Korea FTA Benefits China at the Expense of U.S. and South Korean Workers

We’re continuing our series of facts in response to the Korean Embassy’s misleading claims on the Korea Free Trade Agreement (FTA). Our full response can be viewed here. This is the final installment, focusing on the Korea FTA’s lax domestic content requirements for autos.

Lori Wallach’s Huffington Post piece: “The FTA allows its benefits to accrue to autos that contain only 35 percent U.S. or Korean content.”

Korean Embassy’s claim: “The KORUS FTA stipulates that 35% of the components used to manufacture products (under the build-up method/net cost method) or 55% of the components of the final product (using the build-down method) must originate in one of the two countries to be eligible for preferential treatment. A 45% maximum foreign content rule under the Korea-EU FTA corresponds with the minimum 55% domestic contents rule under the KORUS FTA (using the builddown method). Also, the EU’s standard foreign content rule was 40%, not 45%.” Elsewhere, the Embassy has gone further, stating that the build-up and build-down methods “are supposed to be equivalent to each other. The 20% difference between the methodologies reflects the operation cost in the final product processing stage and manufacturers’ dividends, etc.”[i]

Facts: These two methods are not equivalent. Multinational companies have pushed for rules that intentionally allow them the discretion to include as much as 65 percent content from outside the FTA countries, at the expense of workers in both the U.S. and South Korea.

As the United Autoworkers and others have repeatedly noted, Korean automakers have the option to use the “build-up” method to calculate the domestic value content under the US-Korea FTA, which requires that only 35 percent of the value of the motor vehicle be comprised of domestic parts to qualify for FTA benefits. This method allows – but does not require – that importers deduct certain “fringe” costs like transportation when calculating the maximum permissible share of content from non-FTA countries.[ii]

The EU-Korea FTA provides for only one way for automakers to calculate the domestic value content. Under the EU-Korea FTA, a Korean motor vehicle qualifies for FTA benefits only if its foreign content comprises 45 percent or less of the vehicle.[iii] Put differently, the minimum domestic value content for the EU-Korea FTA is 55 percent. Given that the EU-Korea FTA mandates that 55 percent of the value of a Korean auto must be of domestic components, while the “build up” method of the US-Korea FTA mandates that only 35 percent of the value of a Korean auto must be of domestic components, Korean automakers will be able to put a much greater portion of Chinese components into vehicles destined for the United States, undercutting auto production in the United States.

Members of Congress and fair trade groups have long raised concerns about the low percentage of originating content required for goods to qualify for duty-free FTA treatment. The Labor Advisory Committee for Trade Negotiations and Trade Policy has warned that the lax rules of origin in the Peru, Oman, and Korea FTAs would allow large quantities of goods from third countries such as China to enter the United States duty-free under the FTAs.[iv] Reports on previous FTAs have made similar points.[v] However, industry representatives have successfully pushed the U.S. Trade Representative to include lax rules of origin in FTAs.[vi]



[i] http://www.koreauspartnership.org/pdf/Other%20Issues.pdf

[ii] See Annex 6-A of the Korea FTA,  Available at: http://www.ustr.gov/sites/default/files/uploads/agreements/fta/korus/asset_upload_file680_12704.pdf. See also: International Union, United Automobile, Aerospace & Agricultural Implement Workers of America (UAW), “The Social and Economic Impact of the US-South Korea Free Trade Agreement (KORUS FTA),” September 14, 2010, Available at: http://www.imfmetal.org/files/10102608591310005/UAW_KORUS_FTA_ENGLISH.pdf

[iii] See Protocol 1 of the E.U.-Korea Free Trade Agreement, Available at: http://trade.ec.europa.eu/doclib/html/145192.htm

[iv] Labor Advisory Committee for Trade Negotiations and Trade Policy, “The U.S.-Oman Free Trade Agreement,” November 15, 2005, at 9, Available at: www.citizenstrade.org/pdf/omanLACreport_11152005.pdf

Labor Advisory Committee for Trade Negotiations and Trade Policy, “The U.S.-Peru Free Trade Agreement,” February 1, 2006, at 1, Available at: www.citizenstrade.org/pdf/peruLACreport_02012006.pdf

Labor Advisory Committee for Trade Negotiations and Trade Policy, “The U.S.-Korea Free Trade Agreement,” April 27, 2007, at 28, Available at: http://ustraderep.gov/assets/Trade_Agreements/Bilateral/Republic_of_Korea_FTA/Reports/asset_upload_file698_12781.pdf

[v] See Labor Advisory Committee for Trade Negotiations and Trade Policy, “The U.S.-Singapore Free Trade Agreement,” February 28, 2003, at 14-15. Available at: http://ustraderep.gov/assets/Trade_Agreements/Bilateral/Singapore_FTA/Reports/asset_upload_file77_3220.pdf

[vi] For example, the Industry Sector Advisory Committee on Transportation, Construction, Mining, and Agricultural Equipment urged USTR to allow the build-down method to calculate the domestic content for autos in the Chile FTA after the initial draft agreement only included the build-up method. The final agreement allowed the both methods. See ISAC 16, “Report for the Chile Free Trade Agreement,” February 2003, at 6; USITC, “U.S.-Chile Free Trade Agreement: Potential Economywide and Selected Sectoral Effects,” June 2003, at 80; Chapter 4 of U.S.-Korea FTA.

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The Korea FTA: Putting Corporations Before the Public Interest

We’re continuing our series of facts in response to the Korean Embassy’s misleading claims on the Korea Free Trade Agreement (FTA). Our full response can be viewed here. This time, the focus is on the Korea FTA’s investor-state dispute resolution mechanism that threatens public interest laws.

Lori Wallach’s Huffington Post piece: The Korea FTA’s investor-state dispute resolution mechanism “empowers foreign investors to skirt domestic courts and seek cash compensation for regulatory costs before foreign tribunals…”

Korean Embassy’s claim: “The investor-state dispute resolution mechanism in the KORUS FTA is a common feature of free trade agreements and bilateral investment treaties, of which there are more than 3,000 worldwide. NAFTA has an identical investor-state dispute resolution chapter. Since it took effect in 1994, Mexican and Canadian companies have filed 18 requests for arbitration against the U.S. government. They have won none of them.” Elsewhere, the Embassy adds that, “Some opponents of the FTA have alleged that this section will provide Korean companies with rights greater than those afforded to U.S. companies. Not only is that not true, it is directly rebutted in the text of the agreement which says, ‘foreign investors are not hereby accorded greater substantive rights with respect to investment protections than domestic investors under domestic law where, as in the United States, protections of investor rights under domestic law equal or exceed those set forth in this Agreement.’”[i]

Facts: Opposition to the investor-state system is at an all time high, in part because of such callous attitudes from governments. In July of last year, 110 members of Congress sent a letter to President Obama opposing the investor-state mechanism in the Korea FTA, among other provisions.[ii] A bipartisan group of 146 legislators (including the majority of House Democrats) cosponsored the TRADE Act, which called for elimination of the investor-state system. And in September 2010, over 550 faith, family farm, environmental, labor, and consumer protection organizations signed a letter to President Obama urging that he remove the investor-state mechanism from the Korea FTA.[iii]

The Embassy would like to portray the investor-state dispute settlement mechanism as mundane and uncontroversial. Nothing could be farther from the truth. In October 2010, Korean legislators and members of the U.S. Congress sent a joint letter to President Obama and President Lee that called on them to change the text of the FTA to eliminate the threat of investor-state lawsuits.[iv] The recent joint statement of Korean lawmakers, labor unions, farmers and civil society groups highlighted in Lori Wallach’s Huffington Post piece reiterates the deep concern of Koreans that the investor-state mechanism would allow multinational corporations “to bring our government to the foreign arbitration tribunals to demand compensation over public policy standards, even those that apply to domestic and foreign corporations alike.”[v]

Language cited by Embassy is non-binding. To counter the fact that the FTA’s clear language in Chapter 10 does provide Korea firms operating here better rights than domestic firms, the Embassy quotes a provision of the FTA (e.g. “foreign investors are not hereby…) that is in the preamble of the agreement and thus non-binding. The non-binding nature of the preamble was noted most recently by the U.S. State Department in the Grand Rivers et. al. vs. United States investor-state arbitration under NAFTA, which stated: “the key to interpreting the provisions of the NAFTA must be the text itself, as informed by the treaty’s context, object, and purpose, only to the extent those additional sources are relevant to, and consonant with, the substantive provision at issue. This approach is grounded in the well-accepted principle that general objectives can shed light on treaty provisions, but cannot impose independent obligations on treaty signatories.”[vi]

Continue reading "The Korea FTA: Putting Corporations Before the Public Interest" »

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The Korea FTA’s Contribution to the U.S. Trade Deficit

We’re continuing our series of facts in response to the Korean Embassy’s misleading claims on the Korea Free Trade Agreement (FTA). Our full response can be viewed here. This time, the focus is on the Korea FTA’s projected increase in the U.S. trade deficit.

Lori Wallach’s Huffington Post piece: The “U.S. International Trade Commission has concluded that the Korea agreement will increase the overall U.S. trade deficit.”

Korean Embassy’s claim: “The ITC clearly cautioned users of its data against doing exactly what Ms. Wallach and others have done: the ITC’s simulation results “should not be interpreted as changes in total imports and exports, or as implying meaningful information about the balance of trade impact of the entire U.S.-Korea FTA.” In its 2007 report, “U.S.-Korea Free Trade Agreement: Potential Economy-wide and Selected Sectoral Benefits,” the ITC predicted that the agreement would increase U.S. merchandise exports to Korea by $9.7 billion to $10.9 billion and merchandise imports from Korea by $6.4 billion to $6.9 billion.”

Facts: Embassy continues to dodge the fact that the Korea FTA will be lose-lose. While it cites the USITC projections on the bilateral trade balance showing Korea would lose, it ignores the fact that the U.S. global trade deficit is expected to increase – and it is the U.S. global balance that will affect jobs here.

The USITC’s study on the Korea FTA predicted that implementation of the Korea FTA would cause total U.S. exports to rise by $4.8-5.3 billion dollars and total U.S. imports to rise by $5.1- 5.7 billion, resulting in an increased trade deficit of $308-416 million.[i] This result is inseparable from the other findings in the report, including those that the FTA boosters prefer to highlight.

