Reports from the Economic Front

a blog by Marty Hart-Landsberg

Oppose Ratification of the US-Korea Free Trade Agreement

The US-Korea Free Trade Agreement (FTA) is back on the US political agenda.  Signed in June 2007 by the governments of the two countries, it has yet to be ratified by either the Korean National Assembly or the US Congress.   

Although social movements in Korea have waged a militant campaign against ratification in their country, opposition to the agreement by key members of the U.S. Congress appears to have been the main reason for the non-action.  If Congress had approved the agreement, the Korean National Assembly would have likely followed.   

Congressional opponents of the US-Korea FTA claimed to be motivated by industry and labor concerns that the agreement did not do enough to protect US jobs.  The automobile industry (in particular Ford), joined by the UAW, was especially vocal in demanding changes to the agreement.  Given that South Korean political leaders refused to reopen negotiations, there appeared little chance that the FTA would ever be ratified. 

But things have changed.  President Obama, under intense pressure to boost employment without further deficit spending, has now embraced an export-led jobs strategy.  In his January 2010 State of the Union address, he called for doubling exports over the next five years, an increase, he claimed, that would create two million jobs.  Achieving this goal, he added, required, among other things, approving the US-Korea FTA.  Demonstrating his commitment to his new strategy, he created a new export-promotion council composed of 20 major business leaders, including the CEOs of key transnational corporations such as Boeing, Pfizer, Ford, and UPS.   

Beginning in July 2010, the US government began pressing South Korea to make changes in the agreement.  The South Koreans capitulated and, in December, both governments announced new ground rules for the auto trade, which involved concessions to the U.S. auto industry. Now, Ford is on board with the agreement, and so is the UAW.  It remains to be seen what Congress will do. 

Unfortunately it is unlikely that working people will ever be told the truth about the destructive consequences of this agreement (for majorities in both countries.)  The issue is already being clouded by misleading claims.  Perhaps the biggest is that this agreement will mean jobs for U.S. workers.  For example, according to the US Trade Representative, Ron Kirk

The tariff cuts alone in the US-Korea trade agreement will increase exports of American goods and services by $10 to $11 billion.  We expect this agreement to create 70,000-plus jobs for American workers in a wide range of economic sectors from autos and manufacturing to agriculture. 

But where do the figures come from—and how much confidence should we have in them?  Thanks to the Eyes on Trade Blog, we can answer those questions.  

As it points out, the Administration began with the prediction by the US International Trade Representative (USITR) that the agreement will boost US exports to Korea by $10-11 billion.  Then it apparently used estimates from the International Trade Administration that every $150,000 in exports supports one American job.  Applying this multiplier to the expected increase in US exports to Korea, one gets a range of 73,333-66,667 jobs. “The 70,000 jobs stat is right in the middle of the range, so there is a high probability that this is the origin of the estimate.” 

But there is a big problem with this reasoning.  For one thing, this calculation does not include the effect of imports (which cost jobs).  If we were to account for the effect of imports on jobs using this same methodology, some 60 percent of the bilateral job gain is erased.  

But there is another problem.  The USITR got its predicted trade figures from a complex modeling exercise that incorporates all changes in US trade that might result from the US-Korea FTA.  As it turns out, some of the increase in US exports to Korea is actually the result of trade diversion.  In other words, not all of the increase in US exports to Korea means new jobs.   

As the Eyes on Trade Blog explains, if one were to look at the total trade effects of the agreement, one finds (based on the work of the USITR) that:  

[Overall] U.S. exports in the sectors analyzed will increase by $4.8-5.3 billion, but imports will increase by $5.1-5.7 billion due to the Korea FTA. This leads to a net increase in the deficit of between $308 million and $416 million.  The “$10 to $11 billion” figure that Kirk is citing refers to the increase in exports to only Korea, but does not account for declines in U.S. exports to other countries that the FTA will induce. Because of the way that bilateral trade agreements affect global trade flows, about 50% of the increase in exports to Korea are merely U.S. exports to third countries shifting to Korea. In other words, 50% of the “$10 to $11 billion” does not represent new exports, only exports that have changed destination. 

In fact, the USITR’s own study suggests that the overall US trade deficit will actually grow if the US-Korea FTA is ratified.  Thus, if we use the government’s own methodology we can only conclude that things will get worse job wise, rather than better.

The truth is that the US administration has no idea what this agreement will mean as far as jobs are concerned.  And they apparently don’t care.  The main goal of this agreement is to help the US financial, services, and medical goods sectors make profits by giving them ever greater freedom to internationalize their operations.  If the agreement is ratified, these industries will become stronger and our unbalanced economy will become only further unbalanced.  And we wont be doing Koreans any favor either.   This FTA should not be ratified.

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2 responses to “Oppose Ratification of the US-Korea Free Trade Agreement

  1. Red Phillips January 20, 2011 at 1:44 pm

    Opposition on the right to this treaty is growing. There is a real opportunity for a left/right populist coalition to come together to defeat this boondoggle.

    Like

  2. Peter Gemma February 6, 2011 at 8:29 pm

    There is a webpage devoted to the opposition to the treaty:
    http://stopuskoreanafta.org/

    Like

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