{"id":207,"date":"2011-07-05T16:55:35","date_gmt":"2011-07-05T23:55:35","guid":{"rendered":"http:\/\/savingusmanufacturing.com\/blog\/?p=207"},"modified":"2011-07-05T16:55:35","modified_gmt":"2011-07-05T23:55:35","slug":"should-congress-ratify-the-korea-free-trade-agreement","status":"publish","type":"post","link":"https:\/\/savingusmanufacturing.com\/blog\/general\/should-congress-ratify-the-korea-free-trade-agreement\/","title":{"rendered":"Should Congress Ratify the Korea Free Trade Agreement?"},"content":{"rendered":"

The Korea Free Trade Agreement<\/a> (KORUS) was first signed on June 30, 2007, with a renegotiated version signed in early December 4, 2010. \u00a0However, the agreement has not yet been ratified by the United States Congress or the National Assembly of South Korea and thus has not become in force.<\/p>\n

After being stalled for more than four years, the treaty is once again being considered in Congress, and supporters had hoped it would be ratified shortly after many of the objections has been addressed in the renegotiated version.<\/p>\n

The original negotiations were conducted under the trade promotion authority (TPA), also called fast-track trade authority, which Congress granted the President under the Bipartisan Trade Promotion Act of 2002. (P.L. 107-210). \u00a0The authority allowed the President to enter into trade agreements that receive expedited congressional consideration with no amendments and limited debate. \u00a0The fast-track trade authority under TPA expired on July 1, 2007 and has not been renewed.<\/p>\n

The December 2010 deal<\/a> represented a compromise between the two sides. \u00a0Significant concessions were granted to the U.S. on trade in automobiles: tariff reductions for Korean automobiles were delayed for five years, and U.S. autos were granted broader access to the Korean market. At the same time, the negotiators agreed to set aside disagreements over U.S. beef exports for the time being.<\/p>\n

The agreement would eventually eliminate tariffs between the two countries. Because those levies are typically higher on the South Korean side, administration officials estimate the deal could mean more than $10 billion annually in increased U.S. exports to Seoul and tens of thousands of new U.S. jobs. South Koreans say they would benefit from lower prices — some tariffs on food imports from the U.S. are as high as 40 percent — and a more efficient flow of investment in and out of their country.<\/p>\n

The deal was supported by Ford Motor Company, as well as the United Auto Workers, both of which had previously opposed the agreement. \u00a0With widespread support from both Democrats and Republicans in Congress, the Obama administration expected approval in both houses to be easy.<\/p>\n

However, on Thursday, June 30, 2011<\/a>, several Senate Republicans boycotted a preliminary hearing on free trade agreements with South Korea, Colombia and Panama by staging a simultaneous press conference and bringing the stop-and-go process to yet another halt.<\/p>\n

While Republican senators stood before television cameras to declare that they would not allow a hearing on legislation that much of their own base strongly supports, Democratic senators filled half a hearing room to declare their support for trade deals opposed by much of their party\u2019s political base.<\/p>\n

Senator Orrin Hatch, the ranking Republican on the Finance Committee, said Republicans were responding to a decision by the White House to include in the free trade legislation the expansion of a benefits program for workers who lose jobs to foreign competition, known as Trade Adjustment Assistance (TAA).\u00a0 During the portion of the press conference I heard, Republicans stated that part of the funds to provide TAA would come from a $400 million cut to Medicare funding for \u201cimaging\u201d for seniors such as MRIs, Cat scans, etc., and they objected to taking this funding from Medicare to partially fund TAA.<\/p>\n

Senate Republicans had not been included in a deal with House Republicans and Senate Democrats over the terms of the benefits program.\u00a0 An expansion of TAA passed by Democrats in 2009 expired at the beginning of this year, and the deal would reinstate about 60 percent of the lapsed financing ($964 million) for an additional two years.\u00a0 Democrats had demanded the deal as a condition of their support for the trade agreements.\u00a0 House Republicans had agreed after several weeks of negotiations.<\/p>\n