Interestingly, the USITC has not in the past made caveats like the one quoted in regards to its findings, despite the fact that its model’s track record has proven to be overly optimistic. For instance, a 1999 USITC study using roughly the same model estimated that China’s tariff offer for WTO accession would increase the U.S. trade deficit with China by only $1 billion dollars.[ii] In reality, the trade deficit with China skyrocketed by $167 billion between 2001 and 2008.[iii] Although China’s WTO accession alone (and the favorable trade treatment that came with it) likely did not cause the entirety of the huge rise in the trade deficit with China, it almost certainly contributed more than $1 billion dollars to the rise in the deficit. The USITC should indeed provide caveats that show that its own predictions have been overly optimistic.

Continue reading "The Korea FTA’s Contribution to the U.S. Trade Deficit" »

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How the Korea FTA Could Provide New Revenue for the North Korean Dictatorship via Increased Access to the U.S. Market: Responding to Inaccuracies in Recent Commentary

The prospect of the U.S.-South Korea FTA providing a means for North Korea’s Kim Jong Il dictatorship to generate new funding for its weapons programs is emerging as a hot issue in the escalating congressional debate. Our new memo explains how a loophole in the FTA could provide backdoor North Korean access to the U.S. market, in conflict with U.S. sanctions, and the sweatshop conditions in North Korea's Kaesong Industrial Complex, where 120 South Korean firms operate. The memo also explains why recent interventions by the Obama administration and corporate sources to quell this debate are not convincing.

Read the full memo here.

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Wisconsin, Korea, and the attack on working families

Working families are under attack by state legislatures nationwide - and the last thing we need is more anti-worker, job-killing trade policy at the federal level. But it looks like that's just what we'll get - unless we draw a line in the sand now and stop the Korea trade deal. It's time to fight back - and to raise fair globalization as part of our vision of a just and sustainable economy.

It's all part of the same problem. They cut taxes for corporations and let them write the rules of the global economy to shift production to where the taxes are the lowest, and worker rights and environmental protections are the weakest. When we don't have any tax revenue left because the corporations (and jobs) have left for overseas or blackmailed their way to criminally low tax rates, they try to balance budgets on the backs of working families. They cut essential services and are now even trying to take our rights. If jobs stayed here in the first place, we wouldn't' be in this mess.

It's what Leo Gerard of the Steelworkers union calls a "revenue problem". We can't let it go unchecked.
 
We need to fight back - and to raise the need for fair globalization policies as part of our vision of a just and sustainable economy where workers rights are upheld as sacred.

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The Korea FTA is Lose-Lose for the U.S. and Korea: The Facts

The Korean Embassy recently released claims purporting to rebut the statements in Lori Wallach’s February 15, 2011 Huffington Post piece about the lose-lose nature of the NAFTA-style deal with South Korea. These statements do not reveal the full truth of the matter and could leave a mistaken impression of the so-called “free trade agreement” (FTA) with Korea and its consequences. We’ll be posting the facts in response to the Korean Embassy’s misleading claims throughout the week.

THE FTA, FINANCIAL DEREGULATION AND WEAK LABOR RIGHTS

Korean Embassy does not even dispute that the Korea FTA could worsen financial stability and undermine labor rights. Wallach wrote that, “Another issue intensifying opposition to the FTA in Korea is the pact’s pre-crisis era financial deregulation requirements. After the 1997 Asian financial crisis wiped out decades of improvements to Korean living standards, Korea's policy response to the recent global crisis was forceful. Yet, aspects of both Korean and U.S. financial regulation would newly be exposed to direct challenge by the very firms that wrecked the global economy. Finally, the Korean union members on the delegation clearly shocked many of their audiences with their stories of how South Korean labor laws allow for strikers to be arrested for, well, striking and also allow individual strikers to be sued for compensation by their employers for lost profits.” The Korean Embassy does not rebut any of these points in their response to Wallach.

THE KOREA FTA’S DAMAGE TO THE U.S. AUTO SECTOR

Lori Wallach’s Huffington Post piece: “…the ITC [International Trade Commission] study showed that the (overall) U.S. deficit in autos and auto parts would increase by at least $531 million under the pact.”

Korean Embassy’s claim: “The ITC study predicted that the KORUS FTA would increase U.S. auto exports to Korea by 45.5 percent to 58.9 percent and auto imports from Korea by 9.1 percent to 12.0 percent. At the request of the House Ways and Means Committee, the ITC is investigating potential effects on the U.S. auto industry of FTA modifications agreed upon in December 2010. The ITC expects to submit its findings to the Committee by March 15, 2011.”

Facts: Playing with percentages obscures the projected worsening of the auto trade deficit. The embassy’s use of percentage gains versus the net balance or quantities of vehicles obscures the reality of the data. The USITC's prediction that exports of U.S. autos to Korea would increase by 46-59 percent seems impressive at first glance, but upon closer inspection it becomes clear that the very low starting point of U.S. exports to Korea (about 6,000 vehicles in 2009) means that this percentage increase is small potatoes that will be overwhelmed by the huge increase in Korean auto exports (at about 500,000 in 2009) to the United States projected to occur under the FTA. In the USITC study, U.S. auto exports to Korea start at only $0.7 billion, but Korean auto exports to the United States start at $14.5 billion. Thus, an increase in U.S. auto exports of 46-59 percent results in $294-381 million in greater auto exports, but the increase of 9-12 percent for imports of Korean autos leads to a $1,324-1,737 million import increase, dwarfing the U.S. exports and resulting in a net increase in the auto trade deficit with Korea of $1,030-1,356 million. (Note that due to trade diversion effects, the USITC found that the total increase in the U.S. auto trade deficit with the world is less than the increased deficit with Korea itself.)

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The Incredible Shrinking FTA Jobs Claim

In Rep. Brady's announcement of last week's hearing on the Colombia Free Trade Agreement (FTA), he said, "According to the President’s own statements, [the pending trade agreements with Colombia, Panama, and South Korea] have the ability to create over 250,000 American jobs." Speaker Boehner's blog has also been claiming this 250,000 jobs gain figure.

But did the President ever say that the three FTAs will create 250,000 jobs? No. Rep. Brady here makes at least three errors. If you correct for one, the "jobs created" number goes down to 78,000. If you correct for two, the jobs number goes down to 39,333. If you correct for three, the job gain turns into a job loss of 3,200 jobs.

Back in November 2009, Obama gave an interview to Reuters on the eve of his trip to Asia in which he stated, "And right now we have about 9 percent of -- a 9 percent share of Asia's -- not just China, but Asia's trade overall, and it's estimated that for every 1 percent of increased share that we get, that could mean 250,000, 300,000 jobs."

Obama's statement was misinterpreted almost immediately by opponents of fair trade. In December 2009, Rep. Aaron Schock (R-IL) wrote an op-ed in The Hill in which he claimed, "Surprisingly, even President Obama agrees with me. He recently stated that increasing US exports by just one percent would create over 250,000 American jobs. According to the International Trade Commission [USITC], passage of the Colombia, Panama and South Korea free trade agreements would increase our exports by more than one percent. The inaction on these trade agreements is preventing the creation of a quarter million American jobs."

Rep. Schock completely ignored the crucial difference between increasing America's market share in Asia (a very big pie) and increasing total U.S. exports (a sizable, but smaller, pie). Going from 9 to 10 percent of the export market share in Asia would mean that total U.S. exports to the world would actually increase by three percent. When Obama talked about going from 9 to 10 percent of the market share in Asia, he was talking about increasing exports by $37.2 billion, which would have translated into 248,000 jobs using the standard exports-jobs multiplier estimated by the Commerce Department, so his estimate was apparently spot-on. Schock is instead talking about a projection of an increase in U.S. exports to the world of one percent, or $11.7 billion, which would translate into only 78,000 jobs using the standard jobs multiplier.

So, Rep. Brady is merely dusting off Rep. Schock's old talking claim that was based on shoddy math. But was Rep. Schock's claim that the USITC predicted a one percent increase in total US exports from the three FTAs accurate? No.

Continue reading "The Incredible Shrinking FTA Jobs Claim" »

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Debunked FTA Export Claims Continue to Pop Up

In his announcement of the hearing on the Colombia FTA that occurred yesterday, Rep. Kevin Brady alleged that "Since 2000, U.S. exports to the 13 countries with which the United States has implemented trade agreements have grown almost twice as fast as our worldwide exports," but a fair accounting of the export record does not support this claim.

In our September report about the dismal record of U.S. exports to our FTA partners, Lies, Damn Lies, and Export Statistics, we debunked similar claims floated by the Chamber of Commerce and the U.S. Trade Representative. Apparently fair trade opponents think this claim is just too good to let facts get in the way, because it has surfaced again in Rep. Brady's statement.

It seems Rep. Brady is engaging in the same apples-to-oranges comparison trick that we highlighted in our September report (see page 18). If you take the unweighted average growth of exports to FTA partners and compare it to the weighted average growth of exports to the world over 2000-2010, you'll get an FTA growth rate almost twice as high as the growth rate of exports to the world.* Comparing weighted and unweighted averages makes FTAs seem great for U.S. exports, but it's a false comparison.

In fact, an apples-to-apples comparison of exports to FTA partners and non-FTA partners since 2000 shows just the opposite of Rep. Brady's claims: exports to FTA partners have grown at half the pace of exports to non-FTA partners. In inflation-adjusted and trade weighted terms, exports to FTA partners grew at an average annual rate of only 1.5 percent over 2000-2010 while exports to non-FTA partners grew at an average annual rate of 3.8 percent over the same period. The best way to compare the FTA and non-FTA export rates is to use a weighted measure since it weights exports by their value - and thus their importance to U.S. workers who produce the exported goods. However, as we demonstrated in our September report, it is also the case that if you slice it the other way - comparing the unweighted FTA rate against the unweighted non-FTA rate - exports to FTA partners still have grown at half the pace of exports to non-FTA partners. Thus, any way you slice it, exports to FTA partners have lagged behind exports to countries with which we do not have FTAs.

*Since Rep. Brady says "worldwide" exports, here exports to FTA partners are not subtracted out from exports to the world to get the non-FTA export growth rate. Also, Rep. Brady speaks of 13 U.S. FTA partners, but there are 17 FTA partners and all 17 were included in the calculations here. Finally, these numbers are not adjusted for inflation because the unweighted FTA export growth rate would actually be more than twice the weighted worldwide export growth rate if the data was adjusted for inflation, which would be inconsistent with Brady's claims.

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Korea Trade Deal Won't Help Kentucky Bourbon Sales

Check out this op-ed in the Louisville Courier-Journal to find out why. It's by our very own Todd Tucker, who also happens to be a Kentucky native.

