FTA Update: Why Democrats (and everyone) should support the Korea-U.S. Free Trade Agreement
The Bush Administration finally (and barely--25 minutes before the deadline) signed a Free Trade Agreement with South Korea on April 2. This was a major breakthrough--I had though that the negotiations might completely fall apart--and an important one for U.S. foreign policy in East Asia. Coupled with the recent thaw in relations with North Korea and the recently announced reduction of U.S. military forces in the South (and the handing over of the large Youngsan base in central Seoul), the FTA could cement our fraying relationship with a crucial ally in the region. A full deal with North Korea, including normalizing diplomatic relations (possible, if far fetched), could ensure a peaceful and friendly Korean peninsula for decades to come.
The Agreement must now be approved by each country's legislature. There has been mass demonstrations against the FTA in Korea, especially by unions and farmers, but it is still likely to pass in the Korean National Assembly. The deal is great for Korea's chaebol, or conglomerate corporations--like Hyundai and Samsung--who are still very powerful politically. Moreover, although Korea's president, who signed the Agreement, is wildly unpopular at the moment, he represents a coalition of left leaning parties. The conservatives are not going to stymie an FTA just to harm the already-lame president.
At home, there have been some Democratic Congress members who have come out in opposition to the FTA. It would be a nasty blow to Bush and his cronies to lose this one after such difficult negotiations. But to Koreans in favor of the FTA (a majority probably is, and certainly a majority of business leaders and politicians), a Congressional rejection would be a huge slap in the face. The (admittedly wishful) scenario above would be out the window. If the FTA is not ratified, we can expect to see increasingly tense relations and a migration towards China. It would be worse than foolish for the Democrats to forfeit an important ally just to annoy Bush--there are plenty of other ways to annoy him. But Democratic constituencies are also worried about specific aspects of the deal. I will here argue that the deal is on the whole favorable to U.S. interests, even leaving aside foreign policy. I don't know all the specifics of the deal; my comments will be based on initial reports released when the deal was signed.
Agriculture
The most vocal opposition groups, in the U.S. as well as in Korea, have been farmers. I previously argued that Korean farmers and their supporters had a point--the quality of U.S. agriculture has decreased markedly in the past 50 years, and given that cuisine is culture, Koreans relinquish their small, unique farms at their peril. Partly to allay those fears, the Koreans demanded that rice be left out of the FTA. That is, U.S. rice will still be heavily taxed, and Koreans will still pay 400 percent the world market price for rice. (The Korean rice industry is subsidised and inefficient, but food is important, and in Korea rice is especially so. Let them do what they want...) American rice farmers are predictably upset. But in exchange, U.S. beef will be allowed back into Korea, with the current 40 percent tariff eventually eliminated, pending a World Organization for Animal Health ruling in May. Koreans have not imported U.S. beef since a mad cow scare three years ago. Democrats are not happy with this situation. Sen. Max Baucus (D. Montana), the chairman of the Senate Finance Committee, said, "I will oppose the Korea Free Trade Agreement, and in fact I will not allow it to move through the Senate, unless and until Korea completely lifts its ban on U.S. beef." The ban on U.S. beef has been more political than heath-related, but finally getting rid of it will be a boon to beef farmers. Probably the Koreans were keeping the ban just to use it as a bargaining chip, and probably the World Organization for Animal Health (abbreviated OIE...it's French) will clear U.S. beef. But it is worth noting that the whole FTA may sink if the OIE does not rule in our favor.
Automobiles
Taxes will decrease over time on both Korean and American automakers. This should be great for Hyundai and Kia as they fight Toyota for a foothold in the U.S. (Hyundai and Kia together have 4.5% of the U.S. auto market.) It will be less great for GM and Ford in Korea, since Koreans notoriously avoid foreign cars. Still, foreign cars are beginning to be seen as status symbols, so GM, who owns the Korean car company Daewoo and already has a foot hold here, might be able to gain some market share. On the other hand, both Hyundai and Kia are building factories in the U.S., so their cars would not have to face import duties anyway. And the American companies are going to have to shift more and more of their production abroad to stay alive. So, ultimately, despite the noise the UAW will make, I think autos should be a non-issue.
