The fairness of trade

The Korea-United States Free Trade Agreement, passed in October by the U.S. Congress and last week by the National Assembly of South Korea, was seen as a political victory for President Obama’s push to revive the U.S. economy. But it produced winners and losers; the picture is a nuanced one.

“[This trade agreement] will significantly boost American exports, support tens of thousands of American jobs and protect labor rights, the environment and intellectual property,” said the White House.

First signed in the Bush administration, it was widely criticized by both Democratic and Republican lawmakers as well as interest groups who contended that the deal did not do enough to open Korea’s auto or beef markets.

Through the 1990s, demand for Korean auto exports of small, gas-efficient cars grew in the U.S. due to the rising cost of gas. By the 2000s, Korea was the fifth largest producer and fourth largest exporter of motor vehicles in the world. U.S. autos’ import penetration in Korea, however, remained low. In explaining the trade imbalance, U.S. auto companies have targeted Korean tax and regulatory policies. The Bush-era agreement was criticized by the U.S. “Big Three”—Ford, Chrysler and General Motors (though GM remained more neutral since it owned the South Korean auto company Daewoo)—as not going far enough in dismantling Korea’s protectionist barriers to U.S. cars. How much of the problem was in Korea’s tax and regulatory policies versus a lack of market demand for larger, less gas-efficient American autos at the time is unclear.

As for beef, though the Bush-era agreement eliminated Korean tariffs on U.S. meat products, it did not remove a ban Korea imposed on U.S. beef, which Korea imposed in 2003 after a case of mad cow disease was found in Washington State due to concerns about the safety of U.S. beef. These two issues of autos and beef effectively tabled the agreement through the rest of President Bush’s term.

Obama the presidential candidate largely opposed the agreement, calling it a “badly flawed” agreement in an economic sense, but also assumed a more populist tone. “It’s a Washington where decades of trade deals like NAFTA and China have been signed with plenty of protections for corporations and their profits, but none for our environment or our workers who’ve seen factories shut their doors and millions of jobs disappear; workers whose right to organize and unionize has been under assault for the last eight years,” Obama said in February of 2008.

When he entered the White House, however, he distanced himself from the populist talk about corporations and NAFTA and lost jobs, and he focused on the specific barriers to passing the agreement. With an unemployment rate of 10 percent at six months in office and dropping approval ratings, all indicators pointed to a need for decisive action on the economy or face the political consequences. In June 2010, Obama set a deadline of the next G-20 meeting in Seoul to renegotiate a revised agreement with Korea.

The revised agreement won major concessions for the U.S. auto industry. In came the support of the Big Three—Ford, Chrysler, General Motors—as well as the United Auto Workers. House Ways and Means Chairman Dave Camp and ranking member Sander Levin, a Republican and Democrat, respectively, both from Michigan, reversed their positions to support the agreement that would give a much-needed boost to the U.S. auto industry. Obama later promised the U.S. beef industry that he would pursue further bilateral talks with Korea, which won the support of beef producers and Senate Finance Committee Chairman Max Baucus, a Democrat from Montana. With their support secured, Obama won over on-the-fence Democrats by defending their condition to pass Trade Adjustment Assistance, a program that provides aid to workers whose jobs were lost due to free trade. The agreement is far from a win-win. There were losers such as the domestic U.S. textile or rice industry or displaced American workers whose voices were lost in the process.