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. The administration has defaulted early on to the standard argument of last resort -- foreign policy -- because even the notoriously trade-pact-boosterish U.S. International Trade Commission (USITC) has concluded that the Korea agreement will increase the overall U.S. trade deficit and undermine the prospects for seven diverse manufacturing sectors here.
Prominent members of the Korean National Assembly, as well as leaders of the Korean Confederation of Trade Unions (equivalent to the AFL-CIO in Korea) and other civil society leaders, spoke with members of Congress, the press and U.S. civil society groups about why they oppose the U.S.-South Korea Free Trade Agreement (FTA) that former President George W. Bush negotiated and signed and President Obama is now pushing to pass.
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.
This is exactly opposite of the mantra widely chanted by corporate lobbyists and the Obama administration officials that focuses on how passage of the FTA will be seen as cementing U.S. friendship with South Korea.
The South Korean delegation found that concerns about the agreement's "investor-state" enforcement system, which empowers foreign investors to skirt domestic courts and seek cash compensation for regulatory costs before foreign tribunals, were shared by many U.S. representatives. They repeatedly asked why, given both Korea and the U.S. have well-functioning domestic court systems, private investors and corporations should be elevated to the same level as governments in obtaining rights to enforce a public treaty. And they repeatedly asked why this offensive system was being imposed on Korea when the U.S. trade pact with Australia did not include the private corporate enforcement. Moreover, they noted what a severe blow would be dealt to public sentiment in both countries when the first U.S. or Korean laws are attacked before foreign tribunals by one of the 2,055 cross-established corporate affiliates.
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. They also explained why Korean unions, including the unions representing auto workers, opposed the agreement -- even though the USITC study showed that the U.S. deficit in autos and auto parts would increase by at least $531 million under the pact.
What is the issue? The FTA allows its benefits to accrue to autos that contain only 35 percent U.S. or Korean content. That is to say, cars with 65 percent Chinese content would be considered "Korean" or "American" and newly obtain duty free access. The Korean unions -- and, as it turns out, all but a few U.S. unions -- have honed in on that provision's massive incentive to outsource car part, steel, glass, rubber and other auto supply chain jobs. Even NAFTA had a 50 percent domestic content rule. Korea's pact with the European Union requires 55 percent.
The bottom line for the U.S.-South Korea FTA is that some large U.S., Korean -- and Chinese -- multinational firms could gain at the expense of the majority of people in both countries. We've seen this movie before; it was called NAFTA, and it ended badly for most of us.