Free Trade with Korea: Stuck in a Political Rut

Chung Sung-Jun, Getty News Imags/auto-power-girls.com

By Jonathan Stern

Mar 11 2011

Ratifying the U.S.-South Korea Free-Trade Agreement is a no-brainer, advocates say. Here’s why:

It would boost annual U.S. gross domestic product by an estimated $10 billion to $12 billion.
The deal fits nicely with President Obama’s vow to double U.S. exports within five years.
The pact gradually would lead to $10 billion in exports and create 70,000 new jobs for Americans.
South Korea has robust labor unions. That means, unlike other free-trade agreements, this pact is acceptable to many trade unions.

So why has the trade agreement languished without Congressional approval since the Bush administration and South Korea signed the pact in 2007? And what will it take beyond a pricey, aggressive South Korean lobbying effort in Washington to get the agreement ratified?

The accord would eliminate tariffs on more than 95 percent of each nation’s goods within three years, and on almost all goods once fully implemented in the coming decade. This would unlock South Korea’s highly protected automobile and agricultural sectors to U.S. producers and level the playing field in areas such as financial services, technology and consumer goods. It also would be America’s largest free trade agreement since the North American Free Trade Agreement (NAFTA) took effect in 1994.

The pact began hitting potholes when Democrats raised concerns over auto and beef provisions. Negotiations with South Korea were put on ice through the 2008 election, reinstated last fall, and finally resolved in December, when U.S. negotiators extracted significant concessions.

Issues over exports of older U.S. beef must be settled, but the free-trade agreement eliminates Korean beef tariffs. More important, U.S. tariff cuts for South Korean autos have been delayed by five years, even as U.S. autos were granted broader access to the Korean market without having to meet higher Korean emissions and safety standards. Score one for the Big Three.

In the wake of that huge concession to the U.S. auto industry, the U.S.-Korea trade agreement now is supported by both the United Auto Workers and Ford Motor Co., both of which previously opposed the agreement.

But political obstacles remain. Many Republicans have insisted that the now-popular pact with Korea be linked to more divisive pending agreements with Colombia and Panama in a game of chicken to force passage of all three. Opposition is focused mostly on Colombia, due to concerns about human rights abuses, especially against trade union activists.

An open letter to President Obama on March 1, signed by 67 freshmen House Republicans, urged passage of all three accords, as does legislation introduced in January by Sen. Rob Portman, R-Ohio, and Sen. Joe Lieberman, I-Conn.

The Democratic and Republican leaders of the Senate Finance Committee said Wednesday they would withhold approval of the trade agreement with South Korea unless it is packaged with a Colombia deal and a third, less controversial one being negotiated with Panama. “It is clear to me that none of these [agreements] are going to pass unless they are locked so closely together that they are all going to be acted on," said Senate Finance Chairman Max Baucus, D-Mont.

But linkage could be problematic, says Troy Stangarone, director of congressional affairs and trade at the Korea Economic Institute. In particular, the Colombia deal has become a lightning rod for labor – especially given the clash over public employee unions in Wisconsin and Ohio.

“We should not hold up Korea” as a carrot for passage of the Colombia and Panama free trade agreements, says former U.S. Trade Representative Charlene Barshefsky, who served under President Clinton. “South Korea has been difficult for U.S. business to penetrate. It’s very important that the U.S. not be put at a disadvantage to the European Union, and that is exactly what will happen” if the Korea pact is not passed soon, she warns, pointing to a similar accord between South Korea and the EU approved last month and effective July 1.

South Korea is spending substantial sums to win ratification of the agreement, although the total cost is buried in a wide array of government filings and disclosure forms. In January, South Korea renewed a $25,000-per-month contract with The Fratelli Group for public relations services, according to Justice Department records. Last August, the Korean embassy signed a $33,333-per-month contract with Glover Park Group for public relations services. And for the fourth quarter of 2010 – when the amendments were being negotiated – the embassy signed a $200,000 deal with the Edelman public relations firm for advocacy work.

On the lobbying side, the Korean embassy agreed to pay the law firm Akin Gump $50,000 per month for the fourth quarter of 2010 to lobby for the free trade agreement, records show. And an annual lobbying agreement – for $70,000 per month plus about $50,000 in monthly expenses – was struck a year earlier between the law firm Patton Boggs and KITA, the Korean-government funded trade group.

The lobbying “makes sense because it’s the biggest FTA” since NAFTA, says Chuck Dittrich, vice president of regional trade initiatives for the National Foreign Trade Council.

“This is a much better deal than NAFTA, which was state of the art 17 years ago,” says Jeff Schott, senior fellow at the Peterson Institute for International Economics.* “But a lot has changed. In the course of doing new agreements, they have found better ways of drafting new positions, expanded the scope of rights and conditions. In a real sense, Korea-U.S. is now state of the art. The objectives are much clearer, and the enforcement of provisions is much easier.”

South Korea has “gone on a robust FTA expansion policy” with several nations, explains Stangarone. In addition to the EU deal, South Korea has free trade agreements with India, Chile and the Association of Southeast Asian Nations; a just-concluded pact with Peru; and is in negotiations with Australia, New Zealand, Canada, Mexico and the Gulf Cooperation Council.

“When you look at the landscape, the U.S. has a choice,” says Bill Kelly, senior vice president for the National Foreign Trade Council, which represents U.S. multinationals. “We can sign the FTA or cede the market in Korea to [the EU and] other countries.” Under that scenario, the U.S. would lose 345,000 current and new jobs diverted to other free trade agreements, notes a U.S. Chamber of Commerce study.

The holdup in ratifying the South Korea FTA has made “a lot of countries concerned about the depth of the U.S. commitment to its free trade agreements,” says Schott.

While the Korean National Assembly is sure to include vocal opposition – particularly over U.S. beef imports into what has been a closed market – it should approve the pact. Korean domestic beef production has been decimated by disease, underlining the need for U.S. imports, says Scott Snyder, director of the Center for U.S.-Korea Policy at the Asia Foundation

The stakes are high. With the U.S. struggling to maintain the economic recovery, trade is a vital tool. South Korea is the world’s 15th largest economy. And the $10 billion expansion in GDP and exports once the FTA is fully implemented – projected in a federally mandated impact study by the U.S. International Trade Commission – doesn’t include U.S. professional service providers such as accounting and law firms, which could open branches in South Korea for the first time, says Chul Chung, chief economist at the Korea International Trade Association.

“The votes are there,” insists former USTR Susan Schwab, who negotiated the U.S.- Korea free trade agreement in the Bush administration. “At this point, it’s up to the White House. It’s not an issue of lobbying or not lobbying. Let the vote take place.”

*The Peterson Institute is funded by Peter G. Peterson, who also funds The Fiscal Times.