While it has been expected, the signing of the EU-Korea Free Trade Agreement (FTA) today is a jarring reminder that the United States continues to sit on the sidelines when it comes to expanding market access for manufacturing in America, while our competitors around the world race to gain new markets for their goods. The U.S. and Korea signed a Free Trade Agreement more than three years ago, but it has never been approved by Congress. Lack of action to implement this agreement is hurting manufacturing in America now, and it threatens far greater harm going forward.

The European Union (EU) will implement its FTA with Korea early next year. As a result, European manufacturers will see tariffs removed on nearly every product they export to Korea – while American manufacturers continue to face tariffs averaging nearly 12 percent. This will be a significant blow to American manufacturers –- one that we can ill-afford in this economic climate. This is not an idle threat – the EU is not only a significant competitor to the United States in manufactured goods exports to Korea, they are actually ahead of us. (See chart.) With this FTA, they will reap the benefits of zero tariffs, stronger protection for investments, and the removal of myriad non-tariff barriers.

U.S., EU Manufacturing Exports to S. Korea (Source: Census Bureau)

The EU has already surpassed the United States in manufacturing exports to South Korea.  In sectors like machinery, medical equipment, aircraft, chemicals, high-technology products, vehicles, processed foods, and many others, manufacturers in America face significant and direct competition from European producers.

The Obama Administration is working to address outstanding concerns raised in the automotive and beef sectors and has promised that these negotiations will be completed by November 2010, when the President visits Seoul for the G20 meeting. He has vowed to bring the Korea agreement to Congress for approval in the months following that meeting. But every month that the EU has duty-free barrier-free access to Korea and we don’t is another month of booming European manufacturing exports to Korea, and another month of slumping U.S. exports. Every month is one more month for our European competitors to permanently gain market share by taking it away from an American manufacturer.

Korea is a dynamic and fast-growing economy that represents robust and long-term potential for American manufacturing exports. Across Asia, economies are recovering strongly and are rapidly moving to sign trade agreements with each other – China, Japan and Korea are all looking to open Asian markets through FTAs. We are the fourth largest manufacturing exporter to Korea – China, Japan and the EU are all larger and are growing faster. The U.S.-Korea FTA will provide our manufacturing exports with a level playing field so we can compete fairly and freely.

Our friend Stephen Lamar, executive vice president at the American Apparel and Footwear Association (an NAM-member association), passes on this telling photo and cogent critique of Congressional inaction on pending Free Trade Agreements.  It’s so good we’d thought we share it:

As the world’s attention stays riveted on South Africa to watch the World Cup and as we in your Nation’s Capitol look forward to Nationals pitching phenom Stephen Strasburg’s next start, our minds inevitably wander into sports.

I was recently shown this picture of the stadium and was told that this is a good metaphor for U.S. trade policy because it shows a level playing field. 

Perhaps it is a good metaphor for U.S. trade policy but for a lot more reasons.

 True, it is a level playing field, but…

….nobody is in the stands

….nobody is on the field (certainly the American team is missing)

….no referees are present (although recent US soccer history suggests this may not always be such a bad thing)

….it is impossible to score (there aren’t any goal posts – maybe, as some have argued, because they have been moved so much)

….the lines are so faint we aren’t even sure which game we are playing (although I suspect it may have recently been used for soccer).

Perhaps this is overly harsh.  But, while we have seen some encouraging signs on trade recently – the energy driving the National Export Initiative (NEI) is reassuring, Congress approved new Haiti preferences, and the TPP process seems fully underway – there are too many other flags on the field (although absent from the picture I know) that continue to raise concern.  The Misc Tariff Bill process has dragged on far too long with resolution uncertain. 

Absent a Hail Mary pass in a lame duck session this year, this Congress will hold the distinction as being the first one to not approve a free trade agreement this century, even though there are three perfectly good ones (Colombia, Korea, and Panama)  sitting on the benches (again, no benches, I know.  Judging by the speed with which Canada and the EU, among others, are negotiating, completing, and approving trade agreements with those same countries, there seems to be a lot of activity in other stadiums.  

President Obama on Wednesday spoke to the Business Roundtable, the trade association that represents the largest corporations in the United States (and with which the NAM shares many members). In his remarks, the President expressed support for the pending free trade agreements with Panama, Colombia and South Korea.

Now, I know that trade policy has been one of those longstanding divides between business and labor, between Democrats and Republicans. To those who would reflexively support every and any trade deal, I would say that our competitors have to play fair and our agreements have to be enforced. We can’t simply cede more jobs or markets to unfair trade practices. At the same time, to those who would reflexively oppose every trade agreement, they need to know that if America sits on the sidelines while other nations sign trade deals, we will lose the chance to create jobs on our shores. In other countries, whether China or Germany or Brazil, they’ve been able to align the interests of business, workers, and government around trade agreements that open up new markets for them and create new jobs for them. We must do the same. And I’m committed to making that happen.

That’s why we launched the Trans-Pacific Partnership to strengthen our trade relations with Asia, the fastest-growing market in the world. That’s why we will work to resolve outstanding issues so that we can move forward on trade agreements with key partners like South Korea and Panama and Colombia. And that’s why we will try to conclude a Doha trade agreement –- not just any agreement, but one that creates real access to key global markets.

