Monday, May 2, 2011

South Korean - US Free Trade Agreement - Upcoming Vote

With a $498 billion trade deficit in 2010, the Obama Administration is prepping Congress for an upcoming vote to adopt the South Korea – United States “Free” Trade Agreement (KORUS FTA) as if approval were a foregone conclusion.    In truth, with labor unions the last organized line of defense against complete corporate control of the political system, there is considerably more at stake than just continuing an indefensible foreign trade policy. 

During a recent Senate Finance Committee hearing with the Obama Administration’s Trade Representative Ron Kirk, differences between Democrats and Republicans on the panel were barely distinguishable given the continued drift of  Senate Democrats away from traditional Democratic party values.   In addition to no recognition of outsourcing American jobs, also absent was a discussion about the benefits of the U.S. trade deficit with Korea or how the trade agreement will affect the country’s current economic or unemployment woes.  Committee Chair, Senator Max Baucus (D-Mont), whose reputation as a corporate-Democrat is well deserved,  repeatedly urged the Administration to wrap the pending Colombia and Panama Trade  Agreements together with the Korean FTA.  Ranking Senator Orrin Hatch (R-Utah), who was more than a reticent minority voice on the Committee, agreed.   

Free trade negotiations with South Korea were initiated by President George Bush in 2006 with the treaty renegotiated and signed by the Obama Administration in December, 2010.  Once ratified by both countries, the treaty will be the first FTA with a major Asian economy and the most comprehensive trade pact since the $1 trillion North America Free Trade Agreement (NAFTA) with Canada and Mexico in 1993. 

With new market opportunities for American business as a driving force, KORUS FTA includes more than just a full range of agricultural products, pharmaceuticals, “sizeable new” financial and investment services, machinery, telecommunications, electronics and passenger vehicles.  Citigroup’s representative on the U.S.-Korea FTA Business Coalition gushed that the Agreement “is the best financial services chapter …to date.”   The Administration predicts an increase in U.S. exports of ‘at least’ $10 billion and creation of  ‘at least’  70,000 new U.S. jobs, statistics which are disputed by the Economic Policy Institute (EPI) and the AFL-CIO.    

With imports of fuel efficient Korean vehicles considerably more than the export of U.S. gas-guzzlers into Korea, the trade balance between the two countries has been in deficit since at least 2001.  Measured in dollars, a trade deficit exists when imports exceed exports which translates into fewer American jobs as a drain on U.S. consumer dollars while stimulating job growth in another country.              

Kirk’s assurance of an ‘economically compelling” Agreement that will “advanceAmerican interests around the world’ is difficult to reconcile as the sale of an estimated 775,000 Korean vehicles (including 250,000 from Hyundai’s non-union plant in Alabama) overwhelmed the export of 4,000 American-made autos to Korea.  With a new Hyundai plant opening in Georgia, Korea’s total production in the United States will reach 600,000 vehicles annually – without any union contract.     
As KORUS FTA moves toward Congressional approval, the South Korea- European Union Trade Agreement was adopted in February, 2011.   U.S. Commerce Secretary Gary Locke had earlier predicted that American companies could lose out if South Korea finalized its deal with the EU prior to KORUS FTA.   Anticipating possible problems, Locke suggested that "those relationships will have already been formed between Korean companies, its consumers and European products” warning that “they're not just going to abandon those relationships and start buying from America just because we passed our agreement." 

As the world’s fifth largest vehicle producer and the third largest exporter of vehicles in the world amidst a relatively small Korean market of 1 million cars sold annually, South Korea has historically resisted opening its borders to imports – which foretells of a considerable shortfall for the overly-optimistic Administration and U.S. carmakers.   The Korea Institute for International Economic Policy estimates that, with KORUS FTA, exports to the United States will rise 12% each year giving South Korean President Lee Myong the confidence to say that KORUS FTA will bring ‘huge benefits’ to his country.

EPI’s 2010 Working Paper on Trade Policy and Job Loss predicts that the proposed Agreement will bring the U.S.-Korea trade deficit to $14 billion and create a loss of 322,000 American jobs by 2015.   In order to encourage sale of American vehicles, the FTA would eliminate South Korea’s tariff on American autos and reduce its engine displacement tax on large cars that US automakers believe to have been a ‘disadvantage’ to sales in Korea.  It is unclear what pie-in-the-sky analysis convinced Mr. Obama that Korean car consumers will be more likely to purchase a more costly 20 miles-to-the-gallon Chrysler rather than a locally produced, more efficient Kia or Hyundai.

