Korea Free Trade Agreement – Beneficial or Harmful?

The Korea Free Trade Agreement (KORUS), originally signed on June 30, 2007 is one of three FTAs that have been concluded but not yet implemented by Congress.  The other two are the Colombia FTA, signed on November 22, 2006 and the Panama FTA, signed on June 28, 2007.

Because of shared authorities on trade and differences of views between successive Congresses and presidents, these FTAs, struck with countries that the United States counts as friends and allies, have been stuck in a procedural no-man’s land between the White House and Congress.

On December 4, 2010, President Obama announced that he had obtained supplemental concessions from the South Korean government on autos significant enough to justify his decision to transmit an implementing bill to Congress. This gave KORUS renewed political life.

As the 112th Congress began, the new Speaker, John Boehner, said that the House intends to move on all three trade pacts.  On January 25, the House Ways and Means Committee held a hearing to consider all three FTAs, setting the stage for consideration of these agreements by Congress in the coming months.

The agreement is an integral part of the President Obama’s efforts to increase opportunities for U.S. businesses, farmers and workers through improved access for their products and services in foreign markets and supports the President’s National Export Initiative goal of doubling of U.S. exports in five years.

According to the Fact Sheet by the U.S. International Trade Commission (ITC), the agreement will promote the further integration of the U.S. and Korean economies and enhance the competitiveness of U.S. businesses in the world’s 12th largest economy.  The agreement is an important demonstration of the Administration’s advancement of free and fair trade and will complement the Obama Administration’s efforts to expand business opportunities for the United States in Asia, including through such initiatives as the Trans Pacific Partnership.  The estimated tariff cuts alone in the U.S.-Korea trade agreement will increase exports of American goods by $10 billion to $11 billion.  The Agreement would eliminate tariffs on over 95 percent of industrial and consumer goods within five years.

The U.S.-Korea trade agreement will open Korea’s $560 billion services market to highly competitive American companies – supporting jobs for American workers in sectors ranging from delivery and telecommunications services to education and health care services.

The U.S-Korea trade agreement creates new opportunities for U.S. manufacturers seeking to export to Korea in two ways: first, it eliminates tariffs, or duties, charged when U.S. exports come into Korea; and it addresses non-tariff barriers to U.S. exports – whether by eliminating barriers that are in place today, or by establishing a framework to prevent non-tariff barriers from arising in the future.  Under the agreement, U.S. exports of aerospace, automotive, consumer goods, electrical/electronic goods, metals, scientific equipment, and shipping and transportation equipment will gain duty-free access to the Korean market.  Beyond tariffs, the agreement establishes strong new rules on how Korea will develop regulations applied to U.S. exports, and contains state-of-the-art protections on intellectual property rights (IPRs).

The U.S.-Korea trade agreement creates new opportunities for U.S. farmers, ranchers and food processors seeking to export to Korea’s 49 million consumers, giving American agricultural producers more market access in two ways – by getting rid of tariffs charged when U.S. exports come into Korea, and by laying out a framework to tackle other barriers to U.S. exports –even those that might arise in the future.  Tariff eliminations on Korea’s existing 40 percent tariff will further boost beef exports, saving an estimated $1,300 per ton of beef imported to Korea – savings that would total $90 million annually for U.S. beef producers at current sales levels.

The U.S.-Korea agreement expands U.S. firms’ access to the $100 billion Korean government procurement market, creating new opportunities for exporters, and ensuring that U.S. firms will get to bid on contracts on a level playing field with Korean firms. At the same time, the agreement’s government procurement rules ensure that certain American business sectors – such as small businesses or textile companies bidding on Department of Defense procurement – do not face foreign competition for key government contracts here at home.

The agreement’s procurement obligations also maintain American environmental and labor safeguards.  The Korean government will be held to the same level of accountability for meeting labor commitments as it is for meeting other commitments in the agreement.  Under the agreement, the Korean government – which has already demonstrated a significant commitment to environmental protections – will be held to the same level of accountability for meeting environmental commitments as it is for meeting other commitments in the agreement.

This all sounds great, but the “devil is in the details.”  In the February 18, 2011 issue, Richard McCormack, publisher of the Manufacturing & Technology News, wrote, “If American are interested in determining on their own if the Korea Free Trade Agreement will benefit he U. S. economy (and their own job prospects) good luck!   He quoted a few paragraphs from the six-page addendum released by U. S. Trade Representative Ron Kirk on February 10, 2011 as an example of how incomprehensibly worded this agreement is written.  Check it out for yourself at http:www.ustr.gov/webtm_send/2557.

