What	  are	  the	  Objec,ves	  of	  the	  U.S.-­‐	  South	  Korea	  Free	  Trade	  Agreement	  for	  Korean	  Wave	  Diplomacy?	
Yuka	  Yamanouchi	  (Nouchi	  /	  No)	• The	  ques,on	  I	  considered	  was	  whether	  KORUS	  FTA	  was	  really	  beneﬁcial	  for	  the	  Korean	  Wave.	  
• The	  basic	  model	  is	  a	  two-­‐level	  game,	  and	  I	  analyze	  the	  nego,a,on	  process	  from	  Korean	  Wave	  perspec,ves.	  
• Movie,	  drama	  and	  music	  industries	  • My	  hypothesis:	  – Korea	  lost	  an	  advantage	  of	  cultural	  trade	  with	  U.S.	  by	  KORUS	  FTA.	  
– U.S.	  → coercion	  strategy	  – Korea	  → concession	  strategy	  Q:	  	  KORUS	  FTA	  → Korean	  Wave?	  
Dramas	  &	  Music	South	  Korea	

The	  U.	  S.	
Movies	KORUS	  FTA	  (Korea-­‐U.S.	  Free	  Trade	  Agreement)	  • FTA	  between	  two	  large	  economies	  – [U.S.]	  First	  FTA	  with	  a	  major	  Asian	  economy	  – [Korea]	  Second	  largest	  FTA	  following	  the	  EU-­‐Korea	  FTA	  • Long	  ,me	  with	  nego,a,on	  – 2004:	  	  FTA	  was	  suggested.	  
– 2007:	  	  Both	  countries	  signed.	  
– 2012:	  	  FTA	  entered	  into	  force.	  

• One	  of	  the	  controversial	  points	  is	  Korean	  Wave...?	  Korean	  Wave	  (韓流,	  Hallyu)	  • A	  recent	  cultural	  phenomenon	  of	  South	  Korea	  – The	  increase	  in	  the	  popularity	  of	  South	  Korean	  culture	  since	  the	  late	  1990s	  – The	  increased	  popularity	  of	  South	  Korean	  entertainment	  has	  led	  to	  higher	  sales	  of	  other	  goods	  and	  services	  such	  as	  food,	  clothing	  and	  video	  games	  • This	  is	  used	  by	  the	  government	  as	  a	  so^	  power	  Export	  of	  Korean	  Cultural	  Contents	
Music	(thousand	  dollar)	

600,000	
500,000	400,000	
300,000	
200,000	
100,000	
0	

Movie	

Broadcast	(%)	

Cultural	  Budget	
20.0	
18.0	
16.0	
14.0	
12.0	
10.0	
8.0	
6.0	
4.0	
2.0	
0.0	

(thousand	  dollar)	

CorrelaOon	  between	  Export	  and	  Budget	
5000000	
4500000	
4000000	
3500000	
3000000	
2500000	
2000000	
1500000	
1000000	
500000	0	

y = 13.709x - 2E+06	
R² = 0.91272	

not	  phenomenon	  but	  diplomacy	0	 50000	
100000	
150000	
200000	
250000	
300000	
350000	
400000	
450000	(million	  won)	

• According	  to	  J.Yang(2012),	  North	  America	  is	  the	  second	  largest	  con,nent	  that	  imports	  Korean	  goods.	  
– U.S.	  audiences	  use	  the	  internet	  to	  watch	  Korean	  movies,	  dramas	  and	  music.	  
– Un,l	  2011,	  k-­‐pop	  videos	  on	  YouTube	  have	  been	  viewed	  240	  million	  ,mes	  in	  the	  U.S.,	  which	  is	  the	  second	  highest	  views.	  

⇒	  The	  U.S.	  is	  an	  important	  market.	  
• In	  KORUS	  FTA,	  Korea	  has	  2	  disadvantages	  on	  export	  their	  cultural	  goods	  to	  the	  U.S..	  Disadvantages	  of	  KORUS	  FTA	  for	  Korean	  Wave...	  
1. Reduc,on	  of	  movie	  screen	  quota	  in	  2006	  – Reduce	  quota	  of	  Korean	  movie	  ra,o	  from	  146	  days	  to	  73	  days	  in	  each	  year	  2. Revision	  of	  copyright	  law	  in	  2011	  – Revised	  to	  TRIPS-­‐Plus	  regime	  made	  by	  U.S.	  Disadvantages	  of	  KORUS	  FTA	  for	  Korean	  Wave...	  
• Strong	  objecOon!!	  
– “These	  disadvantages	  would	  turn	  Korea	  into	  a	  colony	  of	  U.S.”	  – “Korea	  was	  not	  yet	  strong	  enough	  to	  enter	  into	  the	  FTA	  with	  U.S”	  • Korean	  government	  agreed	  on	  U.S.	  
sugges,ons.	  
• Why?	  A	  Two-­‐Level	  Game	  by	  Putnam	  (1988)	  • Level	  II:	  at	  the	  DomesOc	  Level	  – Domes,c	  groups	  pursue	  their	  interests	  by	  pressuring	  the	  government	  to	  adopt	  favorable	  policies,	  and	  poli,cians	  seek	  power	  by	  construc,ng	  coali,ons	  among	  those	  groups.	  