 

Louisville Courier-Journal

Korea Trade Deal Won't Help Kentucky Bourbon Sales

Bourbon  
"With Congress expected to consider a NAFTA-style trade deal with Korea in the coming weeks, distilled spirits companies have been claiming that Kentucky bourbon sales will take off in Korea if the deal is approved. But this claim is misleading, and it papers over the expected job loss from the Korea deal..."

Read the entire piece here.


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Previewing Camp's Request for USITC Analysis of Korea FTA Supplemental



Earlier this year, Ways and Means Committee Chair Dave Camp requested that the U.S. International Trade Commission prepare a study covering changes to auto sector provisions in the Korea trade deal agreed upon during December 2010 supplemental negotiations. The USITC was slated to release this study to Camp yesterday. Now, Camp must decide if it will be made public. It will be critical to review both the USITC's findings and methodology. We urge Camp to make the study public, rather than release selective quotes from it.

What the USITC concludes will be very interesting. So, we've prepared a preview of the study. You can read it here.

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Japan tragedy highlights consequences of corporate offshoring

Our hearts go out to those who have lost loved ones as a result of the earthquake and its aftermath in Japan.

As humanity collectively sifts through the lessons that can learned from this disaster (including with respect to the perils of nuclear power), Information Week is reporting on another fallout with global implications:

The massive 8.9 earthquake that has caused widespread devastation in Japan is expected to cause worldwide shortages and severe price swings in some semiconductors manufactured in the island nation, according to some analysts.

The electronics expected to be most affected by the 8.9 quake that struck Friday include semiconductor wafers used in making microprocessors, NAND flash used for storing music, video, and other content in handheld devices, and DRAM, which is the system memory in PCs. More than 40% of the world's NAND and 15% of the world's DRAM are made in Japan, according to market researcher Objective Analysis.

In other words, there are consequences beyond just job loss to corporations' decision to offshore production to a few locations on the planet. To put it a different way, what is rational for the individual corporation can be irrational from the perspective of society as a whole.

Such a problem was predicted nearly six years ago by my colleague Barry Lynn, the author of the book "End of the Line." In a column for the FT summarizing the book, Barry wrote:

Time and again, human beings have learned to build buffers into complex systems. We design compartments into our ships, circuit breakers into our electrical networks and minimum reserve requirements for our banks. Yet since the cold war era, we have done the exact opposite with our industrial system. Rather than conceive market-friendly methods to distribute risk and dampen shocks, we devoted ourselves to eliminating the bulkheads that have traditionally existed between nations and between companies. To evoke a more raw analogy, in our production system, we bulldozed all the levees flat.

As a result, we now live in a world where an isolated political or natural disaster on the far side of the globe can disrupt basic systems on which we all depend. Consider what would happen in the event of war on the Korean peninsula, or an uprising in south India, or an avian flu pandemic in industrial Asia.

In the first case, we would immediately lose half the global production of D-ram chips, 65 per cent of Nand flash chips and much more. At a minimum, the result would be massive disruptions in the electronics industry and in all industries that depend on electronics components. In the second case, numerous global companies, including banks, would lose their ability to process information because they have relocated key back-office operations to that region. The third case, meanwhile, presents chilling proof that the production system has evolved in directions no one expected. As a recent article
in Foreign Affairs noted, one cross-border system that would collapse in the event of a pandemic is the one the US relies on for medical respiratory masks.

In each instance, an everyday disaster far away would set off potentially massive disruptions of the industrial systems on which all nations depend... It is time to admit that our grand experiment with radical laissez faire management of industry has failed.

While the global response to the Japan earthquake in the short-term will rightly focus on saving lives and avoiding further deaths, policymakers should also assess why they have allowed corporations to break down reasonable buffers against excessive offshoring of production. A little more redundancy in supply chains is not only collectively rational, but would also have the benefit of creating jobs at home.

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Despite USTR Kirk’s Rhetoric, Obama Administration Trade Approach Is More of the Same

Statement of Lori Wallach, Director of Public Citizen’s Global Trade Watch

Kirk Ambassador Ron Kirk says that the administration wants to restore Americans’ long-lost faith in our trade policy and repeatedly promises to truly fix Bush’s leftover job-killing trade deals – but, at the same time, he’s before Congress pushing forward three of Bush’s NAFTA-style deals for approval.

Slightly altering auto tariff schedules in Bush’s NAFTA-style agreement certainly is not a faith-restoring trade policy overhaul. The Korea trade deal is still projected to increase the overall U.S. trade deficit and cost 159,000 U.S. jobs. The Korea deal requires the kind of financial deregulation that contributed to the economic crisis. The deal still contains Bush’s ban on reference to the International Labor Organization conventions when enforcing its weak labor standards. This agreement even allows South Korean goods to be given the benefits of the agreement even if such goods contain inputs or parts from North Korea, despite our sanctions on trade with that country. And it still has sovereignty-eroding, public-interest-policy-chilling rules that allow multinational corporations to sue governments in private, foreign tribunals for taxpayer money. 

The administration had a chance to fix the many glaring problems in Bush’s NAFTA-style Korea agreement, but it didn’t. Kirk is right that the majority of Americans oppose another one of these job-killing trade deals.

Given the ugly battle that will ensue in Congress and with the American public over the Korea trade deal, we hope the administration will take a different approach with Colombia, Panama and the other countries with which it is now negotiating. With respect to Panama and Colombia, prior to any trade agreement being appropriate, Colombia’s deeply ingrained violence and Panama’s tax-haven status must be eliminated.

###

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Op-Ed Lays Out Risks Korea Trade Deal Poses to Oregon

An op-ed by in today's Register-Guard (Eugene, Ore.) lays out the risks that the U.S.-Korea trade deal poses to Oregon and the U.S. - and calls for Sen. Ron Wyden to oppose it. The piece is by Gordon Lafer, an associate professor at the University of Oregon’s Labor Education and Research Center.

 

Register_guard_logo

NAFTA-style Korea trade treaty would cost U.S. jobs

"As chairman of the Senate’s subcommittee on International Trade, Oregon’s own Sen. Ron Wyden will play a key role in determining whether the [U.S.-South Korea Free Trade Agreement] is approved or shelved, and he is officially undecided on the issue... There is really only one reason for elected officials to support these treaties: to curry favor with big-money corporate donors. While the American people are against more NAFTAs, the U.S. Chamber of Commerce and the nation’s biggest corporations are salivating at the prospect..."

Read the entire piece here.

 

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Lori Wallach on HuffPo: "Korea Trade Deal Is Lose-Lose"

Check out Lori Wallach's latest piece on The Huffington Post:

HuffPo logo

Korea Trade Deal Is Lose-Lose

"The Obama administration's effort to convince Congress to pass a NAFTA-style trade pact with South Korea on foreign relations and national security grounds took a beating last month when a large delegation of Korean opponents of the pact came to Washington. ... A majority of Koreans oppose the FTA, are offended that it requires South Korea to subject itself to the jurisdiction of foreign arbitral tribunals, and fear it will undermine the financial stability policies Korea has implemented following the recent and 1997 financial crises; this was the message from the South Korean officials to U.S. members of Congress. The FTA is also 'an unacceptable humiliation and an overly high price to pay for the Americans' role in providing national defense,' they said..."

Read the entire piece at The Huffington Post.

 

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Liveblogging the Kirk Hearing on NAFTA Expansions

The Ways and Means Committee is having its second hearing on the NAFTA expansions to Korea, Panama and Colombia. The hearing is also looking at problematic attempts to expand the World Trade Organization's restrictions on domestic regulations, and the Trans-Pacific Free Trade Agreement (FTA). The U.S. Trade Representative, Ron Kirk, is testifying. I'll be live-blogging over at FiredogLake, and attempt to provide a real-time fact check. (If you want to watch the live feed, go here.)

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Don't abuse me: the prudential quandary

Mike Alberti over at Remapping Debate has published an investigative piece that looks at the financial services provisions of the Korea FTA. He reports:

Most free trade agreements contain a so-called “prudential carve-out” section that is designed to protect a country’s right to regulate its economy. The “Financial Services” Chapter of the FTA contains such a provision ...

Public Citizen’s Tucker wrote in an email that the net effect was the prudential carve-out section was “self-cancelling.” True exceptions to trade agreements would, in contrast, “clearly allow countries reprieve from their obligations under the agreement if the exception’s requirements are met.”...

According to Joshua Meltzer, a Global Economy and Development fellow at the Brookings Institution, who has written in support of the FTA, the limiting sentence of Article 13.10 is merely designed to “make sure that you basically don’t use prudential regulation as a disguise to get out of your commitment.”

The argument that prudential defense clauses are intended to root out abuse has been made elsewhere, and it is no more convincing this time around.

Continue reading "Don't abuse me: the prudential quandary" »

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Pushing Obama on Latest Class Snuggle

Protest 7 Today, workers’ rights and fair trade advocates gathered at Lafayette Square in Washington, D.C. ahead of President Obama's address to the Chamber of Commerce. They urged President Obama to defend American jobs and oppose NAFTA style “free trade” agreements such as the Korea FTA. Groups represented included the National Nurses United/California Nurses Association (NNU) and ThinkProgress, among others. Donna Smith of NNU stated, “the Chamber of Commerce represents Wall Street and corporate greed, not working people. It encourages employers to roll back rights and living standards for working people. It promotes the outsourcing of U.S. jobs, and spends hundreds of millions of dollars at home to influence Congress to achieve tax breaks for big business and block reforms for working people.” Some of those present also voiced their distaste with President Obama’s support for the to Korea trade deal, which stands in stark contrast with his campaign promises on trade. 

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In Speech to U.S. Chamber, Obama Gets It Wrong on Trade, Jobs

Statement of Lori Wallach, Director of Public Citizen’s Global Trade Watch

    It’s unclear what is more mortifying: President Barack Obama choosing the club of America’s notorious job-offshorers to talk about the importance of creating American jobs, or his rallying of his fiercest political opponents to help him overcome the majority of Americans who oppose more-of-the-same job-killing trade agreements and pass a NAFTA-style deal with Korea that the government’s own analysis shows will increase our trade deficit.

    The U.S. Chamber of Commerce audience must have been thrilled to have Obama push more of the trade agreements that both help them offshore American jobs and, given that most Americans oppose more of these job-killing trade pacts, can help them achieve their political goal of replacing Obama in 2012.

    After winning key swing states by pledging to reform America’s job-killing trade policy, I suppose the Chamber is about the only place that President Obama could go to rally for more-of-the-same trade policies as if these had not resulted in a huge trade deficit and the net loss of 5.1 million manufacturing jobs and 43,000 factories since America started its experiment with the current trade model in the 1990s.

