March 18, 2014    Volume 21, No. 4

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USTR Says Korea Trade Deal Is A Boom; Critics Say It Is A Bust

By Richard A. McCormack

The results of the Korea Free Trade Agreement signed two years ago in March are in dispute. The Obama administration claims the deal has been great for the American economy by increasing exports. But critics have data that point to the exact opposite conclusion. Each accuses the other of fabricating their facts.

Prior to passage of the trade agreement with Korea, backers cited reports from the International Trade Administration and the U.S. International Trade Commission that exports from the United States to Korea would increase by $10- $11 billion and lead to the creation of 70,000 new jobs.

But the United States has not seen anything close to those benefits, say skeptics, with exports at a lower level every month since the treaty was signed, save for one, and a projected loss of 60,000 American jobs. During that time, Korean imports into the United States have surged.

The United States Trade Representative argues otherwise. Manufactured exports to Korea increased by 3 percent since the agreement was signed, from $34.4 billion in 2011 to $35.4 billion in 2013, and there were "dramatic increases in U.S. exports of key agricultural products." Exports of services to Korea were up 18.5 percent to $19.4 billion. But the USTR's "U.S.-Korea Agreement Second Anniversary Fact Sheet" does not say anything about Korean imports into the United States since the agreement was signed.

Rob Scott, economist at the Economic Policy Institute, has looked at the USTR's analysis and says: "They cherry pick their data." Scott says U.S. exports have declined from $42.4 billion for the year prior to the trade agreement taking effect, to $39.3 billion for the latest 12-month period ending in March 2014. Meanwhile, Korean imports into the United States increased from $57 billion in the 12 months prior to the agreement taking effect to $62.6 billion for the same 12-month period ending in March 2014. The all-important trade balance with Korea has gotten worse, not better, under the pact, increasing 60 percent, from $14.6 billion to $23.3 billion, says Scott.

Why the discrepancy? The USTR compares data for the whole year of 2011 and compares it to the annual data for 2012 and 2013 -- not starting in the month the agreement took effect. "The data in the first three months in 2011 was artificially low relative to all succeeding periods," says Scott.

The second problem is the USTR's data include foreign exports from the United States to Korea -- goods produced in other countries that are imported into the United States and then re-exported to Korea. "Why are they taking credit for goods that weren't produced here?" Scott asks. "That is about half of the increase they report." Scott is also puzzled by the USTR's refusal to mention the rise of Korean imports since the trade agreement went into effect, noting that the balance of trade is what determines the impact of trade on the economy. "We have a Korean trade deficit in 2011 that increased by 60 percent," he notes. "They simply deny that imports displace domestic production at all. . . The Administration and the Treasury Secretary don't want to talk about this story -- they want to make Wall Street happy."

Public Citizen's Global Trade Watch was more blunt in its portrayal of the USTR's analysis of the Korea agreement, stating that it used "omissions and distortions to paint an inaccurate picture of the FTA's outcomes." The analysis was "riddled with false claims."

The USTR said exports to Korea of U.S. passenger vehicles made by GM, Ford and Chrysler have increased by 40 percent since 2011. The reality, counters Global Trade Watch, is that exports increased by 3,400 vehicles from a base of only 8,252, making it sound like there was big gain. It notes that the USTR does not mention that Korean vehicle imports into the United States in 2013 rose by 125,000 units over 2011 and that imports from Korea now top 1.1 million vehicles. Moreover, "while U.S. average monthly automotive exports to Korea under the FTA have been $12 million higher than the pre-FTA monthly average, average monthly automotive imports from Korea have soared by $263 million under the deal," says Public Citizen. Imports of automobiles and parts from Korea surpassed $2 billion for the first time in January 2014 and the auto trade deficit with Korea has jumped 19 percent since the deal was signed.

The USTR said U.S. exports to Korea were diminished because the drought in the United States in 2012 led to a decline in corn sales. It also stated that exports of coal were down, thus impacting the overall level of exports to Korea. But in a 2007 report on the potential for increased sales of corn to Korea under the FTA, the Agricultural Technical Advisory Committee for Grains, Feed and Oilseeds stated that the elimination of tariffs on U.S. corn "will likely not significantly affect U.S. corn exports to Korea in the immediate or mid-term given that Korea is already an open market to corn imports." The United States International Trade Commission said in its pre-Korea FTA assessment: "China tends to export low-priced corn and has a substantial freight advantage over the United States."

The USTR states that exports have experienced a "dramatic increase" in the product category that generated the most amount of congressional support: agriculture. Public Citizen Trade Watch disagrees. Among all of the major exporting sectors, agriculture experienced the largest decline in exports to Korea -- a 41 percent drop, amounting to $125 million per month.

Even in the category of "services," U.S. exports prior to the deal were growing at 3 percent per year, but have since slowed to 2.3 percent per year, a 23 percent decline.

Those who worked against passage of the agreement argued that it was a continuation of past trade deals that have helped destroy the American economy. Now "the proof is in the pudding," says Rep. Rosa DeLauro (D-Conn.) "Insanity is doing the same thing over and over again and expecting a different result." Added Rep. Louis Slaughter (D-N.Y.): "Don't you wonder sometimes if we are going to learn something in this country?"

The same promises that were made with NAFTA, China PNTR and the Korea trade agreement are now being made with the current round of negotiations under the Trans Pacific Partnership, an agreement that is "massive and unprecedented in scope," DeLauro told a room of congressional staff and press in the Rayburn House Office Building on March 15.

Slaughter says she has been the subject of intense lobbying from multinational companies to get the trade deals passed. During the NAFTA debate, Kodak executives were so anxious to lobby Slaughter about the benefits of the deal that they insisted on meeting her at the Rochester airport to explain how beneficial it would be to shift production to their maquiladora factory in Mexico. "They couldn't wait 20 minutes to get downtown," she says. Since then, Kodak employment in her district has fallen from 62,000 to 5,000, and she later learned that in its first year of operation in Mexico Kodak lost $20 million. "Here we are again," she said.

Only three U.S. manufacturing sectors were able to increase their exports to Korea, according to Public Citizen: transportation and equipment, an increase of 2 percent; chemicals, an increase of 1 percent; and electrical equipment and appliances, up 1 percent. The remaining manufacturing sectors all experienced a decrease in exports to Korea: machinery was down 11 percent; computer and electronics products, down 12 percent; minerals and ores down 30 percent; fabricated metal products down 6 percent and paper down 6 percent.

The USITC said in its pre-Korea FTA analysis that among the largest gains in exports would be meat products -- a projected 151 percent to 254 percent increase. Public Citizen says U.S. meat exports to Korea are down 6 percent per month below the pre-FTA monthly average. Exports of poultry to Korea have fallen 39 percent below the pre-FTA monthly average; and exports of pork are down 34 percent. "U.S. meat producers have lost a combined $442 million in poultry, pork and beef exports to Korea in the first 22 months of the FTA, a loss of more than $20 million in meat exports every month," Public Citizen claims.

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