Transcript of Panel Discussion
Ratifying the FTA: Beyond Beef and Cars

February 16, 2011

Panelists
Evan Alexander
VP
Citigroup
Global Government Affairs


Jeffrey Hayman
Chief Administrative Officer
Chartis Insurance


Sam Nam
General Counsel
J.P. Morgan Global Corporate Bank
London
Former Chief Administrative Officer and Head of Legal Compliance, J.P. Morgan,
Korea (2004-2010)


Moderator
Ambassador Thomas Hubbard
Chairman
The Korea Society

Senior Director
McLarty Associates

KEVIN KEHOE:
Good afternoon, ladies and gentlemen. Welcome to The Korea Society. Our topic today is Ratifying the FTA: Beyond Beef and Cars. So much of the focus on the FTA in the past few years has been on beef and cars that people tend to forget that it covers a huge number of other industries. Since we are in New York and the principle industry in this city is finance, I thought it would be a good idea to review exactly what the FTA will do for financial companies resident in Korea.

The portion of the FTA that addresses financial institutions was created in 2007. It appears to have been created, written, published and then set aside. I think it's time to take a fresh look at not just what the FTA will do for financial institutions in Korea, but what has already been done in the case of financial industries.

Also in 2009, Korea passed a very important law called the Financial Investment Services and Capital Markets Act (FSCMA). The Capital Markets Act does some of the things that were already in place in the FTA which is, of course, a very positive situation. With us here today are representatives from the banking, securities and insurance industries to talk about the impact of the KORUS FTA and the FSCMA on their particular industries.

Included in today's discussion is Thomas Hubbard, Chairman of The Korea Society and senior director of McLarty Associates in Washington. Tom has served as Ambassador to Korea and will moderate the panel today after opening remarks.

Jeffrey Hayman is chief administrative officer of Chartis Insurance here in New York. He served formerly as CEO of Chartis Far East and spent eleven years in Asia.

Evan Alexander is with Citibank's Global Governance Group. Evan is based in Washington and works on the promotion of many FTA agreements including the Korean FTA. Evan served on the House Ways and Means Committee from 2007 to 2010 and has been with Citibank since that time.

Sam Nam is currently a general counsel to J.P. Morgan in London. Formerly he was with J.P. Morgan in Korea as chief administrative officer and head of legal and compliance. Sam returned from Korea only six months ago. He knows capital markets law inside and out, and is extremely knowledgeable about what's going on with the FTA and the possible changes that will be incremental to what has already been put into place. I am going to pass the microphone over to Tom Hubbard and let him begin. Thank you very much. [Applause]


THOMAS HUBBARD:
Thank you Kevin. I'm going to be very brief in my opening remarks because I think you are here to hear the experts, and I am clearly not an expert in financial services.

For the last four years or so, and even before that as a government official, I have been deeply involved in trying to find a way to promote approval of this free trade agreement, in part by persuading the public, key constituencies and members of Congress that this free trade agreement is a good thing for the United States and a good thing for the global economy. I am really pleased to be here at a time when we are finally beginning to move forward in a serious way toward approval of this agreement in the U.S. Congress.

As you know, the administration is ready to go. We have now completed all of the legal documentation. The actual legislation is under preparation, and President Obama and U.S. Trade Representative Ron Kirk have indicated that they want to move forward very quickly with the objective of getting this passed in the first half of this year. I believe there is a very good prospect for getting that done.

We've talked all of this time about cars and beef. I'm pleased to say that the auto issue has been fixed to the satisfaction of the U.S. auto industry, the labor unions and their congressional representatives. There are still some issues surrounding beef with Senator Baucus, who is chairman of the Senate Finance Committee that has jurisdiction over the agreements. He is not satisfied with Korea's commitment to open its market to U.S. beef. Ironically, the American cattle industry is very pleased with the agreement and are ready to move ahead right away. I think there will be some bumps in the road, but we'll get there.

Perhaps Evan, who has been associated with the Republicans in the House of Representatives, will want to talk a little more about this. The Republicans are also very interested in getting approval of the free trade agreements negotiated earlier with Colombia and with Panama, particularly the Colombian agreement, and are trying to take the stand that they should move forward concurrently with the KORUS FTA.

The administration says it's not ready to move forward yet. They need to makes some changes in the Colombian and Panama agreements, as they did with the Korean agreement before moving forward. We are at something of an impasse right now. I think it's going to take a little while longer to work that out. I think everybody wants Colombia and Panama to pass also, but I certainly don't want to see it hold back the Korean agreement.

Just a couple of overall remarks. Again, all this focus has been on cars and beef, but really the benefits of the FTA are across the board for the U.S. economy, for U.S. exporters and for prospects of American jobs. This is a good agreement for manufacturers and it is particularly good for the auto industry after the improvements.

One of the things that I think is universally accepted is this is a very good agreement for the service sector, and today we've brought together some people representing the financial services sector. I'd like to point out that there's really very good things for other services, as well, including things like express mail, express deliveries; regularizing the reparations and the rules in that area. It's also good for lawyers, which may in turn be good for others interested in investing in Korea. For the first time, it will phase in the ability of foreign Americans to advise and practice law in Korea. This is good across the board.

