Posted on 29 July 2010.
This reporting below shows that journalistic understanding of trade has not progressed past 1994. The article discusses Rep. Michaud and others’ laudable and knowledgeable opposition to the Korea Free Trade Agreement as expressed. But the issue is framed, by journalists, as being over a dispute about autos and beef.
The modern issues are these: (1) Korea is a currency manipulator, with a currency tariff on U.S. goods and a currency subsidy benefiting their exports; (2) Korea has a 10% VAT tariff on our goods, which is a VAT subsidy benefiting the exports; (3) Korea is a state-managed economy with chaebol (vertically integrated industry structure), the combination of which prevents free trade in a deep, cultural way.
The Korean FTA ignores all these. It pretends we are free trading with free trading nations. The pretension is false. Utterly false. And it hurts our country. Simplistically cutting tariffs is irrelevant in the face of these issues. The U.S. needs a national trade and economic strategy and this FTA does not help.
Korea, US FTA Stirs Controversy in US Congress
Bridges Weekly Trade News Digest • Volume 14 • Number 28 • 28th July 2010
A deep fault line has emerged among members of the US Democratic Party over a pending free trade deal with South Korea. US President Barack Obama has said that he wants the pact, widely known as the KORUS FTA, to be finalised before November’s Group of 20 Summit in Seoul. For that to happen, however, Obama will have to overcome stark divisions within his own political party.
Over the past two weeks, various groups of Democratic lawmakers from both houses of Congress have sent the president letters arguing strongly both for and against the pact.
Late last week, Democratic congressman Mike Michaud rallied a group of 109 Democrats from the House of Representatives to request a meeting with Obama to discuss making “major changes” to the pact.
In their letter, they asked Obama to give them the “opportunity to express our support for a revised trade policy that creates jobs in all sectors of the economy,” according to Agence France-Presse. They cited fears of job losses as the main basis of their concern, particularly in the US manufacturing sector.
“Of course I support trade,” Michaud wrote recently in an editorial in The Exception Magazine, but “signing flawed trade agreements just for the sake of signing them is bad policy and it hurts our economy.”
While acknowledging that trade liberalisation does not – and, in theory, should not – always cause job losses, he noted that “if we keep pushing more bad trade deals, that’s exactly what will happen.”
Senate Democrats lacking unity
The letter from Michaud’s group of House Democrats echoed many of the sentiments expressed by two of their Senate counterparts- Democrats Debbie Stabenow of Michigan and Sherrod Brown of Ohio.
The two senators sent Obama an anti-KORUS letter of their own on 19 July, urging him not to “repeat the mistakes of the previous administration.” They suggested that the US instead pursue agreements that increase market access to US so that the US exports “products, not jobs.”
The day after the Stabenow-Brown letter was released, nine Senate Democrats and one Independent sent a rival letter to Obama. John Kerry – Chairman of the Senate Foreign Relations Committee – and Joe Lieberman – Chairman of the Homeland Security and Governmental Affairs Committee – were among the signatories.
The senators wrote to express their strong support for Obama’s renewed efforts to resolve the outstanding issues of the FTA. They lauded the pact for the potential benefits it could provide to the US economy, especially for “critical sectors” such as agriculture, manufactured goods, services, and technology that would “grow through expanded trade with our seventh-largest trading partner.”
“Failure to bring the KORUS FTA to a swift resolution could have wide-ranging repercussions for US engagement and influence in the Asia Pacific, as well as our leadership position on open markets and mutually beneficial trade,” the group of senators cautioned. Both Kerry and Lieberman also made separate statements in which they insisted that the pact is essential for strengthening Washington’s political ties to the North Asian nation.
A three-year impasse
The original KORUS FTA was signed by the Bush administration in June 2007. Since then the pact has stalled, unable to find the political momentum to move forward, and has not been ratified by legislatures in either country.
At the G20 summit in Toronto in June, Obama vowed to push the deal through Congress – inciting the increasingly public debate within his own party.
The US has two other outstanding FTAs in the works – one with Colombia and another with Panama. However, the pact with Korea – which would be the biggest US trade deal since the North American Free Trade Agreement (NAFTA) – has provoked the most controversy in recent weeks.
Both countries have expressed concern about the implications of the KORUS FTA. The US fears the possible impacts of non-tariff measures on its beef and automobile industries, while South Korea frets over the safety of US beef imports, which would increase under the accord.
The US has complained that South Korea has unfairly restricted US beef and auto exports in the past. In 2007, South Korea exported 700,000 cars to the US in 2007 while only importing 5,000, according to Agence France-Presse – though South Korea insists these numbers are misleading. The Asian nation also maintains a partial import ban on US beef, due to the above-mentioned safety concerns.
Despite the controversy surrounding the bill, estimates from the US International Trade Commission show that the US is likely to benefit from the pact. Recent numbers suggest that reducing Korean tariffs and rate quotas on goods exported from the US would increase US gross domestic product by US$10 billion to US$12 billion each year.
Should both countries ratify the terms of the FTA, 95 percent of bilateral trade in consumer and industrial products would become duty free within three years of the date the FTA becomes active. The majority of the remaining tariffs would then be removed in ten years, according to the US Trade Representative’s office.
Europe making its own move on Korea
As the US Congress struggles to find consensus among its members, the EU is moving quickly toward its own FTA with Korea – which would be the region’s first free trade deal in Asia.
The European Parliament’s Trade Committee began debating the pact, with the input of trade associations and academics, a few days before Obama’s G20 announcement. Like the US, the EU has expressed concerns over the impact that an FTA with Korea could have on jobs and on the European automobile industry. However, the EU seems to be making quicker progress on finalising the deal.
The EU-Korea pact was signed last October, but is still awaiting parliamentary approval. The EU Parliament intends to vote on the FTA this autumn.
ICTSD reporting; “Lawmakers Demand Major Changes to US-S.Korea Trade Deal,” AGENCE FRANCE-PRESSE, 23 July 2010; “Crucial EU-South Korea trade deal edges closer,” EUROPEAN PARLIAMENT, 29 June 2010; “Lawmakers want meeting with Obama on Korean trade deal,” THE HILL, 22 July 2010.
ICTSD, International Environment House 2, Chemin de Balexert 7, 1219 Châtelaine, Geneva, Switzerland