Textiles
Duties on textiles have been largely eliminated. U.S. companies like Nike and Levis (and also McDonald's and Starbucks) are already well-established in Korea. But, since most of their product is manufactured abroad, the FTA will have little impact on their profitability. Korean companies might try to break into the U.S. market, and compete with GAP for instance, but this is not going to bother too many people. But smaller U.S. companies, like American Apparel, which does manufacture its clothes in the U.S. and already has stores in Korea, could stand to benefit a lot. When the U.S. pursues trade agreements, and gripes about its trade deficit, we should think more about these small and mid-sized companies that actually produce product in the U.S. If we can help them out here and there, we might be able to chip away at the deficit in a healthy way--without lobbing insults and restrictions at China.
Entertainment
As it stands, Koreans limit the amount of time cable channels and theaters can devote to foreign content. The FTA would relax the limit (from 75 to 80 percent foreign content), allowing more U.S. films and TV shows to be aired. Many Koreans are already big fans of "Grey's Anatomy" and "Prison Break", and U.S. movies regularly top the box office charts (300 was the highest grossing movie for three weeks in March) . This agreement can only help Hollywood. Hollywood has certainly done its part to help Democrats; the least they could do is return the favor. But, if you'll allow me to return to geopolitics for a moment, there is a potentially more important consequence as well. The IHT recently ran a series titled "Vox Populi" about English as the global language. (This comes as no surprise to me: I am, after all, making good money teaching English to kids without knowing their native language and without knowing anything about teaching.) Leaving aside nineteenth-century British imperialism, I think English has become prominent because of three things that the U.S. is doing particularly well. 1) Brand building: Like Nike, Levis, McDonald's and Starbucks (and of course Microsoft), U.S. brands--even when they are completely multi-national and no longer rely on U.S. production--permeate the entire globe, bringing English with them. 2) Higher education: U.S. universities now lead the world in scholarship in almost every field, forcing academics and students to study in English. 3) Entertainment: And Hollywood is everywhere. Whenever people all over the world go to the theater, they are hearing English. These trends, I think, are absolutely crucial to securing our power in the coming century. Whatever we can do to promote Hollywood abroad should be done.
So that's the situation. I still think Koreans should be a bit sceptical about this FTA, but Americans should be over the moon. Although the beef issue is sticky, I think that the overall benefits--to small manufacturers, the entertainment industry, and the general political situation--vastly outweigh the drawbacks to the farming and auto industries. I hope Congressional Democrats will agree.
The Agreement must now be approved by each country's legislature. There has been mass demonstrations against the FTA in Korea, especially by unions and farmers, but it is still likely to pass in the Korean National Assembly. The deal is great for Korea's chaebol, or conglomerate corporations--like Hyundai and Samsung--who are still very powerful politically. Moreover, although Korea's president, who signed the Agreement, is wildly unpopular at the moment, he represents a coalition of left leaning parties. The conservatives are not going to stymie an FTA just to harm the already-lame president.
At home, there have been some Democratic Congress members who have come out in opposition to the FTA. It would be a nasty blow to Bush and his cronies to lose this one after such difficult negotiations. But to Koreans in favor of the FTA (a majority probably is, and certainly a majority of business leaders and politicians), a Congressional rejection would be a huge slap in the face. The (admittedly wishful) scenario above would be out the window. If the FTA is not ratified, we can expect to see increasingly tense relations and a migration towards China. It would be worse than foolish for the Democrats to forfeit an important ally just to annoy Bush--there are plenty of other ways to annoy him. But Democratic constituencies are also worried about specific aspects of the deal. I will here argue that the deal is on the whole favorable to U.S. interests, even leaving aside foreign policy. I don't know all the specifics of the deal; my comments will be based on initial reports released when the deal was signed.
