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Google It - Under Korea FTA, China Holds Your Data Privacy Future

If the Korea FTA is passed, get ready to have your private financial data handled in China.

What am I talking about? The Bush-negotiated U.S.-Korea "free trade agreement" (FTA), more than other bilateral agreements, has been justified for its explicit role in pushing financial services liberalization (read: deregulation).

According to the Bush administration’s U.S. Trade Representative’s office, “The Financial Services Chapter of the United States- South Korea Free Trade Agreement (“KORUS FTA”) is a groundbreaking achievement, providing more extensive provisions related to financial services than ever before included in a U.S. FTA.”  Citigroup’s Laura Lane, corporate co-chair of the U.S.-Korea FTA Business Coalition, stated that “it is the best financial services chapter negotiated in a free trade agreement to date.”

Indeed, the deal includes everything that's not to like about other Bush-negotiated FTAs, and then some. Like the WTO, CAFTA or the Peru FTA, the Korea FTA commits its signatory countries to refrain from limiting the size of financial institutions, banning toxic derivatives, or controlling destabilizing capital flights and floods. And it also includes similar "prudential measures" language which fails to protect financial stability measures.

But the Korea FTA doesn't stop there. In March 2006, prior to the formal U.S.-Korea negotiations, the Coalition of Service Industries (CSI) stated that one of its primary objectives in the negotiation related to data processing services:

“Korean laws make it difficult for foreign companies to outsource and offshore activities. These laws often relate to privacy (private data protection law and real name law). Under the Protection and Use of Credit Information Law and its Presidential Decree, foreign companies operating in Korea are prohibited from transferring any customer data whatsoever out of Korea, even for the purposes of processing data to their own affiliates. In addition, as a result of the revision of the Insurance Business Act in May 2003, it is mandatory for insurance companies to maintain in-house the basic human and non-human resources, including IT systems, necessary for insurance business. These restrictions seriously undermine the government’s goal of making Korea into a financial ‘hub’ by significantly increasing the cost of operating in Korea. These regulations should be modified to permit companies to follow their global operating models for outsourcing and offshoring provided they have existing practices to protect consumer information.”

This gripe was echoed in the USTR’s 2009 National Trade Estimate report:

“Korea’s strict data privacy rules require financial services providers to locate their servers physically in Korea, thus hampering foreign providers’ ability to take advantage of economies of scale in the region to perform data processing in their daily business activity.”

Corporations demanded, and corporations got. A brand spanking new provision was incorporated into the Korea FTA that reads:

"Transfer of Information: Each Party shall allow a financial institution of the other Party to transfer information in electronic or other form, into and out of its territory, for data processing where such processing is required in the institution’s ordinary course of business."

The text goes on to say that "The Parties recognize the benefits of allowing a financial institution in a Party's territory to perform certain functions at its head office or affiliates located inside or outside the Party’s territory."

Now, CSI is demanding the new Korea FTA provisions be considered the new template for financial services chapters, and be incorporated into future trade deals.

What does this mean for average Americans? This (and related provisions on data transfers in the Korea FTA) goes clearly counter to the demands in the TRADE Act to fix our own offshore privacy laws, so that white collar data jobs can be created and preserved here at home. As research by Alan Blinder and now White House economist Jared Bernstein has shown, data-related jobs are among those most vulnerable to offshoring. And the U.S. currently has weak to non-existent regimes in place to preserve those jobs.

The issue was controversial during the negotiations. According to the Korea Times from 2006,

“Korea's finance-related laws ban foreign financial service companies from remitting personal information of domestic customers to overseas markets. ... There had been a case in which U.S. Citibank's Korean operation was accused of transferring credit information of its Korean customers to its regional headquarters in Asia. The issue, however, is likely to be a bone of contention during the fourth round of FTA talks between Korea and the U.S. on Cheju Island opened yesterday for a five-day run. Once the U.S. demand is met, Korean financial firms in the United States can get private financial information on American companies, analysts said.”

Under the Korea FTA, Citigroup would not only get to transfer Americans' financial data to and from Korea, but transfer this information from Korea to its other offices in the region, like China, which has recently come under fire for cyberattacks and censorship, to the point where Google is considering pulling out of the country. The same would go for Korean banks like Woori Financial, which operates in China and the U.S. Indeed, financial institutions could send data processing to wherever white collar labor is cheapest, not necessarily where it is most safely handled.

To top it all off, Korean-domiciled investors will get rights to challenge U.S. regulations for taxpayer-funded cash compensation in an FTA-established tribunal that operates outside of the U.S. court system. If Woori America Bank built a business model around transferring its clients info to and from China and Korea and the U.S., it is not hard to imagine them launching a case against future regulations that hampered that flow.

In short, under Bush's Korea FTA, both consumer and white collar workers will take a hit. It couldn't come at a worse time, with concerns about both jobs and China's data practices at record levels. What's worse, it didn't have to be this way. In fact, the recently inked Korean trade deal with the European Union has better provisions, in deference to the EU's better rules on offshore data privacy.

Let's hope that President Obama's talk last year about the Korea FTA was just that. I can't imagine he would want to take up the Bush mantel on this one. And with a majority of House Democrats now supporting the TRADE Act, there is ample support for an alternative agenda which creates and preserves both good jobs and safety for your personal information.

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