The Washington Diplomat / November 2010
By Larry Luxner
Three countries with relatively little in common except their desire for free trade with the United States are hoping Congress will grant their wish soon — but that looks increasingly unlikely given the rising chorus of protectionism on Capitol Hill.
South Korea, Colombia and Panama have all signed free-trade agreements with the U.S. government. However, Congress must enact legislation to approve and implement each individual accord in order for them to take effect. The United States already has FTAs in force with 17 nations — ranging from tiny ones such as Bahrain and Oman to big countries like Australia, Canada and Mexico.
For relatively wealthy South Korea, it’s not so much a matter of economics as it is political expediency, given the potential nuclear threat posed by its hostile and often unpredictable neighbor, North Korea.
“This is not just an economic issue, it’s a strategic issue, and this KORUS-FTA alliance is extremely important to them,” says John Brinkley, communications director at the Korean Embassy in Washington. “The best thing that could happen to North Korea is for the U.S. to abandon the region. So the South Koreans see this as a means of allowing the U.S. to maintain its influence in a region where other countries [he declined to say which ones] are not quite as reliable.”
Han Duk-soo, the Korean ambassador in Washington, has visited 21 cities across the United States in the last six months, talking up the benefits of KORUS-FTA approval to business groups, local officials and plain old “regular folks,” said Brinkley.
“For South Korea, this is really a matter of opening their economy, which it’s been developing since the 1960s, when it was one of the poorest countries in the world,” Brinkley told The Washington Diplomat.“In order to develop its economy, Korea had to keep its markets relatively closed to imports. But now that they’re a big player — ranking as the world’s 15th-largest economy — they can’t really play at that level.”
To make sure its message gets heard in Congress, the embassy recently signed the Glover Park Group to a year-long, $400,000 contract in early September, reported The Hill,citing Justice Department records. At about the same time, it said, it hired public-relations giant Edelman to a three-month, $120,000 agreement.
In May, the Korean Embassy brought on board Akin Gump Strauss Hauer & Feld, and two months before that, it hired The Fratelli Group, a PR firm, and Thomas Capitol Partners, a lobby shop. According to The Hill,Korea did terminate a contract with Parven Pomper Strategies, but that firm was purchased by Akin Gump, which is now part of Seoul’s lobbying team in Washington.
“We are a small embassy and, like any organization that works with Congress, we need the help and expertise of people who really know the place well,” said Brinkley, citing President Obama’s recent declaration of support for the KORUS-FTA at the G20 summit in June.
Yet the deal is opposed by labor unions, by Ford Motor Co. and by most Michigan lawmakers including Democratic Rep. Sandy Levin, chairman of the House Ways and Means Committee. They claim the deal would lower tariffs and barriers on Hyundais, Kias and other Korean-made vehicles that already have easy access to the U.S. market while doing little to open the Korean car market to Detroit automakers.
Not exactly true, says Brinkley.
“The U.S. market is already pretty open to imports. For example, the American tariff on imported passenger cars is 2.5 percent, which is very low, so Korean carmakers won’t derive any huge benefit from that tariff going away. But Korea’s tariff on imported passenger cars is 8 percent, which is significant.”
If Republicans take control of the House in November — as is widely expected — Obama and GOP leaders could agree on KORUS-FTA, though Brinkley declined to engage in political speculation.
“There’s a lot of support for this FTA among members of both parties. Rep. Henry Cuellar [a Texas Democrat and chairman of the bipartisan Congressional Pro-Trade Caucus] said, ‘If you were to put this on the floor today, it would pass.’ No one in Congress has said ‘I oppose this FTA no matter what.’ Everyone either supports it or has made their support conditional on certain changes being made.”
In early October, the 27-member European Union signed its own free-trade accord with South Korea — its first ever with an Asian country. Speaking at a press conference after the signing, European Commission President José Manuel Barrero said “this agreement is by far the most important trade deal ever concluded by the European Union with one country.” He added that the pact would likely double EU-Korean trade in the long term.
That led two Republican congressmen, Dave Reichert of Washington and Erik Paulsen of Minnesota, to send a letter urging their colleagues to take action quickly.
“The European Union has just sealed a free-trade agreement with Korea, and Japan is now interested in negotiating with the EU,” they wrote. “It is now even more critical for Congress to swiftly prepare KORUS-FTA for consideration. The failure to implement this vital agreement while the EU and other competitors race ahead to open new markets puts American companies and workers farther behind.”