According to research by the Economic Policy Institute, KORUS  “will increase the U. S. trade deficit by about $16.7 billion and displace about 159,000 American jobs within the first seven after it takes effect.”  Robert E. Scott noted, “The USIT has a history of vastly underestimating the negative impacts that free trade agreements have on the U. S. economy.  In 1999, it estimated that China’s entry into the World Trade Organization would increase the U. S. trade deficit with Chin by only $1.0 billion, and have no significant impact on U. S. employment.  In fact, the U. S. trade deficit with China increased by $185 billion between 2001 (when China entered the WTO) and 2008, and 2.4 million U. S. jobs have been displaced or lost.”

The following list details the reasons why the publisher and staff writers of the Economy in Crisis website opine that this trade agreement would be disastrous for America:

  • It will dramatically export more American jobs and increase our trade deficit.
  • Korea will gain unhindered liberties to change U.S. laws; even prevailing wage laws can be challenged.
  • The U.S. government will lose the ability to regulate the American banking industry as the agreement was negotiated before the financial collapse of 2008.
  • The Korean FTA will allow foreign monopolies to take over U.S. industries, making any laws ore regulations that would stop companies from becoming monopolies illegal. This will make preventing foreign takeovers impossible.
  • Korea will be able to insource low-wage jobs to the U.S., but American companies will NOT get the same access to South Korea.
  • American textile industry will be rendered uncompetitive.
  • The U.S. beef industry will continue to diminish as Korea will not accept our beef, but will have unrestricted access to ship their beef to us.
  • More unchecked contaminated food will legally enter the U.S. – and we won’t be able to stop it.  Korus will put limits on our ability to check food imports.
  • ”Buy American” food support will become illegal. .
  • South Korea will still use barriers that the U.S. does not, continuing their Value-added Tax of 10 percent that will act as a tariff.
  • Korean companies will have right to sue the United States for lost profits, but U. S. companies will not have their right.
  • There is nothing in the Korean FTA to stop South Korea’s currency manipulating practices, which are presently prevalent.

The Coalition for a Prosperous America concurs with the above reasons and outlines a few more reasons for opposing KORUS:

1.      Currency:  South Korea has a history as a currency manipulator.  The trade deal does nothing to prevent a return to massive undervaluation of the “won” which taxes our exports and subsidizes their imports.

2.      Trans-shipping from China/35% Rule of Origin:  Korus requires only 35% of a product to be made in South Korea to be allowed into the U. S. with lower tariffs.  China is Korea’s biggest trading partner.  We will see tremendous volumes of Chinese goods shipped through Korea to the U.S. with nearly two-thirds made in China.

3.      Eroding U.S. Trade Laws:  The KORUS FTA slows the Korean government several avenues to weaken U. S. trade law enforcement when domestic industries seek a remedy for foreign unfair trade practices, including countervailing duties and anti-dumping duties.

“The nine members of the House Trade Working Group released a statement condemning the South Korea Free Trade Agreement (KORUS), in opposition to Republican and presidential support for the disastrous deal.  Rep. Mike Michaud (D-ME) called the proposed deal a “fundamentally flawed trade agreement that will cost us jobs in the United States.”  “The war on the middle class continues. Its greatest battle of 2011 will be the Korea free trade agreement,” said Rep. Brad Sherman (D-CA).  Sens. Susan Collins and Olympia Snowe, both Republicans from Maine, have also refused to sign on to a letter demanding the USTR present Congress with a treaty to vote upon, citing various concerns.”

As bipartisan opposition begins to coalesce against this failed trade deal, other Senate Republicans have threatened to block the nomination of a new Commerce Secretary until KORUS is approved.  Members of the House Working Trade Group have pledged to begin an education campaign to sway their colleagues, but this alone may not be enough.

Staff writer Sam Williford, wrote “We need fair trade agreements that correct America’s trade imbalance as well as protecting the rights of workers and the environment. This agreement is clearly unfair, especially with respect to automobiles.  The U.S. would be allowed to export up to 75,000 a year to South Korea compared to the more than half a million South Korea exports here.  By way of comparison, in 2007, the U.S. sold 7,000 American vehicles in South Korea, or less than one percent of the entire market.  South Korean automakers, on the other hand, sold 615,000 vehicles in the U.S. that same year.  Korea has only 48 million people – the U.S. has over 300 million.  It would not be possible to have anything but a massive trade imbalance with this country.  In addition, KORUS does nothing about South Korea’s value-added tax, or government policy to audit anyone who buys an American vehicle.”

Free trade agreements that increase exports for certain industries and increase imports far more for other industries are not the answer.  Instead of another trade agreement that makes no sense for America, we need a national trade and economy strategy.

In his book, Free Trade Doesn’t Work, What Should Replace It and Why, Ian Fletcher stated, “It has been estimated that every billion dollars of trade deficit costs American about 9,000 jobs.  After losing 5.5 million manufacturing jobs since the year 2000, we can’t afford to lose that many more through another bad trade agreement.

Take action against the U. S.- Korea Free Trade Agreement today!  Our elected representatives need to be held accountable for how they vote. Contact your representative in Congress and let them know they can’t count on your vote if they continue to approve job-killing “free” trade deals!

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