It seems to me that the fight over Trade-Adjustment Assistance is a tacit admission by both sides<\/em> that this treaty will put more American on the unemployment rolls; i.e., Republicans would not oppose<\/em> it unless they felt displaced workers would use it and Democrats would not support<\/em> it unless they felt displaced workers would use it. \u00a0\u00a0Historically, trade agreements do displace workers, and the effects of other trade agreements have shown that more American jobs are lost than gained.<\/p>\n

Just before the Senate Finance Committee convened Thursday afternoon to consider the legislation, the Republican members invoked Senate rules to prevent the meeting. \u00a0After all the Democrats spoke, they got up and left.\u00a0 Senator Orrin Hatch<\/a> said, \u201cWe made it clear time and time and time again that we would not stomach attaching a big government spending program onto these agreements.\u00a0 \u201cThe president knew where we stood, and he decided to ignore those who don\u2019t agree with him.\u201d<\/p>\n

The Obama administration planned to submit that deal as part of KORUS to give Democrats the assurance that it will rise or fall with the agreement.\u00a0 House Republicans say they will hold separate votes on the trade pact and the benefits program.\u00a0 Because Senate Republicans lack the power to set the terms of debate, they said that their actions were an assertion of the rights of the minority party to be heard and respected.\u00a0 Republicans cannot prevent the legislation from leaving the committee, but they can delay it.<\/p>\n

This delay is a good time to reconsider whether KORUS and the other pending trade agreements with Panama and Chile should be ratified by Congress. \u00a0\u00a0The fundamental dispute is over free trade itself. Presidents Bill Clinton and George W. Bush aggressively promoted it, while President Obama promised more protection for American workers in future agreements when he was a candidate.<\/p>\n

The appeal of free trade has waned amid large U.S. trade deficits and concerns that more American manufacturing jobs will disappear overseas at a time when unemployment remains stuck above nine percent<\/p>\n

The mistake many people make is lumping free trade, free enterprise, and free markets together, whereas each has its own specific meaning. In simple terms, free trade allows faster and more business between two countries\/regions by agreeing to lift tariffs, quotas, special fees and taxes, and other barriers to trade between the two entities. \u00a0Free enterprise is the freedom a company has to select the headquarters and manufacturing locations to make its product as inexpensively as it can, regardless of where that might be, in order to enjoy continued profitability and remain viable. \u00a0Of course, a company is subject to the laws of the country in which they are located.\u00a0 A free market is a one in which economic intervention and regulation by the state is limited to tax collection, and enforcement of private ownership and contracts, relying on supply and demand.<\/p>\n

The underlying economic theory<\/a> of free trade agreements is that of \u201ccomparative advantage,\u201d which originated in an 1817 book entitled \u201cOn the Principles of Political Economy and Taxation\u201d by British political economist David Ricardo.\u00a0 He postulated that in a free marketplace, each country\/area will ultimately specialize in that activity where it has comparative advantage; i.e., natural resources, skilled artisans, agriculture-friendly weather, etc.\u00a0 The result should be that all parties to the agreement should increase their income.\u00a0 Unfortunately there are winners and losers if the \u201ccomparative advantage\u201d of one country is unequal to the other.<\/p>\n

Advocates of free trade argue that it is essential to our country’s growth and point out that the North American Free Trade Act (NAFTA) and other trade agreements have created more than 20 million jobs around the world since their passage.<\/p>\n

Opponents to free trade argue that the U.S. has lost over six million jobs to offshore countries since 1994 when NAFTA was passed. \u00a0Furthermore, they make the point that American jobs are not being supported when we buy products that have been made offshore, and that the U.S. should not encourage and even facilitate its corporations to ship jobs out of the country.\u00a0 They believe that manufacturing is the foundation of the U.S. economy and that American jobs must be protected from being outsourced to other countries.<\/p>\n

The reality is that we don\u2019t really have free trade \u2013 we have negotiated trade agreements in which the United States has gotten \u201cthe short end of the stick\u201d in most cases.\u00a0 Instead of free trade, I would say that we have \u201cdumb\u201d or \u201cstupid\u201d trade instead of free trade. \u00a0What we need is \u201csmart\u201d trade.<\/p>\n

