These Three Free Trade Agreements Are Clunkers -- and They Need Some Courage

The only standard that should govern in considering a new FTA is whether it's in the best interests of American workers and the U.S. economy, and the three FTAs on the table are clearly not.
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The number of American workers and friends of labor who, for all the right factual reasons, continue to stand against the three pending Free Trade Agreements (or FTAs) with South Korea, Panama and Colombia are legion. Many just aren't as public as the likes of Senator Sherrod Brown (D-OH); Tom Buffenbarger, President of the Machinists and Aerospace Workers Union; Senator Bob Casey (D-PA), and Leo Gerard, President of the Steelworkers Union, who've been leading the fights against these FTAs.

I also wrote a lengthy post for this space back on November 23 entitled "The South Korea FTA -- It May Be Free, But It Sure Isn't Fair," which I think was similarly sound and grounded.

It's pretty clear, however, that 'right factual reasons' not to approve these three FTAs are not 'good enough reasons' for the administration and some senators who are now racing to approve these Agreements, which have been languishing in the Senate for roughly the last four years. Four years of justifiable languishing, in my opinion, because, as Mr. Gerard stated in his June 20 letter to the full Senate, "These three FTAs will undermine our economic recovery, further decimate American manufacturing and jobs and deepen the economic insecurity and devastation faced by workers across the country."

It's important to list again reasons why each of these Agreements is flawed, but in the now strong likelihood that such reasons aren't any more persuasive this time around, I want to follow up later in this piece with Mr. Gerard's contention that: "Promises made by administrations past and present touting the benefits of free trade have simply not materialized for America's manufacturing workers." We've just completed some analysis that shows his statement couldn't be any truer.

So, with proper attribution to my friends named above, especially the Steelworkers, and as our own analysis shows, each of these proposed FTAs is deeply flawed. And by far the biggest flaw common to each -- and the most important -- is the failure to focus on "net exports." Sure, U.S. exports to each country will increase, albeit likely not nearly to the extent promised, but corresponding imports into the U.S. from these countries will in each case grow faster. Net exports will be negative, and thus on balance, even more American jobs will be lost overseas.

No perspective on trade is more important than "net exports", yet no perspective has been more overlooked over the years, most recently by President Obama's misguided commitment to doubling "gross" (rather than "net") exports over the next five years and by these three FTAs.

Specific problems with each proposed Agreement, most notably the one with Korea, include the following:

The Korea-US (KORUS) Free Trade Agreement:
•Notwithstanding KORUS, the Korean market will remain one of the toughest markets in the world for the U.S. to compete in because of tariffs and myriad non-tariff barriers.
•In return for some relatively modest allowances associated with American grain and beef exports, KORUS will a-reciprocally increase our trade deficit in seven high-paying manufacturing sectors, according to our own International Trade Commission. The Economic Policy Institute estimates that KORUS will cause the loss of at least 159,000 jobs.
•In 2009 (the latest year for which I have data, although 2010 is reported to be similar), the United States imported products valued at $39.2 billion from Korea while it exported $28.6 billion, an already obvious trade 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 a year given the myriad barriers which Korea has set up to protect its domestic auto manufacturers.
•The new European Union free-trade accord with Seoul that goes into effect this month has none of the fundamental flaws that make our proposed FTA bark like a dog.
•KORUS allows for Korean dumped or subsidized components to be shipped to the U.S. from third countries, it does not address Korea's ongoing currency manipulation, and it fails to include a comprehensive annual review mechanism to ensure that its provisions are fully and faithfully enforced.

The US-Panama Free Trade Agreement:
•The Panama FTA fails to reform the existing FTA approach to investment which allows Panamanian investors to challenge many of our most important health, safety, environmental and other laws. It also fails to ensure adequate provision of labor rights.
•The FTA does not do enough to address Panama's historic role as an illegal tax haven and center for so-called narco-trafficking.

The US-Colombia Free Trade Agreement:
•Even though unacceptable extreme violence against union leaders and labor activists continues and workers are often denied their most basic organizing rights, the so-called "Action Plan" to ensure labor rights is not part of the Colombia FTA. As a result, Colombia's adherence to its terms is subject only to the discretion of this and future U.S. administrations.

FTAs were a popular mainstay of the last three Republican presidents, and regrettably even President Clinton, urged on by the consummate free-trader Bob Rubin, embraced them as well, especially in his case, 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 1985, certainly not one that actually increased rather than lost American jobs.