    As Paul Krugman wrote in a recent New York Times column (“Trade Does Not Equal Jobs,” Dec. 6): “If you want a trade policy that helps employment, it has to be a policy that induces other countries to run bigger deficits or smaller surpluses. A countervailing duty on Chinese exports would be job-creating; a deal with South Korea, not.” The Korea pact is projected to cost another 159,000 U.S. jobs – with nine economic sectors, including high-tech electronics, as losers. Obama’s comments on the pact “supporting” American jobs refers only to the export side of the equation without considering that the pact is projected to result in an overall larger U.S. trade deficit and thus net job loss.

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Belief vs. Reality in West Lafayette Park

The Washington Post reported an interesting tidbit today:

"That's been a big piece of the business community's mantra for a long time: trade," said Daley, who was an adviser to President Bill Clinton on NAFTA and became Obama's chief of staff last month. "Just about every Republican I've engaged with in one way or the other at social events or calls, when I got the job . . . all of them that I've talked to, they all go right to Korea and the trade issue, because I think there's a belief that, you know, that can help the economy."

So, there you have it. Some businesses and some Republicans believe that the Korea FTA will help the economy, so the White House is making it a priority.

But, as we've documented, the projections show that the reality of the Korea FTA will be a net negative for the economy. And, as Roll Call reported yesterday, plenty of small business groups and Republicans are against the deal:

Opponents of free-trade deals say they can swing tea party backers to their side. Michael Ostrolenk, national director of StopUSKoreaNAFTA.org, said his center-right libertarian group favors free trade but opposes the South Korea deal because it would cost U.S. jobs and sovereignty.

In other words, there's a formula for uniting the country (as opposed to just west Lafayette Park residents) around trade expansion, but the Korea FTA ain't it.

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Economists to Obama: Save U.S. Export Markets; allow Capital Controls!

Our colleages at GDAE and IPS have recently released a sign-on letter from over 250 economists calling for trade agreements to permit countries to utilize capital controls. As the letter states:

many U.S. free trade agreements and bilateral investment treaties contain provisions that strictly limit the ability of our trading partners to deploy capital controls. The “capital transfers” provisions of such agreements require governments to permit all transfers relating to a covered investment to be made “freely and without delay into and out of its territory.”

Under these agreements, private foreign investors have the power to effectively sue governments in international tribunals over alleged violations of these provisions. A few recent U.S. trade agreements put some limits on the amount of damages foreign investors may receive as compensation for certain capital control measures and require an extended “cooling off” period before investors may file their claims.iii However, these minor reforms do not go far enough to ensure that governments have the authority to use such legitimate policy tools. The trade and investment agreements of other major capital-exporting nations allow for more flexibility.

We recommend that future U.S. FTAs and BITs permit governments to deploy capital controls without being subject to investor claims, as part of a broader menu of policy options to prevent and mitigate financial crises.

Among the signatories are Nobel Laureate Joe Stiglitz, Harvard professors Ricardo Hausmann and Dani Rodrik, and Peterson Institute economist Arvind Subramanian.

As Kevin Gallagher, an organizer of the letter, points out:

The United States has trade or investment agreements with 52 countries that restrict the use of capital controls and allow private foreign investors the right to sue governments that violate these restrictions.  Several additional deals are in the works, including:

  • U.S.-South Korea free trade agreement. Status: pending congressional approval.
  • Trans-Pacific Partnership. Status:  Trade negotiators from the United States and eight other countries will meet for a 5th round of talks in Chile on Feb. 15.
  • Investment treaty with China. Status: The U.S. government is expected to soon complete a review of its model Bilateral Investment Treaty (BIT), which will accelerate negotiations with China, India, and several other countries.  Presidents Obama and Hu “reaffirmed their commitment” to these ongoing negotiations in a Jan. 19 joint statement.

Hopefully this letter will help spark some of the needed reforms to NAFTA-style deals. After all, financial crises abroad can lead to the collapse of U.S. export markets - imperiling U.S. jobs. All options should be on the table without risking trade pact challenge - including capital controls.

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New Data Feature: Jobs at Risk from the Korea FTA

In previous additions to the Trade Data Center, we have examined the impact of past unfair trade deals such as NAFTA in your community through official government job loss data. But now we wish to look into the future. Or, rather, a future. A future where Congress has voted to approve the Korea Free Trade Agreement (FTA), putting at risk thousands of jobs.

We have tallied the number of jobs in each congressional district and state that are in industries predicted to be harmed by the Korea FTA. The U.S. International Trade Commission projects that implementation of the Korea FTA will lead to a combined $2 billion rise in the U.S. trade deficit in electronics, motor vehicles and parts, other transportation equipment, metal products, iron-containing metals, textiles, and apparel (among other sectors), which could endanger the jobs of workers in those industries. We have determined the approximate number of jobs at risk from the Korea FTA in each state and congressional district with data on individual facilities in these industries and a little programming magic. (Data nerds – you know who you are – can read about how we did it here).

Viewing the number of jobs at risk in your state and congressional district is easy. Just go to the page with the database here, select your state, and type in your congressional district or "Statewide" for your statewide numbers, and click "search". It gives you a breakdown of the jobs in each of the seven sectors most at risk from the Korea FTA.

 

Korea FTA vulnerable jobs pre-search 

Korea FTA vulnerable jobs post-search
 

In the current job climate with almost 10 percent unemployment, we can't afford another job-killing NAFTA-style trade deal like the Korea FTA. Click here to contact your representative and help stop the Korea FTA.

You can explore other great features in the Trade Data Center here.

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SOTU Speech Includes 24 Mentions of Job Creation but Calls on Congress to Pass NAFTA-style Korea Free Trade Agreement That Is Projected to Increase U.S. Trade Deficit, Cost U.S. Jobs

Statement of Lori Wallach, Director of Public Citizen's Global Trade Watch
 
It was beyond surreal to hear President Barack Obama talk about the priority of creating U.S. jobs while saying nothing about on fixing our China trade debacle and calling on Congress to pass a NAFTA-style trade agreement with Korea that the government’s own studies show will increase our trade deficit. The Korea pact is projected to cost another 159,000 U.S. jobs – with nine economic sectors, including high tech electronics, as losers.

As Paul Krugman wrote in a recent New York Times column ("Trade Does Not Equal Jobs,” Dec. 6, 2010): “If you want a trade policy that helps employment, it has to be a policy that induces other countries to run bigger deficits or smaller surpluses. A countervailing duty on Chinese exports would be job-creating; a deal with South Korea, not.”

Doing more of the same – more NAFTA-style deals like the Korea pact and continuing the unbalanced mode of China trade – is not going to create American jobs or reduce our trade deficit. After campaigning on the need to reform America's job-killing trade policy, it is stunning for President Obama to call for more-of-the-same trade policies as if these had not resulted in a huge American trade deficit – $810 billion before the economic crisis-related collapse in trade and now again rising – and the net loss of 5.1 million American manufacturing jobs and 43,000 factories closed since we started the damaging experiment with the current trade model in the 1990s.

 

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Latest Government Findings Show that the U.S. Trade Deficit May Increase More Under the Korea FTA Than Was Previously Thought

As the New York Times reported in December, the government’s official projections show that the Korea FTA will increase the U.S. trade deficit. “The study was conducted in 2007 by the United States International Trade Commission, an independent agency that analyzed the effect of imports on the American economy, after the Bush administration negotiated the original agreement with South Korea.” 

(In fact, the original study – released in September 2007 – found that the U.S. global and bilateral trade balance would improve with the Korea FTA. However, the USITC found an error in the intervening years, and released a corrected version in March 2010 that found a worsening of the U.S. global trade balance.)

But the December 2010 supplemental deal negotiated by the Obama administration – which lengthened the tariff phase-out period for certain autos and trucks but did not change the fact that the tariffs are ultimately eliminated – does not alter these findings. That is because the USITC model looks at the change in trade flows when the agreement is fully implemented and tariffs are fully phased out. Given that the supplemental agreement did not alter ultimate tariff elimination, but only altered timelines for cuts, it did not alter the USITC findings of an increased U.S. trade deficit. 

Enter new unofficial USITC Numbers…

Sen. Ron Wyden’s (D-Ore.) office released numbers
today that it describes as coming from USITC staff economists – but not from the USITC itself.  (More on this below.) While the numbers at first glance appear to paint a rosier picture, a closer look reveals that – like the March 2010 numbers – the U.S. trade deficit is projected to worsen.

Continue reading "Latest Government Findings Show that the U.S. Trade Deficit May Increase More Under the Korea FTA Than Was Previously Thought" »

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Liveblogging the Korea FTA Hearing

After the new Republican majority was seated in the House of Representatives, incoming House Ways & Means Committee Dave Camp (R-Mich.) wasted no time in calling a hearing on the NAFTA-style trade deals with Korea, Panama and Colombia. If you had any doubt as to where Camp and his colleagues would be coming down on these job-offshoring pacts, look no further than the front page of the Ways & Means Committee webpage, newly converted into a propaganda center for more NAFTAs.

Today's hearing, set to start any moment, is no exception. A full five out of five witnesses are supporters of the Korea deal, including:

Roy Paulson, President, Paulson Manufacturing Corporation, on behalf of the National Association of Manufacturers
Bob Stallman, President, American Farm Bureau Federation
Michael L. Ducker, Chief Operating Officer and President, International, FedEx Express
William J. Toppeta, President, International, MetLife
Stephen E. Biegun, Corporate Officer and Vice President of International Governmental Affairs, Ford Motor Company

I'll be liveblogging and fact-checking the hearing for the next few hours over at FiredogLake, so grab some Pepto Bismol - you'll definitely need it to stomach what you're about to hear. Feel free to follow along: the Committee is live-streaming the hearing here.

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Rewriting Economic History for the Korea FTA

U.S. Trade Representative Ron Kirk and Han Duk-soo, Korean Ambassador to the U.S., discussed aspects of the Korea Free Trade Agreement (FTA) at a panel on Thursday. They talked about deadlines, little anecdotes, and so forth, but what Ambassador Han had to say about how the Korea FTA would impact Korean domestic economic policymaking was most intriguing. He said:

But more important for Korea is that we develop our economy by opening it to global competition. The Asian Financial Crisis of 1997 and 1998 was a good lesson for us. What the Korea-U.S. Free Trade Agreement offers the Korean people is a comprehensive legally-binding reform package that will lead to the opening of our market.

