I have read through hundreds of pages and official documents on the proposed Korean-U.S. Free Trade Agreement (KORUS FTA), and I am poorer for having done so.
The intricacies and the type of language used in things like the international trade business will turn one’s brain to oatmeal in short order, and if you understand what you are reading, it will make you cry faster than John Boehner in front of a TV camera.
This is a multifaceted agreement that expands the original deal inked in 2007 and affects many sectors of the economy – not the least of which is automobiles. Since auto production accounts for one out of every ten jobs in the United States today (about one out of five in Kentucky), we will focus on that part of the FTA today.
KORUS FTA is an instrument that U.S. auto companies can ultimately use to export jobs and factories to the peninsula and import the vehicles that otherwise would have been made in the U.S.
The deal also furthers the ability of Korean automakers to dump excess inventory in the American market – a strategy that Kia and Hyundai have exploited with stunning success. Remember the “buy a van get a car free” promotion Kia Motors did a few years ago? You can thank the architects of the 2007 deal for that.
Here’s the score: In 2006, the United States imported 600,000 automobiles that were made in Korea. Korea allowed in 4,000 American made cars.
The main worry for workers on the auto portion of the agreement is in the pickup truck segment.
Currently, there is a 25 percent tariff on Korean and most other foreign-made pickups. With passage, the tariff will vanish in 10 years, possibly opening the door to something like a Kia rip off of a Ford F150.
Then, when American companies say they cannot compete with the one-way flood of Korean trucks, they close American factories, set up shop in Seoul, and send tariff-free, American-branded, Korean-made trucks to the U.S.
Another effect: The elimination of the tariff on light trucks would remove a substantial incentive for foreign producers like Kia and Hyundai to assemble vehicles in the United States. “Transplant” production would likely fall if the tariff were reduced or eliminated, and it would be replaced with cheaper, imported vehicles, displacing most or all of the U.S. labor content of those units.
The Korean auto market is one-tenth the size of the U.S. auto market at 1.2 million units, yet Korean manufacturing capacity is nearly five times that amount.
Result: They dump what they do not sell at home to American shores, and we can fully expect that trend to accelerate.
The KORUS FTA should sail through the Republican-controlled congress in 2011 with nary a whimper from spineless Democrats, save for the Michigan delegation which has shown an impressive streak of resistance to such deals.
The proposal has many rank-and-file Democrats wondering what the hell is happening in the Obama White House, which expressed opposition to NAFTA and opposition to KORUS FTA during the 2008 campaign, saying of the latter: “I don’t think an agreement that allows South Korea to import hundreds of thousands of cars into the U.S., but continues to restrict U.S. car exports into South Korea to a few thousand, is a smart deal.”
No surprise: The U.S. Chamber of Commerce, the Coalition of Service Industries and Citibank are pushing hard for passage while both the U.S. International Trade Commission and Economic Policy Institute say the pact will worsen the bilateral trade deficit and cause an actual loss of U.S. jobs.
These trade agreements come at a terribly high cost to American workers. To wit: Before the implementation of NAFTA in 1994 the United States enjoyed a nearly $80 billion dollar trade surplus with Mexico. Today it is almost a complete reversal, along with daily news reports of manufacturers and jobs heading south to Mexico.
People in places like Louisville, where leaders have firmly hitched their wagons to old-school manufacturing jobs at places like Ford, should be wary of any trade deal that may send such jobs out of the country.
Tax incentives and contract concessions by union employees may not be enough to convince companies to resist the lure of cheap foreign labor and and an easy buck.
That “huge sucking sound” Ross Perot was talking about in 1992 is still around. Only this time, it sucks even worse.
From the Korean Embassy – http://koreauspartnership.org/pdf/
U.S. International Trade Commission – http://www.usitc.gov/publications/pub3949.pdf
UAW President Bob King backs KORUS FTA –http://bilaterals.org/spip.php?article18673