For example, over 150 countries have a value added tax (VAT), and the United States doesn\u2019t have a VAT.\u00a0 A VAT is a tax on consumption – as opposed to income, wealth, property or wages.\u00a0\u00a0 It is s a tax only on the “value added” to a product, material or service, from an accounting view, at every stage of its manufacture or distribution.\u00a0 VATs are \u201cborder adjustable\u201d and average about 17%.\u00a0 This means that virtually all foreign countries tax our exports with their 17% VATs, when our goods cross into their country. \u00a0 While those countries tax their domestic production as well, they rebate their VAT when their companies export.\u00a0 This means that American imports to our trading partners are charged a VAT while we don\u2019t charge a similar VAT on imports of their products to our country.\u00a0\u00a0 Thus, American companies are victims of unfair competition when trying to penetrate foreign markets.<\/p>\n

VATs are the biggest trade problem for the U.S. globally. \u00a0Trade agreements do not address VATs when tariffs are lowered. The WTO allows VATs.\u00a0 During the last 40 years, the U.S. has lowered tariffs, and other countries lowered tariffs. \u00a0However, other countries implemented and raised their VATs. \u00a0The net result is that other countries replaced tariffs with VATs, but the U.S. did not.\u00a0 No trade barrier costs us more money.\u00a0 Our exports are double taxed – once in the U.S. and once upon arrival at a foreign country\u2019s shores.\u00a0 Foreign sales to us are partially tax free.<\/p>\n

In addition, U.S. opponents of the agreement argue it doesn’t do enough to benefit American industry while it gives South Korean businesses greater rights in the United States. \u00a0The organizations taking the lead in opposing KORUS are:\u00a0 Coalition for a Prosperous America (CPA), Alliance for American Manufacturing, Economy in Crisis, and the \u00a0\u00a0 U. S. Business & Industry Council.<\/p>\n

What\u2019s missing in the list of organizations that oppose trade agreements is one that truly represents American workers, who will suffer the most from the effects of KORUS just as they have from past agreements.\u00a0 Today, union membership only represents 12 percent of the private sector workforce, which means that 88 percent of private sector workers have no organization to voice their opinions on trade issues.\u00a0 Many small businesses and industries that have been harmed by past trade agreements were never unionized, such as high technology companies making computers, electronics equipment, medical devices, and biotech products.\u00a0 Thus, a supermajority of American workers have no way to voice their opinion collectively.<\/p>\n

While all of the above organizations have similar reasons for opposing KORUS, CPA\u2019s reasons<\/a> include:<\/p>\n

    \n
  1. Trade deficits:\u00a0 The trade agreement would cause worsening trade deficits.\u00a0 Trade deficits depress GDP growth and increase unemployment because U.S. facilities are offshored or because components and subassemblies are procured offshore.\u00a0 Any foreign market share achieved is overwhelmed by domestic market share ceded.<\/li>\n
  2. Job loss:\u00a0 The trade agreement would cause job losses.\u00a0 Government data shows no support for a net job gain argument.\u00a0 Third party studies are in accord with the historical data that net job losses will result from this trade agreement.<\/li>\n
  3. Non-tariff barriers:\u00a0 The trade agreement fails to address foreign non-tariff barrier tactics by trade rivals.\u00a0 These non-tariff barriers eviscerate hoped-for U.S. net export gains from tariff reductions.\u00a0 Currency manipulation, border adjustable taxes, state subsidies are prime examples.\u00a0 South Korea is a known currency manipulator.\u00a0 South Korea has a 10% value added tax that is charged to virtually all imports and can increase that import charge without restriction.\u00a0 Like China, South Korea practices a form of state managed capitalism.\u00a0 South Korea is not a “free trading nation,” and this agreement does not change that fact.\u00a0 Any concessions by South Korea are easy to negate through its pre-existing non-tariff tactics.<\/li>\n
  4. Sovereignty Loss:\u00a0 The U.S. will be handicapped in domestic trade law enforcement.\u00a0 South Korea would have special rights in our trade law systems.\u00a0 The U.S. will be prevented from enacting tough financial industry reform, despite the need shown in the Great Recession, under these agreements.\u00a0 Further, hundreds foreign companies will be given special standing to challenge U.S. laws that are claimed to interfere with those companies\u2019 investment expectations, in unaccountable foreign tribunals.<\/li>\n
  5. Gateway from China\/Transshipment through Korea:\u00a0 The South Korea trade agreement allows Chinese companies to produce 65% of a products\u2019 value, with 35% Korean content, and still qualify for low tariff rates.\u00a0 China is Korea\u2019s largest trading partner and has proven particularly aggressive in routing its products through third countries to either avoid antidumping duties or to achieve lower tariff rates.\u00a0 The volume of future Chinese transshipments should not be underestimated.<\/li>\n
  6. Food and product safety:\u00a0 The U.S. border control, food safety and product safety agencies will be hampered in verifying that imported food and other products are safe.\u00a0 The inspections of imported products are nearly non-existent.\u00a0 Yet U.S. companies must fully comply with food and product safety rules.<\/li>\n<\/ol>\n