Here Ambassador Han alludes to what Thomas Friedman called the "Golden Straightjacket". The idea is that you should force harsh economic policies on countries, often through some less-than-democratic means (in this case, a trade agreement that has been negotiated in secret), and they will eventually prosper. Ambassador Han referred to these "painful prescriptions" in an earlier speech here. (In the first chapter of Bad Samaritans, Dr. Ha-Joon Chang does a great job of exploding the Golden Straightjacket myth while demonstrating that Friedman's beloved Lexus in his Lexus and the Olive Tree could never have been produced without significant government involvement in the economy.)

It's quite perplexing that Ambassador Han would invoke the Asian financial crisis as a reason to throw all the chains off financial markets. Sure, the Korean Ambassador to the United States can do a lot, but he can't rewrite history. Financial deregulation was the major cause of the 1997 Asian financial crisis and efforts to further open financial markets during the crisis actually deepened its severity.

As Mark Weisbrot of the Center for Economic and Policy Research has pointed out, the Asian financial crisis developed because of excessive short-term international borrowing among East Asian nations. What was the cause of the excessive debt?

This build-up of short-term international borrowing was a result of the financial liberalization that took place in the years preceding the crisis. In South Korea, for example, this included the removal of a number of restrictions on foreign ownership of domestic stocks and bonds, residents' ownership of foreign assets, and overseas borrowing by domestic financial and non-financial institutions. Korea's foreign debt nearly tripled from $44 billion in 1993 to $120 billion in September 1997.

Indeed, countries that bucked the International Monetary Fund (IMF) prescriptions of greater financial liberalization, such as Malaysia, did better than countries like South Korea that had shed their financial regulations and capital controls. A paper on the Asian financial crisis published by the National Bureau of Economic Research compared the IMF strategy of complete openness to foreign investment and floating exchange rates against Malaysia's strategy of imposing capital controls to combat the crisis. The study concluded that "Compared to IMF programs, we find that the Malaysian policies produced faster economic recovery, smaller declines in employment and real wages, and more rapid turnaround in the stock market."

More than ten years after the Asian financial crisis, even the IMF has come to its senses and reversed its position on capital controls.  As we document in our memo on the Korea FTA's harmful foreign investor and financial deregulation provisions, the Korea FTA bans key measure that governments have at their disposal to prevent and combat financial crises, including capital controls. Far from a prescription for stable growth as Ambassador Han claims, enactment of the Korea FTA will leave both Korea and the United States vulnerable to future financial crises.

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With China’s Currency Policy a Tough Topic of Hu Visit, Obama Poised to Push Korean Trade Deal With No Mechanism to Counter, Stop Currency Manipulation

With the trade advantage gained by China’s currency manipulation a top focus of Obama’s meeting with Chinese President Hu Jintao on Wednesday, concerns will rise about entering into yet another trade agreement with no provisions that forbid or redress currency manipulation with another known currency manipulator: South Korea.

Read our press release here.

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How much will this party cost?

Earlier this month, the Washington Post reported a dramatic uptick in the number of corporate investor4100628349_2ebd7ddc84_t challenges being heard by the International Centre for Settlement of Investment Disputes (ICSID) - a World Bank group charged with arbitrating investment disputes. So much so, that a new legal niche is growing to meet the demand:

Geography has been kind to the District law firms equipped to handle international dispute resolution. As the host city of the ICSID, which has seen its caseload grow from between one and four cases a year from 1972 to 1996 to an apogee of 37 cases in 2007 and 27 in the fiscal year of 2010, the attorneys here are in close proximity to the action. The nation's capital is also seen as a key connection point between Latin America, where nearly a third of ICSID cases originate, and the rest of the world. The Argentine economic crisis of the late 1990s and early 2000s prompted at least 40 ICSID cases on its own, prompting the country to open a special District office to oversee its interests here.

There must a better way to create jobs in Washington, DC - perhaps a way that doesn't also facilitate the  trampling of local public health and environmental protecions or drain taxpayer resources in the United States and in trading partner countries? For more details about the kinds of cases multinational investors bring before ICSID, see Public Citizen's NAFTA Chapter 11 database. Also read up on El Salvador's struggle to preserve its environment in the face of two recent CAFTA cases challenging Salvadoran mining policy decisions. 

In the coming months the U.S. Congress will decide whether to expand the ICSID party! If implemented, the Korea FTA would empower hundreds of U.S. and Korean multinational investors to bring suits against the U.S. and Korean governments at ICSID should they want to argue that their slew of new investor rights has been violated.

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U.S. Workers Don't Care if Korea Buys Tomorrow the U.S. Exports Germany Bought Today

Over at the White House blog, U.S. Trade Representative Ron Kirk continues his tendency to play loose with the facts of the U.S. International Trade Commission (USITC) study. He says:

The tariff cuts alone in the U.S. - 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.

In reality, the USITC study that the administration has been citing predicts that 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.

Put differently, U.S. workers don't care if Korea buys tomorrow the U.S-made products Germany bought today. This creates no new jobs, although it may increase carbon emissions with the longer shipping times. Couple this with the fact that the USITC shows that U.S. workers’ net exports will be lower after the deal is implemented, and U.S. workers have every reason to oppose this deal.

Furthermore, as much as Ron Kirk hopes that the agreement will create jobs in the auto sector, the government's own projections suggests that jobs will be lost in the auto sector. The study predicts that the auto deficit will increase by $531-708 million ( See our memo on the topic here). Although the USITC model does not allow the total number of jobs in the U.S. economy to change, it predicts that a substantial number of jobs in the auto sector will shift away from autos to other sectors of the economy (see Table 2.4 on page 2-15 in the USITC report). Thus, contrary to Kirk's expectations, U.S. auto workers will be losers in this Korea FTA.

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Video: Korea Trade Deal Reality Check

While President Obama and corporate lobbyists attempt to sell the Korea trade deal, South Korean farmers and a mass of labor and environmental organizations in the United States are strongly and clearly opposed. Protesters depicted in the video below urged the South Korean government to abolish the trade deal “fearing it would harm both agricultural producers and cattle farmers.”

Public outrage about the deal in the United States is no surprise as a September 2010 NBC/WSJ poll found that 69% of Americans believe free trade agreements with other countries have cost jobs in the United States. View a compilation of statements in opposition to the Korea trade deal here.

In another protest in Seoul on Sunday, Lee Chun-seok, spokesman for the main opposition Democratic Party, accused the government of making "massive concessions against our national interests," his party said. "We cannot find the principle of reciprocity anywhere in the agreement."

It is clear that President Obama did not take stock of American citizens’ opinions nor South Koreans’ welfare when reaching a decision to push the Korea trade deal. Now it is up to the 112th Congress to decide whether to settle for the deeply flawed pact or reject another NAFTA-style deal with no realistic promise of benefitting Americans or South Koreans.

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Administration's Korea FTA Numbers Need a Factcheck

Obama's Friday announcement of the tiny changes to the Korea FTA tried to portray the deal as a winner for the U.S. economy and American workers:

I am very pleased that the United States and South Korea have reached agreement on a landmark trade deal that is expected to increase annual exports of American goods by up to $11 billion and support at least 70,000 American jobs. 

A "factsheet" accompanying the announcement reveals that the U.S. International Trade Commission's (USITC) study on the Korea FTA was the apparent source of these figures:

With the U.S. International Trade Commission (ITC) estimating that the tariff cuts alone in the U.S.-Korea trade agreement will increase exports of American goods by $10 billion to $11 billion, advancing this agreement will secure the tens of thousands of American jobs supported by those exports...

A New York Times article published today reveals the real story on these numbers:

But the pact is likely to result in little if any net job creation in the short run, according to the government’s own analysis....

In fact, the effect of the agreement on aggregate output and employment in the United States “would likely be negligible,” according to a federal study, largely because the United States economy is so much larger than that of South Korea. Indeed, the study found, the country’s overall trade deficit with the rest of the world is likely to grow slightly as a result of the agreement.

Back in August we debunked the administration's Korea FTA stats, but the Obama administration has continued to tout these bogus figures. Regarding the alleged $11 billion rise in exports, the crux of the issue is that the factsheet is quoting the wrong section of the USITC report (the administration is citing Table 2.2 on page 2-8 of the report). The USITC study predicts that U.S. exports will increase by only about $4.8-5.3 billion, as Table 2.3 on page 2-14 of the report indicates. In addition, the study predicts that U.S. imports will increase by $5.1-5.7 billion due to the Korea FTA. This large increase in imports completely wipes out the benefits of the increase in exports and turns the predicted effect into a net negative.

The $10-11 billion figure that the administration is citing is merely the change in the U.S. bilateral exports to Korea itself, which tells only part of the story. As the USITC study acknowledges, bilateral tariff reductions induce significant "trade diversion" effects, which means that implementation of the Korea FTA will “rob” from the volume of U.S. exports that currently go to third countries and shift those exports to Korea, leading to little net increase in U.S. exports. The diversion occurs because many exporters of U.S. goods will stop exporting their goods to other countries like Germany and instead start exporting to Korea, just because the tariff that they face for exporting to Korea is lower than the tariff that they face when trying to export elsewhere. The shift in the destination of exports alone does not increase U.S. economic output or employment. Only net export gains matter for American workers.

This distinction between the USITC's projections for U.S. exports to the world vs. U.S. exports to Korea is not splitting hairs in the least.  In fact, a National Bureau of Economic Research working paper that analyzed changes in trade flows due to NAFTA found a small increase in U.S. economic welfare due to NAFTA-induced changes in bilateral trade flows with Canada and Mexico, but this positive welfare effect was completely wiped out and transformed into a net negative due to "too much trade diversion," i.e. shifts of U.S. export flows from non-NAFTA countries to NAFTA countries. 

Our own back-of-the envelope calculations suggest that 50% of the increase in U.S. exports to Korea, as predicted by the USITC, represents U.S. exports that currently flow to third countries being diverted to Korea due to the bilateral tariff reductions.

On the jobs figure touted by the Obama administration, the crux of the issue is that their calculation only considers the job creation induced by exports and ignores all of the jobs that will be destroyed due to increased imports. The USITC predicts that the Korea FTA will lead to an increase in the U.S. goods trade deficit. This increased deficit will lead to a net loss of U.S. jobs, not the 70,000 jobs gained as alleged by the administration.

Unfortunately, the administration's errors in discussing the USITC's study on the Korea FTA were being repeated by news reports in the immediate aftermath of the Friday announcement, misinforming the public. Though at least one outlet, the International Business Times, got it right, noting that Public Citizen "pointed out that Bush-era International Trade Commission studies showed the Korea deal will increase America's trade deficit."

