Diplomatic Breakthrough
In January 2005, the 19th round of Korea-US FTA negotiations took place at the Shilla Hotel. The meeting already carried the number nineteen because it was a long-running preparatory session. This was only natural. The FTA carried such enormous implications for both nations that any agreement demanded the utmost caution.
“Another delaying tactic today?”
One hour earlier, Kim Hyun-jong, head of the Korean negotiating team and the first to arrive at the Shilla Hotel, had already resigned himself to the likelihood of scant progress. With the launch of the Roh Moo-hyun administration, the American delegation had been completely refreshed. Korea had selected Kim Hyun-jong—a man who had served as advisory counsel for the WTO dispute-settlement task force during the Civilian Government—as its chief negotiator. The appointment stemmed from the briefing on global trade issues that Kim had delivered to Roh while the latter was still president-elect.
“Hmm.”
A heavy sigh slipped from Kim Hyun-jong’s lips, an unmistakable expression of displeasure. The reason was obvious: the chief American negotiator had yet to appear even though the appointed hour had passed by a full sixty minutes. A hardened veteran, Kim wanted nothing more than to storm out. Yet he wore the mantle of Korea’s representative in these talks, and the visible anxiety on the faces of the American staff already present kept him in his seat.
“My apologies for the delay.”
At that moment, Wendy Cutler, the gaunt-faced Deputy United States Trade Representative, finally appeared.
“Well, you’re here now. Better late than never.”
Kim kept his irritation plainly visible to seize the psychological edge, yet his words remained courteous. At the same time, he studied Wendy Cutler closely. The woman who had once seemed immune to the word “haggard” now looked utterly drained. Even Kim was taken aback. The old saying that she would not bleed even if pricked by a needle had suited her perfectly.
Since their first contact in 2004, they had met more than four times. On every occasion, Wendy Cutler had felt like an impenetrable wall. Negotiations were supposed to involve give and take, yet the United States seemed interested only in taking. From investor-state dispute clauses to agricultural liberalization, service-sector opening, and the refusal to recognize goods produced in the Kaesong Industrial Complex as Korean-made, America pressed its demands by leveraging both the special Korea-US alliance and its own overwhelming national power.
The true master of this approach was Robert Zoellick, the United States Trade Representative. If Wendy Cutler was someone a needle could not draw blood from, Zoellick was someone a needle could not even pierce. With Zoellick occupied by European matters, Wendy Cutler’s presence offered a rare chance to make at least a single step forward.
“Thank you for your understanding. Shall we begin?”
“Yes. I hope today produces at least one meaningful point of agreement.”
At Wendy Cutler’s suggestion, Kim Hyun-jong nodded. The 19th Korea-US FTA meeting, already running behind schedule, commenced.
Several tens of minutes later, the atmosphere shifted.
“Very well. Products from the Kaesong Industrial Complex that contain more than fifty percent Korean components will be recognized as Korean-made and will enjoy the benefits of the Korea-US FTA.”
Huh?
Kim Hyun-jong’s face betrayed genuine surprise. Until now, the United States had insisted that only goods with one hundred percent Korean components could receive such recognition. The previous position had sounded reasonable on paper but was, in practice, a refusal. Most small enterprises with five or fewer employees relied heavily on Chinese parts. Unless the technology was exceptionally sophisticated, China could manufacture nearly anything at a fraction of the cost. Many Korean firms had already relocated to China in pursuit of cheap labor. The standard practice, therefore, was to use core Korean components alongside Chinese intermediate materials for final assembly in Kaesong.
Insisting on one hundred percent Korean parts had been little more than wordplay. Even the limited acceptance of Kaesong output as Korean-made had merely followed America’s longstanding policy of not recognizing North Korea—a policy now under threat following the declaration ending the Korean War. Yet here was a sudden offer to apply FTA benefits to any Kaesong product containing more than fifty percent Korean components. It was a remarkable concession.
“Fifty percent is still too high. As the documents show, most Korean firms in Kaesong engage primarily in simple assembly. Even American products incorporate substantial Chinese intermediate materials. Thirty percent represents the realistic threshold.”
“We have already stretched to fifty percent. Thirty percent? At that level, one could simply import finished Chinese goods and merely change the labels.”
Wendy Cutler’s rebuttal was immediate. She reached into her briefcase and produced a document.
“By our common understanding, this advertisement from Ilsung Communications is baffling. It claims that only products designed and manufactured entirely in Korea deserve the label ‘Made in Korea.’ That stance seems quite different from your current argument, Director Kim.”
It was a newspaper advertisement for Ilsung Communications’ flagship smartphone, the Omnia. A faint crack appeared in Kim Hyun-jong’s poker face. The Omnia’s primary selling point had been its proud declaration of being Made in Korea, emphasizing both Korean components and domestic assembly.
“You cannot seriously treat corporate advertising as statistical fact. Companies may advertise however they wish. But we are not here to debate slogans. We deal in reality and law. In reality, thirty percent is the minimum required for the Kaesong Industrial Complex to fulfill its proper function. At the same time, it would expand American influence over North Korea, would it not?”
Even fifty percent would have been an enormous advance. Kim Hyun-jong, however, refused to settle. Once more armored in his impassive expression, he systematically dismantled Wendy Cutler’s logic. After further narrowing of differences, the two sides reached a tentative agreement at the forty-percent threshold. They also made considerable additional progress, agreeing that any future second Kaesong Industrial Complex would receive identical treatment.