    On the other hand, the organizations and companies comprising the U.S.-Korea FTA Business Coalition<\/a> that strongly supports Congressional approval of the U.S.-Korea Free Trade Agreement includes but is not limited to:\u00a0 American Insurance Association, Boeing Company, Caterpillar, Inc., Chevron, Citigroup, Inc., Entertainment Industry Coalition for Free Trade, General Electric, Goldman Sachs, FedEx Express, Johnson & Johnson, Motion Picture Association of America, National Association of Manufacturers, National Cattlemen’s Beef Association, National Pork Producers Council, MetLife, Microsoft Corporation, Pfizer, Inc., QUALCOMM, Inc., Securities Industry & Financial Markets Association, SPI: The Plastics Industry Trade Association, Telecommunications Industry Association, Time Warner, U.S. Chamber of Commerce, U.S. Council for International Business, and UPS.<\/p>\n

    Notice that virtually all of the above private companies have a global presence so that I refer to them as multinational globalist companies.\u00a0 While they may still be headquartered in the United States, they have worldwide locations and may even have re-incorporated in tax haven countries.\u00a0 They no longer have an inherent loyalty to the United States as American companies; instead, their loyalty is to the bottom line of their profitability.<\/p>\n

    Thus, my answer to the question posed in the title is \u201cNo, Congress shouldn\u2019t ratify the Korea Free Trade Agreement.<\/strong>\u201d\u00a0 If you agree with me in opposing its ratification, make your voice heard before it is too late.\u00a0 Contact your congressional representative or Senator and express your opinion on the Korea Free Trade Agreement.\u00a0 \u00a0If you don\u2019t know who your representative in Congress is, you can find out by typing in your zip code at http:\/\/www.congress.org\/<\/p>\n

     <\/p>\n","protected":false},"excerpt":{"rendered":"

    The Korea Free Trade Agreement (KORUS) was first signed on June 30, 2007, with a renegotiated version signed in early December 4, 2010. \u00a0However, the agreement has not yet been ratified by the United States Congress or the National Assembly of South Korea and thus has not become in force. After being stalled for more […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-207","post","type-post","status-publish","format-standard","hentry","category-general"],"_links":{"self":[{"href":"https:\/\/savingusmanufacturing.com\/blog\/wp-json\/wp\/v2\/posts\/207","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/savingusmanufacturing.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/savingusmanufacturing.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/savingusmanufacturing.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/savingusmanufacturing.com\/blog\/wp-json\/wp\/v2\/comments?post=207"}],"version-history":[{"count":1,"href":"https:\/\/savingusmanufacturing.com\/blog\/wp-json\/wp\/v2\/posts\/207\/revisions"}],"predecessor-version":[{"id":208,"href":"https:\/\/savingusmanufacturing.com\/blog\/wp-json\/wp\/v2\/posts\/207\/revisions\/208"}],"wp:attachment":[{"href":"https:\/\/savingusmanufacturing.com\/blog\/wp-json\/wp\/v2\/media?parent=207"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/savingusmanufacturing.com\/blog\/wp-json\/wp\/v2\/categories?post=207"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/savingusmanufacturing.com\/blog\/wp-json\/wp\/v2\/tags?post=207"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}