As Paul Krugman said, Korea FTA proponents are flat-out wrong about the economic impact of the FTA. In fact, the FTA will likely destroy jobs, increase the trade deficit, and hinder the U.S. economic recovery.  Now that the Obama administration has taken ownership of the NAFTA-style Korea FTA without substantive fixes, it should expect more job loss in the next few years and voter rage in November 2012.

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Krugman Slams Korea FTA

In a blog post yesterday, renowned economist Dr. Paul Krugman slammed the advocates of the Korea FTA who are claiming that the FTA will hasten the economic recovery and create jobs:

One thing I’m hearing, now that all hope of useful fiscal policy is gone, is the idea that trade can be a driver of recovery - that stuff like the South Korea trade agreement can serve as a form of macro policy.

Um, no

Our macro problem is insufficient spending on U.S.-produced goods and services....

Trade agreements raise [exports] - but they also lead to higher [imports].

Krugman notes - and we have pointed out previously - that U.S. GDP growth is dragged down by the trade deficit. When U.S. consumers spend money on imported goods rather than domestically-produced goods, there is less output from U.S.-based producers, factories shut down, and workers lose their jobs. Since studies have predicted that the Korea FTA will lead to an increase in the deficit, implementation of the Korea FTA will likely stunt the economic recovery and destroy American jobs.

Krugman further argues:

If you want a trade policy that helps employment, it has to be a policy that induces other countries to run bigger deficits or smaller surpluses. A countervailing duty on Chinese exports would be job-creating; a deal with South Korea, not. If you want the Korea deal, fine; but don’t claim virtues for it that it doesn’t possess.

If anyone is qualified to assess the value of a particular trade policy, it is Dr. Krugman. In 2008, he received the Nobel Prize in economics for his groundbreaking work in trade theory. The Obama administration ought to lend an ear to Krugman to hear his views on trade. Unfortunately, it seems that the administration has been listening to the advice of the U.S. Chamber of Commerce to approve the Korea FTA without substantial changes, which will allow its corporate members to offshore even more jobs.

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Obama’s Decision to Push Bush’s NAFTA-Style Korea Trade Deal Without Real Fixes Is Major Policy, Political Mistake

Statement of Lori Wallach, Director, Public Citizen’s Global Trade Watch, on 1 p.m. Obama administration press briefing to discuss conclusion of negotiations and the deal struck on the auto chapter of the U.S.-Korea Free Trade Agreement 

KoreaFTA Big

The U.S. Chamber of Commerce and GOP congressional leaders must be gleeful that they are getting the Obama administration to take ownership of another Bush NAFTA-style trade deal that would simultaneously favor their job offshoring agenda and put Obama’s re-election in peril.

Why the administration would consider moving another NAFTA-style trade deal is inexplicable, especially given that export growth under past U.S. free trade agreements was less than half of that to the rest of U.S. trade partners. Bush-era International Trade Commission studies show the Korea deal will increase America’s trade deficit, and Americans across diverse demographics are united in opposition to more-of-the-same trade policy.

Choosing to advance Bush’s NAFTA-style Korea free trade agreement rather than the new trade policy President Obama promised during his campaign will mean more American job loss and puts the White House at odds with the majority of Americans who, polling shows, oppose more-of-the-same job-offshoring agreements.

Merely tweaking the “cars and cows” market access provisions of Bush’s NAFTA-style Korea trade pact but leaving in place the offshoring-promoting foreign investor protections is a slap in the face to the majority of Americans who, according to repeated polls, oppose the same old trade policy that has cost millions of American jobs.

Continue reading "Obama’s Decision to Push Bush’s NAFTA-Style Korea Trade Deal Without Real Fixes Is Major Policy, Political Mistake" »

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Lori Wallach on HuffPo: "Obama trade policy perils: Korea FTA talks resume tomorrow"

Check out Lori Wallach's latest piece on The Huffington Post:

HuffPo logo

Obama trade policy perils: Korea FTA talks resume tomorrow

"That the Obama administration did not agree at the G-20 summit to push the same NAFTA-style Korea free trade agreement that former President George W. Bush signed in 2007 is understandable. It’s projected to increase the U.S. trade deficit, is wildly unpopular in both countries, and replicates the most threatening NAFTA provisions that promote offshoring and financial deregulation. And, its chapter on labor rights bans references to the International Labor Organization Conventions that establish, well, the internationally recognized labor rights. The real question is why the Obama administration would have been willing to sign off on the Bush agreement in Seoul if only the Koreans had agreed to some more market access for U.S. cars and cows. And why they might go for a deal based on those narrow fixes when talks resume tomorrow near Washington..."

Read the entire piece at The Huffington Post. 

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Donald Trump Opposes Korea FTA, Supports Fair Trade

Today on MSNBC's Morning Joe, Donald Trump launched into a tirade about the Korea FTA, unprompted.

“Have you seen what’s happened recently with the trade pact with South Korea?” said Trump. “They ask us to sign something that only a moron would sign.”Donald Trump on Morning Joe

Trump went on to say, “I think that fair trade is a much better word than ‘free trade.’ I listen to these people saying, ‘Oh, that’s going to hurt free trade.’ What’s ‘free trade’ when a country has imbalances of hundreds and hundreds of billions of dollars…?”

We think The Donald has a clear message to USTR: Fix the deal, or YOU’RE FIRED!

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A Bad Deal for Everyone

I was in Seoul this week during the lead-up to the G-20 and the Obama-Lee announcement that the Bush Korea-US (known as KORUS in South Korea) FTA is thankfully still deadlocked. SK protest

Before my trip to Seoul this week, the reasons for the American public's opposition to the NAFTA-style trade model were fairly clear to me. After all, it's a big ask for the American public to support more of the same job-killing brand of trade agreement in the midst of an economic crisis even after President Obama campaigned on promises of reform. 

However, for all of the accusations of self-interested protectionism lobbed at Americans who are critical of this model, one would think that Koreans were clamoring for the completion of the Korea-US FTA.

Much to the contrary - this week unionists, farmers, peasants, and students filled the streets of Seoul daily and nightly to their outrage/dispair with the agreement. From marches, to candle light vigils, to actions outside of the parliament, Koreans made it clear that the current agreement is unacceptable, as are the proposed solely commercial modifications.

Koreans expressed anger about various aspects of the agreement - the potentially crippling effects on Korean farming and the 30% self-employed 'mom and pop' establishments; new rights KORUS gives to about 1,000 U.S. corporations to challenge Korean subfederal and federal laws in private tribunals; opening the floodgates to U.S.-style financial deregulation. Americans and Koreans actually share a sizeable amount of common ground in their criticisms of the current KORUS FTA.

The Korean public's outrage about the KORUS FTA is unlikely to cool down anytime soon. The question is whether or not President Obama will seize this opportunity to follow through on his campaign promises to reform the Bush trade model and deliver a trade agreement that both Americans and Koreans can support.

 

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Tell the Obama Administration that adopting Bush's Korea trade deal is political suicide

Tuckerbuzard In a year when 205 Democratic and Republican candidates ran against the status quo of job offshoring and unfair trade, it’s unbelievable that President Obama would consider reviving a job-killing, NAFTA- style trade deal with Korea negotiated by George W. Bush in 2007. But that’s exactly what seems to be happening.

Sign our petition to President Obama’s chief political strategist, David Axelrod, that it’s political suicide to flip-flop on his campaign commitments to reform our broken job-killing trade policy.

We're already pushing over 2000 signatures. Sign the petition today, before it’s too late! 

Be sure to spread the word to your friends, family and fellow activists. Our voices can send a powerful and loud message.

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U.S. Best Served By Fair Trade with South Korea

Check out this op-ed by Todd Tucker in today's San Francisco Chronicle.

SF Chron logo 
"Obama administration officials are in Seoul this week for talks that could well determine the president's re-election prospects. Last week, the president said that he would give the 'maximum effort' to resolve problems with the U.S.-South Korea trade deal inked by President Bush. The next few days will show whether the president intends to adopt the controversial deal as his own, or push for significant reforms that could gain broad support..."

Read the entire piece here.

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New Poll Shows GOP Voters Oppose NAFTA-Style FTAs

A new Pew poll released today found that antipathy towards “free trade” agreements and the WTO is particularly intense among Republicans and Tea Party supporters. This finding reinforces the results of previous polls that popular concern for the direction of our trade policy is spreading far beyond just Democrats.

Republicans in the survey were more almost twice as likely to believe that “free trade agreements” (FTAs) like NAFTA and the policies of the WTO harm rather than help the United States (by a 54 to 28 percent margin). This opposition is more intense than that of the public overall, more of whom still believe the U.S. is hurt by such unfair trade deals (by a 44 to 35 percent margin).

Republicans who agree with the Tea Party (think of those who had more enthusiasm to show up at the election booth last week) viewed FTAs even more unfavorably: 63 percent of them thought that FTAs and the WTO were bad for the United States, in contrast to only 24 percent who have a favorable view.

More independents also believe that these trade deals have hurt rather than helped the U.S.

If the Obama administration thought that it would be easy to pass a Korea FTA through a Republican Congress, these new poll numbers prove that it is mistaken. The Republican and Tea Party voters who elected the new Republican majority in the House are deeply opposed to more NAFTA-style FTAs, and the new members of Congress will find it dangerous to cast votes on FTAs against their constituencies. 

The poll also found that 55 percent of Americans think that FTAs have lead to job loss, while only 8 percent think that they have created jobs. This gap is even wider among Republicans and Independents. President Obama has said that his number one priority is job creation. If he is trying to convince Americans that he has his priorities straight, the last thing he should do is pass another NAFTA-style FTA, since most Americans believe that these FTAs are job killers. 

What Obama must do is follow through on his presidential campaign commitments and reform the Korea FTA, including deep changes to the labor rights, investor-state enforcement, and financial services regulation provisions of the FTA. If his administration thinks it can make some cosmetic changes and get it approved by Congress, it is in for a rude awakening.

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The Korea FTA Trilogy

President Obama set a deadline to announce the fate of the George W. Bush-negotiated Korea Free Death_star Trade Agreement that Congress has been unwilling to approve: the Seoul G-20 summit, which begins on Thursday. At issue is whether the Obama administration will remove the investment rules, which promote offshoring of jobs, and the financial deregulation requirements, while fixing the pact's unbalanced commercial terms.