Going around the country, I've been in tandem here and elsewhere with Ambassador Han Duk-soo of Korea, who has been very effective in promoting this agreement, as my friend  Ambassador Kim Young-mok has in New York.

One of the things Ambassador Han has said that really struck me is that for Koreans, the objective of this free trade agreement is not so much an increase in exports, which was working very nicely anyway; but more an effort to modernize and open up the Korean economy so that it will be more competitive in a whole variety of sectors, including financial services.

I think we would like to see the same thing. This may be the first time, that I can think of, where certainly a major country has justified a free trade agreement more on the issue of modernizing and opening up its own economy than on actually expanding exports and the like, so this is a very important agreement in many respects.

Let me start off by asking Sam Nam of J.P. Morgan Global Corporate Bank to start us off. He's actually lived and worked in Korea, and I think he can give us a good perspective on the banking situation.

SAM NAM: Thank you, Ambassador. Let me just begin by saying first of all I'm glad that I had this opportunity to come to New York. Any of you who have actually lived in London know there are not a lot of Korean restaurants there; so I'm glad that I had an opportunity to have some Korean food.

What I would like to talk about today, from a high-level perspective, are the parts of the FTA that in my view are really beneficial to financial services. And then, since I was there when this Capital Market Act was promulgated, and am also somewhat familiar with the market conditions, I will just touch upon that and try to see how I can pull all these things together.

I think it's really noteworthy to mention what you just said, Ambassador, and that is what Ambassador Han mentioned about modernizing, opening up, and making a more competitive market. The perspective that a foreign firm or a US financial institution might have about KORUS FTA, I think, is in many ways shared by many of the Korean players, as well.

One of the most important aspects of the FTA is the promotion of transparency. In the rules themselves, they called for a very specific (as precise, I guess, as treaties can be) process in how rules are made, how parties can have an opportunity to comment, and hopefully impact how rules are ultimately made and enforced. I think that's good for not just the foreign players, but also the Korean players, as well. It's actually been a challenge to understand exactly what the rules mean, and that's a universal situation. The fact that we can actually have something like an FTA that calls for that is important.

It's also important because Korean institutions are trying to be more globalized in the way they operate. They are looking to have operations outside of Korea, and so they will be able to understand what many of the so-called universal banks or global firms go through when trying to operate with many of the offshore entities.

Some of the difficulties that we might have had, such as data processing by our offshore affiliates, is also something that's addressed here in the FTA. That's also an extremely important accomplishment in the FTA. Again, the fact that we can share information with our affiliates was a very difficult issue for foreign firms; but I think that the Korean firms, as they try to do business outside, will face similar issues.

Another point to make about the importance of this FTA is the fact that the types of provisions  in the FTA will serve as a good model for some of the other FTAs that I believe either the U.S. or the Koreans are going to be attempting to enter into with other nations. For example, in Southeast Asia there are many potential markets that American firms or Korean firms might want to go into, and having a similar type of language for transparency or data processing requirements, or allowance of data processing by offshore affiliates, would be extremely helpful.

For me, I think those two points are probably the most significant. A related area to the transfer of information is also the performance of functions. Until fairly recently, many of the functions that many foreign firms tend to outsource or hub out of major centers like say HR or financial reporting or IT and tech ops; those types of support functions generally [are] hubbed out; but it was fairly difficult to do so under Korean rules. I think the fact that the FTA also specifically allows for that will be helpful.

Now, you should note that the Capital Market Act that was passed about two-and-a-half years ago actually does allow for many of these things, as well, and I think the trend has been for the Korean regulators to try to permit some of that. The FTA more clearly addresses those things.

Unfortunately, the timing was a bit off, as the implementation period of the Capital Market Act began around the time of the financial crisis, and there were a lot of things happening at the same time. Any time you have a new set of laws, there has to be a lot of very specific guidelines, and I think the difficult environment made for some delays in implementing those guidelines and trying to work out some of the uncertainties.

The Capital Market Act does provide for information sharing among affiliates when they work on a similar transaction. This is a point that I wish to mention, just to give you an idea of how these things have actually worked in Korea, at least for foreign firms and I believe for Korean firms, as well.

It's not like the regulators make the rules and that's that. It's actually been a very interactive partnership with the regulators. That's another positive from my perspective. When the Capital Market Act was passed, and the regulations were promulgated, unfortunately the regulations called for a very restrictive approach in information sharing among affiliates. And when the foreign firms saw that, the industry groups got together and immediately approached the regulators, wanting to discuss how we can actually clarify and try to bring about a more practical arrangement.

To the Korean regulators' credit, they actually were extremely gracious in meeting with us frequently, and together with the industry groups, outside lawyers and the Korean regulators, they actually amended the regulations. I mean, I think that's quite drastic. They amended the regulations and within a few months, they allowed for information sharing. I can go more into detail about that sort of arrangement, but to me that's the sort of the step that we're embarking upon. The FTA, along with that sort of positive attitude and cooperation, is hopefully where we're headed.

I do think that with the current financial crisis, the reality is that changes won't come as quickly as we would like, but I think the momentum is clearly with us. I'll just close by saying that the new chairman of the FSC was the former Ministry of Finance director general, and he was the person that was overseeing the promulgation of the Capital Market Act.

