The South Korea FTA -- It May Be 'Free', But It Sure Isn't 'Fair'

"The Presidents of the U.S. and South Korea were unable to overcome disputes over cars, cattle and domestic politics, potentially killing the biggest bilateral trade deal the U.S. has taken up in more than a decade," so said the first sentence in the Wall Street Journal article on November 12 entitled "U.S. Hit by Trade Setback."

In the 'piling on' way that the national and business press is sadly so good at, the Journal and virtually every other major paper and television commentator in the country excoriated President Obama for "failing" to get the South Korea Free Trade Agreement (or FTA) signed.

And, for the workers of our country, thank God he 'failed', for this proposed FTA is just about the sorriest one since NAFTA, which failed to deliver on the benefits to the U.S. that were promised and cost us millions of high-quality jobs.

Hats off to the majority of House Democrats -- and those few(er) Republicans - who have consistently opposed the three trade pacts negotiated by the Bush administration with South Korea, Panama and Colombia. And hats off especially, as I said, to President Obama whom labor leaders and powerful politicians from both parties have praised for not going ahead with the Korea FTA. Richard Trumka, President of the AFL-CIO, was spot on when he said that, "President Obama [was] exactly right in holding out for a deal that puts working people's interests first", a sentiment shared vocally by Leo Gerard of the Steelworkers and Tom Buffenbarger of the Machinists. (Incidentally, there has never been a trio like Trumka, Gerard and Buffenbarger in working to protect American jobs.)

Nor has there ever been a Member of Congress more stalwart on "fair trade" than Senator Sherrod Brown (D-OH), who said that as long as the proposed Korea FTA helps keep the Korean market one of the world's most closed, it "is not O.K., and it won't be a trade agreement that I'll vote for." He also pointed out, with clear evidence supporting him, that the Colombia and Panama trade pacts, like that with Korea, will cost Americans jobs. "If they try to jam these trade agreements through," he said, "it's clearly out of step with what the American public wants."

FTAs were a popular mainstay of the last three Republican Presidents, and President Clinton, urged on by Bob Rubin embraced them too, especially of course NAFTA. The problem is that there are painful differences between balanced and fair FTAs and unfair FTAs, and we've seldom seen a fair one since 1980, certainly not one that increased rather than lost American jobs.

So, it was no surprise to many of us that the Rubin-acolyte in the new Obama administration soon after the Inauguration began pushing Mr. Obama to go back on his oft-stated objections and instead embrace the South Korea FTA. And they used every trick in the book to twist his arm, including the argument that American workers and our economy needed to be sacrificed at the altar of a broadened national security relationship with South Korea. Their idea was that reviving the pact, which has languished in Congress since April 2007, would: 'broaden that relationship; help meet Mr. Obama's goal of doubling U.S. gross exports by 2015; and further U.S. economic interests in Asia as a counterweight to China."

Notably, there was nary a consideration about whether the FTA puts the interests of American workers ahead of the interests of large global corporations, which has to be the primary standard for any FTA. And if the South Korea FTA doesn't do that, which it doesn't, then our national security relationship with Korea needs to be enhanced through other means.

These administration insiders also used the cudgel that the new European Union free-trade accord with Seoul, which goes into effect in July 2011, will put U.S. companies at a disadvantage if we don't have our own FTA. Yet the EU's trade agreement with Korea has none of the fundamental flaws that make our proposed FTA bark like a dog.

When Mr. Obama returned "empty handed", House Ways and Means Chairman Sander (Sandy) Levin (D-MI) and Michigan Republican Rep. Dave Camp jointly said that "the effort to salvage a U.S.-Korea trade deal will succeed only if it addresses the dangerously lopsided trade in automotive vehicles." As these two Members identified, Korea's refusal to eliminate safety and environmental rules and other barriers that help keep Korea the world's most closed car market makes the proposed FTA unacceptable, and in this view they've been widely joined by Ds, many Rs and Tea Partiers alike.

Yet as I will get into, this massive disparity in how our respective domestic automobile industries are treated is but one of the Korea FTA's two major problems. But first, it helps to understand the magnitude of the current imbalances between our two countries.

Last year, the United States imported products valued at $39.2 billion from Korea while it exported $28.6 billion, an obvious deficit for us of $10.6 billion. As a major part of this deficit, U.S. carmakers sold vehicles worth $161 million to Korea in 2009, while Korea's manufacturers, led by Hyundai Motor and its sister company, Kia Motors, earned a staggering $5.7 billion from their exports to America. In the first nine months of 2010, U.S. automobile manufacturers exported 10,162 vehicles to Korea, while Korean manufacturers exported an almost unbelievable 449,403 cars to us.

