy name is Han-ki Yoon, and I found out that I have AIDS nine years ago. Currently in South Korea, there are 13 kinds of AIDS treatment drugs, most of them developed in the 1990s. Theses drugs are covered by the national health insurance at no cost to the patient. However, since AIDS was first discovered in South Korea 20 years ago, the number of patients who have developed a resistance to these drugs is growing. I myself have developed a resistance to all 13 drugs. Since 2000, the FDA has approved 12 types of AIDS treatments, but only 3 are permitted to be sold in South Korea, with only 2 types actually on the market. The pharmaceutical company Roche has a permit to sell Fuzeon in South Korea but refuses to sell the drug, demanding a price that is in accordance with the price in the U.S. and Europe, which is $20,000 a year for one patient. Was not the high cost of Fuzeon also a problem in the U.S.? Furthermore, the cost for South Korea’s insurance system and government is increasing because all AIDS treatment drugs in Korea, except for one, are original drugs with patents.
I am now face to face with death as I wait for new AIDS treatments to be sold in South Korea. People living with HIV/AIDS (PLHA) all over the world suffer from prejudice and discrimination. Similarly, PLHA in Korea have difficulty holding a job. People like me, whose bodies are already weak, do not have an income because we cannot do manual labor. I am 40 years old, but my savings are less than a thousand dollars. It is impossible for me to pay $20,000 a year for Fuzeon. Only a few people in South Korea can pay $20,000 a year for any kind of treatment. Fortunately, I asked the organization AID for AIDS for help, and I am now able to get Fuzeon. However, I still need to buy the expensive drug Aptivus, made by Boehringer Ingelheim, for my drug cocktail. Treatment for various infections is also very expensive. Currently, I receive a treatment for cytomegalovirus (CMV), which costs $2000 a month. I cannot pay for this on my own, so I get help from my friends, but I don’t know how long I can keep this up. While waiting for new drugs, I lost sight in one eye, and it has become difficult to walk. I now live in a center for people with AIDS, the only option I have if I want to survive.
I know that drug inaccessibility is a problem for many. Since 2004, I have been active in the organization called Solidarity for HIV/AIDS Human Rights of Korea (NANURI+). I am its chairperson. When we heard early last year that the negotiations for Korea-U.S. FTA would begin, we were extremely worried. When South Korea’s Ministry of Health and Welfare announced a drug pricing policy (which would stabilize drug prices) in May 2006, the multinational group, Korean Research-based Pharmaceutical Industry Association (KRPIA), held a press conference opposing the drug pricing policy, which I attended. They said that they oppose the policy in order to protect patients’ access to new drugs, and that if the drug pricing policy is not repealed, all investment would be withdrawn. I know better than anyone that KRPIA’s notion of ‘access to new drugs’ is only possible when we pay their high price. They demand a high drug price without good reason. I asked them, “I’m an AIDS patient; why is Roche trying to sell Fuzeon at such a high price?” It was not easy for me to reveal to the media that I am an AIDS patient, but I wanted to ask if it makes sense to them that I have to face death because drug prices are too expensive. They did not answer. Their ‘access to new drugs’ was only a lie.
Wendy Cutler stopped the 2nd round of Korea-U.S. FTA negotiations with the same reasoning as KRPIA. And the USTR formally accepted South Korea’s drug pricing policy but has demand 16 items; these 16 items would make the drug pricing policy an empty shell. At the moment, South Korea’s pharmaceuticals are about to be negotiated with U.S.’s trade remedies in a high-level ‘Big Deal’ meeting. Does it make sense that the lives of patients are exchanged in the hands of negotiators? If we look at U.S. FTAs with Chile, Singapore, Australia, and Central America, they contain clauses about extending patents and exclusive rights and restricting compulsory licensing and generic drugs. Also, the investor-state claim clause in included. The Korea-U.S. FTA will result in a rapid rise in drug and treatment costs, and the state will be susceptible to lawsuits whenever a policy benefiting patients is implemented.
Last August, I attended the International AIDS Conference. My friends tried to stop me from going because of my poor health, but I had to do something about the FTA and the abuse caused by pharmaceutical companies. I talked to people living with HIV/AIDS from Thailand, Malaysia, the Dominican Republic, the U.S., France, and South Africa. We held a rally opposing FTAs, which only benefit pharmaceutical companies, while shouting, “Life Over Profit!” It is unthinkable what would happen to Thailand’s 700,000 people living with HIV if the Thai-U.S. FTA is passed. Last November, the Thai government implemented compulsory licensing on AIDS drugs. Thailand’s national pharmaceutical company is able to distribute the AIDS treatment Efavirenz at 1/30th of the cost of Bristol-Myers Squibb. Moreover, in last August, after a long struggle, Thailand’s people living with HIV/AIDS persuaded GlaxoSmithKline to give up its patent on Combid. I was very happy to hear such news, but I am very worried that everything would become worthless if the Thai-FTA is passed.