He is on record recently publicly stating, many times, that he thinks the Capital Market Act has not done what it really wanted to do, which was to create a big bang, a liberalization of the financial markets in Korea; to help create large Korean financial institutions, and that he wants to work really hard to bring about additional modifications to make that happen.

Again, I think that is a great statement. Hopefully, if Koreans can help execute that, along with the FTA, I think there will be a lot of positive things happening in Korea.


THOMAS HUBBARD:
Thank you very much, Sam. Jeff, would you like to give us some perspective from the insurance point of view?


JEFFREY HAYMAN:
Thank you Ambassador Hubbard. I really appreciate the opportunity to be here today. I feel like I'm going to be talking about a much simpler business in the property casualty insurance arena.

The benefits of the KORUS FTA for the industry or for my particular firm can be broken into a couple of large chunks. One would be the direct language in the FTA, as it relates to the insurance industry, and the other would be more indirect, but would be the benefit of the Free Trade Agreement overall.

Focusing on the first, and it's some of the same material, there's some tangible benefits in the language of the FTA along the lines of national treatment; a level playing field in terms of regulation between not just the Korean domestic insurance companies and foreign property casualty companies, but also with entities like Korea Post and some of the quasi government sponsored cooperatives, such as the cooperatives insuring in the areas of agriculture or fisheries. Those are tangible benefits.

The language supporting transparency in regulation is more of a negative list approach, if you will; that if something is not specifically prohibited, it gives you room to work and within which to be innovative in terms of product development and product delivery models. The time to respond to proposed regulations and the open and collaborative environment that we've always enjoyed in Korea; as well as the ability to share data with affiliates across borders makes life much easier for us. From the perspective of a global property casualty insurer, I think the real benefit, even beyond that to us is that our fortunes increase with the increase in global trade in goods and services.

The KORUS FTA, we believe, will result in more manufacturing plant and related risk, more products that are exported in one direction or the other and more export product liability risk that needs to be covered. It will result in more marine cargo that needs to be insured. For that reason, we've long been a supporter of the FTA.

I was in Asia from early 1988 until late 2009, and in that period was responsible for all or part of our operations in Korea. From our perspective, we're a large international player. We're the largest foreign company in the property casualty space within Korea, but have just over a 1 percent market share; so there is tremendous growth potential we see in two directions.

One, we hope we can increase that market share at some point in time. But also, the agreement is an opportunity for the pie to increase. It's along the lines of the old adage "a rising tide lifts all boats." We see it as a tremendous benefit to trade and to our particular industry.

I know that's short, but it's a simple business.


THOMAS HUBBARD:
Thank you very much. That was very short and concise. I think we all understand. Evan, would you like to pick up from there?


EVAN ALEXANDER:
Thanks, Ambassador Hubbard. Thanks to Kevin, as well, and thanks to The Korea Society for having us here.

Korea is obviously a critically important market for Citigroup. We have over five thousand employees there, five million customers, and are the seventh largest bank, overall, in the market; so we have been very active in pursuit of the FTA. We are a co-chair of the Business Coalition advocating for the agreement, and it's important for the relationship generally. So thanks, again. I'm delighted to be here.

I thought what I would do is give an overview of some general economic points, and then maybe touch on some specific things in financial services, as well as add to what Ambassador Hubbard has already said on the political dynamic. By then, you'll be bored to tears and you'll be delighted when I stop talking.

Starting with the general economic points, almost a quarter of U.S. financial services exports go to Korea. This is unbelievable to me. We export about $55 billion and $13 billion of that goes to Korea. To me that's amazing, and it shows the importance of the relationship for our sector. The agreement would obviously safeguard these flows and, as Jeff said, create additional opportunities for new flows.

The next point is that this agreement can be looked at as necessary just to maintain our current footing. U.S. exports to the Asia-Pacific region have increased over the past five years by 63 percent. U.S. market share, in that region, has declined at the same time by 3 percent. Even though our numbers are growing in real terms, the pie is expanding and we're getting a smaller piece of that pie. Those are two general economic points that I think are important to keep in mind.

On the financial services, specific things Sam already mentioned: data flows are critically important for Citigroup. The ability to move data in and out of the market is key to our strategy going forward of leveraging our global footprint. We're in 160 countries. It's important for us to be able to regionalize our data. It helps us manage our capital or liquidity. It allows us to do composite risk analysis. It makes our bank safer and more stable.

Conversely, if we are forced to process data in all of the different markets that we operate in; that all of a sudden becomes fragmented. The data becomes less secure and we don't have that bird's-eye view that's critical for us going forward; so you can't overestimate the importance of the data flows provision in this agreement. It's the first time we've had such a provision in an agreement, and it's really important.

The second point is that the agreement promotes stability and best practices in our sector. In the agreement, the United States and Korea pledged to promote regulatory transparency in financial services, which Sam mentioned. That is important on its own terms, but it will also enhance international assessment and peer review, which are critical pillars of the international and G20 agenda going forward. We really see this agreement as supportive of those efforts for the sector globally.

Secondly, and this is also very important, the agreement sets up a bilateral financial services committee for our U.S. regulators and the Korean regulators to talk to each other. Going forward, the committees can meet once a year; but this is a built-in mechanism to share ideas and perspectives on the types of things that each side is seeing in the other's market.