Yet under the proposed FTA, the most that U.S. auto manufacturers could realistically ever hope to export to Korea is around 50,000 vehicles given the myriad barriers which Korea has set up to protect its domestic auto manufacturers.

But there is other meat on the bones -- literally -- of the opposition to the Korea FTA and it has to do with our beef exports to Korea, which under the proposed FTA will continue to be disadvantaged for years to come. Right now, tariffs on U.S. beef exports range as high as 40%, and under the proposed pact it would take fully 15 years for them to diminish to zero, while all the while Australia will be exporting beef to Korea with no similar obstacles.

Thanks to President Obama's steadfastness and that of certain Members of Congress and the top labor leaders, I believe that the Koreans will soon rethink and modify their unbalanced positions on autos and beef. And hopefully this same steadfastness will be applied to the pending trade agreements with Colombia and Panama and the seemingly dormant Doha round of global trade talks, each if which is, in its own way, just as flawed as the pending Korea FTA.

Yet redressing the Korea FTA won't alone put to rest the efforts of the nation's large global corporations to pile on one unbalanced FTA after another, despite the fact that 53% of Americans surveyed say that FTAs hurt the U.S. and upwards of 90% agree that the past offshoring of manufacturing to foreign countries is now a major reason the U.S. economy is struggling. It is vital that we consider the underlying flaw behind assuming that FTAs can ever find all the jobs we need to find as these "free traders" will continue to proclaim.

In the past, when countries suffered financial crises, they generally climbed back out of them via exports. As Peter Coy of Bloomberg Businessweek has written, first these countries' currencies fall, and then the parts of the world that didn't go through a financial crisis help them out by snapping up their goods and services and putting their people back to work.

But not this time, at least for America, as our $14.5 trillion economy is 'stuck in neutral', to steal Coy's phrase, with an unprecedented jobless recovery. China, the country that more than any other is now fully recovered, and even our strong ally Germany simply aren't willing to step up their imports to stimulate growth in the weaker economies. China refuses to engage at all in the negotiation over "who will bear the burden of adjustment, the creditor country (China) or the debtor country (the U.S.)." And German Chancellor Merkel says that it is the job of deficit countries (like America and Britain) to increase their competitiveness rather than put limits on countries (like hers and China) that have figured out how to get the world to buy their goods.

For the U.S. in particular, it is a mathematical impossibility for us to grow our economy sufficiently by just growing exports. President Obama's plan to double U.S. gross exports over the next five years as his primary plan to "create jobs, prosperity and an economy that's built on a stronger foundation" would add only a meager 2.5 million jobs (his administration's own figure) when we need to find 22 million today, while ignoring the fact that the only exports figure that really matters is net exports (namely, our balance of trade).

So, the question for America is what will it take to restore healthy growth, if it's not going to be trade?

The answer is and always has been simple. A large vibrant middle class that grows from the bottom up based on balanced economic growth is the only way to turn a deficit into a surplus, and a trade deficit into balanced trade. To get back to this state, we need to do four things and not do one.

The thing for us not to do is to blindly make budget cuts for cutting's sake, without considering which government programs spur economic growth and which don't.

The four things for us to do are:

1. Have a National Industrial or Manufacturing or Competitiveness Policy - call it what you will - that mirrors those of our global competitors and has as its goal tripling the number of manufacturing jobs in the U.S., from 8% of workers today to around 25%.

2. Have a National Trade Policy that puts the interests of American workers and communities ahead of the interests of large global corporations and does not tolerate illegal subsidies of any sort, abuses of workers, or environmental practices that threaten the globe.

3. Make large-scale infrastructure investments, under a National Infrastructure Bank, to create millions of jobs and provide the foundation upon which future economic growth can occur.

4. Enact out-of-school unemployed youth jobs programs to help take the pressure off of the unprecedented jobless recovery we're in.

Then rather than the press talking about our "failing to get" something, it can write about our "getting" what we need.

Leo Hindery, Jr. is Chairman of the US Economy/Smart Globalization Initiative at the New America Foundation and a member of the Council on Foreign Relations. Currently an investor in media companies, he is the former CEO of Tele-Communications, Inc. (TCI), Liberty Media and their successor AT&T Broadband. He also serves on the Board of the Huffington Post Investigative Fund.