We prepared three memos in the run-up to the G-20 that explain the political and economic perils of the Korea deal unless major changes are made:

Bush's NAFTA-Style Korea Free Trade Agreement Would Undermine Obama's Campaign Trade Reform Commitments

Bush's Korea FTA text, which closely replicates NAFTA and CAFTA, contains key provisions that directly conflict with President Obama's campaign commitments to overhaul America's trade policy to create jobs, guarantee workers' rights, protect the environment and ensure financial stability. This document juxtaposes Obama's campaign statements on trade with what's actually in the text of the Korea FTA.

Survey of Studies on Potential Economic Effects of the Korea Free Trade Agreement Shows Rising Deficits and Job Losses

We review five studies that have attempted to predict the economic effects of the Korea FTA, with particular attention paid to an often-cited study conducted by the U.S. International Trade Commission (USITC). The implementation of the Korea FTA as negotiated by Bush will lead to an increase in the U.S. trade deficit in goods, which will likely cause layoffs here at home. Major changes to the Korea FTA must be made if its harmful effects are to be mitigated.

2010 Election Focus on Trade and Job Offshoring Exposes Obama's G-20 Political Peril: Pushing Bush's Korea Trade Pact Endangers Obama's Re-election

At the U.S. Chamber of Commerce and other entities seeking more-of-the-same trade pacts, there is excitement at the prospect that the administration will do exactly what its fierce political enemies wish: take ownership of another Bush NAFTA-style trade pact that would simultaneously favor their offshoring agenda, while putting Obama’s re-election in peril. This document provides a brief analysis of the political situation for Obama.

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Obama's climate solution: undermine green standards abroad?

As we document in a new memo, President Bush's Korea trade deal, and NAFTA-style agreements in general, are the most politically toxic policy since giving Viagra to convicted child molesters.(As Ezra Klein writes, the latter is unfortunately a campaign talking point for some candidates.)

As our day-after election report will show, candidates of both parties are campaigning against unfair trade and offshoring. This includes the few Democrats that could somehow beat the odds and have the party retain the House, or the likely GOP margin makers. And 110 House members, along with the AFL-CIO and Sierra Club, have called for fundamental changes to the Korea deal's harmful deregulatory provisions on financial services and investment.

Somehow, I don't think this is what they had in mind. Mark Drajem at Bloomberg reports that...

The U.S. is asking South Korea to accept American automobile safety and emissions standards in an effort to advance a free-trade agreement, according to three people briefed on the talks.

Under the proposal, if American-made automobiles meet U.S. regulatory standards, South Korea would have to permit the vehicles to be sold in that nation...

Obama campaigned and won on calling for tough auto emissions standards here at home. And the EPA has made some important progress on this front under Obama. However, the U.S. is projected to have lower standards than Korea over the coming years, as Korea will have a 40 miles per gallon proposed standard by 2015, while the U.S. will still only have a 37.8 mpg proposed standard.

Unfortunately, this latest move from the administration is an echo of actions Treasury Secretary Tim Geithner took last year on Europe's (better) hedge fund regulations.

So, it's 2010. The glass is half-to-fully empty on environmental and financial regs here at home, thanks to watering down under industry and Senate pressure. The administration's solution should be to fill up the dang glasses, not try to break other countries' fuller ones through trade deals. We can only hope that this is a testing-the-waters kind of proposal, and that the Obama administration will commit to more robust reform prior to the G-20 in Seoul.

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Follow the Climate Reality Tour!

DSC01484 We’re pleased to unveil an exciting new project: the Climate Reality Tour.

You may have caught an earlier post, but in case you didn't, let's fill you in The Climate Reality Tour is a movement-building road trip to promote global economic policies that are fair for workers and shift away from the climate- and job-destroying status quo. The destination? The United Nations Climate Negotiations in Cancun in late November. And to bring home the sustainability point, we decided to go by bike. Yep, by bike!

With the world in the grips of overlapping global crises – food, economic/financial and climate – the stakes are high indeed. To save the planet requires confronting these crises simultaneously, and that means overcoming the false jobs vs. environment trade-off. In truth, corporations benefit from exploiting both while human beings and the earth suffer.

But this requires political will and resolve far beyond what we’ve seen from either political party, and even many leading civil society organizations. At Public Citizen, we’ve long believed our unsustainable global economic order, as etched in the tomes of the WTO and NAFTA-type trade deals, unfairly pits workers and ecosystems against one another. We’ve decried how the status quo sanctifies the rights or multinational corporations to exploit and destroy – even above the democratic rights of a people determine their own economic and eological futures.

Continue reading "Follow the Climate Reality Tour!" »

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G-20 Deadline for Korea FTA May Be Missed...Thankfully?

In an interview with Financial Times, South Korea’s trade minister, Kim Jong-hoon, said that he does not yet know the nature of the U.S.’s complaint about the FTA. In other words, the U.S. hasn’t made its “ask” of South Korea – the exact “fixes” the U.S. wants to make with the deal.

Since the G-20 is only 3 weeks away, it looks like USTR is going to miss the deadline Obama set for resolving the outstanding issues. Does this mean they’ve realized that things other than market access for “cars and cows” will have to be fixed in order to make the FTA politically viable in the U.S.? We hope so…because that’s the truth.

Mr. Kim went on to say, "As we say in Korean, if you tie up a rope, you are the one who will have to untie it." Well, Bush tied this rope – and it’s a political noose. So, the Obama administration had better be careful not to hang itself with it.

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The Political Genius of Sarah Palin: How One Facebook Post Sparked a Mass GOP Fair Trade Wave

There is some conventional wisdom that the GOP is more united than Democrats in favor of unfair trade deals. See for instance this ridiculous aside from the White House in the New York Times Magazine this weekend:

Rouse and Messina see areas for possible bipartisan agreement, like reauthorizing the nation’s education laws to include reform measures favored by centrists and conservatives, passing long-pending trade pacts and possibly even producing scaled-back energy legislation.

This is silly. Polls show that GOP and independent voters are at least as opposed to these deals as the Democratic base. (See here and here.) And, nowhere in the "everything and the kitchen sink" 48 page GOP "Pledge to America" unity document do they talk about trade or offshoring - showing that there is not a heckuva lot of GOP unity in support of unfair trade.

GOP candidates are responding to the public support for fairer trade. This cycle, we're seeing a much higher number of GOP running on fair trade than in the last two cycles, including pledging to renegotiate trade deals and end tax loopholes for companies that offshore jobs. Some are even attacking their Democratic incumbents' votes against fair trade (a vote for China PNTR, for instance).

But the message that I have seen probably 100 GOP candidates run on in this cycle is attacking the incumbent Democrat for voting for a stimulus bill with Buy America provisions criticized as weak.

Long-time readers will recall that we covered this issue in detail back in early 2009:

Enter Sarah Palin. Despite never having clarified her views on trade policy on the VP campaign trail (or in her previous run for governor of Alaska), Palin raised eyebrows earlier this year when she attacked the stimulus bill for not requiring that all money be spent here in America. Palin wrote on her Facebook wall about the stimulus bill:

“We were promised it would provide “green jobs” for Americans, but 80% of the $2 billion they spent on alternative energy went to purchase wind turbines built in China!”

At the time, I figured that this was just an accidental or not fully thought-through Facebook post. Little did I know that Sarah Palin was an absolute genius whose Facebook post would spark a mass GOP fair trade wave: virtually every GOP candidate across the country is today campaigning on this loophole in the stimulus bill.

So, what would be the solution to this problem? Well, for starters, we'd have to revisit the procurement commitments in the World Trade Organization (WTO) and other unfair trade deals in order to get even close to 100% true Buy America rules in government spending.

Sarah palin Even many free traders feel very strongly that there are moral, environmental and economic reasons to ensure that our tax dollars are used to support local jobs and production. But, as we've long argued, the WTO closes off this key, sovereign policy space. (See our book "States' Rights and International Trade" for more.) Luckily,

But Sarah Palin has pointed out the way forward: rather than falsely assume a bipartisan consensus in favor of Bush's trade deals with Korea and other countries, let's build on the true bipartisan consensus in favor of fair trade in government procurement and in other policy areas.

(Ed note: In the last two election cycles, Public Citizen has brought you detailed analysis of around 100 competitive and open seat congressional races. We found that the role of trade and offshoring increased in 2008 relative to 2006, and by all indications, 2010 will set a new record. Of about 170 races we are tracking, trade is playing in about 90 percent of them (150). That's right, we'll be releasing detailed candidate profiles of over 350 candidates - GOP, Democratic, and some third party.)

(Note: Public Citizen has no preference among the candidates.)

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Pollsters say fair trade may be Dems' lifeline

Pollsters Stan Greenberg and James Carville have sent out a memo advising Democratic candidates to run on fair trade as one of the party's best chances to avoid losses in the November elections.

Based on polling from last week, they are suggesting two messages for candidates to take up:

My passion is "made in America," working to support small businesses, American companies and new American industries. (REPUBLICAN HOUSE CANDIDATE) has pledged to support the free trade agreements with Colombia, Panama, and South Korea and protect the loophole for companies outsourcing American jobs. I have a different approach to give tax breaks for small businesses that hire workers and give tax subsidies for companies that create jobs right here in America.

The other message is:

We have to change Washington. That means eliminating the special deals and tax breaks won by corporate lobbyists for the oil companies and Wall Street. (REPUBLICAN HOUSE CANDIDATE) has pledged to protect the tax cuts for the top two percent and the big tax breaks for companies who export American jobs. I'll take a differ-ent approach with new middle class tax cuts to help small businesses and new American industries create jobs. Let's make our country work for the middle class.

Both messages have a strong fair trade tone. As does the runner-up, third-best message:

My priority is to cut middle class taxes, extend unemployment and health insurance for the unemployed, support new industries that create jobs and end tax breaks for exporting jobs. The economy shows signs of improving. But (REPUBLICAN HOUSE CANDIDATE) wants to go back to the Bush policies that crushed the middle class. They want to give tax breaks to the wealthy and big corporations. We must rebuild the middle class, not go back to the same old policies for Wall Street that cost us 8 million jobs.

Returning to the top two messages, the intensity of the appeal of the first message (which is the most specific about branding Bush's FTAs with Korea, Panama and Colombia by name and in a negative light) is particularly noteworthy.

Among those independents and white seniors surveyed, the first message was more likely than the second to make the voter more likely to vote for the Democrat. Among these demographic groups, plus the "white older women" surveyed, the first message was more likely than the second to make them "much more likely" to vote for the Democrat. Greenberg and Carville identified these groups as the ones Democrats need to reach if they are to survive.

And... all three of the messages were energizing of the Democrats' core base.