The International Trade Commission’s 2007 report indicates that despite a 1998 MOU with the US to improve the perception of foreign vehicles in Korea, “U.S. industry reports that anti-import activities have continued and have a strong residual effect on the (Korean) consumer.”   In other words, the likelihood that many Korean car owners, with an already ingrained bias against auto imports, will hasten to purchase American SUV’s is problematic.

First introduced to a woefully gullible Congress in 1993 by a mythologically liberal President  Clinton,  NAFTA’s promise of an improved trade balance and increased U.S. employment opportunities never materialized.  Leo Girard, President of the Steelworkers Union has stated that “since NAFTA, $7 trillion of wealth has transferred out of America to our trade partner countries.” EPI has further estimated that trade agreements in force since 1994 cost American workers 879,288 jobs by 2003 with a loss of 5 million manufacturing jobs between 2001 and 2009.   While not all were labor union jobs, the massive transfer of American employment to foreign markets has devastated the American labor union movement and the country’s middle class in general.   At the same time, the multi-national corporate oligarchy have greatly benefited with considerably lower labor costs and realized enormous increased profits.    Former Clinton Labor Secretary Robert Reich’s data that 300,000 new jobs are required each month between now and 2014 in order to reach the 2008 unemployment level of 6% puts a gigantic unrealistic burden on KORUS FTA.

Congressional Republicans, who excel at out-flanking the timid Senate Democrats, agreed with Baucus that passage of KORUS FTA would be endangered unless a trade package including Colombia and Panama was offered at the same time as one vote but the Administration knows it risks losing UAW support. Internationally known for assassinating its judges and labor leaders and despite Baucus’ assurances that the new Colombian President is a model reformer, right up there with Abraham Lincoln, Kirk acknowledged that the Administration faces a moral dilemma of sorts in restoring “the faith of the American public to its trade policy.”  

President Obama has lauded the Agreement, hoping that support from both business and Labor will attract bi-partisan votes.   The United Auto Workers, backed into an awkward shareholder relationship with Chrysler and General Motors in 2009 as both companies neared  collapse, paid into the union’s trust fund with stock instead of cash.  Initially opposed to the Agreement, the UAW endorsed the pact after receiving concessions for improved access to Korean markets and tariff reductions.

Opposition from AFL-CIO President Rich Trumka, with 9 million members, cited concerns that "go beyond the auto assembly sector."  Trumka believes that “too many flawed trade deals like NAFTA do not justify optimism that this deal will generate the promised new jobs.  We've seen U.S. multinational companies take advantage in past trade deals to shift production offshore, undermining the jobs, wages and bargaining power of American workers and the results have been catastrophic.” 

In addition, the AFL points out that labor protections in previous trade agreements have not resulted in one single fine for labor violations since 1993.  NAFTA inequities are evident in tracking the United States $1.7 billion trade surplus with Mexico in 1993 that grew to a $74.8 billion deficit by 2007 costing the U.S. 560, 000 jobs between 1993 and 2004.

As Presidential candidate, Senator Barack Obama opposed the KORUS FTA as `badly flawed'  claiming it would not increase U.S. auto sales and promised to vote against the Agreement on the Senate floor.   As a sop to labor unions during campaign stops in 2008, Obama suggested "opting out" of NAFTA if he was elected but Senior Economic Advisor Austen Goolsbee dismissed the possibility as "more …political maneuvering than policy.”       

Following his predecessor’s lead, President Obama, who presented himself as a leader of open government committed to the objectives of labor unions, now plans to reprise Bush’s Presidential "fast track" no-amendment, no-filibuster legislative rule (known as Trade Promotion Authority) with limited debate and passage requiring a one-vote majority.  

The United States’ deep trade imbalance hole will require a drastic change of policy to reverse the decade-long trend of deficits.   Based on his first two years in office, it would appear doubtful that Obama has the gumption to do anything that requires drastic action.  

As heirs to a rich heritage of long-ago union heroes who fought and died for the 8-hour day and the 5-day week, labor unions prospered after WWII with stable wages and benefits and became reliable Democratic voters as America’s working middle class was lifted to economic security.  If Congressional Democrats approve KORUS FTA, acting as business agents for  insatiable multinational corporations, they will, in effect, let down those working class voters who have been the backbone of their electoral support for decades.  With massive budget cuts to favored People Programs on the table and as the America Dream continues to be exported, opposition to KORUS FTA will depend on those 80-100 Democratic members of the House who still  remember what it is to stand for democratic principles as the future of the American labor union movement remains the last vestige of a Democratic party’s moral and ethical leadership.    

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