And while I applaud those in Congress who, while debating these FTAs, are at once trying to extend and better fund our Trade Adjustment Assistance (or TAA) program which assists U.S. workers who've lost their jobs as a result of trade agreements, enhancing TAA is itself not nearly enough of a tradeoff for approving these three woefully under-negotiated FTAs. This said, Senator Brown is spot on when he says that it is "morally reprehensible that the far right of the Republican Party doesn't seem to think that [Congress has] any responsibility for people who lose their jobs because of Congress's actions on trade."

Indeed, the only standard that should govern in considering a new FTA is whether it's in the best interests of American workers and the U.S. economy, and the three FTAs on the table are clearly not. Unfortunately, my gut tells me that despite 'substance' being strongly in favor of rejecting each Agreement, the fates of these three FTAs are going to be determined by the selfish political agendas of America's multinational corporations and major banks unless Congress has some more arrows to shoot at them.

In my opinion, the best remaining opportunity to beat these Agreements back is to therefore forcefully show, as Leo Gerard contends, that the promises of job growth from previous pacts have indeed been empty ones.

Sam Sherraden of the New America Foundation, who is one of the great young talents in trade analysis, and I have looked carefully at the eleven in-effect multilateral and bilateral Free Trade Agreements enacted since 1985, when the U.S. entered into its first ever, with Israel. These Agreements, which involve seventeen countries, range from quite small (Bahrain in 2004) to extremely material (NAFTA in 1994 and CAFTA in 2004). While promises associated with FTAs are sometimes difficult to assess, looking back at all of our previous bilateral and multilateral trade agreements, these are the facts and, in one case, our observation:

•None of the eleven Agreements has come close to meeting the fundamental promises made to the American people about the increase in U.S. net exports and the creation of American jobs which it would produce. This said, for the smaller FTAs it seems not inappropriate, however, to consider non-economic factors provided U.S. values are not compromised (as would be the case with the proposed Colombia FTA).

•The two multilateral FTAs --nNAFTA and CAFTA -- are each a particular mess against the promises made to gain approval. As I've written repeatedly, 'one size never fits all' in trade agreements, especially when the differences in relative development are extreme (NAFTA) or when the export mix among the countries is extreme (CAFTA). The failures of NAFTA and CAFTA to perform even remotely as promised argue strongly against advancing the Doha Round as currently structured.

•From the year before NAFTA was signed (1993) to five years later, the U.S. trade deficit with Canada actually widened from $13.4 billion to $23.9 billion. During the same time period, America's trade balance with Mexico went from a surplus of $900 million to a deficit of $17.1 billion. By 2010, the U.S trade deficit with Canada and Mexico was $32.2 billion and $68.6 billion, respectively.

•From 2003, the year before CAFTA was signed, to five years later, U.S. net exports to the five CAFTA member countries (Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua) went from a $2.24 billion deficit to a $2.79 billion dollar deficit, a deterioration in the trade balance of $556 million.

•Imports from only 2 of the 9 FTA bilateral partners (Chile and Israel) grew faster than imports from the rest of the world.

•Out of the 9 bilateral FTAs, exports to 5 of them -- albeit all smallish except for Chile -- grew faster than U.S. exports to the rest of the world grew.

•Smallish FTAs are negligible in terms of America's overall trade balance and have little potential to be a driver of exports and job creation. Even with Australia, which is a very large bilateral U.S. trade partner, the U.S. trade balance only improved by $6.6 billion from 2004-2009 (which does not take into account economic growth during this period).

•When assessing the likely outcome of the proposed trade agreement with South Korea, one may want to look at Singapore as an example. Singapore is a highly advanced economy with a trade profile similar to South Korea's. In the five years after the FTA with Singapore was signed, U.S. exports grew less than U.S. exports to other parts of the world (a negative sign) while U.S. imports from Singapore grew less than imports from the rest of the world (a positive sign).

Two Conclusions and Three Recommendations:
(i)Not all future FTAs will necessarily be bad, only those that are concluded along the same lines as the three pending ones. Notwithstanding, future FTAs are unlikely to significantly increase our net exports and they may in fact lead to a deterioration of the U.S. trade balance.

(ii)Don't let a moral imperative like extending TAA alone be exchanged for approval of flawed FTAs that will cost American jobs.


1.Re Panama, fix the "challenge provisions" of the proposed FTA, tighten up narco-trafficking oversight, and when that's done, then pass the Agreement.

2.Re Colombia, make the "Action Plan" a formal part of the proposed FTA, as demanded by Congressman Sander (Sandy) Levin (D-MI) and all other friends of workers worldwide, and when that's done, then pass the Agreement.

3.Re Korea, acknowledge that KORUS is deeply, deeply flawed, and use its many flaws, plus the failure of a single one of the eleven FTAs enacted since 1985 -- large and small alike - to keep its trade and jobs promises, as the justification for a substantial renegotiation.

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.

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