Finally, when these messages were turned on their head, i.e. when the hypothetical Democrat was accusing the hypothetical GOP candidate of supporting unfair trade, the tactic was successful in raising doubts about the GOP candidate.

From my initial research, many GOP candidates are also running on fair trade - in a number of races, candidates from both parties are trying to "out fair trade" one another.

It looks like we're poised for a third election where fair trade themes play a key role in who wins and who loses.

(Disclosure: Public Citizen has no preference among the candidates for office.)

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As Negotiatiors Meet in Brunei This Week, Rep. Wu Calls for TPP to Have a Democracy Clause

From the press release:

"Congressman David Wu sent a letter today to President Obama calling on the president to ensure that all U.S. trade agreements, particularly the Trans-Pacific Partnership (TPP) currently being negotiated, promote democracy and fundamental human rights. The letter highlights the human rights violations that occur in some of the TPP partner countries, such as Brunei, the host country for the current round of talks, and encourages the inclusion of a 'democracy clause' in the TPP agreement to set clear standards on democracy and human rights."

Congressman Wu is a member of the President's Export Council.

Read the full letter here.

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Export Cabinet Report Ignores Job and Export Predictions of Bush Trade Deals

The Obama administration released its Report on the National Export Initiative last week, with 74 pages of plan on how to make the president's plan of doubling exports in five years a reality.

These agenda items range from the no-brainers (overseas trade missions) to the non-starters (passing Bush's NAFTA-style trade deals).

These trade deals pose a major political problem for Democrats in an election year, as Lori Wallach wrote in Huffington Post last week. But they also are unlikely to perform as promised by the president's Export Promotion Cabinet: as our recent report shows, exports to our FTA partners are growing less than half as fast as those to our non-FTA partners.

Moreover, key parts of the report give a fairly misleading interpretation of the likely job and export implications of Bush-era, leftover trade deals.

For instance, on pages 3-4, the report explores areas where "the Export Promotion Cabinet has made significant progress to implement" the president's goal. On example is:

Reinforced efforts to remove trade barriers... At the G-20 Summit in Toronto, President Obama announced that he had instructed Ambassador Kirk to begin discussions with his Korean counterpart to resolve outstanding issues with the United States - Korea Free Trade Agreement (FTA). The Korean FTA would increase goods exports by an estimated $10-11 billion, which would support an estimated 70,000 jobs. The gains from the agreement could significantly exceed this estimate when reductions in non-tariff barriers and increases in services exports are included.

However, as my colleague Travis McArthur blogged about last month, this claim conveniently omits the government's official projections that 60 percent of even this bilateral gain would be washed away by imports. Moreover, the USITC, the source for these numbers, found that the U.S. global trade deficit would actually increase under the Korea FTA.

On pages 6-7, on the priorities going forward, the Export Promotion Cabinet lists:

Concluding an ambitious, balanced, and successful WTO Doha Round that achieves meaningful new market access in agriculture, goods and services.
Concluding the Trans-Pacific Partnership (TPP) Agreement to expand access to key markets in the Asia-Pacific region.
As we wrote earlier this summer, even the pro-WTO Peterson Institute predicts that the current Doha Round proposals will increase the U.S. trade deficit. As for the TPP, the U.S. already has trade deals with four of the seven countries, which combined account for 86 percent of potential bloc's GDP.

Nonetheless, the advocacy for the Korea FTA, TPP and Doha Round continue throughout the Export Promotion Cabinet's report. (For instance, on pages 13-14, and 47-48).

Continue reading "Export Cabinet Report Ignores Job and Export Predictions of Bush Trade Deals" »

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California says NO to more job-killing FTAs

As thousands of Californians struggle to find employment, state leaders are sending a message to Washington to hold off on more free trade agreements (FTAs) that fuel the "race to the bottom." Last week, the California legislature passed Assembly Joint Resolution 27 a vote of 48 to 27. The resolution urges the U.S. Congress to oppose the Colombia FTA.

Lead sponsor Asm. Torrico explains why it's important for the U.S. Congress to take a stand for fair trade:

 

Although it is unlikely that the Colombia FTA will be taken up by Congress imminently, the South Korea FTA - another Bush-negotiated trade pact - is making its way toward Congress quickly. State legislators in several states have been weighing in with the Obama administration on the South Korea FTA in recent weeks. They have been asking that he hold true to his campaign promises to change the failed trade model by fixing the Bush- Korea FTA. 

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Companies Based in Third Countries Could Use Korea FTA Investor-State Enforcement

 

From the Wall Street Journal comes news that German-based engineering conglomerate Siemens is seeking a bigger slice of the government contracts pie:

The new top U.S executive at Siemens AG is taking aim at business with the federal government, hoping he can take advantage of the German industrial conglomerate's scale to win a bigger share of that steady customer's order flow.

Eric Spiegel, chief executive of Siemens Corp., the U.S. division of Siemens, says his operations currently bring in about $1 billion a year from the U.S. government, a figure he hopes to double by 2015. The effort puts the company up against tough competitors like General Electric Co. and Honeywell International Inc., but Mr. Spiegel believes new spending will come in areas like energy efficiency and health care, where Siemens has products such as offshore wind turbines, MRI scanners and high-speed trains.

If you stroll over to our Korea-U.S. corporate investment maps, you’ll find that Siemens is invested all over the United States and Korea.  Siemens has 147 establishments in 39 states. 

With its investments in the United States and Korea, Siemens could stand to benefit from a loophole in the Korea FTA’s investor-state enforcement mechanism.  The United States or Korea could only deny the benefits of the investor-state enforcement to a foreign investor under two circumstances (see Article 11.11 here for the text. The first circumstance deals with situations in which the U.S. or Korea has sanctions or “not normal economic relations” with the third country where the investor is based, which would apply mostly to firms based in Iran, North Korea, Burma, Cuba, etc.  The FTA outlines a second possible way to deny the benefits of the investor-state arbitration:

A Party may deny the benefits of this Chapter to an investor of the other Party that is an enterprise of such other Party and to investments of that investor if the enterprise has no substantial business activities in the territory of the other Party and persons of a non-Party, or of the denying Party, own or control the enterprise. [emphasis added]

Given that Siemens has 1,800 employees and annual sales of 1.2 billion Euros in Korea, it could merely change its country of incorporation with the stroke of a pen and argue that it has substantial business activities in Korea in order to sue the U.S. government under the Korea FTA. It could also do the same to Korea.  This re-incorporation issue arose very recently in the Pacific Rim CAFTA case. Just a year before Canada-based Pacific Rim filed its CAFTA suit against El Salvador for denying it permission to mine gold, Pacific Rim re-incorporated in the United States, which gave it access to the CAFTA investor-state enforcement rights.
 

Since the government contracts that Siemens is pursuing would be classified as an “investment agreement” under the Korea FTA, it would be free to bring cases.  In fact, this is not hypothetical possibility: Siemens has already successfully brought a case under the Germany-Argentina Bilateral Investment Treaty.  The case involved a contract between Siemens and Argentina to establish a system of migration control and personal identification.

The possibility of Siemens or a similar corporation using the Korea FTA to challenge the handling of U.S. government contracts is yet another reason why the investment chapter of the Korea FTA must be fixed.

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New Sierra Club / Public Citizen Report on Fixes to Investment in the TPP

Earlier this week, the Sierra Club, Public Citizen, Institute for Policy Studies, Friends of the Earth and Earthjustice released a new report entitled: "Investment Rules in Trade Agreements: Top 10 Changes to Build a Pro-Labor, Pro-Community and Pro-Environment Trans-Pacific Partnership." You can get a copy right here.

This builds on some of the work done by the various organizations and the Model BIT Subcommittee. The core of the message is simple: trade deals can help lift living standards when public-interest rules aren't being undermined in the process. Obama can make this a reality if he ditches Bush's plans for the TPP, and instead uses the TPP to deliver on his fair-trade campaign promises.

The report also includes particularly detailed remedies to problems like:

  • How do we ensure that foreign investors aren't given greater rights than domestic investors?
  • How do we ensure that Chinese and German companies don't falsely claim nationality from other countries?
  • How do we ensure that investors actually invest and create jobs before having access to special rights under the TPP?
  • How can we safeguard financial transaction taxes from trade-pact challenge?
  • And much much more...
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Department of Bogus Jobs Statistics

Last Friday, U.S. Trade Representative (USTR) Ron Kirk was in Pennsylvania to tout the Korea Free Trade Agreement (FTA) where he claimed that “Increased exports due to the Korea deal alone may support as many as 70,000 additional jobs nationwide.”

Most of the time these types of jobs statistics seem to come out of thin air and you never hear how the proponents came up with them. However, with a bit of investigation we can try to trace this number back to its origin.

An earlier mention of this stat in the President’s Progress Report on the National Export Initiative gives a hint as to its origin: “The Korean FTA would increase goods exports by an estimated $10-11 billion, which would support an estimated 70,000 jobs…”

The $10-11 billion exports figure matches the bilateral export figure in Table 2.2 of the U.S. International Trade Commission (USITC) report on the Korea FTA, so it seems that the export figure comes from there. Now, if only we had an exports-to-jobs ratio…

Aha! – a recent report from the International Trade Administration estimated that every $150,000 in exports supports one American job (see Table 1 here). Applying this multiplier to the USITC exports estimate, we get 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.

Sure, more exports leads to more jobs, but don’t NAFTA-style FTAs tend to increase imports, which force companies to lay off American workers?  This “70,000 new jobs” stat leaves out any consideration of the effect of imports.  The USITC’s report does contain full estimates of the increased imports that the Korea FTA will bring about, but the USTR chooses to ignore this estimate.

If we were to account for the effects of imports, use this same method of jobs calculation, and consider the effect of the Korea FTA on the U.S. global trade balance (available on Table 2.3 in the USITC report), we would find that the Korea FTA would cost us a net 2,100-2,700 jobs, since the trade deficit will increase by $308-$416 million.

The bottom line is that the “70,000 jobs created” number is just a bogus stat, and USTR should stop using it to promote the Korea FTA.

(And, BTW, as for Kirk's selective invocation of the merely bilateral change in trade, 60 percent of the merely bilateral job estimate is wiped away if you were to also incorporate the USITC's projections on bilateral imports with Korea.)

UPDATE: Lastly, even if the 70,000 jobs figure was correct, the U.S. would have to do the equivalent of signing 29 Korea FTAs to get to Obama's goal of 2 million jobs from exports by 2015, which would be a heavy lift since Korea is the 15th largest economy in the world.

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