• Level	  	  I:	  at	  the	  InternaOonal	  Level	  – Na,onal	  governments	  seek	  to	  maximize	  their	  own	  ability	  to	  sa,sfy	  domes,c	  pressures,	  while	  minimizing	  the	  adverse	  consequences	  of	  foreign	  developments.	  A	  Two-­‐Level	  Game	  by	  Putnam	  (1988)	  • Three	  sets	  of	  factors	  aﬀect	  win-­‐set	  size.	  	
– Level	  II	  preferences	  and	  coali,ons	
– Level	  II	  ins,tu,ons	
– Level	  I	  nego,ators'	  strategies	  A	  Two-­‐Level	  Game	  by	  Putnam	  (1988)	  • “win-­‐set”:	  Agreement	 
K	 

U1	  U2	 
Korean	  Win-­‐set	 

K1	 

U3	  K2	 

The	  U.S.	  	  Win-­‐set	 

U	 Level	  II:	  	  Small	  Win-­‐set	  • Preference(1):	  	  Screen	  Quota	  • Preference(2):	  	  Copyright	  Law	  • Preference(3):	  	  An,-­‐Americanism	  • Ins,tu,ons:	  	  Strong	  Power	  of	  Industries	  Level	  	  I:	  	  Coercion	  Strategy	  • U.S.	  ﬁlm	  industry	  has	  aimed	  at	  foreign	  market.	  
– W.	  D.	  Wallsa	  &	  Jordi	  McKenzieb(2012)	  – Hollywood:	  “Interna,onal	  revenues	  have	  grown	  from	  roughly	  equal	  to	  domes,c	  in	  2000	  to	  double	  the	  level	  of	  domes,c	  revenue	  in	  2009.”	  • U.S.	  ﬁlm	  industry	  has	  fought	  with	  non-­‐tariﬀ	  barriers.	  	  	  	  	  (1)Quota	  	  (2)Copyright	  	  (3)AnO-­‐Americanism	  • Several	  countries	  enforcing	  screen	  quotas	  include	  the	  U.K.,	  Pakistan,	  Italy	  etc.	  
– In	  Spain:	  Minimum	  number	  of	  screening	  days	  of	  domes,c	  ﬁlms	  is	  between	  73	  and	  91	  days.	  
– In	  France:	  40	  percent	  of	  the	  TV	  broadcas,ng	  must	  be	  exclusively	  of	  French	  origin	  and	  addi,onal	  20	  percent	  must	  be	  of	  EU	  origin.	  

• The	  U.S.	  regards	  the	  quotas	  as	  “non-­‐tariﬀ	  barriers,”	  and	  has	  forced	  to	  remove	  them.	  
• Korea	  had	  a	  strict	  quota.	  • The	  KORUS	  FTA	  should	  be	  seen	  as	  a	  model	  for	  future	  U.S.	  trade	  agreements.	  
– U.S.	  industries	  complain	  about	  China.	  
– Business	  so^ware	  piracy	  in	  China	  alone	  cost	  U.S.	  ﬁrms	  $3.4	  billion	  in	  lost	  trade	  in	  2009.	  

• Korea	  also	  had	  massive	  amount	  of	  illegal	  downloading	  of	  copyrighted	  works.	  
– Loss	  by	  illegal	  digital	  downloading	  was	  more	  than	  $1.7	  billion	  in	  2008	  in	  Korea.	  
– Second	  largest	  country	  of	  online	  music	  piracy	  in	  2009.	  Cultural	  Export	  from	  U.S.	  to	  Korea	
200,000	
150,000	
100,000	
50,000	0	
2006	

2007	

2008	

Music	

2009	

Movie	

2010	Broadcast	

2011	

2012	

• Industries	  are	  stronger	  than	  government.	  
– Osawa	  (2008)	  – Oﬃce	  of	  the	  United	  States	  Trade	  Representa,ve	  (USTR)	  is	  mainly	  concerned	  in	  FTAs.	  
– However,	  industries	  also	  have	  strong	  inﬂuence.	  
– Ex.	  Automobile,	  agricultural,	  ﬁlm	  industries	  • Film	  industry	  hoped	  that	  USTR	  barled	  with	  screen	  quota,	  copyright	  law	  and	  an,-­‐Americanism	  in	  Korea.	  
• USTR	  must	  consider	  arguments	  from	  each	  industry.	  
→ Small	  domes,c	  win-­‐set	  → Coercion	  strategy	  Level	  II:	  Large	  Win-­‐set	  • Preferences(1):	  	  Screen	  Quota	  	  • Preferences(2):	  	  Copyright	  Law	  	  • Preferences(3):	  	  Subsidy	  • Ins,tu,ons:	  	  Strong	  administra,on	  Level	  	  I:	  Concession	  Strategy	  MulO-­‐track	  FTA	  strategy	  • A^er	  Asian	  currency	  crisis	  in	  1997	  – The	  IMF	  demanded	  that	  South	  Korea	  would	  further	  open	  its	  markets.	  
– Korea	  has	  reformed	  its	  economy	  to	  open	  markets.	  

