The U.S.- South Korea Free Trade Agreement: Win-Win, or Lose-Lose?
The speakers were sharply divided over the merits of the U.S.-South Korea free trade agreement (FTA), with two arguing for and two against adoption of the FTA in its present form.
Myron Brilliant, president of the U.S.-Korea Business Council, argued forcefully that the U.S.-South Korea FTA, signed by the United States and the Republic of Korea in June of this year, was good for American workers, business and consumers. He noted that Korea has historically been a relatively closed market with high tariffs. Under the FTA, approximately 95 percent of bilateral trade will be duty free in three years, and two-fifths of this amount will be in agriculture, so this represents a win for U.S. farmers as well. The FTA includes the most ambitious, comprehensive service agreement ever, and gives improved treatment to U.S. investors. The expected increase in exports will, based on past experience, generate better paying U.S. jobs. Brilliant saw this as a clear win for U.S. labor. If the FTA is ratified by both legislatures, emphasized Brilliant, it will create the third largest trade area, after the trade agreements created by the European Union and the North American Free Trade Agreement (NAFTA).
Brilliant noted two problem areas: beef and autos. He admitted that the beef problem had to be resolved before the FTA could be approved by Congress, but was confident that the two sides would reach agreement on this issue. He stated there is division within the auto industry regarding the merits of the FTA (General Motors owns the Korean car company Daewoo and is neutral on the agreement, while Ford is opposed), but pointed out that it eliminated 80 percent of Korea's duties on cars. He acknowledged that the FTA was not perfect regarding autos, but argued that it nonetheless meant progress for U.S. automakers. Brilliant cited another reason for the FTA's adoption: he asserted there is a lot of questioning about U.S. engagement in Asia. Noting that intra-Asian trade is growing rapidly, he stated the players in the region will not wait for the United States, and countries like China and India are moving ahead. "We cannot stand outside; we need to be a part of it," concluded Brilliant.
Thea Lee, policy director and chief international economist of the AFL-CIO, disagreed with Brilliant's assertion that the FTA would be a net benefit for U.S. labor. She stated her biggest concern about the FTA involved imbalanced market access, specifically non-tariff barriers (NTBs) regarding automobiles. There is an assumption that when you reduce tariffs, markets will open proportionately. Lee pointed out, however, that in the case of NAFTA, Mexican tariffs were reduced, yet the United States moved jobs to Mexico and one million U.S. jobs were lost. So it is not obvious to U.S. workers that the U.S.-South Korean FTA will have positive benefits for them. Of the $14 billion U.S. trade deficit with South Korea, $12 billion is in autos, so this sector is most important. Lee noted that in 1995 and 1998, the United States signed two agreements with South Korea to reduce NTBs, but the agreements proved ineffective, and the trade imbalance in autos actually grew. Lee stated that the AFL-CIO, following a bipartisan proposal by Congress, suggested to U.S. trade negotiator Susan Schwab that the FTA include concrete benchmarks for the export of U.S. autos into Korea. In Lee's words, Schwab dismissed the suggestion "derisively." Lee asserted that the AFL-CIO would therefore oppose the FTA in its present form.
Seok-young Choi, minister for economic affairs and trade in the South Korean Embassy, praised the FTA as the most commercially significant agreement for the United States since NAFTA. Choi reiterated points made by Brilliant that under this FTA, U.S. exports will increase, there will be more opportunities for American farmers and ranchers, the U.S. manufacturing sector will have better market access to Korea, and the U.S. service sector will enjoy better market access as well. Choi was confident that the beef problem will be resolved, noting that bilateral consultations began last week. On automotive issues, he pointed out that the FTA contained provisions for tariff cuts and for the reductions of NTBs. He also warned that if the FTA were not passed by the Congress, U.S. business and farmers would not only lose new access to the Korean market, but would also lose market share due to other FTAs which Korea would conclude with other countries. He also mentioned that U.S. rejection of the FTA would have adverse effects on the overall U.S.-Korea strategic partnership.
Timothy M. Reif, staff director of the trade subcommittee of the House Ways and Means Committee, elaborated on the concerns raised by Thea Lee. He called the FTA, in its present form, a "missed opportunity." A particular sector, manufacturing, has been short-changed, claimed Reif. He asserted that the negotiators knew that two previous agreements on automobiles had failed, but no new steps were taken to address the problem. The Bush administration knew of the bipartisan objections of a substantial number of U.S. legislators. When these members proposed a new roadmap concerning manufacturing and automobiles, the administration ignored this suggestion. Reif asserted that the problem "can readily be fixed, and in a relatively short period of time." He noted the most important provision of the roadmap was that if a U.S. company claimed there were NTBs inhibiting exports to Korea, the burden of proof for this situation would shift to the South Korean government. Reif concluded that the sooner both parties were able to correct what he termed a strategic blunder for failing to properly address the issue of NTBs, the better. The American public had only to hear that the United States sells 45,000 cars annually to South Korea, while South Korea exports 700,000 cars to the United States, to understand the problem and the need to fix it.
Drafted by Mark Mohr, Asia Program Associate
Robert M. Hathaway, Director, Asia Program. Ph: (202) 691-4020