You would think America had learned its lesson from the North American Free Trade Agreement (NAFTA), which the Labor Department has estimated cost us 525,000 jobs.
But no. President Obama and the Republican leadership are united in pressing for ratification of the Korea-US Free Trade Agreement (KORUS-FTA). This is an agreement which the Economic Policy Institute estimates will cost us 159,000 more jobs over the next five years.
Yes, you read that correctly. At a time when even the president admits that his number-one economic priority is job creation and has created an entire new commission for that purpose, they’re going ahead with it anyway. It gives the phrase “contradictions of capitalism” a whole new meaning.
Make no mistake: we’re in big trouble.
The US economy has entirely lost the ability to create jobs in tradable sectors, and the recent downward blip in unemployment was merely the result of more people giving up looking, a move that causes them to drop out of the statistics.
Even the US International Trade Commission (ITC) has admitted that KORUS-FTA will cause significant job losses – and not just in low-end industries. The ITC foresees that the electronic equipment manufacturing industry, with average wages of $30.38 per hour in 2008, will be a major victim.
The supposed logic of America swapping junk jobs for high-end jobs simply isn’t the way the economics really works out. Contrary to free-market mythology, there are actually well-understood reasons contradicting that false truth, if you dig a little into what economists already know.
Is this pro-KORUS-FTA Obama the Obama America voted for in 2008?
No. That Obama is at an undisclosed location somewhere. He campaigned against KORUS-FTA during the 2008 campaign. (The agreement was originally negotiated, but not ratified by Congress, by Bush in 2007.) Among other things, that Obama said:
I strongly support the inclusion of meaningful, enforceable labor and environmental standards in all trade agreements. As president, I will work to ensure that the US again leads the world in ensuring that consumer products produced across the world are done in a manner that supports workers, not undermines them.
Nice words, but none of them are reflected in KORUS-FTA, which contains no serious new provisions on these issues. This agreement is essentially a NAFTA clone. It is, in fact, the biggest trade agreement since NAFTA and the first since Canada with an industrialized country.
KORUS-FTA, like NAFTA and the dozen or so other free trade agreements America has signed since NAFTA, is fundamentally an offshoring agreement. It is about making it easier for US companies to move work overseas. The provisions to protect workers and consumers are unenforceable window dressing.
Don’t be fooled by the fact that some unions, such as the United Auto Workers (UAW), have endorsed the agreement. This is part of a cynical ploy by the White House to split the trade union movement in order to keep the AFL-CIO neutral. The UAW’s out-of-touch leadership is so punch-drunk from the 2008 collapse of the US auto industry that it has lost touch not only with what is good for the American economy as a whole, but with what is good for rank-and-file autoworkers.
Don’t take my word for it. In the words of Al Benchich, retired president of UAW Local 909: “The UAW Administration Caucus is the one-party state that controls the UAW at the international level. Every international officer is a member of the Caucus, and they surround themselves with appointed international reps that unquestioningly do their bidding.”
No wonder more democratic and more intelligent unions, such as Leo Gerard’s United Steelworkers, are criticizing the UAW for its decision to support KORUS-FTA. Interestingly, the UAW’s past record of criticizing KORUS-FTA is more honest than anything it’s doing in a desperate bid to help keep Obama in the White House. Take, for example, its original statement on the agreement: “KORUS-FTA has inadequate protections and enforcement mechanisms to enforce either the spirit or the letter of the law.”
Precisely. And changes made since then are, as noted, minimal.
As an example of how one-sided the treaty is, consider that it now allows – to great rejoicing – America to export 75,000 cars a year to Korea. This provision translates to a measly 800 jobs. Korea’s exports of cars to the US in 2009, on the other hand?
Furthermore, even if the US does get to sell more cars in Korea, American companies will mostly not be making the steel, tires and other components that go into them because the agreement allows cars with 65 percent foreign content to count as “American.”
This is just one example of how KORUS-FTA isn’t even as good as the deal the EU just signed with Korea (the EU got a 55 percent standard on that same item). And remember that the EU and most of its member states, of course, don’t really practice free trade anyway: they practice a covertly managed trade that has kept the EU’s trade balance within pocket change of zero over the last two decades, while America has been running deficits around the $500 billion mark.
“Free trade agreement,” in American English, means “free trade agreement.” In other languages, it means “politely codified agreement for managed trade at a low tariff.” The Europeans invented this game, called mercantilism, back when international trade was conducted with sailing ships. South Korea learned it from the Japanese. Uncle Sam (and maybe John Bull and a few others) are the only naifs who still don’t get it.
Despite what the White House and the US Chamber of Commerce are saying, this agreement makes no sense as a strategy to reduce our horrendous trade deficit. America’s trade deficits have a long record of going up, not down, when we sign trade agreements with other nations.
Paradoxically, trade agreements even seem to sabotage our own trade with foreign nations: according to an analysis by the group Public Citizen, in recent years our exports to nations we have free trade agreements with have actually grown at less than half the pace of our exports to nations we don’t have these agreements with. So, trade agreements don’t hold water as trade-expanding measures.
Even leaving aside trade-balance issues, KORUS-FTA is a disaster, thanks to something called “investor-state arbitration.” Like NAFTA, investor-state arbitration as codified in KORUS-FTA compromises American sovereignty and subjects America’s own laws to overruling by foreign judges if they interpret those laws as interfering with trade. Under NAFTA to date, over $326 million in damages has been paid out by governments as a result of challenges to natural resource policies, environmental protection and health and safety measures. There about 80 Korean corporations with about 270 facilities around the US that would acquire the right to challenge our laws under KORUS-FTA.
What kind of problems could this mechanism cause? The US was forced in 1996 to weaken Clean Air Act rules on gasoline contaminants in response to a challenge by Venezuela and Brazil. In 1998, we were forced to weaken Endangered Species Act protections for sea turtles thanks to a challenge by India, Malaysia, Pakistan and Thailand concerning the shrimp industry. The EU today endures trade sanctions by the US for not relaxing its ban on hormone-treated beef. In 1996, the World Trade Organization (WTO) ruled against the EU’s Lome Convention, a preferential trading scheme for 71 former European colonies in the third world. In 2003, the Bush administration sued the EU over its moratorium on genetically modified foods.
It gets worse. KORUS-FTA also signs away our right (and Korea’s, too, not that this makes it any better) to a wide range of financial regulations of the kind that might have helped avoid the crisis of 2008. For example, it forfeits our right to limit the size of financial institutions; it forfeits our right to place firewalls between different kinds of financial activities in order to prevent volatility in one market from collapsing another; it prevents us from limiting what financial services financial institutions may offer (Enron Savings & Mortgage, here we come); it bans regulation of derivatives; it bans limits on capital flows designed to tame volatile “hot money.”
Why is the US flirting with making such an appalling mistake yet again? Because, number one, multinational corporations have bought our political system, and, number two, because our government would rather play power politics than keep its own (declining) economic house in order.
It is remarkable how stuck in the 1950’s we are, with an invincible economy at home and a cold war abroad. As a report by the Senate Finance Committee once put it:
Throughout most of the postwar era, U.S. trade policy has been the orphan of U.S. foreign policy. Too often the Executive has granted trade concessions to accomplish political objectives. Rather than conducting U.S. international economic relations on sound economic and commercial principles, the executive has set trade and monetary policy in a foreign aid context. An example has been the Executive’s unwillingness to enforce U.S. trade statutes in response to foreign unfair trade practices.
Ironically, it may eventually be our own decline that solves our trade problems by rescuing us from our own arrogance and stupidity. When we finally realize we can’t take our economy for granted, we may, finally, stop giving away the store in international trade.