Right now, Citigroup is addressing certain things related to movement of capital and access to won forward contracts. We're working through all that, but were the agreement to be in place, this financial services committee would provide us with an important avenue to address these concerns, and I think that's really important to bear in mind going forward.

Lastly, the FTA has what is known in trade parlance as a "ratchet clause." It's sort of a technical, wonky term but basically what it means is that to the extent that Korea does things in its own self-interest and liberalizes its own market, the agreement would lock in (that's probably too strong a phrase) those positive developments from a regulatory standpoint.

Anything that Korea does going forward, that from our perspective we would see as helpful to developing the market, developing sophistication in the prudential, supervisory management of the market wouldn't necessarily be as firm if the agreement wasn't in place. That is important, right now, and it's important as Korea works to implement agreements with other countries. Sam mentioned some. Obviously, the European agreement is out there and will implement on July 1, which is my understanding.

Let me move to the political situation just very briefly. Ambassador Hubbard touched on this a little bit. I'll talk about both the South Korean and the U.S. side. Both are very complicated, but let's start with the Korean side.

In conversations that have been had with National Assembly members, I think that there is a bit of a reluctance to begin the ratification process in South Korea because from the South Korean point of view (and I can understand this) there's a sense that the process false started in December of 2008. I was in South Korea at that time, and we all saw what happened when the Foreign Affairs Committee reported it out.

I think that has left some wounds, and there is reluctance to move ahead in South Korea before the South Koreans see some positive momentum on the U.S. side. I think we need to figure out here, in the United States, how to get that ball moving; and then once that ball is moving, how to communicate to the South Korean side the nature of our process, such that there is comfort that our process has started. I don't think it will be immediately obvious to everybody once the process has begun.

I also think that there is a bit of reluctance on the part of the Korean National Assembly members, because they see the European agreement as kind of a much cleaner process. On the U.S. side, we had the original agreement. There was additional negotiation on outstanding issues. The South Korean side benefitted from that a little a bit. The United States side benefitted from that a little bit. It was mutually beneficial, but I do think that that's complicated the viewpoint in the South Korean National Assembly.

On the U.S. side, I think it's equally complicated. Democrats support the agreement, and the resolution of the automobile provisions, as Ambassador Hubbard mentioned, was critically important to building a coalition. Democrats also see the agreement (and I think Republicans, as well) as important to the President's signature program with respect to global engagement, which is his National Export Initiative. He wants to double exports within a five-year period. I think Republicans say, "Great. The Korea FTA will help you achieve that goal." It's important from that perspective."

On the Republican side, I think it's attractive to members because they see it as creating U.S. economic growth without any hit on the fiscal deficit, and in this environment of who can cut more, I think that's a pretty important position to be in. Ambassador Hubbard mentioned the complication in terms of sequencing, with respect to the Colombia and Panama agreements. There is a discussion going on between the Speaker and the White House as to how to move all three agreements. That's very much in its early stages.

I think both sides will get there. From Citigroup's perspective, we support all three agreements. All three are important. I think the Korea agreement will move forward, but the next few weeks will be critical. It may be a little rocky, but I think everybody will get there.

Let me just close by sharing an anecdote. I was in Korea with Ambassador Hubbard in October of 2010. We met with some senior level people from the Korean government side and from the private sector side, and they said to us, "We're just sort of watching your process to see if your political apparatus can move something through that is, by all accounts, to your benefit and is in the U.S. national interest.

It's sort of a test of our process, and that comment struck me. I think we will get there, but I do think that the Korea FTA is a test to see whether or not, in this new political environment, we can move things along in a bipartisan, substantive way that is good for the United States. I'll stop there and am happy to engage in discussion.


THOMAS HUBBARD:
Well, thank you very much. I want to open it up very quickly, but maybe just a couple of questions from here. Picking up where Evan left off, I think this is a test of the political will of the United States to maintain its place in Asia, to pursue free and open trade as we have all throughout history, and to stay engaged.

I think this is a very critical time in Asia where China is growing tremendously, India is following along, our relationships are changing, and I think our ability to take up this Free Trade Agreement with Korea is being looked at by countries throughout Asia as an important test. I think we really do need to move forward.

Sam, you live in London, and Korea has also signed a free trade agreement with the E.U., which I think comes into effect July 31 of this year. Have you examined that agreement to see to what extent the benefits are similar, and have you examined the potential impact of the Korea-E.U. agreement coming into effect before the Korea-U.S. agreement?


SAM NAM:
To be honest, I haven't. What I do know is I was in Korea when that was being negotiated, and it was a very quiet process, and it got done. What I understand is a lot of the terms and benefits are going to be fairly similar. So, in that sense I think it was good that it was out there, and hopefully that actually added pressure on both parties to try to reach the U.S.-Korea FTA as quickly as possible. That would be my take.

As an aside, I think the fact that the Korea-E.U. FTA or Korea-U.S. FTA is out there and Korea, as I understand, is also negotiating FTAs with some other countries; the work that I'm currently doing with this global corporate bank is an initiative that J.P. Morgan is taking. We want to increase our international business and international exposure, similar to what was mentioned earlier about how Citi sees Korea as such an important market and the growth of the international trade being beneficial. That's precisely what we have determined; that because of the increase in trade and activities, say, between Brazil and China and India and Europe, that there's business for us where we can support our clients all over the market and all over the world.