Christopher Wenk, senior director at the U.S. Chamber of Commerce, warns that Obama’s slowness on enacting the pact with Korea has caused U.S. meat and dairy exports to South Korea to plunge. He warned that the United States stands to lose $35 billion in total exports and as many as 345,000 jobs if it fails to implement the agreement with South Korea.
Brinkley scoffed at congressional critics who claim deals such as this one will shift jobs from the American heartland to the distant shores of Asia.
“The anti-free trade groups compare this to NAFTA, which they say caused a migration of jobs to Mexico. But it’s not a fair comparison. Korea is not Mexico,” he said. “Koreans are well-paid and have a higher percentage of union representation than American workers have. No company is going to send jobs over there and exploit cheap labor. You just can’t do that in Korea.”
Colombia has nearly the same population as South Korea but nowhere near the economic clout. Its Gross Domestic Product of $243 billion pales next to Korea’s GDP of $929 billion, is only a fraction of the Korean GDP nevertheless presents a different set of challenges.
The U.S.-Colombia Trade Promotion Agreement was signed Nov. 22, 2006, but — as is the case with KORUS-FTA — has yet to be ratified by Congress. Colombia’s previous ambassador in Washington, Carolina Barco, made it her top priority to get the FTA passed but did not succeed, despite expensive lobbying efforts.
Barco’s successor as ambassador, Gabriel Silva, took up his post in early October following the election of Juan Manuel Santos as Colombia’s new president. Yet Silva, the country’s defense minister under ex-President Alvaro Uribe, did not respond to repeated requests for an interview.
Michael Shifter, president of the Inter-American Dialogue, said he’s confident Silva wants the FTA just as much as Barco did — though the new ambassador is not likely to get his wish anytime soon.
“I think it’s probably the main issue on the agenda for the Colombians, but expectations aren’t too high. There’s an increasing sense that the political and economic environment is just not very favorable,” Shifter told us. “The Colombians understand that, and they’re pursuing other agreements and exploring other options. They’re disappointed that Washington doesn’t seem to be very responsive right now.”
Asked if the Colombian Embassy would follow Korea’s lead and hire expensive lobbyists, Shifter said, “The Colombians did that and got nowhere. They’re kind of tired of knocking their heads against the wall and not getting results. The issue is not selling Colombia. It has to do more with domestic politics. With 10 percent unemployment, it may be a hard sell, even for some Republicans.”
Susan Kaufman Purcell, director of the University of Miami’s Center for Hemispheric Policy, agrees with that assessment.
“With the passage of time, the Colombians have become more pessimistic. They had higher hopes under President Bush, and lower hopes with President Obama — not only because Democrats traditionally have been less favorably disposed to FTAs, but because with the recession there are signs the U.S. may be getting more protectionist,” she said. “Also, even though the Obama administration announced they would focus on the three FTAs, they’ve made it clear they’ll focus on Korea first.”
If and when the U.S.-Colombia FTA enters into force, says the Office of the U.S. Trade Representative, that South American nation will immediately abolish most of its tariffs on U.S. exports, with all remaining tariffs phased out over defined time periods.
The FTA also includes important disciplines relating to customs administration and trade facilitation, technical barriers to trade, government procurement, investment, telecommunications, e-commerce and intellectual property rights, as well as labor and environmental protection.
The U.S. business community certainly has made no secret of its desire to see a U.S.-Colombia FTA become reality — over the howls of opponents who say Colombia under the pro-business Uribe blatantly ignored workers’ rights and allowed the murderers of populist labor leaders to walk the streets of Bogotá with impunity.
“The facts are indisputable: trade agreements work for America,” said John Engler, president of the National Association of Manufacturers. “Every day Congress continues to delay in passing the Colombia agreement costs U.S. manufacturers about $2 million in additional import penalties they have to pay to sell U.S.-made goods in Colombia.”
Nonsense, says the nonprofit group Public Citizen. In a report issued Oct. 5, the organization claims U.S. exports to countries with which the United States does not have FTAs has outpaced the growth of similar exports to its 17 FTA partners.
“There are many ways to boost U.S. exports and create American jobs, but the data show that more of the same trade deals is not one of them,” said Lori Wallach, director of Public Citizen’s Global Trade Watch.
The study exposes what it calls the “irregular methodology” used in NAM and U.S. Chamber of Commerce reports to show how results were produced that promote the passage of FTAs with the three countries still waiting for such deals.