• Korea	  improved	  its	  economy	  by	  promo,ng	  export.	  
– ex.	  Korean	  Wave	  → Government	  is	  posi,ve	  on	  FTA.	  • Strong	  objecOon	  from	  ﬁlm	  industry	  – Decrease	  of	  the	  dura,on	  of	  screening	  days	  owing	  to	  U.S.	  pressure	  in	  1997.	  
– “Hollywood	  would	  destroy	  Korean	  domes,c	  ﬁlms”	  – Therefore,	  despite	  U.S.’s	  constant	  request,	  the	  no	  change	  had	  been	  made	  in	  screen	  quota	  for	  5	  years.	  

• Government	  was	  posiOve	  on	  quota	  reducOon	  unOl	  2006.	  Percentage	  of	  domesOc	  ﬁlms	  produced	  in	  Korea	
30.0	
25.0	
20.0	
15.0	
10.0	
5.0	
1997	
1998	
1999	
2000	
2001	
2002	
2003	
2004	
2005	
2006	

• Strong	  objecOon	  from	  consumers	  – New	  provisions:	  TRIPS-­‐Plus	  regime	  – Civil	  law	  →	  Common	  law	  – Too	  complica,ng	  to	  understand	  what	  was	  illegal	  or	  not.	  
– Some	  of	  them	  worried	  that	  they	  might	  be	  arrested	  even	  by	  just	  downloading	  a	  song	  on	  the	  internet.	  

• Government	  was	  posiOve	  on	  copyright	  revision	  unOl	  2011.	  • The	  counterfei,ng	  and	  piracy	  in	  their	  domes,c	  market	  also	  bothered	  Korea.	  
• The	  government	  had	  already	  tried...	  
– Threatening	  to	  cut	  pirates'	  connec,ons	  – Blocking	  pirate	  websites	  – Forcing	  youthful	  downloaders	  into	  educa,on	  program	  • All	  of	  them	  did	  not	  have	  clear	  eﬀect.	  	  ! Reforming	  the	  copyrights	  from	  Civil	  law	  (focusing	  on	  ar,sts’	  personal	  rights)	  into	  Common	  law	  (including	  industries’	  economic	  rights)	  • It	  also	  had	  a	  minor	  excepOonal	  provision	  on	  broadcas,ng	  copyright.	  • Korea	  sustained	  subsidies	  – One	  of	  the	  vital	  policies	  of	  Korean	  Wave	  – ex.	  Post-­‐produc,on:	  964	  million	  won	  – ex.	  Interna,onal	  co-­‐produc,on:	  2970	  million	  won	  • Fortunately,	  when	  nego,a,ng	  KORUS	  FTA,	  U.S.	  
did	  not	  cri,cize	  these	  cultural	  subsidies	  in	  Korea.	  
– Both	  U.S.	  government	  and	  industries	  look	  at	  Korean	  cultural	  subsidies	  lightly.	  Eﬃcient	  system	  of	  the	  Korean	  government	  • Fast	  – Since	  1998,	  Ministry	  of	  Foreign	  Aﬀairs	  and	  Trade	  (MOFAT)	  was	  given	  jurisdic,on	  over	  external	  trade.	  

• Flexible	  – The	  authority	  can	  be	  divided	  into	  domes,c	  and	  interna,onal	  sectors.	  
– The	  KORUS	  FTA	  Support	  Agency	  was	  established	  directly	  under	  the	  president.	  	  • Government	  considered	  that	  screen	  quota	  reduc,on	  and	  copyrights	  revision	  would	  be	  beneﬁcial	  for	  Korea	  too.	  
• There	  were	  strong	  opposi,ons	  from	  industries	  and	  consumers,	  but	  government	  suppressed	  them.	  	   → Large	  domes,c	  win-­‐set	  	  	  	  → Coopera,ve	  strategy	  Why	  South	  Korea	  concluded	  the	  KORUS	  FTA?	  

The	  U.S.	  	 	  	  	  	  	  	  Strong	  Industries	• Small	  win-­‐set	  →	  Coercion	  strategy	• VS	  screen	  quotas,	  copyright	  and	  an,-­‐Americanism	

South	  Korea		  	  	  	  	  	  Strong	  Administra,on	• Large	  win-­‐set	  →	  Concession	  strategy	• Assume	  limited	  loss	  on	  movie	  by	  revisions	Further	  implicaOon...	  
Alterna,ve	  Korean	  cultural	  strategies	  lay	  behind	  KORUS	  FTA.	  
① Expanding	  import	  of	  U.S.	  cultural	  contents	  Korea	  was	  trying	  to	  repeat	  their	  history	  with	  Japan	  since	  1998.	  
– Foreign	  high	  quality	  culture	  made	  their	  domes,c	  products	  more	  compe,,ve	  a^er	  quota	  reduc,on	  –② Conserving	  Korean	  domes,c	  products	  –Both	  the	  copyright	  revision	  and	  the	  exclusion	  were	  for	  protec,ng	  domes,c	  industries	  in	  domes,c	  market.