I think that sort of understanding clearly exists in Korea, as well. Based on my years there, I think that was very much on the minds of the Koreans. For that reason, going back to what Ambassador Han said, I think the Koreans have the same objectives we have.


THOMAS HUBBARD:
And Evan, I think it was you that mentioned Korea setting the example. We have this other free trade initiative going on, now, with the Trans-Pacific Partnership that will bring in a number of the other Pacific Rim countries into an FTA with the United States. You may have followed it more closely than I have, Evan. Does that incorporate things like the data flow provisions and the like that are in the Korean agreement?


EVAN ALEXANDER:
We hope that it will. I think the negotiations are at a stage where the United States will soon be tabling text on these issues. They've tabled text in other areas. I think it's critically important that these data flow provisions are also put into the TPP negotiation, because it's the same issue, and I'm sure we all have it. The data moves with trade. In our global transaction services, the data needs to move around. We finance a lot of the trade flows. Jeff's company insures a lot of the trade flows. The data doesn't stay put.

In the real economy, when goods move, the data has to move with it. It's almost a supply chain issue. On the good side, there's a lot of talk about supply chain and infrastructure and ports. For us, being able to process our data regionally in places that we feel good about, that are secure, that have high tech processes, sophisticated software, employees who actually know how to manage the data, that are environmentally friendly and state-of-the-art from a green technology standpoint, all of that is really important.

The idea behind the TPP is to establish a text that other countries can come in and dock onto, ultimately moving towards a free trade area of the Asia-Pacific, and if we miss the opportunity in TPP to have these data flow provisions in that agreement, then it's a big miss, and it's going to have a major impact.


THOMAS HUBBARD:
And it's not, I gather, in the agreements with Singapore and others that we've already signed?


EVAN ALEXANDER:
Correct. Korea is first.


THOMAS HUBBARD:
Korea is first. That's very important. Jeff, insurance is an area where there have been a lot of ownership restrictions in many countries, including Korea. Will this Free Trade Agreement open that up for you?


JEFFREY HAYMAN:
Well, we have been in Korea for a long time, about fifty-seven years, and we, in fact, have 100 percent ownership of our branch there. Given changes there, we actually  are in the process of redomesticating to a local subsidiary; so while there's benefits for the industry, there are no particular benefits for us.

Just to echo a couple of the other statements about the benefits there (and you'll know these numbers much better than I would) I think country to country there's somewhere between 100 and 200 trade agreements in effect in Asia, and how many are we party to? I think two? Or maybe a few more?


THOMAS HUBBARD:
Singapore and Australia. That's it. Two.


JEFFREY HAYMAN:
The precedents that are set in this particular agreement, especially in the area of data flow, the transparency of regulation and the dialogue between business and the regulators are important; and having agreed first, having it ratified is a real test of whether we're going to be able to leverage that in the TPP process.


THOMAS HUBBARD:
There are maybe 300 some odd free trade agreements in Asia and the Pacific, but they're not all equal. Many of them don't quite meet our definition of a free trade agreement, and I think setting this Korean agreement is setting the top standard, and one from which we can move in a lot of other areas. Let me open up the floor now for questions and comments.


MALE:
I remember President Obama was against the FTA when he was a candidate. Obviously he has changed his position, which is a good thing. Now in Korea, the Minju-dang party has said they are dead set against this FTA. Could somebody tell me what's bothering them? Is there any area that anyone on the panel sees as a concern with this treaty? Don't tell me to ask them, because they're not here.


THOMAS HUBBARD:
Well, Ambassador Kim is here, but I wouldn't want to put him on the spot.


KIM YOUNG-MOK:
It's nice of you to forget me.


THOMAS HUBBARD:
My short answer to this is politics is politics in both countries; but please, Ambassador Kim.

KIM YOUNG-MOK:
I'm glad that all three panelists touched on all the political and general characteristics in their particular service sector. One, the political problem for the Korean side is that I think whoever was opposed to this agreement is still opposing it because of fear of American influence, of American domination, of American superiority or whatever political ideology that drives them to oppose it.

I don't know exactly what the Minju-dang's logic is. One thing that is a problem for Koreans, as Evan mentioned, is that once we agreed, our Parliament ratified it and the U.S. Congress refused to ratify it and asked for renegotiation. That was difficult for Koreans; whether they were in favor of the agreement or in opposition to the agreement. That's one thing.

The second problem is there is constant fear that Korea is always inferior competitively, and is not on the same level. It's not a level game with the United States. That fear still persists. You witnessed how Koreans were easily moved by both rumor and logic when they came out to oppose U.S. beef.

Now still, it is U.S. Senator Baucus who is opposed to start the process, because Korea would like to keep the category of the imported beef. Now, U.S. beef has because the largest shelf order in the Korean market, surpassing Australian beef; so there is plenty of opportunity for the U.S. From the Korean point of view, why is the U.S. hurting the process and why are they still in opposition? That's one problem for both sides.

Secondly, I would like to emphasize again, as Ambassador Hubbard said, one of the original purposes of proposing this agreement was to open the Korean economy, particularly the services and financial sector, because Korean industry has been protected, but came up to the [?? 00:47:23] level, and then Korean companies, in terms of manufacturing have good competitiveness. But we thought that some sectors needed a lot of new know-how and synchronization with international standards. That was the most important philosophy of the agreement.