Reuters reported on the speech and reaction, “Obama trade talk cheers business groups,” citing one of the NAM’s specialists in the area:

Doug Goudie, director of international trade policy with the National Association of Manufacturers, said he took seriously the Obama administration’s new focus on trade and much appreciated the goal of doubling exports.

“Moving forward on those three FTAS as soon as possible is going to be the best way to jumpstart the rest of their plan,” such as increasing the number of small- and medium-sized U.S. companies that export, he said.

The Business Roundtable issued a statement summarizing the meeting, with President John Castellani also highlighting trade issues:

We agreed with the President that the United States cannot sit on the sidelines while our competitors negotiate trade agreements that benefit their companies and workers over ours; we discussed the need for Congress to pass the pending free trade agreements as a first step toward the enhanced international trade and investment that is essential to growing the U.S. economy and creating more and better-paying jobs.

The next step for the President is to stop talking about “moving forward” on the FTAs and instead say, “Congress should now enact the pending Free Trade Agreements.”

From the President’s State of the Union:

[We] need to export more of our goods. (Applause.) Because the more products we make and sell to other countries, the more jobs we support right here in America. (Applause.) So tonight, we set a new goal: We will double our exports over the next five years, an increase that will support two million jobs in America. (Applause.) To help meet this goal, we’re launching a National Export Initiative that will help farmers and small businesses increase their exports, and reform export controls consistent with national security. (Applause.)

That’s a welcome target to achieve export-driven growth, and it’s notable that the President regards the export controls issue important enough to warrant a mention.

Correctly so, the NAM believes. The new Milken Institute study, “Jobs for America,” concludes “modernizing U.S. export controls could increase exports in high-value areas. By 2019, these policy adjustments could enhance real GDP by $64.2 billion (0.4 percent), create 160,000 manufacturing jobs, and heighten total employment by 340,000.” The in-depth analysis is here.

The President also reaffirmed the Administration’s oft-stated belief in the value of trade agreements.

We have to seek new markets aggressively, just as our competitors are. If America sits on the sidelines while other nations sign trade deals, we will lose the chance to create jobs on our shores. (Applause.) But realizing those benefits also means enforcing those agreements so our trading partners play by the rules. (Applause.) And that’s why we’ll continue to shape a Doha trade agreement that opens global markets, and why we will strengthen our trade relations in Asia and with key partners like South Korea and Panama and Colombia. (Applause.)

But let’s do more than “strengthen” — let’s ENACT. The President would have helped achieve the goal he had just set by calling on Congress to enact the U.S.-Colombia Free Trade Agreement, the U.S.-Panama Free Trade Agreement, and the U.S.-Korea Free Trade Agreement.

As NAM President John Engler said in a press briefing Monday, “”We believe we absolutely have the votes for the Panama and Colombia agreements.” And… “We think if they’re serious on the jobs front, they have to look at trade. We’ve got a lot of companies that send a big amount of their production abroad for sale.”

House Republican leaders on Thursday sent a letter to President Obama expressing their agreement with his statements of support for expanding U.S. exports to create jobs. Excerpt:

Bipartisan support for implementing trade agreements with Colombia, Panama and South Korea already exists. In the interest of supporting American job creation, we ask that you jump-start the implementation process through your leadership, particularly by promoting all of these pending trade agreements when you speak to the nation in your State of the Union address. We offer our full support for your efforts and look forward to an opportunity to work steadfastly with you to implement each of these agreements as close to the start of next year as possible.

President Obama gave a speech in Tokyo Saturday announcing the Administration’s plans to engage with the Trans Pacific Partnership countries to shape a regional agreement, an engagement that could produce real benefits for U.S. exporters and manufacturers. The Asia-Pacific region is the world’s fastest growing both in terms of trade and in the number of trade agreements being negotiated.  The NAM has long called for a trans-pacific trade agreement that would open up the region to U.S. exports.  America’s manufacturers cannot afford to be on the outside of an Asian trade wall looking in.

Reacting to the President in a statement, U.S. Trade Representative Ron Kirk made the case that a high-standard regional trade agreement under the Trans Pacific Partnership could help generate American jobs and economic prosperity.  (USTR fact sheet.) Exports will be the driver of U.S. economic recovery, but only if they have open access to world markets.

Strong U.S. leadership will be necessary to achieve a regional Pacific agreement that includes the highest standards already incorporated in U.S. bilateral agreements.  The United States currently has bilateral agreements with four of the seven Trans Pacific partners – Australia, Chile, Peru, and Singapore. (The others are New Zealand, Brunei, and Vietnam.) None of the gains for American manufacturers that were negotiated in those agreements should be abridged in any way, including intellectual property and investment protections and market access commitments. 

We were also pleased to see President Obama’s urging other nations to join the United States in demanding an ambitious and balanced Doha agreement, “not any agreement, but an agreement that will open up markets and increase exports around the world.”  This is the only road to success for the Doha Round.

The President’s focus on trade and trade agreements highlighted in his Asian trip should not, however, push other trade priorities off the table. On the contrary, they should produce a concerted effort to resolve any last issues with the three pending trade agreements – Colombia, Korea, and Panama – so these can be sent to Congress for approval.

News coverage…

• Associated Press, “APEC urges new growth model, climate pact progress“
• Reuters, “Obama pledges greater US engagement in Asia“
• Radio New Zealand, “Free trade deal may be in place in two years, says PM“

Frank Vargo is Vice President, International Economic Affairs, National Association of Manufacturers