Yet vast obstacles remained. The most formidable was the investor-state dispute mechanism, followed by the politically explosive issue of agricultural market opening. The mountain still to climb was enormous.
Nevertheless, Kim Hyun-jong felt encouraged. He sensed that the Korea-US FTA might be concluded more equitably than any previous agreement. At the same time, unease stirred. The abrupt shift in Wendy Cutler—from iron wall to cooperative partner—could only mean changed instructions from higher authority. Both of them were officials who moved according to directives from above. Such a sudden change in attitude was impossible without new orders.
Kim wondered whether significant concessions had been made at the highest levels. If so, he thought with mild resentment, a little advance notice would have been helpful. Proper preparation was necessary to extract appropriate compensation for every concession granted.
Yet the grand compromise Kim anticipated never materialized. Instead, the Blue House found itself bewildered by America’s suddenly conciliatory posture on issues ranging from the FTA to SOFA renegotiation. Rumors even circulated that Washington, after offering major concessions first, might soon present unreasonable demands such as additional troop deployments.
This strange state of affairs only resolved itself at President Al Gore’s second-term inauguration ceremony. In his inaugural address, President Al Gore officially declared that his East Asia strategy placed high value on the Korean Peninsula and that he intended to elevate the relationship to an entirely new level. Though he offered no specific details, the message was unmistakable: existing one-sided arrangements—from the Korea-US FTA to the SOFA renegotiation—would be transformed into genuinely reciprocal partnerships.
Korean media gave prominent coverage to this aspect of the inauguration. Photographs of the Yoo Jae-won couple seated in the first row of VIP seats were displayed just as prominently.
At that same moment, President Roh watched the broadcast and gave a deep, satisfied nod.
“So it was Chairman Yoo Jae-won after all.”
The puzzle of America’s changed behavior in recent negotiations had finally been solved. Domestic intelligence reports, far more detailed than mere presidential rhetoric, confirmed the connection. The dossier contained a remarkably accurate account of the meeting between Yoo Jae-won and President Al Gore in Hawaii on December 7 of the previous year.
“Is this truly acceptable?” the chief of staff asked cautiously. The question carried layers of concern: a civilian conducting diplomacy that properly belonged to the state, and the fear that the ID Group’s influence had grown so vast it now extended into the political realm.
The current chief of staff had served under the People’s Government and had frequently heard former President Kim Dae-jung’s warnings to remain vigilant toward Yoo Jae-won and the ID Group. Kim Dae-jung had worried deeply that the ID Group’s power might come to dominate the nation. Having witnessed how families such as Mirae, Ilsung, and Keumseong had once treated Korean law with contempt while ruling the country, he understood the danger better than most. Although Yoo Jae-won and the ID Group currently behaved exemplarily, Kim had lived with the constant anxiety that they might one day change.
Yet President Roh took a different view. Unlike his predecessor, who had begun with suspicion, Roh was inclined to trust Yoo Jae-won’s good intentions. Had the man wished to privatize power, he could have done so long ago through the United National Party. The recently concluded breakthrough on the Korea-US FTA offered clear evidence: if Yoo Jae-won had sought only personal profit, the deal would have been forced through years earlier.
The world’s dominant Android OS smartphones found their largest market in the United States, which imposed an eight-percent tariff on electronic devices. For ordinary firms that eight percent was burdensome. For the ID Group, the sum was transformative. In 2004 alone, more than forty million Android units had been sold in the US. At an average price of eight hundred dollars, that represented thirty-two billion dollars in revenue and roughly two-point-five-six billion dollars in tariff payments. The FTA would instantly convert that tariff burden into pure profit. Apple, the main competitor, manufactured its iPhones in China and paid the same duties. A US-China FTA remained virtually impossible. Thus, securing the Korea-US FTA would grant the ID Group a decisive price advantage almost overnight.
Other major Korean corporations were already lobbying vigorously for the agreement, especially those with heavy exports to the American market. Yoo Jae-won, by contrast, had never pressured the government or made private requests. His restraint had become one of the ID Group’s greatest strengths.
Of course, President Roh still found the United National Party’s influence uncomfortable, particularly now that it had become the largest party in the National Assembly. Even so, he saw no wisdom in creating trouble over hypothetical future risks. “Above all,” he declared, “the decisive factor in America’s decision to elevate our alliance was Chairman Yoo Jae-won. At this moment, we must acknowledge that he is our finest private diplomat.”
His words placed an emphatic period on the Blue House’s policy toward Yoo Jae-won. The remainder of the meeting focused on concrete strategy for maximizing national interest in the FTA, SOFA renegotiation, and other major issues while America’s attitude remained favorable.
Around the same time, one office at Chevron headquarters still blazed with light. It belonged to the Chief Future Strategy Director—Tiffany, Yoo Jae-won’s wife. Her spectacular success in discovering the Irkutsk oil field had dramatically boosted Chevron’s stock price and earned her promotion from Front Manager to Chief Director. The upgraded title came with an upgraded mission: the full-scale development of the newly confirmed Irkutsk oil field.
Successful exploration was only the beginning. Extracting crude oil, processing it, and transporting the refined products and by-products to final markets were all massive undertakings. Chevron was one of the few corporations capable of managing the entire petroleum value chain—from exploration to distribution—entirely in-house.
The challenge lay in the fact that the Irkutsk field lay deep within the Russian interior, in a country that had been America’s Cold War adversary only decades earlier. Safely extracting and transporting the oil therefore represented Chevron’s most urgent priority. The decision to entrust that critical task to Tiffany served as the clearest possible proof of her meteoric rise within the company.