But surprisingly in the U.S., nobody is mentioning the benefit of opening of the Korean service sector, and they never show how much it will benefit U.S. industry in the service industry sector; particularly finance, accounting, legal and consulting. We had to overcome strong opposition from the people who would like to keep control of their turf.

We have gone through a very difficult process to open up the cinema, for example. I think Ambassador Hubbard clearly remembers how strong the actors' and actresses' opposition was to the Free Trade Agreement.

I hope in the U.S. that this wisdom of opening up the service sector will be more emphasized. My understanding was that today's discussion was to highlight the services sector, in particular the financial sector, because Korea is ready to be invaded, particularly by New York. We would like to remind the U.S. Congress of the benefit.

One more thing about which we still are scratching our heads. I think you will agree that since the White House is talking to Republican leaders in Congress, we will get there through negotiation. We are still worried as to why all of a sudden the Republican leadership has brought up the Colombia and Panama agreements, and then why the Democrats have a problem with dealing with the Panama and Colombia agreements; particularly at a time we are witnessing Chinese domination in almost every field in the world economy: energy, infrastructure, transportation. China is very aggressive, both in Panama and Colombia. So I hope that this will be worked out. This has been my [?? 00:50:01].


THOMAS HUBBARD:
Thank you very much. I think it's a very useful subject to have introduced and a very good addition. I'm going to give you a quick, somewhat political answer to your question, and then I'm going to turn to Evan to try to explain why Colombia and Panama are so important to Republicans and unimportant to Democrats.

I think, quite clearly, in all of our presentations to Congress and our behind the scenes activities, one of the things that we have touted is the benefits for services, including very importantly, financial services. But to be honest, we thought perhaps the best place to make these points publicly is in New York, because if you go around the United States, I think one of the few places, frankly, that the financial services industry is publicly popular is New York. I'm not so sure how those arguments play on Main Street and out around the country. In fact, maybe the insurance arguments play a little better. That's an answer I probably shouldn't have given you.

But Evan, explain why Colombia is such an issue.


EVAN ALEXANDER:
Before I do that, let me just finish off the tail part of the first question. I think President Obama now supports the agreement. I think that the additional negotiations helped him feel comfortable with the agreement. You are correct. I believe he had said before he was not supportive of it.

In his budget that he just submitted to Congress, in the transmittal letter, he fully owned the agreement and in the State of the Union address he has been pushing forward on it. So, I think irrespective of what has happened in the past, he now is supportive of the agreement.

A general point on services. You are completely correct, and so is Ambassador Hubbard. We need to do a better job of articulating to policy makers the definition of a services export. What does it look like? What does a financial services export look like? And how is that helpful to the U.S. economy?

It's easy when Boeing makes an aircraft and sells it somewhere. That's an export. It's got a big dollar figure to it. It creates U.S. jobs. That's an easy story to tell. For financial services, and really all services, you've got to unpack what's going on and it is a more difficult challenge. But you're right. We've got to do it.


THOMAS HUBBARD:
I just wanted to say that Evan is one of the most active members of the coalition in favor of the FTA along with his colleagues at Citi. I'm very active in that, too. We are making those points as best we can.


EVAN ALEXANDER: Yes. Regarding Colombia and Panama, to the Republican mindset there are three pending agreements. Republicans were of the view that they should move in order. Colombia was signed first, then I believe Panama, and then South Korea. If you go back two or three years, that was the mindset of the administration that was in place then. There is still a bit of that mindset. That's point one.

Point two. I think Republicans are comfortable with the Korea agreement, but they've been told by, at one point Congressional Democrats and then subsequent to that a Democratic administration, "We are working on the labor-violence issues. We have identified them, and we're trying to figure out how Colombia can address them and what we would like to ask Colombia to do as a prerequisite to move the agreements forward."

The Republicans heard that message, but I guess weren't comfortable with the amount of progress that was being made or that had been made. They now see the Korea agreement moving forward, and want to make sure that the Latin America agreements are also prioritized on the part of the administration.

As we've all said, I think we're going to get to a happy place, but I do think the next few weeks are critical in that process. In a perfect world, the White House and Republicans can agree on some sort of a timetable, some sort of a path forward for the other two agreements, and that this all ends up as a happy story with all three completed by the end of the year.


HENRY SEGGERMAN:
Henry Seggerman, Korea International Investment Fund. I think the FTA is a great thing, and I'm very hopeful that Korea's Assembly and U.S. Congress will ratify it, or they'll look more like imbeciles than they normally do. And there are some tangible and quantifiable benefits for the U.S. auto industry and legal services industry in Korea, and what they can do. Hopefully Ford will be able to sell ten or fifteen thousand cars in Korea per year, or something like that, and everybody will be happy.

But I wanted to zero in (because I'm in the securities business) on the actual incremental benefits of the FTA as written, and ask Sam if he can enumerate them. Obviously, he mentioned the offshore data processing, which adds a little bit of admin assistance possibility there that is nice.

But I read through it, and I noticed several exclusions in the FTA for the securities business: trustee services, custodial services and execution services. That's Annex 13-B, Section IV (a), (b) and (c). And then also excluded are systems of social security and public entities. And that's in Article 13, Section 3 (a) and (b) of the securities section of the Free Trade Agreement.