Agriculture
The most vocal opposition groups, in the U.S. as well as in Korea, have been farmers. I previously argued that Korean farmers and their supporters had a point--the quality of U.S. agriculture has decreased markedly in the past 50 years, and given that cuisine is culture, Koreans relinquish their small, unique farms at their peril. Partly to allay those fears, the Koreans demanded that rice be left out of the FTA. That is, U.S. rice will still be heavily taxed, and Koreans will still pay 400 percent the world market price for rice. (The Korean rice industry is subsidised and inefficient, but food is important, and in Korea rice is especially so. Let them do what they want...) American rice farmers are predictably upset. But in exchange, U.S. beef will be allowed back into Korea, with the current 40 percent tariff eventually eliminated, pending a World Organization for Animal Health ruling in May. Koreans have not imported U.S. beef since a mad cow scare three years ago. Democrats are not happy with this situation. Sen. Max Baucus (D. Montana), the chairman of the Senate Finance Committee, said, "I will oppose the Korea Free Trade Agreement, and in fact I will not allow it to move through the Senate, unless and until Korea completely lifts its ban on U.S. beef." The ban on U.S. beef has been more political than heath-related, but finally getting rid of it will be a boon to beef farmers. Probably the Koreans were keeping the ban just to use it as a bargaining chip, and probably the World Organization for Animal Health (abbreviated OIE...it's French) will clear U.S. beef. But it is worth noting that the whole FTA may sink if the OIE does not rule in our favor.
Automobiles
Taxes will decrease over time on both Korean and American automakers. This should be great for Hyundai and Kia as they fight Toyota for a foothold in the U.S. (Hyundai and Kia together have 4.5% of the U.S. auto market.) It will be less great for GM and Ford in Korea, since Koreans notoriously avoid foreign cars. Still, foreign cars are beginning to be seen as status symbols, so GM, who owns the Korean car company Daewoo and already has a foot hold here, might be able to gain some market share. On the other hand, both Hyundai and Kia are building factories in the U.S., so their cars would not have to face import duties anyway. And the American companies are going to have to shift more and more of their production abroad to stay alive. So, ultimately, despite the noise the UAW will make, I think autos should be a non-issue.
Textiles
Duties on textiles have been largely eliminated. U.S. companies like Nike and Levis (and also McDonald's and Starbucks) are already well-established in Korea. But, since most of their product is manufactured abroad, the FTA will have little impact on their profitability. Korean companies might try to break into the U.S. market, and compete with GAP for instance, but this is not going to bother too many people. But smaller U.S. companies, like American Apparel, which does manufacture its clothes in the U.S. and already has stores in Korea, could stand to benefit a lot. When the U.S. pursues trade agreements, and gripes about its trade deficit, we should think more about these small and mid-sized companies that actually produce product in the U.S. If we can help them out here and there, we might be able to chip away at the deficit in a healthy way--without lobbing insults and restrictions at China.
Entertainment
As it stands, Koreans limit the amount of time cable channels and theaters can devote to foreign content. The FTA would relax the limit (from 75 to 80 percent foreign content), allowing more U.S. films and TV shows to be aired. Many Koreans are already big fans of "Grey's Anatomy" and "Prison Break", and U.S. movies regularly top the box office charts (300 was the highest grossing movie for three weeks in March) . This agreement can only help Hollywood. Hollywood has certainly done its part to help Democrats; the least they could do is return the favor. But, if you'll allow me to return to geopolitics for a moment, there is a potentially more important consequence as well. The IHT recently ran a series titled "Vox Populi" about English as the global language. (This comes as no surprise to me: I am, after all, making good money teaching English to kids without knowing their native language and without knowing anything about teaching.) Leaving aside nineteenth-century British imperialism, I think English has become prominent because of three things that the U.S. is doing particularly well. 1) Brand building: Like Nike, Levis, McDonald's and Starbucks (and of course Microsoft), U.S. brands--even when they are completely multi-national and no longer rely on U.S. production--permeate the entire globe, bringing English with them. 2) Higher education: U.S. universities now lead the world in scholarship in almost every field, forcing academics and students to study in English. 3) Entertainment: And Hollywood is everywhere. Whenever people all over the world go to the theater, they are hearing English. These trends, I think, are absolutely crucial to securing our power in the coming century. Whatever we can do to promote Hollywood abroad should be done.
So that's the situation. I still think Koreans should be a bit sceptical about this FTA, but Americans should be over the moon. Although the beef issue is sticky, I think that the overall benefits--to small manufacturers, the entertainment industry, and the general political situation--vastly outweigh the drawbacks to the farming and auto industries. I hope Congressional Democrats will agree.
posted by Brian at 3:48 PM
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