Can Auto Sector Win In New Korea FTA?

By Bill Visnic June 30, 2011

President Obama and President Lee Myung-bak of South Korea 2_ main.jpg

After months in limbo, the prospect of a first-ever free-trade agreement (FTA) with South Korea seems likely after Congress reached seeming agreement this week on a non-related issue that had been holding up final negotiations to make a law of the controversial trade pact that would give not only South Korea, but also Colombia and Panama, the same kind of tariff-free trade with the U.S. enjoyed by nations such as Mexico and Canada.

It may be some time before details of a final bill are completed. But in the meantime, there is certain to be heated dialogue in many manufacturing sectors, including the auto industry, about the impact of a free-trade agreement with South Korea, where, thanks to what is viewed in many quarters as a closed marketplace, imported vehicles comprise a miniscule slice of the market. Meanwhile, South Korea’s Hyundai Group has for more than a decade steadily won market share in the U.S. Both of the Group’s auto brands, Hyundai Motor America and Kia Motors America, recently built their first auto-assembly plants in the southern U.S.

The Office of the United States Trade Representative said on its website that the agreement – signed by the U.S. and South Korea in 2007 but never passed by Congress – would boost exports of U.S. goods to South Korea by $10 billion annually. “Under the FTA, nearly 95 percent of bilateral trade in consumer and industrial products would become duty free within three years of the date the FTA enters into force, and most remaining tariffs would be eliminated within 10 years,” the Trade Representative Office indicates.

US Korea FTA tariff elimination sched.jpgMost important, however, the Office statement also said: “The Obama Administration will seek to promptly and effectively address the issues surrounding the (U.S.-Korea) FTA, including concerns that have been expressed regarding automotive trade.” With domestic automakers struggling to recover after the recession and recent bankruptcies by two of the former Big Three automakers, is the auto-industry ramifications of the proposed agreement that perhaps will have the highest profile as the FTA moves towards passage by what some sources said could be the end of the summer.

Ford Not A Fan At First – Now A Fix?
Late last year when talk of passage of the South Korea FTA had restarted, Ford Motor Co. was an outspoken critic, going so far as to take out advertisements in 20 major newspapers that said provisions of the Korea FTA as it then existed would not open the market to imported autos. The ad copy stated, “…we can’t afford a future with more closed markets to American exports. That’s why Ford strongly supports efforts to fix the Korea Agreement. Americans should accept nothing less.”

Ford Korea FTA ad 2010.jpgThe Obama administration apparently listened. Ford CEO Alan Mulally issued a statement in December that said: “As a global company committed to free trade, Ford Motor Company applauds the outlines of the revised U.S.-Korea Free Trade Agreement that were announced today. President Barack Obama and U.S. Trade Representative Ron Kirk vigorously advocated the important principle of two-way trade, and the resulting agreement provides greater clarity and transparency by affirmatively addressing the issues surrounding nontariff and tariff barriers. These new provisions provide Ford greater confidence that we will be able to better serve our Korean customers.”

The White House issued an overview of how the current iteration of the Korea FTA treats auto-industry concerns, and a rundown of the key provisions can be found here.

“The United States and Korea have reached an agreement that makes more job-creating export opportunities in a more open and fair Korean market for America’s auto companies and auto workers. The agreement improves market access for U.S. auto companies by addressing ways Korea’s system of automotive safety standards have served as a barrier to U.S. exports. Similarly, the agreement addresses proposed Korean environmental standards that could serve as a barrier to U.S. exports – striking a balance that respects our shared desire to reduce the environmental impact of automobiles, but alleviates a real burden placed on American auto companies importing smaller volumes into Korea.

The statement continues, “Progress was made in several additional areas of automotive policy including on regulatory transparency and an acceleration of tariff reductions on electric cars that will encourage the development of green auto technologies. A special auto safeguard levels the playing field for American auto workers, ensuring that the American industry does not suffer from harmful surges in Korean auto imports due to this agreement. Further adjustments to general auto and truck tariffs will give U.S. auto companies and American workers the opportunity to increase sales in Korea before U.S. tariffs on Korean autos come down.

More Jobs – But For Which Country?
Passage of even the revised FTA is certain to face a battle. Needing immediate resolution is a Democratic demand that full benefits be restored in program for workers who lost jobs to foreign competition. Beyond that, though, lies the larger debate about free trade pacts and the impact on the U.S. workforce. “For members of Congress who care about American jobs, this is a moment of truth,” The New York Times reported Thomas J. Donohue, president of the United States Chamber of Commerce, as saying. His group believes a Korea FTA will mean more American jobs and has started lobbying to in support.

But as has been the case with other major trade accords such as the North American Free Trade Agreement, opponents will point to the inevitable jobs that will be lost to goods imported from the lower-wage nation. The Korea FTA’s latest provisions are billed as tackling that concern, but it can in no way totally eliminate a negative impact on certain U.S. jobs in a variety of sectors. “We’re ramping up our outreach to members of Congress, member of unions and members of the public to make sure we have a full and honest debate about what these trade agreements will mean,” said Thea Lee, chief international economist for the A.F.L.-C.I.O, in The New York Times.

1.  President Barack Obama talks with President Lee Myung-bak of South Korea during the first plenary session of the Nuclear Security Summit at the Washington Convention Center in Washington, D.C., April 13, 2010. Official White House Photo by Chuck Kennedy.
2.  Late-2010 Ford Motor Co. newspaper ad opposing the then-current Korean FTA

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