From a perspective of a financial services company in the United States wanting to make some money in Korea, Korea's stock market has the eighth largest trading volume in the world, so you'd want to get in on the executions. Also, it has massive pension funds which are presently under allocated to the stock market, and have a mandate to increase their allocation, as you well know.

These are areas where U.S. companies could make some money in Korea, and there are various workarounds available now, and these have been available over the years for doing so in small ways. Obviously it has benefits for the auto industry and the legal industry, but it seems like the way it's written, it's sort of recusing itself on very important issues like execution and pension funds, essentially giving the regulators in Korea the future right to prohibit these things for U.S. companies, even though, to some degree, they're possible now.

For example, a U.S. portfolio manager can manage Korean pension money technically under Korean law, but the way this is written, it seems like they want to reserve the right to make that impossible in the future. So, within the understanding that I think the FTA is a great thing, I wanted you to address the actual, incremental benefits for the securities industry in it.

SAM NAM: I'll try to perhaps answer it this way. I think you pose an extremely difficult question. In terms of quantifying the incremental benefit; I don't think that I would be doing anybody justice trying to answer that in a numerical form. I also want to specifically say that based on my experience, and I hope Evan would jump in, as well, but for those of us who are operating financial institutions in Korea; taking something like data processing is an extremely important point, and it is quantifiable, if you will.

I can't give you a number, but it is quantifiable because, as Evan had said about risk management, for example, some of the difficulties in operating in Korea were from things like having to have servers in Korea; risk management systems located in Korea where we can actually tap into our global network. And as Evan said, you can't really manage risk in that way. That was a discussion that almost all financial institutions had to have separately with regulators to try to find some solution. Ultimately, they might give you an approval, and you might have a system that was accepted, but that was an extremely cumbersome and a time-consuming process.

Just to give you an example, a few years back the flavor of the month in terms of doing business for many of the financial institutions was equity derivatives. So, a lot of players wanted to try to acquire equity derivatives license. That process, for some firms, took as long as two or three years. Some firms, in order to meet the requirements, actually had to hire a dozen people, and because the regulators were still discussing with that particular firm the type of systems that they could allow, some firms had these people basically sitting around doing nothing. That was a lot of cost; and obviously in the meantime, they weren't able to participate in the market. I'm sure there's a quantifiable number there somewhere.

So, for the global firms operating a universal banking model, something as specific as allowing for data—which by the way, as I said, currently does exist under a couple of the laws that deal with that, the Real Name Act specifically, and the Capital Market Act—there are provisions that allow for it; for example, by consent, or if you have certain internal control mechanisms in place for specific types of transactions. But it is still, actually, at the whim of the regulators, and this just makes it that much clearer.

I have the section here with me, as well, and I certainly will not claim to be the FTA expert; but in just reading through the document itself, I think the way it works is that it provides for some of those items that you had mentioned, certain types of financial services activity. I think it's the definition of financial services that you were enumerating in the banking and other financial services area. They list a whole bunch of things that a firm can be involved in, which would include things like asset management or settlement and clearing. Trading for its own account. They do provide for that, and then they have some sections that deal with a few that perhaps have been reserved.

I think the key point is the FTA provides for equal treatment, in that if the Koreans were to allow a certain type of business, then I believe the foreign firms can apply and attempt to get into the same business. They have to have some real reasons why a foreign player cannot participate, and provide for a review process and possibly a dispute mechanism. That's the way I would read it. I don't know if that answers your question.


THOMAS HUBBARD:
Do you have anything to add, Evan?


EVAN ALEXANDER:
I can add a little bit to that. I think it's a very good question, and I think Sam's response was right on the money. It's the same challenge we had earlier. Incremental benefits in the services area are always harder to articulate. If you have a numerical tariff on a good; you've got a 10 percent tariff and under an FTA it's going to go down to zero, then there are all the economic models in the world that are out there that can give you a number, spit it out and say, "Here you go. This is what's going to happen. You're going to sell more heavy machinery to this degree." We are challenged in that. That's the first point.

I would say the second point is, I might flip it. In terms of looking at the incremental benefit, I think it's also important to look at the reverse incremental, or the possible dangers of not moving ahead while Korea moves ahead with Europe. If our agreement is in place, and then Korea engages in additional liberalization with the Europeans, we're going to get the benefits of that as U.S. service providers. If our agreement is not in place, we won't. So, you almost need this agreement just to maintain your current footing.

All of that said, the independent, nonpartisan U.S. International Trade Commission, which is the U.S. agency that's in charge of studying these FTAs and quantifying them, tried to do a tariff equivalent for the banking sector, and they quantified what the current barriers to U.S. entry was in the market right now. They gave it a score of 76. The number itself doesn't really matter, but the direction does.

They also scored Korea's Doha Round Offer. That was scored at a 60. A lower number is better. So from current in Doha you get to 60 from a current of 76. They scored the additional access for U.S. service providers in the Korean market, when the FTA is implemented, at a 29. Again, the lower the better. I have no idea the econometric models that went into their analysis. I'm happy to pursue that. But in their assessment, it went from a 76 to a 29 in the banking sector, which isn't bad.