All over the world 8000 people die of HIV/AIDS each day because of patents and expensive drugs. For people living with HIV/AIDS, FTAs are a death sentence. I have a clear reason to oppose the Korea-U.S. FTA. The FTA will take away the chance for AIDS patients like me to receive treatment and will contribute to the spreading of AIDS. The FTA shall bring disaster upon the people living with HIV/AIDS all over the world.
Case 3: Living with Leukemia
I am Jung-ha Kim, the older sister of the deceased Jung-gyu Kim. My brother, who suffered from Leukemia, passed away on October 12, 2006.
My brother was diagnosed with Leukemia in August 2005. He was initially treated with the Leukemia drug Gleevec, but his body began to reject the treatment after only 6 months. He then tried to participate in the clinical trial for Tasigna, a new drug produced by Novartis Pharmaceutical, but was excluded from the study due to side effects. In the face of these two failures, a new drug called SPRYCEL that combats resistance to Gleevec became my brother’s last hope. SPRYCEL was developed by the U.S.-based transnational pharmaceutical company Bristol-Myers Squibb and received FDA approval on June 28, 2006.
Sadly, the clinical trail for SPRYCEL was already completed, and a month’s dose costs about $4500. My brother simply did not have the means to pay for the medicine so, instead, he left for a rest-center in the mountains where he could prepare to die.
At the rest-center, my brother’s pain became very intense. Because it was not possible to get anesthesia or a blood transfusion there, we eventually sent him back to a college hospital where he began anti-cancer treatment. Thankfully, he took a turn for the better, but $4500 a month for the proper medicine was simply impossible for us to manage. So my brother had no choice but to wait for the day when the Korea Food and Drug Administration would approve SPRYCEL for its free provision program. Before that could happen, he relapsed. He started the anti-cancer treatment again, but it was not sufficient. My brother died on October 12 last year.
Five years ago the “wonder drug” Gleevec shook the world of Leukemia suffers. Like a miracle from Heaven, it promised five more years of life to over 90% of all patients. However there is still the 10% whose bodies reject the treatment and continue to deteriorate. For this 10% the drug SPRYCEL is equal to life. This is because SPRYCEL has been proven to extend the lives of over 80% of the patients who develop resistances to Gleevec.
Anyone can get a terminal disease. Even the healthy die of disease in their old age. If you become ill you must take medicine, and you must pay the price of that medicine. You have to keep paying until you recover completely or until you die.
Today about 2,000 Leukemia patients in Korea are taking Gleevec, which costs the National Health Insurance Corporation over $31 million a year. In addition, the number of patients is increasing by over 200 people each year, so each year the drug expense goes up over $7.5 million. In 2013, the year the patent expires, the National Health Insurance Company will have to pay more than $85.7 million for Gleevec to treat 3,400 Leukemia patients.
At first there was only Gleevec. Now-a-days there are more than ten “miracle drugs” including Gleevec, Velcade, and Temodal approved for national healthcare coverage at high prices and many other expensive drugs like Tasigna and SPRYCEL that are currently being clinically tested or waiting to be approved.
The problem, not just with Gleevec, but with most miracle drugs, is that they do not provide complete cures, but rather only extend your life. And, for them to be effective, you have to take them everyday for the rest of your life until you die. The standard is that if you are a patient waiting for death, these drugs give you the gift of life and health, but in exchange, you have to pay exorbitant fees for the rest of you life. The National Health Care Corporation also has to put out huge amounts of money.
If the Korea-U.S. FTA is concluded it will mean the strengthening of patents and drug prices with skyrocket. The consequent depletion of funds for public healthcare will mean the destruction of the national health insurance system.
In Korea, which currently provides universal healthcare for its people, protecting patients’ access to medicines is the basic premise of insurance. However, if, due to skyrocketing drug prices, the fund for public health insurance is drained, even drugs that are indispensable for the treatment of people like my brother will not be approved for coverage or will lose their approval. It will then become inevitable that some patients die because they don’t have money even though medicines that could treat them exist.
I believe we should not see pharmaceuticals as merely commodities. In reality they should be seen as public goods because they are directly related to people’s lives and health. Therefore, they should not be included in free trade agreements.
Drugs which could cure you, but which you cannot take unless you have a lot of money are not really life-giving medicines. Rather, they are poisons that kill you two times over. This was the case with my brother. Please, I fervently pray that you will not make this historic mistake called the FTA, which will bring this sad misfortune to patients like my brother and all Korean people.