Korea FTA Needs Some Fixin'

On Saturday, President Obama announced at the G-20 that his administration will move forward with the South Korea FTA and submit it to Congress for approval soon.  You can read the quick reaction from our own Lori Wallach here.  Today happens to be the three-year anniversary of the signing of the Korea FTA, and we know what that means: the FTA was negotiated by Bush for the benefit of his cronies in big business and before the financial crisis rocked the global economy.  The Korea FTA contains all the anti-democratic NAFTA and CAFTA investor-state lawsuit provisions that allow corporations to sue governments if the governments implement regulations that could reduce their profits (as we’ve seen recently with the El Salvador mining case). 

The Korea FTA also contains extremely deregulatory provisions in financial services which are in some ways more deregulatory than any other trade agreement to date.  This type of financial deregulation is completely inappropriate now that we have witnessed how financial “wizards” can devastate the economy with their wild, unregulated derivatives trading and risky gambling.  Furthermore, it contradicts the congressional efforts underway right now to re-regulate the financial sector.  The dangerous investor-state lawsuit provisions and financial services deregulation in the Korea FTA need to be stripped out before it is brought before Congress.

The Korea FTA, based on the flawed NAFTA model, could also be a disaster for working families.  Several studies on the Korea FTA as it is currently written illustrate the consequences of trying to pass the Korea FTA as it stands:

Dr. Robert Scott at the Economic Policy Institute (EPI) recently released a report on the probable employment impacts of the current version of the Korea FTA. His analysis found that the implementation of the Korea FTA would cost the U.S. about 159,000 net jobs over the next seven years due to a $13.9 billion increase in the U.S. deficit with Korea.

The U.S. International Trade Commission (USITC), an independent federal body that analyzes the likely effects of trade agreements for Congress, also found that the Korea FTA would result in an increase in the total U.S. trade deficit (see Table 2.3 in the report).  The structure of their model does not allow the total number of people employed to vary, so their report does not contain a net job loss estimate to accompany the estimate of the increased deficit. However, the USITC does have sector-by-sector estimates of employment changes, which show that workers in high-paying manufacturing industries will lose in the agreement (see Table 2.4 in the report).  The electronic equipment industry, for instance, will shed up to 0.4 percent of its workers.  The U.S. auto industry is projected to lose about 0.2 percent of its workforce due to the Korea FTA.

Of course, the corporate lobbyists have stepped up with their misleading models that predict job growth. One such study by the Chamber of Commerce predicts that hundreds of thousands of jobs would be created by the implementation of the Korea FTA.  A major problem with the report is that it only mentions the impact, under their model, of the Korea FTA upon exports.  Nowhere does it give an estimate of the increase in imports due to the FTA.  In a study on the economic impact of a trade agreement, you’d expect at a minimum to read estimates of the impact on both sides of trade flows, not just exports.  The Chamber study doesn’t give an estimate of the import impacts and is vague in its methodology section, which leaves the reader wondering if the Chamber study accounted for the effects of rising imports at all. A study failing to account for the rise of potentially job-killing imports would completely miss the mark on the jobs impact of an FTA.  The EPI and USITC studies, which explicitly account for changes in imports, are much more reliable than the Chamber study.

With his announcement to fix the Korea FTA, President Obama has a historic opportunity to chart a new course in trade policy that benefits workers, maintains democratic control over public policy, and promotes economic stability rather than handing more power to multinational corporations and big banks as trade policy over the last 20-plus years has done.  Let’s hope he seizes the moment.

 

Lori Wallach’s full statement on Obama’s announcement is after the jump:

 

If the administration wants to obtain broad support on what may well be its first trade vote, it will need to fix more than beef and auto trade problems. That’s because it has inherited a leftover Bush Korea trade pact text that includes the same outrageous foreign investor rights as North American Free Trade Agreement (NAFTA) plus the strongest dose of financial deregulation ever contained in a U.S. trade pact. Fixing the NAFTA-style investment chapter is critical because Korea is a capital exporter, the Bush text provides foreign firms operating here with greater rights than are provided under U.S. law and there are nearly 200 Korean firms already in the U.S. that would be empowered to attack our environmental, health, financial reregulation and other laws in foreign tribunals and demand taxpayer compensation. Fixing past U.S. trade pacts' overreaching foreign investor rights and their private corporate enforcement was among President Barack Obama's leading campaign trade reform commitments.

Background: 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). As well, the agreement's investment chapter includes the private investor-state enforcement of an array of property rights that would provide Korea firms operating in the United States greater rights than provided to domestic firms and investors under U.S. law as interpreted by the U.S. Supreme Court. This is an especially critical problem given that Korea is a capital exporter and these extraordinary rights would apply to the nearly 200 Korea firms already established here. To date, Canada under NAFTA has been the only other developed, capital exporting country with which the United States has had such an investment agreement, and it has resulted in an array of challenges to U.S. environmental, health and other policies in foreign tribunals.

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 World Trade Organization, Central America Free Trade Agreement and 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. It also includes similar "prudential measures" language that 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). 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 provision unique to the Korea FTA 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."

Comments

[Don Juan of Austria]

Shocking and depressing that the Obama Admin would even consider this. Are they so politically clueless that they don't know why they won all those Midwestern states?

And why publicize that you have told USTR to get a deal done? How does revealing to the Koreans that Obama is desperate for a deal help get a good deal?

How about trying this: start taking Korean access OFF the table until the Koreans start buying as many U.S.-manufactured products as they sell us Korean-manufactured products.

No negotiation, no stupid falling for the same tricks. Just insist on balanced trade, end of story.

[Bob Cassidy]

It's hard to imagine that either the American people or the Congress will look favorably on any free trade deal with South Korea when no Administration or Congress has been able to resolve the distortions in competition brought about by China's undervalued currency. Moreover, while negotiations on the FTA with Korea were progressing, Korea appreciated it's currency, the won, but after negotiations were completed the won declined again in value thus distorting trade through those illegal subsidies.

It is sad that politicians of all political stripes are so wont to allow other countries to discriminate against U.S. workers and U.S. products.