MALE:
As we have a bunch of financial market experts here, let me go back to the Capital Market Act question, and its relevance to the Korea-U.S. FTA. One of the ultimate goals of the Capital Market Act in 2008 was to create a big-sized financial institution in Korea which can be big enough to be comparable in the global market, and which can eventually lead to the creation of the Korean version of the [?? 01:06:56] of J.P. Morgan. But as of now, it has not materialized yet. It may be because of the 2008 global financial crisis or may be because of the Korean regulations. But having said that, how do you think this Korea-U.S. FTA, once it is ratified, will affect this prospect to be materialized in Korea? If I may turn this question around, how can the Korean government take advantage of Korea-U.S. FTA to eventually [?? 01:07:24].

THOMAS HUBBARD:
Evan?


SAM NAM: That's a very important question, I think. And I've said from the start that I look at this FTA, and frankly, our whole discussion, really from a win-win perspective, and I hope in my attempt to answer that, maybe it will be consistent.

I agree with you, and I think from what I know that was the purpose behind the act. There's been a lot of commentary recently about how Korean nuclear developers can win these huge contracts to build nuclear plants in the Middle East, but they don't have Korean financial institutions to help finance them. And in fact, that was the reason why the act was created; to be able to create a very mature and developed capital market for companies to be able to raise and have a lot of foreign players come into the market, etc.

I think it goes back to what Ambassador Han said, which is to make it competitive, transparent and open; and that ultimately, in my view, is good for both parties. It's good for everybody. If you have transparent rules, if you have rules and guidance that are written…

You know, one of the difficulties of doing business anywhere is to seek guidance, and it's very difficult to receive clear guidance, first of all; and it's even harder to get written guidance, because nobody wants to be on record. I mean, you ever try to get a legal opinion from a lawyer, you're going to get ten pages of just disclaimers.

Having a transparent process, I think in many ways actually exists in Korea at the moment. There is a commentary period. There is a rulemaking process that the government officials have to follow. I think they are followed well at times, perhaps not as well at times. I think the commentary that the parties make are taken into consideration well at times, at times not. And that's one of the reasons why I gave you that example about the information sharing under the Capital Market Act.

When the industry groups got together and made it really known that, that was a crucial issue, the regulators took that very seriously; and to me, that was an amazing act on their part. I don't think that happens all the time, but it was a step in the right direction. And I hope that, that sort of mindset, with the opening of the market, with additional transparency, where everybody still understands how it plays, where there's no informal guidance or informal discouragement to seek applications or seek guidance for that matter, will help everybody play on a level field.

I think going back to what we talked about earlier, as well, I do also agree with you. One of the difficulties in doing business has been that we might have these rules that say we're going to grant more licenses, or this is a negative system; but if the process of reviewing the license takes a long time, or if a regulator is not acting upon granting the license (and again, this is true for I think many jurisdictions, not just one or two places) then we have a problem, and that's where this sort of transparency issue, I think, does come into clarity once again.

And the rules are going to be kind of broader than you would like. That's just the nature of drafting documents anyway, and so it's really the effort that the parties have to put in. I hope that with the abundance of qualified foreign parties and the Korean players together, they can really build a very active market.

I mean the bond market, for example, I believe outside of Japan, it's the largest bond market in Asia. It's very active. And you know how liquid Korean securities are in general. So I think it has all the makings of being a tremendous market, and because of that, I think players will be formed.

Why don't I just close with this comment, which is that one of the reasons why I think J.P. Morgan has been successful in Korea; I'm sure the same for Chartis and Citi is because of the people that we have in Korea. Of J.P. Morgan's staff in Korea, 100 percent are Koreans. Even within Asia, I would say our Korean operation is one of the best within J.P. Morgan. And so, I think Korea has the people, and more and more Koreans are spending time abroad having worked for various firms, and they're coming back. That's also going to be a reason why I think possibilities of creating very strong players do exist.


KEVIN KEHOE:
Thank you. Sam, That was a great response to wrap things up. Tom, do you want to make any final comments?


THOMAS HUBBARD:
Jeff, did you have any final remarks you'd like to make?


JEFFREY HAYMAN:
Well, some of this is over my head. Let's put it that way. But the comment here, I think, needs to be echoed, and that is if you want to have globally competitive firms in financial services in Korea, currently globally competitive firms making investments in Korea in talent will benefit the overall talent pool and all institutions in Korea, and that's certainly true in insurance as well as in banking and other financial services. And I think that's the answer.


THOMAS HUBBARD:
Evan?


EVAN ALEXANDER:
I think it's been a great panel. It's come back to the point about this feeling within Korea of it not being sufficiently competitive. I mean, Korea is the size of Indiana. Seventy-five percent of it is mountains, and it's the twelfth largest economy in the world. To me, that's incredible. So, I really do think it is a true partnership, and this FTA is mutually beneficial for banks and investors.


THOMAS HUBBARD:
Let me just thank all our panelists, and thank all of you for coming here today. As one who has spent a lot of time on this issue of the FTA, I can't tell you how happy I am to now be able to start talking about advantages and benefits from this agreement rather than trying to deal with the problems, and I am confident that both sides want to make this work and want it to do exactly what Ambassador Han has talked about; make Korea more competitive and open its economy. Thank you very much.

[Applause]