EU and South Korea Forge New Ties of Trade as U.S. Slumbers

By October 15, 2009Trade

Everyone in the Obama Administration and Congress agrees that increased exports are an integral and important component of our economic recovery. It’s a stock phrase in U.S. Trade Representative Ron Kirk’s speeches.  President Obama has cited the importance of increasing exports many times. His Proclamation on World Trade Week says it all: “In difficult economic times, it is even more important for American industry to take advantage of every opportunity for export-driven growth. That is why I will work to open more markets to U.S. exports. . .”

Instead of just talking about increasing exports, other industrial nations are actually taking advantage of these opportunities. The latest example — one that should scare every U.S. manufacturer that competes with the 27 nations that make up the European Union (EU) — is the EU-Korea Free Trade Agreement (FTA).

The European Union and South Korea held a ceremony today to initial their bilateral FTA. The EU is calling the agreement “the most important ever negotiated between the EU and a third country,” and is estimating the value of the agreement is worth EUR 19 billion ($28.2 billion) in new business for EU exporters. The initialing of the agreement paves the way for approval by the Member States early in 2010 and entry into force midway in 2010. When this enters into force, Korea will drop to zero virtually every tariff it has, and will substantially reduce a raft of non-tariff barriers that have impeded export of some products for decades.

Didn’t the United States and South Korea do the same thing a while back? Yes, indeed. Two years ago, in fact. The United States signed a free trade agreement with South Korea in a lovely ceremony on June 30, 2007, up in the Russell Senate Caucus Room. Champagne was served afterward, and U.S. and Korean negotiators and the business community toasted an agreement that, outside NAFTA, was hailed as the most important FTA negotiated between the U.S. and another nation in a decade.

What is the status of the U.S.-Korea FTA? It has yet to be sent to Congress for approval. There are concerns expressed by the Obama Administration and some Members of Congress. While the NAM has been a strong supporter of the U.S.-Korea FTA since the beginning, it has also been very open in noting there we share some of these concerns. In a recent Federal Register comment on the FTA, the NAM wrote:

At the same time, we note that a number of NAM member companies have expressed serious concerns about the persistence of non-tariff barriers, especially those represented by application of unique and non-transparent standards and regulatory barriers in a variety of industrial sectors. The NAM urges the Administration to examine ways in which further discussions with the Korean government can be undertaken to address and assuage these concerns without reopening the agreement itself.

Now, this circle can be squared – the Obama Administration has had 10 months to do address these concerns, and we have urged them to do so. Further, since the EU and Koreans have been negotiating their FTA for a number of years, the eventuality of their reaching an agreement is not exactly a surprise. The United States and Korea could have spent the last 10 months fixing these areas of concern, and we could be moving forward right now toward passage and implementation of one whopper of an export-growth generating agreement. It already includes the fully enforceable labor and environmental provisions that were set forth in the May 2007 Bipartisan Agreement on Trade.

Here’s why we need to worry – a lot – about this new EU-Korea FTA moving forward expeditiously, while our own FTA with Korea cools its heels. Korea is America’s 7th largest trading partner. Last year, we exported $27.5 billion in manufactured goods to Korea. Two-way trade reached over $70 billion. The United States has been the 3rd largest exporter to Korea, after China and Japan, for a long time. But, in 2007, the EU moved past the United States in manufacturing exports to Korea. Last year, the EU exported $8.9 billion more than the United States.

There’s a lot of overlap between the products we ship to Korea and those the Europeans ship: machinery, electrical products, medical devices, autos and auto parts, chemicals, iron and steel products, and pharmaceuticals, just to name a few of the top export categories where we compete. Now, the Europeans won’t face an average 10 percent tariff on their exports to Korea. Now, the Europeans will have preferential treatment on their goods and services. It won’t take very long for Korean consumers and businesses to recognize that saving money by buying European products rather than American products is a smart decision. And who gets hurt by that? American companies, but most specifically the American workers who produce the goods and services we export.

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