“A consistent and corrected use of the corporate groups’ own methods shows that past FTAs have been associated with a substantial ‘export penalty,’” it claims. “Once an arithmetic error is corrected for, the chamber’s own methods would project a $30 billion loss in U.S. exports to Korea, Panama and Colombia over five years, were these FTAs to be implemented.”
The big question is, of course, what will happen after the Nov. 2.
Jim Lindsay, director of studies at the Council on Foreign Relations, says the midterm elections are not likely to move the trade agenda forward because “Democrats don’t’ want to vote on free-trade agreements, and it’s not clear that a lot of Republicans want to vote on free-trade agreements either because it divides their constituents as well.”
This division, he says, stems partly from the rising Republican “tea party” movement, which remains ambivalent on trade issues.
Meanwhile, the U.S. trade deficit continues to rise, jumping nearly 13 percent to $123.3 billion in the second quarter of this year — its fourth consecutive quarterly increase since 2009. It’s therefore no surprise that in his 2010 State of the Union address, Obama pledged to double U.S. exports over the next five years.
But Purcell doesn’t think the president’s heart is really in it.
“I don’t get a sense Obama is very pro-free trade,” she told The Diplomat in a phone interview from Miami. “When he announced his initiative, the focus wasn’t on two-way trade, it was really on increasing U.S. exports. He didn’t say anything about imports.”
Purcell said the reason she supports an FTA with Colombia is “because our economy is already pretty open to imports from Colombia. So our FTAs would help us on the export side, because we’re competing with other countries that do have FTAs with Colombia.”
And in the case of Panama, said Purcell, “it’s mind-boggling. They’re spending billions to expand the Panama Canal, and we’re shooting ourselves in the foot. There will be lots of opportunities for us to participate in the widening of the canal, but we’re competing with countries like Brazil that don’t have to pay these duties. It’s bizarre.”
The United States is by far Panama’s largest trading partner, exporting $4.3 billion worth of goods to the small Central American nation in 2009. Topping the list of exported goods were mineral fuel, machinery, electrical machinery and aircraft.
American farmers also shipped $400 million worth of agricultural goods to Panama, including coarse grains, soybean meal and wheat. Total bilateral trade last year came to $4.6 billion.
Jaime Eduardo Alemán, Panama’s ambassador to the United States, says the U.S.-Panama Trade Promotion Agreement — overwhelmingly approved by Panama’s legislature in July 2007 by a vote of 58-4 — makes sense for both countries and “would definitely help solve the unemployment problem” in the United States.
“We’re taking the president at his word. He publicly announced that he intends to submit the Korean, Colombian and Panamanian FTAs to Congress during the lame-duck session, or during the following Congress in January,” Alemán told us. “It’s in the hands of the administration. This is a purely political, internal decision of the U.S. government, and we respect the president’s autonomy to act in his country’s best interests. We have no reason to doubt him.”
Unlike Colombia, neighboring Panama has no human rights or labor issues that could be a rallying point for those opposed to such an accord. Its economy is also growing by a healthy 7 percent a year.
“Our labor laws conform to the International Labor Organization code. We have done everything that has been asked of us,” he said. “We remain cautiously optimistic that this will indeed move forward. In the meantime, Panama has aggressively expanded its trade agenda. We have signed trade deals with Canada and the EU, and we are on the verge of signing FTAs with Colombia and South Korea.”
Alemán recently met with Rep. Cuellar, chairman of the Congressional Pro-Trade Caucus, and a dozen other lawmakers of both parties — all of whom affirmed their support for the pending FTA.
“This trade agreement will offer tremendous opportunities to the United States and to Texas,” Cuellar said in a press release following his meeting with the ambassador. “By making U.S. exports to Panama duty-free, we can spur economic growth at home that sustains and creates jobs. Now is the time to pass meaningful trade policies that benefit the American people and spark economic growth.”
Even more opportunities may arise as a result of Panama’s $5 billion expansion of the Panama Canal. “On top of that, our government will invest $15 billion over the next four years in highways, hospitals, schools and other infrastructure. Obviously, U.S. companies will be at a competitive disadvantage” without the FTA, said Alemán, whose embassy has not hired any lobbyists to push for the treaty’s passage in Congress.
“We are in no hurry,” he said. “Panama can already export most of its goods to the U.S. duty-free under the Caribbean Basin Initiative. For us, it’s more important to be a close economic ally of the United States. I think President Obama wants to get this done. I say give him the leeway so he can do this when he feels it’s the right time.”